The Federal Trade Commission, which has been busy in federal court, has decided to forbid loan modification companies from charging up-front fees. And, spurred by consumer complaints, Indiana this year filed 34 actions against mortgage modification services. But, in at least one reported instance, a modification company booted out of Florida set up shop in a neighboring state.
Federal Action
The FTC has enacted a ban on the charging of advance fees by loan modification and mortgage assistance rescue services. The ban goes into effect on Jan. 31. Under the rule, for-profit loan modification services cannot collect fees until consumers have “a written and executed agreement” from their lender or servicer.
The exception will be for lawyers, who typically require retainers before they begin negotiating on a client’s behalf. They will be permitted to collect retainer fees for modification efforts but only if they deposit the money into “client trust accounts” under state bar regulations. Lawyers who charge advance fees also must be licensed by state authorities and be in compliance with state laws and regulations governing professional conduct.
However, according to a written statement issued by The Loan Post Inc., the FTC final rule exempts from the ban fees charged in advance for loan modification products, such as software systems that produce mortgage modification documentation for the Home Affordable Mortgage Program.
The FTC announced in November a series of law enforcement actions as part of the agency’s continuing crackdown on scams that target homeowners facing foreclosure.
At the FTC’s request, federal courts have halted two allegedly bogus mortgage relief operations that posed as government mortgage assistance programs, pending trial. In addition, 17 marketers have been banned from selling mortgage loan modification and foreclosure relief services under court judgments and settlements in several previously filed law enforcement actions. The FTC has charged another mortgage relief operation with contempt for violating 2008 court orders. All of these cases involved alleged false claims that the defendants can obtain dramatically lower mortgage interest rates in exchange for hefty up-front fees.
FTC Complaints
The Federal Trade Commission has filed several cases during the past quarter.
Among the cases is a lawsuit filed in federal court in Maryland against Residential Relief Foundation. The company was charged with falsely claiming that it could obtain significant loan modifications. Claiming quick results and a high success rate, the defendants charged a $1,495 up-front fee and advised people to stop making mortgage payments.
The court recently halted the operation, appointed a receiver and froze the defendants’ assets, pending trial.
The case is Federal Trade Commission v. Residential Relief Foundation, Inc. et al.
In Federal Trade Commission v. U.S. Homeowners Relief Inc., four companies and six individuals touted a “Government Mortgage Relief Program” that would purportedly reduce mortgage payments as part of the “Obama Act.” Claiming a 90 percent or higher success rate, they promised that, in return for a fee of up to $4,250, they could reduce consumers’ monthly mortgage payment and lower their interest rates and principal amounts, or both.
The FTC alleged that once consumers paid the fee, they received nothing. A federal court ordered a halt to the companies’ operations on Sept. 28 and froze the defendants’ assets, pending trial.
FTC Settlements
The FTC also has reached settlements with several defendants who were charged with unlawful practices in four actions filed in 2009. In addition to banning the defendants from the mortgage relief business, the settlement orders permanently prohibit them from misleading consumers about goods and services. That includes falsely claiming to be affiliated with the government, misrepresenting loan or refund terms, and misrepresenting their ability to improve someone’s credit history. The orders also prohibit them from selling or otherwise disclosing customers’ personal information.
In Federal Trade Commission v. National Foreclosure Relief Inc., David Ealy and Hugo Tapia have settled charges that they allegedly falsely claimed their “Fresh Start Program” would stop foreclosure or they would fully refund consumers’ money. The FTC’s complaint alleges that several people who paid the company’s $1,000 advance fees lost their homes to foreclosure and were ignored when they contacted the company for information regarding the status of their hoped for loan modifications.
The settlement orders against Ealy and Tapia also bar them from enforcing any contracts with mortgage relief clients and each impose a $12 million judgment that will be suspended when the defendants surrender all funds in bank accounts frozen by the court. The full amount of the judgments will become due immediately if the defendants are found to have misrepresented their financial condition.
In Federal Trade Commission, The People of the State of California, and the State of Missouri v. US Foreclosure Relief Corp., Attorney Brandon Moreno and his law firm, Cresidis Legal, have settled charges brought by the FTC and the states of California and Missouri that they allegedly falsely claimed they would get loan modifications for consumers or refund their money, that a lawyer would negotiate the terms of consumers’ home loans with lenders, and that they successfully obtained modifications for at least 85 percent of their clients. More than $614,000 obtained from the eight settling defendants in this matter will be returned to 995 consumers.
