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The homeowners met at such places as Perkins or McDonald's, desperately handing over hundreds of dollars to Kevin Sistrunk in hopes he could help save their home from foreclosure. He never did. Instead, the more than $6,000 they gave him was deposited into his personal bank account.

The 2011 case that resulted in felony convictions against Sistrunk of North Branch for check forgery and theft is part of a growing number of loan modification scams targeted at homeowners looking to refinance their homes or save them from foreclosure.

In response, Minnesota legislators are moving to ramp up regulations for loan originators like Sistrunk, who have been exempt from nearly all state regulations for the loan modification industry. Legislation that unanimously passed in the Senate and is now awaiting a vote in the House would close that loophole.

Advocates and lawmakers say tightening state law will better protect homeowners by requiring loan originators to give specific warnings or provide copies of paperwork, among other provisions. It also will make it easier for lawyers to pursue charges when fraud occurs.

"What has arisen here is people getting these licenses as a way to avoid complying with the law," said Ron Elwood, supervising attorney for Legal Services Advocacy Project who lobbied for the change. "It's a growing problem and the potential [for damage] is tremendous as soon as folks figure out that, to get a mortgage broker license, they get a 'get out of jail' free card ... It has become an epidemic."

Current state law says financial consultants licensed as loan originators only have to abide by one state rule: Don't charge compensation until after completing what they tell a consumer they'll do. But even that, Elwood says, is loosely defined, giving them ways around it to charge upfront fees. Other provisions such as providing paperwork copies or allowing a homeowner to sue for damages are exempt for loan originators.

"Nobody contemplated that loan modifiers ... would actually use the license as a shield to get away with it," Elwood said.

In cases that aren't as well-documented as that against Sistrunk, the added provisions would make it easier to build a case in civil court and would put more liability on the company that employs the loan originator. In the case of Sistrunk, prosecutors in Washington County had a clear paper trail.

Sistrunk, who worked for Trinity Mortgage, promised to help seven families refinance or modify home loans in 2008 and 2009. They met him at their homes or at fast-food restaurants to drop off checks of about $750 each, according to court documents. In all, they gave Sistrunk $6,375.

No copies of the paperwork they signed were given to them. No homes were refinanced and no loans were modified, causing some of the homes to end up in foreclosure. And every check they wrote was deposited in Sistrunk's personal account even though they were written to Trinity Mortgage. After an investigation by the state Department of Commerce, Sistrunk pleaded guilty and was convicted of check forgery and theft, both felonies.

Not all of the restitution has been paid yet, County Attorney Pete Orput said, which "just compounds the pain for these victims."

In recent years, he said his office have seen more mortgage fraud cases like Sistrunk's, and often "they can hide behind a good faith effort ... a lot of finger-pointing," he said.

Just last month, the state Department of Commerce issued a cease-and-desist order against a Michigan company, Save My Home USA, for defrauding 118 Minnesota homeowners, charging upfront fees totalling nearly $290,000 for loan modification services that only one person received.

For Sen. Benjamin Kruse, R-Brooklyn Park, author of the current bill, better consumer protections in state law could prevent some of these cases by requiring more of companies. "There's a lot of folks out there and they're burning people," said Kruse, whose district has had a rise in foreclosures.

The Minnesota Mortgage Association supported the law change; no one has testified against it, Elwood said.

"We believe it would not only help homeowners after the fact but get rid of this practice," Elwood said. "This is the most vulnerable person at the most vulnerable time."

Kelly Smith • 612-673-4141 Twitter: @kellystrib