Criminal and civil actions are being taken by state and federal agencies against foreclosure-rescue firms. Many of the defendants illegally collected up-front fees and made promises about stopping the foreclosure process or obtaining loan modifications that they couldn’t deliver. Other tactics involved debt-elimination schemes or touting services provided by lawyers though no licensed attorneys were actually used. Mortgage fraud was used in at least one case.
The Consumer Financial Protection Bureau, Office of the Special Inspector General for the Troubled Asset Relief Program and Department of the Treasury issued a fraud alert about scams targeted at military borrowers seeking assistance through the Home Affordable Modification Program. Red flags include unofficial use of logos or official program names from government agencies, non-profit organizations or lenders. Other warnings signs include advertising very high success rates and promising guarantees in exchange for an upfront fee.
Howard R. Schmuckler pled guilty on April 10 to collecting fees of between $2,500 and $25,000 per customer by guaranteeing he would secure loan modifications but rarely doing so, according to a statement from SIGTARP, the Justice Department, the FBI and the Federal Deposit Insurance Corp. He boasted a 97 percent success rate and touted his legal credentials even though he was never licensed to practice law in Virginia. Through his company The Schmuckler Group, which had 1,100 clients, the defendant “performed little if any service in return and idly watched their homes fall into foreclosure one-by-one.”
On Monday, Schmuckler was sentenced by U.S. District Judge Leonie M. Brinkema to 90 months in prison, though the sentence will be served concurrently with a 75-month sentence handed down on April 5 for a counterfeit check scheme.
The Federal Trade Commission said that a federal court in Southern California imposed a court order with a $3.89 million judgment against Samuel Paul Bain and three of his companies in a case tied to a fraudulent modification and foreclosure relief scheme operated through U.S. Homeowners Relief. Borrowers were each charged up to $4,250 in return for empty promises to reduce their mortgage payments, interest rates, and sometimes even their loan balances.
The Vietnamese-American community was the target of a California scheme operated by Loan Thituong Nguyen and Lynn Eichenberger, according to a statement from the Orange County District Attorney’s Office. The duo, who were arrested on Feb. 22, convinced delinquent borrowers to come up with half the balances on their loans — money the victims borrowed from friends and relatives — and promised their loans would be refinanced with a lower payment. But the defendants allegedly stole the funds for themselves, $2 million in all.
A 61-month sentence was handed down on May 3 in U.S. District Court for the Western District of Texas to Frederic Alan Gladle for charging delinquent borrowers fees $750 a month in exchange for delaying foreclosure sales through fraudulent bankruptcy filings. An announcement from the Justice Department indicated that the Austin, Texas, resident, who pled guilty in January, secretly added unsuspecting debtors who were already in bankruptcy to borrowers’ titles, then presented the bankruptcy documents to the lenders –delaying the foreclosure process. Then debtors’ signatures were forged to take them off of the title. Gladle collected $1.6 million from more than 1,100 homeowners.
At least 360 victims lost $800,000 through Braunstein & Associates, according to Michigan’s attorney general — which filed criminal charges against owner Rickey White. The state claims that the firm, along with Expert Financial, was falsely presented as loan modification companies with on-staff attorneys and collected illegal up-front modification fees from December 2009 through May 2011. In addition, the state says its investigation found modification proposals were either incomplete or never actually submitted. White was arrested on May 9 and was scheduled to face a magistrate in Southfield’s 46th District Court on May 16.
Michigan announced on May 16 that charges were filed accusing Tashia Winstanley of impersonating a modification company and collecting up-front fees through her company — TLW Mortgage Solutions. She also allegedly accepted monthly mortgage payments but never passed on the payments to the lenders. In all, 60 victims were cheated out of $250,000. Winstanley, who is already serving time in prison for a previous conviction for larceny by conversion, was expected to be arraigned by video from prison on June 4.
New Jersey’s attorney general announced that a $469,500 civil judgment, including $280,000 in civil penalties and $189,500 in restitution, was issued by a Hudson County state superior court in February against Property Solutions of N.J., PSRE Holding Co., Edward Toledo and Raymond Vega. The defendants allegedly violated the Consumer Fraud Act from 2005 through 2007 by defrauding distressed borrowers through a sale-leaseback scheme that usually ended with their evictions. The borrowers wound up losing any surplus funds left over from a sheriff’s sale.
