The idea seems preposterous, but a California company insists it’s true: For $3,000, the Dorean Group says it can wipe your mortgage off the books.
Dorean, of Union City, Calif., says it’s erased roughly 1,000 mortgages across the country by executing a series of maneuvers with deeds and other real estate documents. Dorean says it shows homeowners that they’re victims of an elaborate hoax and have been paying debts that never existed.
Lenders and a federal judge say the business is nothing but the latest mortgage scam, but Dorean co-principal Kurt F. Johnson says he’s onto something huge.
“We’re on the cutting edge of legal theory,” said Johnson, who’s a layman. “It’s in the law books, but no one’s had the courage to bring it out.”
Johnson, who volunteers that he went to prison in the 1990s for securities fraud, is drawing interest from the authorities again.
The FBI raided Dorean’s offices Feb. 1, seizing documents and $178,000 from a company bank account, said Johnson and his business partner, D. Scott Heineman.
The raid came two weeks after U.S. District Judge William Alsup of San Francisco, ruling in a suit between the Dorean duo and some lenders, called the operation “an elaborate Internet scam.” Alsup had a copy of his order sent to the U.S. attorney in San Francisco.
A spokesman said the U.S. attorney is “reviewing the matter.” The FBI had no comment.
U.S. Bank, in a suit pending in U.S. District Court in Sacramento, claims Heineman and Johnson forge property records. The bank said Heineman and Johnson have defrauded lenders and consumers alike, causing homeowners to lose their properties to foreclosure.
“It’s not good for anyone,” said bank attorney Eric Houser. “It’s not good for the borrower — they’re wasting their time, money and efforts on this too-good-to-be-true offer. They’re out $3,000, and they’re going to lose the property.”
What’s more, Alsup said in his ruling that homeowners are told to take out a new loan once the first mortgage is supposedly wiped clean — and to split the proceeds with Johnson, Heineman and a marketing agent.
Dorean remains defiant.
“We believe we’re doing what’s right,” said Johnson, 42. “We’re up against the legal system, we’re up against the banking system, we’re up against the title companies.”
The Dorean sales pitch, spread over the Internet, appeals to suspicion about the government and the financial system. The Web site for Capital Creation Resources, which bills itself as a marketing agent for Dorean, features a lengthy audio clip in which the speaker questions the legitimacy of the Federal Reserve System. In one of its lawsuits, Dorean introduced testimony by Larry Bates, a former Tennessee legislator who has written about economic calamities prophesied in the Bible.
The Better Business Bureau has issued a nationwide alert about Dorean. The BBB in Myrtle Beach, S.C., for example, found property records showing at least 18 homeowners have done business with Dorean, said bureau president John Trudeau.
Rachel Dollar, a Santa Rosa, Calif., lawyer who tracks mortgage fraud, said Dorean has at least 300 customers in 26 states.
Johnson said Dorean has 2,000 customers, about half of whom have had their mortgages successfully vanquished. The rest are works in progress, he said.
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Based on interviews, Dorean’s customers seem loyal. Greg Poppin of Grass Valley lost his property in foreclosure proceedings brought by GreenPoint Mortgage Funding of Novato, said GreenPoint general counsel Irene Gilbert. Court filings say Poppin owed $365,000 on the property.
Poppin, though, remains a staunch Dorean defender.
“It’s an incredible program, and I would recommend it to anybody,” he said. He declined further comment.
Johnson said a handful of customers have lost their homes to foreclosure but that was avoidable.
“Fear and bluff, if I can put it that way, is the best way to get people out of their houses,” he said. “Clients can make mistakes that can damage what I do.”
Johnson said Dorean doesn’t actually eliminate mortgages. Instead, it proves the mortgages were bogus to begin with, he said.
His argument is essentially this: Home buyers sign promissory notes. Once in the lenders’ hands, the notes become assets with a financial value all their own. In effect, the home buyer has given one asset (the promissory note) in exchange for another (the property). It’s an equal trade, and the home buyer owes nothing.
Johnson isn’t a lawyer. He said he went to the “school of hard knocks” and has worked in marketing and estate planning.
He was sentenced to five years and eight months in prison for securities fraud in Santa Clara County, Calif., Superior Court in the early 1990s. He said he’s made others, including his customers, aware of his criminal record.
Johnson said the Santa Clara case involved a promissory note and added, “The bankers are doing exactly the same thing I went to prison for.”
The court file on Johnson’s case wasn’t available.