The suit states that Aurora reaped more than $100 million in what the court documents call "illicit profits" from the alleged scheme.

The suit was filed in the U.S. District Court fro the Northern District of California in San Jose, and it represents the homeowners who paid the Littletoon, Colorado-based company money for the company to help them in "curing’ delinquent home mortgages.

The fraud scheme was the following: Aurora promised the troubled homeowners the foreclosure process’ halt if they engage themselves in three to six large monthly payments. In addition, the company will work with the homeowners to restructure, modify of resell the loan, allowing homeowners a chance to keep their homes.

"We intend to prove that Aurora’s workout plan was nothing more than a cynical ploy to take advantage of homeowners desperate to hold on to their homes," said Steve Berman, managing partner of Seattle-based Hagens Berman Sobol Shapiro LLP and the attorney representing the proposed class.

The suit states that after a give period of months Aurora foreclosed on the homes without giving the borrowers any notice that their requests for loan modifications were denied and they not let the borrowers to access any method for ending their loan deficiency, despite the provisions of the workout agreements. This provided four methods of ending loan deficiency: bringing the loan current, refinancing with another lender, modification of the terms of the loan at the discretion of Aurora and another workout option at the company’s discretion.

"The pas three years have been tough enough on homeowners without them having to worry about being preyed upon by unscrupulous loan services," said Berman.

The suit papers outline two stories of married couples who tried to stop foreclosure by contacting Aurora for a loan modification. The first couple refinanced their home with a mortgage company in early 2006. The couple suffered economic setbacks in 2008: loss of work and poorly performing investment. They contacted Aurora in 2009 and signed one of the so-called workout agreements.

The couple paid a total of $33,500 during the next several months and in return Aurora promised them to modify the terms of the loan. But this never happened. In May 2010 the couple received a Notice of Vacate indicating their home has been sold in foreclosure. They have never received a notice of  foreclosure sale or something about the foreclosure process to be completed. In addition, Aurora did not notify the family that it had been denied for a loan modification according to the complaint.

"We’ve heard of cases like this a lot over the last few year,"Berman said. "We’d like to bring struggling homeowners some sense of belief."

Berma believes the workout agreements were fraudulent in nature and he seeks to have the agreements declared void. In addition the law firm seeks an injunction against Aurora in order to forbid the company to continuously offer this deceptive workout agreements.

This necessitated home buyers, aspiring for a San Francisco property, to inevitably go in for the so-called Jumbo loans – with conforming limits beyond $417,000, so as to buy a home since the median price of a San Francisco area home, ruled during the years 2002 to 2007 in the range of $675,000 each.

Prior to the credit-crunch, due to foreclosure tornado hitting this region somewhere in August 2007, the norm for purchasing homes from SF Bay Area was to get jumbo loans and the percentage of these bigger size loans was 60% out of all sales made. Now that lenders are not inclined to take more risk and are hesitant to entertain loans from this category of applicants, the percentage recorded for June sales has diminished to 33.3% of all home sales.

However, purchase of properties from low end neighborhoods – in the bottom of the price ladder at $300,000 – showed an increase last month, by accounting 34.2 percent of all SF Bay Area home sales. Same period last year, there were still large numbers of foreclosure properties from this price range, and so the share of purchases from this category was recorded as 39.5%.

In the medium price range of $500,000 and above, home sales accounted for 39.2% in June. Sales of single-family homes priced above $800,000 recorded 17.5 percent of the total home sales in June.

Experts view this trend in a different way – had the origination of jumbo loans been higher as in the past, the sales of high-end properties in SF Bay Area would have been much more in June. We will see what happens in the coming months of 2010.

The latest foreclosure activity report, pertaining to the first half year of 2010, released by Realtytrac says there will be near about 1 million foreclosures hitting the U.S. housing markets this year. This is based on the anticipation that the ARM mortgages of 2006 will be resetting towards the year end, paving way for more number of delinquencies.

California continues to be in the top 10 list of States worst-hit by foreclosure epidemic –  in the 4^th rank, consistently for the last few months. 2.54 percent of California homes went into foreclosure during the half year – numbering 340,740 properties. This is the highest total of all the States of U.S. country. However, in comparison, the foreclosure filings have dropped by 15 percent from that of the second half year of 2009, and by 13 percent from the first half of last year.

As far as SF Bay Area is concerned, new foreclosure filings are down by 41 percent in the first six months of this year, compared to the same period last year. This trend is also visible in Alameda County, where the number is down by 51 percent and in Contra Costa County by 44 percent.

Market analysts differ in their opinion – while some of them say it indicates that the SF Bay Area housing market is on the path of recovery, some others are not ready to accept this, since lending banks are holding back another bundle of foreclosed properties, with a view to stop the home prices falling again.

Another point of interest to support this theory is – there is growing number of re-defaults by home owners, even after loan modification and adjustment of repayment installments.

On the other hand, lending banks are adopting a strategy of wait and see – instead of rushing to expensive foreclosure route – they are giving more time for the home owners with the hope of retrieving their capital, by extending trial modifications to the distressed borrower-home owners.

