A cottage industry has sprung up involving companies that promise to help delinquent borrowers avoid foreclosure, then collect big upfront fees and perform no services -- leading to a foreclosure anyway. But federal and state law enforcement officials are cracking down with criminal charges, convictions and lawsuits.
In one far-reaching case, the Federal Trade Commission said last month that it charged National Foreclosure Relief Inc. and its operators -- David Ealy, Chele Stone and Hugo Tapia -- with falsely claiming to either stop foreclosure or provide a full refund. The U.S. District Court for the Central District of California has frozen the assets of, and issued a temporary restraining order against, the foreclosure rescue firm.
National Foreclosure allegedly used direct mail ads to promote its "Fresh Start Program," which offered negotiations with lenders for upfront fees ranging from $300 to more than $11,000, the FTC said. But once borrowers paid the money, they never heard from the company again. When they called in and finally reached a representative, they were falsely told that "negotiations are proceeding."
In Las Vegas, Jack Ferm -- who hosted the talk radio show Straight Talk -- has been arrested on two counts of felony theft and related charges in connection with the operation of U.S. Justice Foundation. Nevada Attorney General Catherine Cortez Masto described the company in a March 11 statement as a "mortgage rescue scam."
Ferm allegedly charged up to $2,500 for his services but did little or nothing to help modify clients' loans.
California Attorney General Edmund Brown announced last week the arrests of Mary Alice Yraceburu and Marianne Curtis, who are accused of "coldy and heartlessly" conning more than 160 victims out of thousands of dollars in a foreclosure scam. The state filed 49 felony charges in Orange County Superior Court against the two "scam artists" who operated Foreclosure Freedom.
Brown said the two, who face more than 20 years in prison, took thousands of dollars in fees but failed to deliver loan modification services.
"Victims were assured the company had private lenders and specialists exclusive to their company who are very experienced in the options and methods used to renegotiate home loans, yet neither of the women who operated the company had real estate licenses, legal training, or any experience in the home mortgage market," Brown said.
Brown also recently announced guilty pleas by, and the sentencings of, three people who operated out First Gov of San Bernardino. Sentenced for grand theft were Rosa Conrado and Alejandrina Maldonado. Both received prison sentences. Martin Jesus Flores was given probation based on his limited participation in the scheme.
David Giron and Saul Amador have been charged with theft, money laundering and conspiracy, according to the state. Three other members of the ring -- Juan Jose Perez, Isuara Hernandez and Antonia Gonzalez -- are believed to have fled the country, according to Brown.
Brown said that the ring members promised victims they would renegotiate their mortgages and reduce monthly payments. They demanded an up-front fee, ranging from $1,500 to $5,000, to participate in the loan-modification program.
Victims were told to stop making mortgage payments and communicating with their lenders to avoid interfering with the loan modification process, Brown said. After collecting their fees, ring members pocketed the money and did nothing to help the victims.
In Florida, Attorney General Bill McCollum announced last month that his office filed a lawsuit in Orange County Superior Court and obtained a temporary court order preventing FMA Servicing from charging up-front fees to modify loans. Orlando-based FMA, which does business as Financial Management Advisors, allegedly charges an up-front fee as high as $2,500 to borrowers seeking loan modification services.
"The company subsequently refused to change its business practices even after receiving notification of the Foreclosure Fraud Rescue Prevention Act which took effect on Oct. 1, 2008," McCollum said.
McCollum also field a suit against Lincoln Lending Services LLC, which allegedly targeted Hispanics in a "foreclosure rescue fraud" scheme, a statement Monday said. The Miami company charged up-front fees, a violation of state law.
To get around the law, Lincoln charged customers $2,700 for "forensic analysis" services, then signed a contract for promised modification services. The fee was allegedly created to "circumvent" a new state law that McCollum helped create last year.
McCollum wants a court to prevent Lincoln from doing business while the case is litigated.
New Jersey Attorney General Anne Milgram filed two lawsuits that accused Hope Now Financial Services of Cherry Hill and New Hope Modifications of Bellmawr of running fraudulent loan renegotiation scams, a press release earlier this month said. Both companies allegedly sold loan modification services without delivering to customers as well as created the false impression of being affiliated with Hope Now Alliance.
New Hope Financial allegedly stole $29,000 from 23 customers. New Hope is accused of taking more than $98,000 from 80 victims.
The Federal Reserve Board issued a March 5 statement warning borrowers to avoid foreclosure rescue firms that charge upfront fees or only accept payments by cashier's check or wire transfer. The fed said housing counselors and other resources are available at no- or low-cost to assist homeowners who have fallen behind on their mortgage payments. The U.S. Department of Housing and Urban Development publishes an online list of legitimate certified counselors it endorses.
FTC v. New Hope Property LLC, et al.
Case No. 1:09-cv-01203-JBS-JS, FTC File Nos. 092-3068 (D.N.J.)
FTC v. Hope Now Modifications LLC, et al.
Case No. 1:09-cv-01204-JBS-JS, TFC File No. 092-3079, (D.N.J.)