As Congress debates legislation intended to curb foreclosure rescue fraud, the Federal Trade Commission and attorneys general in several states have filed lawsuits against numerous firms accused of preying on delinquent borrowers and, in some cases, stealing their properties and stripping the equity.
Peggy Twohig, the associate director for the FTC's Division of Financial Practices, testified last week before the U.S. House Subcommittee on Housing and Community Opportunity of the Committee on Financial Services that the agency is steeping up its efforts to fight foreclosure rescue scams. She noted that 11 cases have been initiated by the agency over the past year.
Also testifying was Mortgage Bankers Association Chairman-Elect Robert E. Story Jr., who noted foreclosure rescue scammers do everything possible to raise the anxiety level of delinquent borrowers -- who are then told to stop communicating with their lenders. Story said borrowers are deceived into signing over their titles to the properties, enabling scammers to sell the home and strip the equity.
"MBA is particularly pleased that today, the House is taking up S. 386, the Fraud Enforcement and Recovery Act," Story stated. "This bill includes $245 million for law enforcement to crack down on financial fraud, including foreclosure rescue fraud."
The National Association of Realtors sent a Minnesota real estate broker to testify to the committee that the group recommends passage of H.R. 1231, the Foreclosure Rescue Fraud Act of 2009, as introduced because it would improve practices of foreclosure consultants.
Over at the Senate, Sen. Charles E. Schumer (D-N.Y.) said in an April 20 statement that he was introducing the Fighting Real Estate Fraud Act of 2009. The bill proposes $100 million in grants to hire specialized staff including investigators, forensic accountants and attorneys.
In promotional material for the Making Home Affordable program, Freddie Mac warned delinquent borrowers to beware of foreclosure rescue firms that charge fees but fail to provide solutions. Freddie recommends that troubled borrowers contact their loan servicers and housing counselors certified by the U.S. Department of Housing and Urban Development.
In its own April 21 bulletin, the Office of the Comptroller of the Currency said borrowers can help avoid losing their homes to scam artists by first contacting their servicers. A week earlier, the Office of Thrift Supervision issued a warning borrowers to avoid "foreclosure consultants" and "foreclosure rescue specialists" and advising contact with servicers.
Missouri's Division of Finance issued a similar warning last week as a result of increased consumer complaints. Borrowers should be suspicious of up-front fees, required deed transfers and "any company promising to make their troubles go away."
Christopher Tomasulo and Bonnie Werner settled for $2.8 million each FTC charges that they saddled delinquent borrowers with negatively amortizing, six-month balloon, junior-lien mortgages and failed to provide accurate disclosures. The monetary judgments against both defendants, who were among nine people sued by the FTC in February 2008, will be suspended as long as they didn't lie about their financial conditions.
The two are accused of violating the Home Ownership and Equity Protection Act, the Truth in Lending Act and Regulation Z. In addition, they allegedly violated the FTC Act.
Illinois Attorney General Lisa Madigan filed a lawsuit against Centurion Loss Mitigation Group and owner Carlos A. Gomez, an announcement last month said. The Chicago firm, which claimed to be a counseling agency, allegedly advertised foreclosure rescue services in Spanish-speaking communities. Centurion would collect a $1,500 upfront fee without providing any services.
The state was alerted to the alleged scam by a victim who lost her home after using Centurion.
Madigan also sued Cash VIP and its owner Fernando Rios over similar allegations. Cash VIP is accused of collecting $625 in upfront fees to enroll in a one-year membership for "credit and foreclosure 'orientation' services." It also collected monthly fees of around $79. Although the company promised to provide credit services, they weren't registered with the state to do so.
Madigan, who claims to have filed lawsuits against defendants in 24 mortgage rescue fraud schemes, said both firms are accused of violating the Illinois Mortgage Rescue Fraud Act. She seeks temporary restraining orders preventing more upfront fees from being collected, permanent injunctions barring the defendants from operating foreclosure rescue operations and civil penalties of $50,000. She also seeks $50,000 for each fraudulent act and restitution for victims.
In New Jersey, Attorney General Anne Milgram filed a lawsuit against Property Solutions of N.J. Inc., its President Edward Toledo and Vice President Leon Toledo, a recent press release said. Also named were PSRE Holding Company LLC its Treasurer Raymond Vega.
