Norwest Mortgage Corp. has filed suit against Commonwealth Land Title Co. as part of an effort to recover $40 million in losses from buying fraudulent loans.

The civil suit, filed last week in the Superior Court of California for the County of Los Angeles, alleges that in 1997 several Commonwealth employees took part in a scam that the U.S. Attorney's Office in California called the largest multifamily loan fraud in history.

The suit is the outgrowth of litigation by Norwest charging that 45 defendants, including California appraisers, title companies, and property managers, used phony income documentation, inflated appraisals, and fake borrowers to orchestrate over 300 illegal loans.

Seven people have already been convicted after a government investigation of the scheme, dubbed the "Mortgage Mill." All seven are await sentencing.

According to the Norwest suit, Commonwealth employees "facilitated loan flips on a massive scale," created "false and misleading supplements to preliminary title reports," and disguised the fact that loans did not quality for insurance under the Department of Housing and Urban Development's FHA program.

A representative from Commonwealth's holding company Land America Financial Group, Richmond, Va., said that the company had just received the suit and could not comment until it had time to review it.

Commonwealth, one of the top five title insurers in the country, was bought in February by Lawyers Title Insurance Corp., and the holding company was formed then.

Two of the four employees named in the suit are still working at Commonwealth, according to Land America. The Norwest suit also alleges that 30 unnamed "agents or employees" of Commonwealth were involved.

Last week's suit is the third that Norwest has filed in conjunction with the far-reaching fraud case, which was centered in Southern California.

Defendants recruited phony buyers, the Norwest suits allege, and paid them $1,000 to $5,000 each to sign loan documents stating that they had bought properties for as much as double their market value. Many of these phony buyers were from low-income Hispanic neighborhoods and may not have known what they were signing, say people familiar with the case.

According to Norwest, the inflated-value loans were made by the lead defendant, Allstate Mortgage Co., a lender based in Norwalk, Calif. that is unrelated to Allstate Insurance, Northbrook, Ill.

Norwest bought more than 250 of these loans, with a value of about $65 million, from Allstate. Many of these loans have been since been foreclosed.

Other major financial institutions, including Fleet Mortgage Group, Columbia, S.C., also bought Allstate loans. Fleet also has a civil suit pending against Allstate Mortgage and the company's top executives, said a Fleet spokeswoman.

Norwest's original case is still in discovery, and is expected to go to trial next summer, said Cliff Meyer, the Buchalter, Nemer, Fields & Younger attorney representing Norwest in California.

Defendants netted more than $60 million from their scheme, according to state government officials.

Douglas A. Estrada, Allstate's owner and president, pleaded guilty to 17 charges in March after a federal investigation. He could face up to 85 years in prison and $4 million in fines, according to the Office of the U.S. Attorney General for the Central District of California.

The U.S. Justice Department has recovered about $18 million from various criminal defendants since its investigation earlier this year, Mr. Meyer said.

The Justice Department and HUD did not return phone calls.

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