MURRIETA -- In 2004, a house seemed like a "can't lose" purchase to thousands of families in Southwest County. Many a buyer had moved to the area for a big home at a modest price.

Others, such as Temecula resident Vicky Reiss, were already established locally but looked at skyrocketing real estate values and saw a second or third home as an investment that would eventually yield a profit of hundreds of thousands of dollars. Riverside County's median home sale price, which roughly parallels the appreciation of individual homes, rose to $371,000 in December 2004 from $272,000 from a year earlier, according to a research firm that tracks sales statewide.

So when a co-worker told Reiss that she could use equity from rising values to generate cash for still other lucrative investments, it sounded plausible, Reiss recalled in interviews last week. The co-worker's son and several of his business associates would make it all happen, Reiss said she was promised. She agreed to buy a $506,000 house on Falkirk Drive in Murrieta Hot Springs, where rows of neatly stuccoed homes run alongside fairways designed by one of the nation's premier golf-course designers.

"I thought real-estate was a good investment," she said. "It was going up at the time."

But two years later, Reiss faces foreclosure on that house and four others that she bought in the following months, according to a series of notices that lenders sent her in mid-December.

And she has brought a lawsuit against a Murrieta mortgage brokerage and several other companies and individuals. Filed in Riverside County Superior Court Jan. 5, the suit alleges that the defendants acted as a network of scam artists to pocket cash from mortgage lenders and saddle her with about $3 million in mortgage debt. The lawsuit alleges that the brokerage, Stonewood Consulting Inc., obtained at least 12 home loans in Reiss' name by filling out loan applications with false information about her financial status after she signed incomplete forms.

Two other investors who spoke to The Californian gave similar accounts, saying they were pressured to sign loan applications and other documents filled out incompletely or with information they didn't understand.

"They wanted complete and total obedience," Reiss said. "They would say 'Don't call us every day asking why we're doing this and that, because we're going to be making you money.'"

In interviews with The Californian, other Murrieta and Temecula residents gave similar accounts of their involvement in the alleged scam. Like Reiss, many were ethnic Filipinos who said they joined the "investor group" at the urging of family members, other Filipinos or co-workers. They were asked to put little or no money down, they said. The biggest loss for some may be a lifetime of ruined credit, they said.

Defendants in the lawsuit include the brokerage's president, Hendrix Montecastro; his mother, Helen Montecastro; two notaries; and four other Southern California companies that are allegedly connected to Stonewood and victims through a baffling web of wire transfers.

Hendrix Montecastro and Stonewood's attorney, Bill Sauls, didn't respond to numerous calls seeking comment last week. James Duncan, an officer with two companies targeted by the suit, declined to comment. Helen Montecastro couldn't be reached.

The alleged scam worked like this, Temecula attorney Richard Ackerman wrote in the lawsuit:

Reiss and other investors with good credit would qualify for multiple homes -- typically two to five for individuals and as many as 10 for couples -- in and around Murrieta. Property managers affiliated with Stonewood would then rent out the homes for $1,000 to $2,000 a month. Stonewood and related parties promised to cover the remaining portion of the monthly mortgage payments, but Reiss and several other investors said these promises weren't documented in contracts, and so they had no recourse when the brokerage stopped making those payments last fall, the suit alleges.

"When you have a hot real estate market, when you have an underperforming Wall Street, which was the case (in 2004), you have what we call a perfect fraud storm," said Barry Minkow, a former white-collar convict who runs the Fraud Discovery Institute in San Diego and is advising Ackerman in the lawsuit.

Reiss said she didn't expect the dealings to get into seven figures, but that she quickly got in over her head. When the loan documents for the Falkirk house arrived for her signature, she suddenly found herself applying not only for that mortgage, but also for one on a $600,000 house in the Copper Canyon development in western Murrieta. Later in 2005, the suit alleges, she was duped into taking out loans to buy two other houses near the golf course and another in Copper Canyon.

Two other women who got involved said they were promised that they would end up with profits of about $1 million after three years. One, like Reiss, is a nurse at Rancho Springs Medical Center. Another said she is a single mother who lives and works in the Los Angeles area. All three earn between $40,000 and $70,000; all three were born in the Philippines.

Reiss filed the lawsuit anonymously but came forward because she said she believed the defendants already knew her identity. Unlike many of the others, Reiss said she did not involve her own primary residence in the arrangement.

The two others asked that their names not be used because they feared foreclosure on those residences.

A meeting Ackerman held Wednesday night drew nearly a dozen people who said they were involved in the investment arrangement, according to Ackerman, Reiss and two other participants.

The lawsuit claims that the network included as many as 412 investors, a number Ackerman said is based on claims that Montecastro made to the investors. Earl Bonawitz, who manages a Century 21 Wright real-estate office in Temecula, said such a large number could very well have been involved.

In interviews this month, Bonawitz and two other real estate agents said Stonewood repeated an unusual pattern dozens of times: The brokerage would fax out offers $50,000 to $120,000 above the asking prices. In most cases, the agents said, the houses were less than 2 years old, in affluent neighborhoods, and had been on the market for several months, a condition that made many sellers eager to be done with the matter, according to their neighbors.

The lawsuit alleges that Stonewood and related parties arranged loans of $550,000 to $800,000 for each house, paid the sellers close to the asking prices, and pocketed the excess cash. That allegation squared with accounts given by numerous residents of Copper Canyon, including one other real estate agent: All said Stonewood was involved in home sales that closed at $100,000 or so above the initial asking price, though sellers received none of that extra money.

The excess cash was used to cover the mortgage payments and for additional investments, Reiss and other investors said they were told. Several said they were given the same reasoning when encouraged to refinance their homes.

The alleged scheme described in the lawsuit appeared to depend on rising property values, Ackerman and real estate agents said.

But home prices began to flatten in 2005, and ever-larger numbers of homeowners of all kinds have seen rising interest rates and required monthly payments rise, pushing their mortgages into default. Many had expected the strong market to create home equity, allowing them to refinance. Now many are under pressure to sell their way out of the situation, and have flooded the market with homes for sale.

"When you're at the tail end of a market that's been going up, people think it's going to go up forever," Bonawitz said.

Last week, Reiss and others in the network said they were naive to think so. All said they were initially soothed by the friends or family members who recruited them. Despite an apparent lack of contracts to guarantee the monthly mortgage payments, the friends said they had been involved for several months with no problems.

But one Filipino man who initially got involved said he backed out after discussing it with his brother, a real estate attorney.

"Just trust us; just trust us," the man said he was told. "When my brother heard that, he said 'That word -- trust -- is a no-no in the real estate business, because you just don't know which way the market will go.'"

"Filipino people are very trusting," the man continued. "They don't complain. Trust is very important."

Karl, a Murrieta resident who works as a fraud investigator for an insurance company, said he and his wife heard about the arrangement from other nurses at Rancho Springs, where she works, but didn't get involved. The couple asked organizers for more information but weren't satisfied with the vague answers, he said. Karl asked that his last name not be used because his wife still works with several nurses who bought homes through Stonewood Consulting.

"When you're asking basic factual questions about what's supposed to be a legitimate business and they can't answer them … it sends up red flags," Karl said. "You don't have to be an investigator to know that."

Contact staff writer Chris Bagley at (951) 676-4315, Ext. 2615, or cbagley@californian.com.

Related stories:

Investors' legal battles span 5 years (2/11/2007)

Renters latest victims of alleged scam (2/10/2007)

High-ball offers raised flags in 2004; Unusual investment patterns cited in lawsuit reported to authorities (1/10/2007)

Suit alleges massive mortgage scam (1/6/2007)