Although the exact contents of the proposed legislation are yet to be revealed officially, discussion has already started among Industry circles, about the repercussions of the law, if promulgated in California.

What are the repercussions? Going back in the history, during times of Great Depression, the State Legislature enforced laws so to allow homeowners, who have lost their homes due to mortgage foreclosure, from being pursued by lenders for the “deficiency” that is difference between their former home’s market value and the dues on mortgage.

These protective laws were made at a time, when people were not using refinancing that frequently as now. So they did not include mortgage loans that were refinanced by the home owners – even for obtaining a lower interest rate – into this protection.

Today’s position is once a foreclosure is complete, lenders may use the way of obtaining a deficiency judgment through the Court and pursue the borrowers for the balance amount, even after their forfeiting their home. Although it is a cumbersome procedure to obtain a deficiency judgment, some lending banks use it as leverage for negotiation for loan modifications of the distressed home owners.

There is a growing tendency of people just walking away from their mortgaged homes, without caring for foreclosure and they don’t even care about the damage to their credit record. They can save their future earnings.  Also there is another tendency of so-called strategic defaults – people who can afford but refrain from paying mortgage installments. The proposed legislation will save them all, from the lending bank’s persuasion for deficiency.

The California Association of Realtors has sponsored the proposed legislation and the State Bankers’  groups are trying to alter the bill, saying the existing mortgages should not be altered, and if need be, this can be extended to future mortgages.

More info will be available once the bill becomes a law.

On the official statistics part, the U.S. Treasury Department and the Department of Housing and Urban Development (HUD) have stated in their official release of data for April 2010 that under the Home Affordable Modification Program (HAMP), the permanent loan modifications have reached almost 300,000 troubled home owners – an increase of 68,000 or nearly 13 percent over the month of March.

Now that the mortgage interest rates have touched an all-time low – 4.72 percent on an average for a 30 year-fixed mortgage – market watchers expected that there will be upsurge in home loan applications. A steady campaign by the Federal Reserve to reduce borrowing costs for consumers has done this pushing down of mortgage rates, to extraordinary low levels last year. Actually the rates were expected to rise after the government program ended this spring, but have fallen instead in the last two months.

Has the down-level mortgage rates pushed up housing market activity? The national index of the Mortgage Bankers Association says those applying for a mortgage towards buying home fell to the lowest levels in 13 years, as per records last week and down by 35 percent from the previous month.

But local reports in the Bay Area are different. Cindy Romero-Lowary, a loan officer with the Pleasanton office of Cherry Creek Mortgage says that she haven’t seen a drop off in purchase home loans; Low prices for homes are a bigger factor for buying than today’s low-interest rates; People are going out and purchasing homes regardless of what the interest rate is.

Karen Mayfield, Bay Area regional manager for mortgage banking at Bank of the West, San Francisco, says "People who did not have enough equity to qualify in the fall of 2009 may now qualify. Prices have stabilized and in some cases increased.”

Buying or selling a property through foreclosure is different from the traditional one. The intricacies, procedures, hassles and headaches are more, although there is unquestionable cost savings. How far these elements might play in the minds of people and what is the impact of them in San Francisco housing market for the next few years?

This is the question tried to be answered through the above survey, where the two organizations combined along with Harris Interactive, to poll a sample group of US adult homeowners – most of them currently have a mortgage on their property – together with a sample pool of renters.

The survey results showed “a notable decrease in consumer willingness to buy foreclosed properties compared to one year ago”. Also 45 percent of people polled that they are “at least somewhat likely to consider purchasing a foreclosed home in the future”. This percentage was 55 during the year 2009.

What made the decline of this foreclosure mania? The obvious reasons are – eviction of the current tenant from the foreclosed property is on the buyer; (In San Francisco the renter protection laws are very strong and so in case the occupant is a renter, the process of eviction will be sticky of course); pre-purchase inspection may not be possible; outgoing owners would not have maintained it properly for reasons known.

The reasons continue as –  repairs and rehabs of property will fall on the buyer and there may not be any guarantees; resale ability of those properties might be hampered for the above reasons or a glut of such foreclosures in the neighbourhood; and lastly the lending, buying and selling of these properties are difficult, different and cumbersome.

Interestingly, more than 50 percent of renters surveyed said “they would be interested in a foreclosure property”.

The San Francisco Bay area housing market shows a double-digit price increase along with smaller metros in the Northeast and price gains in the Midwest housing markets.

During the first quarter of this year, NAR reports that 91 out of 152 metropolitan statistical areas reviewed, recorded higher median home prices for existing single family homes, compared to the first quarter of 2009, which includes 29 metros with double digit increase; 3 metros no change; and 58 metros showed price declines.

In the last quarter of 2009, 67 metro areas recorded gains in median prices while 123 were down, whereas just 30 Metropolitan Statistical Areas showed annual price increase in the third quarter ending September 2009.

Regarding home sales volumes, NAR report says that increased home sales is recorded in 44 States of US including District of Columbia; double-digit increase in 31 States, no change in 2 States and down in 2 States.