The settlement order against Moreno and Cresidis Legal bars them from enforcing any contracts with mortgage relief clients and imposes a $1.8 million judgment that is suspended upon Cresidis Legal’s surrender of approximately $131,000 to the court-appointed receiver. The full judgment will become due immediately if the defendants are found to have misrepresented their financial condition.
In FTC v. Federal Housing Modification Department Inc., Michael Trap, Glenn Rosofsky and Bryan Rosenberg have settled FTC charges that they misrepresented themselves as a federal government agency and falsely claimed that, in return for a $3,000 fee they would get lenders to modify consumers’ mortgages. Each of the settlements imposes a $900,000 judgment that will be suspended based on their inability to pay.
In Federal Trade Commission v. Washington Data Resources Inc. et al., a host of defendants, both corporate and individual, settled charges that they misrepresented themselves as a federal government agency and charged a $2,000 up-front fee for services that were not performed
FTC Court Judgment
In Federal Trade Commission v. Dinamica Financiera LLC, summary judgment entered by a California federal court included a $3.7 million judgment against Dinamica Financiera LLC and judgments against various named individuals.
The defendants falsely promised Spanish-speaking consumers who were behind on their mortgage payments that they would stop foreclosure or obtain mortgage loan modifications. They charged an up-front fee equivalent to each consumer’s monthly mortgage payment, but often failed to live up to their promises.
FTC Contempt Action
In Federal Trade Commission v. National Hometeam Solutions et al., the FTC filed a civil contempt action in federal court in Texas against various corporate and individual defendants, alleging that they misled consumers with foreclosure rescue claims in violation of previous court orders.
State Action – Arizona
Arizona state officials on Dec. 6 charged two Phoenix-based mortgage firms with consumer fraud. Principal Reduction Group LLC in Scottsdale and Queen Creek Mortgage LLC in Mesa are alleged to have charged customers up to $6,000 and $5,000, respectively, for mortgage modification services in which they misled distressed mortgage borrowers about the programs and whether federal help was part of the services.
California
California state officials sued two Rancho Cordova companies for $60 million on Oct. 6, accusing them of defrauding hundreds of troubled homeowners who were trying to modify their mortgages. In suit papers, US Loan Auditors and My US Legal Services as well as individual defendants, are accused of using deceptive advertising and marketing techniques to persuade homeowners that the property owners were the victims of predatory lending and that by filing a lawsuit, the homeowners would gain “legal leverage’ to obtain a mortgage loan modification.
A California firm has filed a class action lawsuit against First American Law Center, Inc.
Krause, Kalfayan, Benink & Slavens, LLP said in a written statement that it filed a class action lawsuit on Sept. 29 in San Diego Superior Court on behalf of a nationwide class of consumers against First American Law Center Inc. of Oceanside, Calif., and San Diego attorney Dean G. Chandler.
The lawsuit alleges that the center and its founder, Chandler, charge consumers up-front fees in connection with loan modification services before the loan modification services. The lawsuit states that the practice violates a one-year-old state law enacted in response to increasing consumer complaints about loan modification scams.
Florida
Being raided by the Clay County Sheriff on Sept 2 and ordered to stop didn’t prevent Florida-based Global Equity Solutions from continuing to do business. The company was accused by Florida officials of violating state law by conducting loan modification services through unlicensed personnel. According to The Florida Times-Union, only three weeks after Global was ordered shut down and its assets seized by the Florida Office of Financial Regulation and the sheriff’s office, the company’s owner set up shop across the state line in Kingsland, Ga.
Meanwhile, CBS Atlanta News in October posted on its Web site exclusive video of a search warrant executed by DeKalb police upon Matrix Capital Resources. Fred Lee, said to be the mind behind Matrix Capital, is suspected of promising people the company could lower their mortgages for an up-front cost of $1,500. Lee reportedly told clients that while their loan was being modified, they didn’t have to make payments.
