Benign Neglect

There's a pot of money available to investigate real estate fraud, but Terence Hallinan isn't using it

Every week, escrow agents, lawyers, brokers, and just plain citizens file thousands of documents with the San Francisco Recorder's Office, mostly legal forms, like deeds of trust, that are required for basic real estate transactions. And for almost two years, the recorder has been collecting a special $2 fee each time many of those documents have been filed.

Proceeds from the special fee are supposed to be used by District Attorney Terence Hallinan's office to fund a real estate fraud unit, paying for attorneys and investigators to root out and prosecute swindlers running real estate rackets or scams. Since the fee went into effect in January 1998, approximately $357,000 has piled up in a special trust fund set up by law for that specific purpose.

But while most other major California counties have long since taken advantage of similar fee programs to pursue real estate fraud cases, Hallinan has not used the bulk of the funds. Instead, the San Francisco DA's Office has yet to set up a special fraud unit, the money is languishing in the trust fund, and San Francisco is lagging far behind other counties in its pursuit of real estate crimes.

Tom Dougherty

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That's not what state lawmakers -- and the San Francisco Board of Supervisors -- envisioned when they approved the special assessment, and Hallinan's failure to tap into the fund has confounded attorneys who say there is probably plenty of real estate fraud to be found in San Francisco.

"The general feeling is that [Hallinan] could have done a lot more," says Norma Garcia, a staff attorney with the Consumers Union of San Francisco and author of a book on real estate fraud in California. "The public must be protected from people who make their living exploiting people."

Hallinan, his staff, and his press spokesman did not respond to repeated requests for an explanation of why his office has failed to set up a fraud unit and use the funds.

The money comes courtesy of state lawmakers. In 1995, realizing that prosecuting real estate fraud is a specialized task that requires diligence and expertise, the state Legislature decided to give district attorneys a potentially powerful weapon. It passed the Hughes Bill, a law allowing each of the state's 58 counties to assess the special $2 filing fee on five common document filings, but only if the money was dedicated to setting up units specifically for real estate fraud prosecution. Gov. Pete Wilson signed the law in October 1995, and it took effect the following January.

Several other California counties -- including Alameda, Contra Costa, and Santa Clara -- rushed to take advantage of the new law, since it afforded a sure stream of money, unaffected by annual local budget fights and virtually invisible to most taxpayers.

But San Francisco was slow to accept the gift. Under the law, the Board of Supervisors had to approve an ordinance establishing the fee and setting up a trust fund for the money. San Francisco's enabling ordinance was passed in October 1997, and took effect in January 1998.

At that time, Hallinan promised to look into the possibility of creating a special unit. "We see these cases involving fraud, particularly against the elderly all the time," Hallinan said during an interview with a television reporter. "We would really like the opportunity to devote a prosecutor to this."

Since then, the money has been rolling in, but Hallinan has put it to little use.

A small portion of the money -- about $22,000 -- has been drawn from the trust fund to pay for salaries and fringe benefits, according to Harold Guetersloh of the city Controller's Office.

The money apparently went to pay part of the salaries for investigator Karen Hibbitt-Walls and Deputy District Attorney Diane Knoles, who work on real estate fraud cases in an "informally designated unit," according to Hibbitt-Walls. "I work other cases too," Hibbitt-Walls says. She and Knoles are in the Special Prosecutions unit, and have been assigned some real estate fraud cases.

That's not the way the program is supposed to work. Far from being "informal," the program is supposed to pay for attorneys and investigators who are wholly assigned to pursue real estate fraud cases. To ensure that the money is being properly used, the law even requires a healthy dose of accountability.

But no one in San Francisco government appears to be paying any attention.

The San Francisco ordinance that set up the special fee -- approved unanimously by all nine current members of the Board of Supervisors -- also created an oversight committee to monitor the program, in compliance with state law.

The committee, comprised of Hallinan, City Attorney Louise Renne, and City Administrator Bill Lee, is supposed to conduct an annual review of the program. Hallinan's office is also supposed to write up an annual report and submit it to the Board of Supervisors so it can "review the effectiveness of the District Attorney in deterring, investigating, and prosecuting real estate fraud crimes," according to the ordinance.

But the committee has never met, and no report has ever been submitted.

"Never heard of the committee," Lee said when asked about it, though he is one of its three members. "We may have never had it in operation in the last couple of years. I may have assigned it to someone else on my staff. I know we're collecting funds."

The supervisors apparently have never asked why Hallinan's office has not produced the legally mandated annual reports, and at least two supervisors say they don't even remember the program, though they voted to set it up.

Supervisor Barbara Kaufman said she had no recollection of the legislation, and Mike Farrah, aide to Supervisor Gavin Newsom, said the supervisor had no knowledge of it either.

Judging by the success real estate fraud units have enjoyed in nearby counties, there is a strong argument to be made that San Francisco would benefit from a special unit.

In Alameda County, which began collecting the money two years before San Francisco, Deputy District Attorney Bill Denny says he currently has almost 40 active fraud cases. His annual report showed that the Alameda unit investigated 32 separate cases in 1998. Alameda has two full-time attorneys, an inspector, and a part-time lieutenant of inspection, all dedicated to real estate fraud. Alameda has nearly $1 million in its real estate fraud trust fund account, and spends about a half-million each year on the program.

Santa Clara County has two attorneys and three investigators working on its real estate fraud unit, says Deputy DA Paul Colin. "Last fiscal year we got over $880,000" to pay for the special unit, Colin says. Has it been successful?

"No question about it," Colin says. "This is an example of when government money is targeted to a specific purpose. It is a very clear way to measure. The moneys for this can only go for criminal real estate fraud investigation."

In contrast, no one at Hallinan's office could cite specific examples of any current real estate fraud investigations. "We have a whole Special Prosecutions unit that deals with fraud of all kinds including real estate fraud, elder abuse, and that kind of thing," said spokesman Clarence Johnson. "I'm reasonably certain we don't have people who only deal with real estate." Johnson said he did not know how many cases of real estate fraud are now under investigation in Hallinan's office.

This year's city budget does contain $138,300 that is supposedly slated for hiring a part-time attorney and investigator for real estate fraud. The money has been budgeted since July, but the positions have not been filled.

Prosecuting real estate fraud is a tricky task, and attorneys say it calls for lawyers and investigators who specialize in learning the wily ways of scam artists.

"The field is fascinating but frustrating," Denny says. "There's tremendous inertia. If you have 17 boxes of paper, it's challenging to make a case from them. And how do you stop a jury from going comatose?"

"What's attractive to a crook about real estate fraud is that [it] is just a big piggy bank," Santa Clara County Deputy DA Colin observes. "And in today's Northern California real estate market it's not hard to turn real estate into cash. But it can be complicated and that's where the crook gets their edge."

The $357,000 San Francisco has collected thus far could go a long way to rooting out fraud, experts say. But only if Hallinan decides to use it.

"If there's money we can use for this purpose the city should take advantage of it," says Matt Davis, a deputy city attorney. "My sense is there is plenty of real estate fraud out there."

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