The median home sale price in respect of single-family homes was almost steady with no significant change nationally – it stood at $166,100 during the first quarter of this year – from $167,300 recorded in the first quarter of 2009. Foreclosure homes in distress sale, where a typical discount of 15 percent was available compared to traditional homes in the market, accounted for 36 percent on an average during the first quarter.

Vicki Cox Golder, President of NAR commented that there has been a change in the market psychology; buyer confidence is back; home buyers have long-term views; the typical buyer plans to stay in their home for 10 years; the flipping mentality has taken a back-seat; most people see housing for what it is –  meaning shelter that provides social benefits; and is also a good long-term investment.

If indeed the mortgagor is likely to be able to maintain their responsibilities under the loan agreement, the enshrined equity of redemption may well be called upon to reflect some mutuality as lenders insist on the original debt obligation being satisfied. Give residence in the South Bay is tantamount to employment in the surrounding Silicon Valley and its buoyant local economy, but for unemployment, the likelihood of a mortgagor in a higher wage bracket obtaining classifications of hardship is slim.

If however circumstances have spiraled out of control, given the average high-tech wage is bordering on $150 000 per annum, the IRS along with any lien holder to speak of, will be likely to insist on the sum due as well. This is simply a reflection of commercial sense.

While quick to interpret any financial advantage as taxable income, the IRS will certainly find the shortfall written off by the lender in a short sale to be a net financial advantage and therefore one attracting a tax liability. In pursuing a scheme of divisible solutions to address an insurmountable dilemma, Congress has legislated to relieve distressed property of this burden in Congress Bill H.R. 3648: Mortgage Forgiveness Debt Relief Act of 2007. Of course, this measure cannot be entertained indefinitely and along with S.B. 1055 forgiving the equivalent California State tax liability, has been implemented prospectively till the end of 2012.

Quizzically, creditors are obviously willing to accede to accepting a part debt in satisfaction of the whole however, unless it is legislated otherwise with statute such as the above, the liability remains enforceable unless some fresh consideration or detriment moves from the mortgagor. In times like the present, a nominal amount may be all that the parties agree to in order to receive the approval of the law. With legislated debt modification, both public and private debts will be free of this requirement.

Of course, with the season of public infrastructural spending being well underway, it does the government no good at all to reduce its revenue streams in such a fashion. With the containment of critical markets its foremost concern, large tax liabilities being forgone by the public purse pale in significance to the alternative; a property market that spirals downward throughout all segments. This will most likely be the case if high-end properties exert pressure on the market from their lofty position. Additionally, high income owners such as these are unable to participate in the property market any further due to impecuniosities.

If such capital allocation is able to endure, these dejected mortgagors of the South Bay will be able to finalize their affairs and re-enter the market to support it by taking advantage of the upward swing when the market turns. Had this not been the case, a considerable amount of capital would leave the property market in the South Bay and the local property market would stagnate for an extended period of time.

This of course translates to a population with a reasonably large disposable income in order to buffer the local economy, and an equally voracious appetite for a large mortgage.

These investments invariably have enormous serviceability cost, and with increased unemployment across the board, along with savings being eroded by the stock market collapse, many high income earners in the South Bay area are unable to maintain the lifestyle they enjoyed prior to the financial crisis.

Recent statistics reveal that mortgages greater than $1m are defaulting at a far greater rate than smaller borrowers and 12% of them are 90 days in arrears. Short sales as it turns out are the device these borrowers are using to rid themselves of what is now a balloon payment of gigantic proportions. It appears that the reduction in interest payments over the past 12 months is simply not enough to offset the increase in unemployment and asset price reduction.

When the high income earners take a loss, they will invariably be prepared to realize it all at once; it only hurts for a little while. For this reason, the astute investor with unfettered capital will arguably, be able to acquire a prestige property for less than its construction cost. In this event, the prudent buyer will capitalize on decisive action.

Not only has the top end of the mortgage market been contemplatively excluded from Federal stimulus packages that sought to protect the rest of the mortgage market, reduce interest rates, and support demand in the low end of the market through a first home buyers grant, but there is simply no executive motivation to offer financial assistance to this segment of the demographic. Market forces therefore have seen interest repayments on large mortgages actually increase to a 1% premium on the rest of the market.

Although it pays to bear in mind that in favorable times, prestige properties such as these dwarf the gains made by other sections of the market. Owners of these mansions therefore, invariably accept this boon in return for a lower rate of return from the rental market. While the capital gain can well exceed 25% p.a. in a bull property market, rental returns will commensurately remain limited to 1-2% p.a. In times such as the present however, there is little recourse to be found in any type of return on these large property investments, for there are simply none to be found. In fact, the tendency toward drastic price movements is typical of expensive real estate in the San Jose area.

Given these intriguing turn of events within the South Bay property market, it is hardly surprising that short sales in the area have tripled in the past six months. A resort to other solutions routinely applied to distress property would quite conceivably result in far greater losses than the euphemistic ‘haircut’ that exuded by the short sale.