Indiana
Indiana’s Attorney General Greg Zoeller filed a lawsuit on Dec. 7 against California-based foreclosure consultant Hope4Homes Inc., claiming the company has been operating in Indiana illegally and has violated several state consumer protection laws.
The filing is the 34th such lawsuit filed by Hoosier officials this year.
Maryland
A Prince George’s County grand jury on Nov. 30 indicted Howard Shmuckler on several charges of theft, conspiracy to commit theft and for operating a credit business without a license, according to a written statement issued by Prince George’s County State’s Attorney Glenn F. Ivey. The Shmuckler Group is alleged to have collected $1.2 million from almost 300 homeowners for mortgage services which the homeowners did not receive. The company was ordered to halt its business in December 2009.
Minnesota
Minnesota Attorney General Lori Swanson announced on Nov. 29 the filing of two lawsuits accusing two companies of charging homeowners up-front fees for mortgage loan modification. Under state law, companies may not charge homeowners up-front fees before delivering the promised help. Balanced Legal Group of California and Home Protection Coalition of Wyoming were named in the legal action.
Wisconsin
Wisconsin Attorney General J.B. Van Hollen announced on Dec. 7 that 21st Century Legal Services Inc. was ordered to pay $299,663 as part of a default judgment. The California-based company was accused, among other things, of violating state law by marketing purported loan modification services under the guise that it was affiliated with the federal government.
Case Info:
Federal Trade Commission v. Residential Relief Foundation Inc., et al.
FTC File No. 1023234 (U.S. District Court for the District of Maryland).
Federal Trade Commission v. U.S. Homeowners Relief Inc., et al.
Case No. SACV10-01452 JST (PJWx), FTC File No. 1023018 (U.S. District Court, Central District of California, Southern Division).
Federal Trade Commission v. National Foreclosure Relief Inc., et al.
Civil Action No. SA-CV-09-117-DOC, FTC File No. 082 3067, (U.S. District Court for the Central District of California).
Federal Trade Commission, The People of the State of California and the State of Missouri v. US Foreclosure Relief Corp., et al.
Civil Action No. 09-CV-768, FTC File No. 092 3120, (U.S. District Court Central District of California).
FTC v. Federal Housing Modification Department, Inc. et al.
Civil Action No. 09-CV-01753, FTC File No. 092 3124 (U.S. District Court District of Columbia).
Federal Trade Commission v. Washington Data Resources Inc., et al.
Civil Action No. 09-CV-02309, FTC File No. 092 3173 (U.S. District Court Middle District of Florida Tampa Division).
Federal Trade Commission v. Dinamica Financiera LLC, et al.
Civil Action No.: 09-CV-03554, FTC File No. 082 3103 (U.S. District Court Central District of California).
Federal Trade Commission v. National Hometeam Solutions LLC et al.
Civil Action No. 4:08-cv-067, FTC File No. 082-3076 (U.S. District Court for the Eastern District of Texas, Sherman Division).
Arizona, ex rel. Terry Goddard, Attorney General v. Principal Reduction Group LLC, et al.
CV2010-033072, Dec. 6, 2010 (Superior Court of the State of Arizona, Maricopa County).
Arizona, ex rel. Terry Goddard, Attorney General, et al. v. Queen Creek Mortgage LLC.
CV2010-033073, Dec. 6, 2010 (Superior Court of the State of Arizona, Maricopa County).
The People of the State of California v. US Loan Auditors Inc. and My US Loan Services Inc. et al.
Case No. 34-2010-00088873, Oct. 6, 2010 (Superior Court of the State of California, Sacramento).
Yoshiko and Stefan Des Lauriers et al. v. First American Law Center Inc. et al.
Case No. 37-2010-00101253-CU-MC-CTL, filed Sept. 29, 2010 (Superior Court for the State of California, San Diego).
State of Indiana v. Hope4Homes Inc., et al.
Cause No. 82C011012CT584, Dec. 7 (Vanderburgh Circuit Court).
In the Matter of The Shmuckler Group LLC et al., Before the Commissioner of Financial Regulation.
DFR-EU-2009-046, Dec. 10, 2009.
State of Wisconsin v. 21st Century Legal Services Inc. et al.
Case No. 10-CX-32, filed May 27, 2010 (Dane County Circuit Court).
