Conviction of 'fools' in mortgage fraud upheld

Two Bay Area men who scammed homeowners by promising to eliminate their mortgage debts for a fee of $1,000 to $3,000 were properly convicted of fraud and sentenced to more than 20 years in prison after insisting on acting as their own lawyers, a federal appeals court ruled Tuesday.

Kurt F. Johnson of Sunnyvale and Dale Heineman of Union City sought to overturn their convictions by arguing that their courtroom behavior showed they were incompetent to represent themselves.

The Ninth U.S. Circuit Court of Appeals in San Francisco said the two men had filed "meaningless and nonsensical documents" during the trial, insisted on wearing prison clothing in front of the jury, and delivered "off-the-wall comments" such as Johnson's statement to jurors that they should "enter a guilty plea for us."

But the court said Johnson and Heineman had been found mentally competent in a pretrial exam. The trial judge all but implored them to accept lawyers, the court said, and the men wound up putting on a defense of sorts, making opening statements and closing arguments and questioning witnesses.

"The record clearly shows that the defendants are fools, but that is not the same as being incompetent," Judge Barry Silverman said in the 3-0 ruling.

Under Supreme Court decisions dating back to 1975, he said, "they had the right to represent themselves and go down in flames if they wished."

The current lawyers for Johnson and Heineman were unavailable for comment.

Prosecutors said that from 2003 to 2005, the two men recruited distressed homeowners from around the nation over the Internet and got them to sign letters to their lenders claiming their home loans were illegal.

When a lender did not reply within 10 days, the men's company recorded a deed with the county declaring the loan to be paid in full and told the homeowner to arrange refinancing, prosecutors said.

Johnson and Heineman pocketed most of the loan proceeds and made more than $3 million, the court said, while leaving their clients in default.

Johnson was sentenced to 25 years and Heineman to 21 years. They were ordered to repay their victims $513,000.

E-mail Bob Egelko at begelko@sfchronicle.com.

This article appeared on page C - 3 of the San Francisco Chronicle