REO Investors Sue for Losses in Alleged Scam
Fortuno, a company that bills itself as the "Costco of real estate," has been sued by investors in Los Angeles Superior Court for allegedly duping them into buying what were essentially worthless REO properties. The unrelated plaintiffs claim they were mislead into investing in an REO property flipping scheme that left them with virtually worthless properties, while Lodi, Calif.-based Fortuno made money off the deals, according to the suit, filed by the Law Offices of Andrew M. Wyatt of Los Angeles. The suit claims Fortuno and four executives — CEO William Yotty, CFO Harry Martin, Senior Vice President of Operations Barbara Thomas and President of Customer Service and Sales Bruce Grogg — misrepresented to plaintiffs that it would sell the investors homes at low-price mark-ups and that it could then help them re-sell the houses to third parties at substantially higher prices. The 24 plaintiffs in the suit bought a combined 41 REO properties in Ohio and Michigan for prices ranging from $25,000 to $31,995 each. REO Insider (REOi) was unsuccessful in reaching Fortuno, and messages to a phone number listed on Grogg's personal website were not immediately returned. In his biography posted on the site, Grogg says that he was instrumental in the growth of the Hooked on Phonics company and his other business ventures include a media company and a college financial services seminar company. Yotty did not return calls seeking comment. Attempts to reach Thomas and Martin were unsuccessful. "Through the use of other independent real estate marketing sources, the Fortuno Enterprise sells dilapidated condemnable homes for $10,000 to $20,000 more than they paid for and were not 'fixer uppers,' " the suit claims. "After relying on these representations, Plaintiffs purchased the homes to find that they were not inhabitable and required extensive repairs." "The Fortuno Enterprise also promised to find a buyer for the properties at a substantial profit to plaintiffs. The so-called buyers were unqualified and often failed to make payments thereby creating a hold-over tenant requiring eviction," the allegations continue. "For other plaintiffs, no purchasers could be found and the houses were unmarketable in their current conditions." The plaintiffs claim they were told Fortuno would "do everything for them" to facilitate the sale, and once the investor took ownership, the company could help the investor either make repairs necessary to sell it as a nondistressed home or ready it as a rental property, at substantial profit to the investor. Instead, the suit claims Fortuno sold the plaintiffs homes in poor, unmarketable condition with high-price mark-ups, while also failing to find qualified buyers. After the purchase, the plaintiffs allegedly unforeseeably encountered significant “fix-up” costs; threats of condemnation by local government officials for safety violations; an inability to sell the houses due to their dilapidated condition and lack of qualified buyers; negative cash-flow; high property taxes; and eviction legal costs when the buyers defaulted on payments. In addition to the allegations against Fortuno, defendants include Pleasanton, Calif.-based National Realty and National REOs, the CEO of both companies, Mike Sarwari, as well as Michael Hironimus, who is named as director of sales for National Realty, and Roger Cram, a real estate agent and investor at the Arizona-based Real Estate Brokers International. They are accused of promoting the Fortuno investments to clients and acted in concert with Fortuno to defraud the suit's plaintiffs, according to the lawsuit. Cram told REOi he was not aware of the suit and declined comment. Sarwari did not immediately return calls seeking comment. When REOi contacted National REOs, the company declined to comment. The company said Hironimus is no longer with the firm. Hironimus did not respond to calls seeking comment. Other defendants include California-based Sognari International and its CEO, Steve Francisco, the Real Estate Club of Los Angeles and its president Phyllis Rockower. They are accused of providing misleading information promoting the Fortuno scheme and receiving either promotional and/or referral fees, according to the lawsuit. "But for Sognari International Inc., Steve Francisco, National Realty, Inc., National REOs, Mike Sarwari, Michael Hironimus, Roger D. Cram, Real Estate Brokers International's negligence, Plaintiffs would not have paid $25,000 to $30,000 for houses worth at most $5,000 to $7,000," the lawsuit claims. Laura Clausen, office manager of the Real Estate Investors Club of Los Angeles, confirmed Rockower's affiliation with the company, but said she did not know about the lawsuit and declined comment. Attempts to reach Sognari International and Francisco were unsuccessful. The suit makes 10 claims against the defendants, ranging from violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act and unjust enrichment to misleading advertising, unfair business practices and negligence. The suit seeks compensatory and punitive damages, plus attorney fees and court costs. In addition, it requests a return of all invested funds and any illegally obtained profits to the plaintiffs, plus interest. Write to Austin Kilgore.