The defendants, who are among 92 similarly charged defendants since June 2008, are accused of violating the Consumer Fraud Act through lies and deception. They allegedly promised to help prevent foreclosures through leasebacks where they purchased properties at auction or through a short-sale just before foreclosure. But the leaseback terms were "grossly unfavorable," while terms for home repurchases were unreasonable.
A King County superior court judge in Washington last week ordered Joseph Kaiser to pay more than $3.2 million to more than 300 victims, according to a press release from Washington's attorney general's Office. He was also ordered to pay $780,000 for state investigation expenses.
The state claims Kaiser and the other defendants -- including several business entities and his wife Heidi M. Kaiser -- researched public records to find elderly, disabled or low-income borrowers who were delinquent on their mortgages. He promised expert foreclosure rescue services but never prevented any foreclosures. Instead, the scheme stripped any remaining equity from the properties that were eventually lost to foreclosure.
Kaiser, a book author, is banned from any businesses involving properties facing foreclosure. He was the first foreclosure rescue defendant tried by the Washington Attorney General's Consumer Protection Division.
Five foreclosure consultant firms were sued by Indiana Attorney General Greg Zoeller, an April 9 announcement said. The firms allegedly collected fees to help delinquent borrowers stop the foreclosure process in violation of the state's Deceptive Consumer Sales Act, Credit Services Organizations Act and Mortgage Rescue Protection Fraud Act.
Named in the lawsuits are three California firms including You Walk Away LLC of Carlsbad, American Mitigation Group Inc. in Del Mar and Foreclosure Relief Agency LLC from Monarch Beach. The other two firms are Foreclosure Assistance LLC of Scottsdale, Ariz., and Homeownership Preservation Group LLC of Melbourne, Fla.
Maryland Republican delegate Tony McConkey lost a lawsuit filed by Teresa L. Milligan, who alleges McConkey promised to help her avoid foreclosure by transferring title to him, according to published reports. Milligan claims that although she backed out of the rescue contract within the required time, McConkey waited eight months then took title to the property and evicted Milligan -- who was awarded a net amount of $11,000.
Federal Trade Commission, Plaintiff, v. Safe Harbour Foundation of Florida, Inc., a Florida corporation; Silverstone Lending, LLC, a Florida limited liability company; Silverstone Financial LLC, a Florida limited liability company; Keystone Financial, LLC, a Nevada limited liability company; Southeast Advertising, Inc., a Florida corporation; MT25 LLC, a Nevada limited liability company; Peter J. Porcelli, II, individually and as officer, partner, or member of Silverstone Lending, LLC, Silverstone Financial LLC, and Safe Harbour Foundation of Florida, Inc.; Bonnie A. Harris, individually, and as a manager of Safe Harbour Foundation of Florida, Inc.; and Christopher Tomasulo, individually and as a manager of Safe Harbour Foundation of Florida, Inc., Defendants.
Case No. 08 C 1185, FTC File No. 082 3028, Feb. 27, 2008 (U.S. District Court for the Northern District of Illinois, Eastern Division).
Anne Milgram, Attorney General of the State of New Jersey, and David M. Szuchman, Director of the New Jersey Division of Consumer Affairs, Plaintiffs, v. Property Solutions of N.J., LLC; Leon Toledo; Edward Toledo; Raymond Vega; Jane and John Does 1-10, individually and as owners, officers, directors, shareholders, founders, managers, agents, servants, employees, representatives and/or independent contractors of Property Solutions of N.J., Inc. and/or PSRE Holding Company, LLC; and XYZ Corporations 1-10, Defendants.
Docket No. Hud-C-51-09, April 23, 2009 (Superior Court of New Jersey Chancery Division, Hudson County).
State of Washington, Plaintiff, vs. Joseph Kaiser, and Heidi M. Kaiser, husband and wife as members of a marital community with named defendant, G. Hobus Investments, LLC; Bobo Buys Real Estate, LLC; Pre Flop LLC; Unclaimed Funds, Inc., a Washington Corporation, Defendants.
Case No. 07-2-08789-3 (Superior Court of the State of Washington in and for the County of King)