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 new phenomenon is far more radical than the previous housing crashes, when the lenders moved very quickly. They could make the move in speed, since there were much fewer troubled loans; nowadays there are so many people with financial troubles that banks and lenders simply can’t keep up. This situation adds up to a continuous instability of the Bay Area housing market, because lenders move slowly and the homeowners endure uncertainty that could last for months.

"It’s bad all the way around, for the neighbor, the community, the city, state, nation. It’s continued indication that there are a lot of people in trouble particularly with their job situations" said Chris George, founder and CEO of San Ramon-based CMG Mortgage.

On the other hand, homeowner don’t have a much of a choice, they must ignore their mortgage. Jeff Dunking, a Bay Area homeowner has been employed only sporadically since past year, and the unemployment checks he’s collected just aren’t enough for covering the mortgage. "I stopped paying payments about 12 months ago" said the homeowner, who was rejected twice for loan modification on his condo. He is aware that many people think living mortgage-free sounds like a great deal, but this isn’t how he feels "It’s a lot of anxiety, a lot of stress," said Jeff Dunkin.

There are instances of profitable home sales, purchased through foreclosure properties and short sale, projected by Wall Street Journal, quoting the real estate website Zillow.com, to show how the home prices compare with the peak period of Bay Area real estate markets from 2005 to 2007.

It is reported that the differences in home prices are visible in San Francisco, San Jose and Berkeley cities, compared to the peak quarter of 2006, during the latest quarter ended May 2010. Overall in the SF Bay Area, excepting Napa and Solano counties, the market-rebound can be observed.

Compared to the peak in home prices during the year 2006, there was a fall in prices overall, on an average to $493,625 during May this year. However, it is said that the prices are picking up from the 28 percent fall noted between the two periods.

In a typical home purchase reported from San Jose housing market – a house of four bedrooms; with a swimming pool and two-car garage  – was purchased in April this year, in the middle of a sliding down home prices observed in San Jose home market by 26 percent. The buyer bought the property through short sale, paying $375,000 – a 44% down price when compared to the 2007 peak price of $675,000 for such a property.

The owner is content that he made a worthwhile investment while commenting upon his purchase.

The change in price trend is not even – while it shows huge differences between the peak period and now – as per the above instance, the prices are holding up firm with not much of difference in high-end markets.

To prove this point, another short sale example is quoted from Berkeley Hills Tilden Regional Park area. A two-bedroom house was purchased in March at $650,000 – less by just 13% from the July 2005 peak period price of $750,000, in 5 years.

But the point proved beyond doubt is a short sale can offer you attractive discounts in home buying.

The state Employment Development Department informs that the unemployment rate slightly slid down from a revised 11.4 percent in April – the peak was in January at 12.1 percent and was recorded as 10.9 percent in May 2009.

In the metro region of Santa Clara and San Benito counties, there were visible gains in job opportunities in computers and electronics manufacturing, where the job growth was a good 300 jobs compared to April.

The good news is from San Mateo County with 8.8 percent unemployment – it’s best in a year and third lowest among all the 58 counties of California State. Rural San Benito County’s unemployment rate was 17.6 percent, nevertheless.

Janice Shriver, EDD Labor Specialist says that the trend is headed in the right direction and just the mere fact we are showing gains over the month, instead of losses, is good.

Stephen Levy of the Center for Continuing Study of the California Economy – one of the Economists commented on the dip in the local unemployment rate as another painfully slow step on the way to recovery. He was optimistic saying it is a month of improvement, although not as much as we want, but it is a month of improvement anyway.

Overall in the California State there was slight dip in unemployment rate – from 12.6 percent in April to 12.4 percent in May. But Michel Bernick, a labor lawyer and former EDD director believes that a net job gain of 28,300 is illusory, because it is based on temporary census hiring.