Losses were more than $250,000 in a foreclosure rescue scheme operated by Marien Brown, according to a May 18 statement from the U.S. Attorney’s Office for the Eastern District of Missouri. Ross, who is also known as Marien White, was sentenced to 18 months in prison and ordered to make full restitution after pleading guilty in September 2011. From a residential address in Missouri, Brown allegedly convinced more than 80 distressed borrowers in Hawaii to send money to her companies — 1st Financial Resource LLC and 1st Federal Resource LLC — and she would renegotiate the fees. But she never contacted the lenders.
A 33-month sentence was handed down by U.S. District Senior Judge Robert G. Doumar on June 18 to Philip Villasis, who will also be required to pay over $216,000 in restitution to his victims. A statement from the U.S. Attorney for the Eastern District of Virginia indicated that Villasis convinced delinquent borrowers to sell their homes to co-conspirator Ray D. Gata and other straw buyers then buy the properties back when times were better. Instead, their equity was stripped from fraudulent loans, and the borrowers were ultimately evicted.
The Office of the District Attorney in Orange County, Calif., reported that Michael Phalen was sentenced on June 6 to a year in prison after pleading guilty last month to collecting illegal up-front modifications fees from distressed borrowers across the country. The scheme was operated with co-defendants Jacob John Cunningham, Justin Dennis Koelle, Dominic Adam Nolan and John D. Silva through the fraudulent loan modification businesses CSFA Home Solutions, Mortgage Solution Specialists Inc., CS & Associates, National Mortgage Relief Center, National Mortgage Relief Center, NMRC Allied Home Servicing and Allied Loan Servicing. Losses from the scheme exceed $200,000.
Plea agreements were reached on Feb. 14 with Ziad Nabil Mohammed Al Saffar and Sara Beth Bushore Rosengrant, according to a Justice Department announcement. Through Compliance Audit Solutions Inc. and CAS Group Inc. in San Diego, the trio falsely advertised that they were affiliated with the federal government and induced customers to purchase mortgage audits to identify violations that could be used to force lenders to renegotiate their loans. The audit fees ranged from $995 to $3,500, and the defendants agreed to collectively make $90,000 in restitution payments prior to their April 27 sentencing hearings.
A $25,000 administrative fine, $420 in investigative costs and a cease-and-desist order were all part of final order issued by the State of Nevada Department of Business and Industry, Division of Mortgage Lending, against Nationwide Lending LLC d/b/a Sierra Foreclosure Solutions, Lawrence M. Day and Edmond Mark Hodges on April 3.
A day later, the division ordered Majestic Group LLC, Nevada Sky Premier LLC and Jose Benjamin Rodriguez to stop all advertising, offering and providing of any loan modification services. A “New Start Program” operated by the company claimed to stop foreclosure proceedings or obtain modifications — though borrowers still wound up losing their homes to foreclosure. The scheme targeted the Spanish-speaking community. A $50,000 fine was imposed, and the companies were ordered to make restitution.
Deowraj “Deo” Buddhu and his daughter Sunita D. Buddhu were indicted on June 21 by a federal grand jury over allegations they operated a fraudulent debt elimination scheme, according to the U.S. Attorney for the District of Connecticut. The Buddhus, who are both sitting in jail, allegedly promoted a debt-elimination program to distressed borrowers that utilized a nonexistent government fund. Consumers were told to stop making mortgage payments and given frivolous documentation to provide to their lenders in exchange for “substantial fees paid.” But the borrowers still wound up in foreclosure.
In “numerous instances,” Consumer Advocates Group Experts LLC charged customers $1,995 or more to review mortgage documents and determine whether lenders complied with state and federal mortgage lending laws, the Federal Trade Commission claims in a federal lawsuit. The Glendale, Calif.-based company and related co-defendants allegedly lied to borrowers by claiming “up to 95 percent of mortgages may be legally unenforceable due to defects like lost documents, improper notices, appraisal and/or predatory lending.” Its actions were in violation of the FTC Act and the Mortgage Assistance Relief Services Rule, or the MARS Rule. The FTC alleges that borrowers often didn’t receive a modification and “often found out from their lenders that the defendants either never contacted them, or did contact them but failed to follow up.”
A settlement with Underwater Property Solutions LLC was announced on April 26 by Arizona Attorney General Tom Horne. The Scottsdale, Ariz., firm is accused in a state lawsuit of charging illegal up-front fees masked as legal services retainer fees for loan modification services. Underwater allegedly provided guarantees to clients that co-defendant The Mortgage Law Group LLP would secure loan modifications though it was actually UPS that did nearly all of the substantive work. The state said that the representations were nothing more than speculation and often proved to be false.