Ahmed Abdelfattah is originally from Egypt. He's a car salesman in Sunnyvale. In 2005, he bought his first home taking out a second mortgage to cover the down payment.
"My first mortgage was around $540,000 and this paper is for the second mortgage was $135,000," said Abdelfattah.
Two years later, the economy faltered and Abdelfattah was laid off. He could no longer make his house payments, and like 800,000 other Californians, the bank foreclosed on his home.
This should have been the end of the story. Once a house has been sold in foreclosure, California law protects homeowners with loans like Abdelfattah's from being pursued for any other debts on the same property. But Abdelfattah started to get letters from a company he'd never heard of before.
"And they said you owe us this money. I said you know that must be a joke because the house went in foreclosure," said Abdelfattah.
The company was demanding he pay back the second mortgage.
"When I didn't respond to them, they started calling me and calling me. They say you have to pay us. And they got my wife's cell phone. They start calling everybody. They called my neighbor," said Abdelfattah.
Abdelfattah was being hounded by a company in Plano, Texas called Heritage Pacific Financial. It is run by Chris and Ben Ganter, identical twin brothers who starred in their own reality TV show about making money in the real estate boom. As the market collapsed, they started Heritage Pacific Financial. The company says California law permits them to collect on second mortgages where they can prove borrowers committed fraud.
In a company marketing video, CEO Chris Ganter solicits investors:
"Don't listen to your broker. Don't double-down on a stock. It's not going to get there very quickly. You need to look for alternatives to make money. Where there's panic there's profit."
Heritage Pacific bought 40,000 second mortgage notes on foreclosed homes in California, looking for borrowers to sue for fraud.
"I thought, well that's illegal," said Will Kennedy, a consumer law attorney in Santa Clara. "They had sued hundreds and hundreds of people and with identical lawsuits."
The lawsuits accuse everyone of lying about their employment, income, and residence. The company sent out letters offering to go away if borrowers would pay them a portion of the original loan.
"What they're banking on is that most consumers don't know their rights and don't have the financial ability to hire an attorney?and they pressure them to pay. And many people, unfortunately, do pay," said Kennedy.
The Ganters would not talk on camera citing pending litigation, but told California Watch they are helping to prevent mortgage fraud by pursuing people who deceived banks into loaning them money for houses they couldn't afford.
"In 2006, it was a crazy time. Banks were loaning money to anybody with a heartbeat," said Fred Schwinn, an attorney fighting a Heritage Pacific case.
He says borrowers usually had little to do with the mortgage applications. Brokers usually prepared them and many knew banks were not verifying the information.
"Some of the loans that Heritage has do have fraud in them, but I believe many of the loans the fraud was not the borrower's fraud but was instead the broker's fraud. And Heritage is in a sense re-victimizing the same victims of the mortgage crisis," said Schwinn.
Abdelfattah says in his case there wasn't any fraud at all.
"I couldn't sleep at night, being accused of fraud."
He fought back, sending his tax return, affidavits of his employment, and household bills to show that he lived in the home. After two years in court, a judge dismissed his case in March.
"I believe they're just profiteering on people's misery. I think that's their fundamental business model and they get away with it because most people don't have the means to protect themselves," said Kennedy.
Thousands of second mortgages still sit in the Ganters' warehouse, representing millions of dollars of potential claims against Californians who've already lost their homes.
Written and produced by Ken Miguel
To read the complete California Watch investigation, click here.
Story courtesy of our media partners at California Watch (A Project of the Center for Investigative Reporting)