In the two-county region of Santa Clara and San Benito employers reported 853,600 jobs; in the past 12 months this region has lost 12,100 jobs – construction topping the list by 4,400 fewer jobs. While the monthly gain of jobs in the region is reported as 4,200 jobs from April to May, some of them were in hiring temporary census workers.

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.”

The foreclosure activity for California as a whole is showing a decline by 41 percent compared to April 2009. The total default notices issued to borrowers, upon their falling behind mortgage payments by few months, is reported to be on 27,832 properties – down by 16 percent from the previous month of March 2010.

Santa Clara and San Manteo counties follow suit in filing lesser new foreclosures during April. Santa Clara County reported a total of 923 default notices – a drop of 32 percent from April 2009 and coming down by 15 percent compared to March.

Similarly in San Mateo County, a total of 327 default notices were served on borrowers missing payments, which is 25 percent less than the figure of April 2009 and also a decrease by 18 percent from the March 2010 figure.

What the market analysts and Economists have to say about this? Well – Company founder of Foreclosure Radar, Sean O’Toole is optimistic that “we have passed the peak”. Experts in housing markets give credit for the reported decline to a variety of factors like – rising home prices in some neighborhoods and improvements in attitudes of lenders towards short sale and loan modification efforts.

Chief Economist for Comerica Bank, Dana Johnson, agrees that the biggest spikes in foreclosures have come and gone. Commenting upon California housing market reports, he said in recent months we are hearing same news of stronger market and falling foreclosures; California is a great illustration of the price dynamic that people will make every effort to hold on, hoping the asset is gaining in value.

Despite the good signs, Foreclosure Radar reports that 1,600 properties in San Mateo County and about 4,800 properties in Santa Clara County are waiting in foreclosure pipeline, since their owners have received default notices, if not notice of public auction.

In the 9 county SF Bay Area, during March it is reported that 32 percent of total home resales were made from foreclosure properties. Notably more than 24 percent of residential properties sold in Bay Area were bought through FHA loans. This figure is up by 2.3 percent when compared to March 2008.

Overall in the nation there is a visible upsurge in sales of government-owned properties such as HUD, Fannie Mae, and VA owned homes due to the fact that more number of home owners after buying their homes from government-backed mortgages defaulted. Again, more home buyers use federal loans to buy their homes.

In March this year, in the 9 county SF Bay Area about 7,000 homes were sold in all categories. This is 40 percent increase compared to February and increase by more than 10 percent from a year earlier.

This shows San Francisco Foreclosures attract buyers although the numbers of properties sold from the lower and middle-priced sector are on a decline and high-end properties are on the increase. Of the total home sales 17.5 percent were purchased by absentee-buyers, meaning they are not for personal use, but purchased as investment for rental income.

In comparison, the absentee buyer percentage was 19.4 percent in February; 18.3 percent same period last year; and the present percentage still above the average of 13 percent recorded over the last 10 years’ period.

Buyers making cash payment indicates that they don’t rely on financial assistance by loans and make these investments in VA foreclosures for profit motive, to snap up cheap properties when they are available. This is in spite of VA Department’s policy to give priority for owner-occupant buyers in bidding.

Another bit of encouraging news from Bay Area home sales is properties priced $500,000 and above –  in the high-end homes bracket – accounted for 35 percent of the total home sales during March.

The total home sales in March, in all the counties of the Bay Area, were recorded as 6,992 properties closing escrows. This shows an increase by 40.2 percent from the figure of February and again up by 10.5 percent from March 2009, when only 6,325 homes were sold. It is noteworthy that the Bay Area home sales have continued to record increase during February and March every year from 1988.

Two favorable comparisons can still be made. March home sales were the first to show a year-over-year increase in sales, since December 2009. Secondly for the month of March, the total sales made were the highest since 8,317 homes sold in March 2007, although it fell short by 22.4 percent of the average number of homes sold in March – 9,016 properties – since 1988.

As regards home sales made out of foreclosure properties, in the month of March the participation is recorded as 31.7 percent of total home sales, from properties lying under pre-foreclosure, scheduled foreclosure auction and repossession by lenders after foreclosure sale public auction.  On comparison, foreclosure property sales peaked at 52 percent of total sales in February 2009, 50.2 percent in March 2009 and this March the figure is down from 36.3 percent recorded in February 2010.

Another area-specific fluctuation observed in SF Bay Area is the jumbo loan market – with the specified limit of $417,000 for high-end home purchases – is lying low now. Before the credit crunch hit the market in August 2007, nearly 60 percent of Bay Area home loans were falling under this segment, compared to last month’s jumbo loans made up a mere 29.5 percent.

The reason for the above decline is lack of interest by borrowers in Adjustable-Rate-Mortgages (ARMs). Prior to the credit crunch in 2000, the average home loans through ARMs was 50 percent, declined to 13.7 percent of all home purchase loans in September 2008 and dwindled to mere 8.7 percent in March 2010.

Here is an example in San Jose – came to light recently. A former nurse, after losing her job and paying the mortgage promptly from her savings, wanted to exercise Short Sale option for her condo in a beautiful location of San Jose. During March 2009, she listed her property for $249,000 – less than the price she paid four years back, namely $435,000 – and less than what she owed to the mortgage lender.

To explain the Short Sale procedure – it is a complex one. If the lending bank holds the first lien, it would be fairly easy in the sense that you get the approval in months. But this is not the case mostly. The mortgage is owned by investors through securities and the lender is only servicing the loan or collecting the monthly payments towards the loan. The stipulation is all the mortgage lien holders should approve the Short Sale.

Generally the lenders are reluctant to come forward to grant their approval to Short Sale application – the obvious reason being losing money out of the “forgiven” amount in a Short Sale. Often times there are many excuses – like in the San Jose case above – the concerned document file was “missing” more than once – there was switching of computer systems in another.

The foreclosure process has already begun in the meantime, through a Trustee Sale public auction and it was postponed for four times, since the borrower was “waiting” for the lender’s approval.  The mental agony of the individual, opting for the Short Sale route, needs no elaboration. Finally after a delay of 11 months, one buyer family clung on their offer considering the location of the said condo and bought it four weeks ago.

Despite all these, statistics reveal 23 percent of home purchases in Santa Clara County and 12 percent of total home purchases in San Manteo County in March were Short Sales – up by comparison to last year.

According to latest statistics on foreclosure activity in California State, for the first 3 months of 2010, the number of default notices issued to delinquent home owners dropped by 4 percent to 81,054. In the SF Bay Area in particular, the number of mortgage defaults dropped by 35 percent in the first 3 months, compared to the quarter ended December 2009, to 13,517 default notices.

As regards home sales there is also good news. In the Bay Area, the total number of residential properties sold jumped to 6,992 in March, compared to 6,325 units sold in March 2009, showing an increase of 10.5 percent.

Similarly the median price of existing homes, condos and newly-built houses in the SF Bay Area soared to $380,000 in March this year. Compared to the median price that was prevailing in March last year – $290,000 – a good 31 percent increase in the home prices is recorded. Even compared to February median price of $354,000, this is an increase of 7.3 percent.

Local realtors are of the view that the rise in median price is attributed to increase in sales of high-cost residential properties partly and also the decline in sale of foreclosure properties reported in the market statistics.

Another notable trend, according to market analysts is, the foreclosure pace in respect of lower-cost markets is slowing down, unlike the immediate months following the foreclosure crisis. Instead, it is on the increase on the higher-cost markets, escaping the after-math of foreclosure problem earlier.

Bank repossessed properties after foreclosure sale public auction reached 8,203 properties, showing a drop by 13.48 percent compared to the last quarter of 2009. When compared to the trend in the country during the first three months, this is encouraging as well.

But as a freak occurrence, the number of actual foreclosures rose to 193 properties in San Francisco County, an increase by 91 percent in the first quarter. However considering the number of properties available for sale, this is quite small in number.