Attorneys general in several states, along with federal regulators, have commenced litigation to stop dozens of foreclosure firms from collecting illegal fees and deceiving distressed borrowers about the likely outcome from promised loan modification services. Judgments were obtained against several of the defendants.
Among the defendants in three lawsuits announced by the Federal Trade Commission on Oct. 9 was Prime Legal Plans/Reaching U Network, which is accused of marketing itself since at least 2010 as a private charity that provides forensic audits to find noncompliance by mortgage lenders and help keep borrowers in their homes. But the up-front fees and $750 in monthly fees charged by Prime Legal resulted in little or nothing being done on behalf of borrowers. The FTC alleges violations of the Telemarketing Sales Rule, the FTC Act and the Mortgage Assistance Relief Services, or MARS, rule. A federal judge granted the FTC’s request for a temporary restraining order and ordered a freeze of Prime Legal’s assets and the appointment of a receiver. A preliminary injunction hearing was scheduled for Oct. 11.
The second was filed against American Mortgage Consulting Group, which the FTC alleges has, since early last year, deceived customers about its affiliation with the U.S. government, pretended to be attorneys and promised to significantly lower monthly mortgage payments in exchange for an up-front fee of as much as $4,495. Mark Nagy Atalla, which controls American Mortgage Consulting and two other related firms, allegedly violated “nearly every provision” of the MARS rule. But despite promises of virtually guaranteed loan modifications, the defendants did little or nothing for customers and failed to provide promised refunds. A federal judge granted a request for a temporary restraining order and preliminary injunction, froze the defendants’ assets and appointed a receiver.
The third company that was sued, Expense Management America, allegedly charged as much as $10,000 in up-front fees that was supposed to go towards paying off debts — though that didn’t happen. As was the case with one of the other defendants, the FTC claims that the company called people who were registered on the no-call list in violation of the Telemarketing Sales Rule, and advised borrowers to cease contact with lenders. Violations of the FTC act and the MARS rule are also alleged.
In August, the FTC announced that it mailed more than 13,000 refund checks for more than $723,000 to former clients of First Universal Lending. Victims were allegedly deceived by First Universal that it would negotiate modifications with their lenders. The Palm Beach Gardens, Fla.-based company settled in June 2011 with the FTC for $18.8 million.
Another government agency, the Consumer Financial Protection Bureau, filed a federal lawsuit in California against Chance Edward Gordon, his law firm and related companies for allegedly collecting fees of between $2,500 and $4,500 but failing to deliver promised loan modification services. On July 18, a temporary restraining order was issued against the Los Angeles-based company and a receiver was appointed.
An Aug. 15 news release from Arizona’s attorney general indicated that a lawsuit was filed against Making All Homes Affordable LLC and owner Albert Figueroa. The defendants allegedly violated the Consumer Fraud Act when marketing exclusively in Spanish by collecting up-front fees of nearly $1,950 each and promising loan modifications — though all that was done was to provide borrowers with forms available for free for the Home Affordable Modification Program. Fake consumer testimonials were plastered on the company’s website, and clients were charged 9.5 percent in fake sales taxes.
The state of Arizona also said it sued La Paz Source LLC, Maria Beltran and her husband Francisco Ramos over similar allegations. La Paz was dissolved in November 2011, though Beltran and Ramos started La Placita to continue the scheme, which also targeted Spanish speaking customers.
A $5 million payment for civil penalties will resolve a June 2011 lawsuit filed by the U.S. Department of Justice for the Central District of California against Terrill Meisinger, according to a July 31 order announced by the government. Meisinger, who is prohibited from participating in the home finance or real estate industries for a decade, allegedly paid distressed borrowers between $500 to $1,000 to transfer title to their homes and move out with the expectation of receiving as much as $10,000 when their houses eventually sold. Once title was transferred, Meisinger allegedly used fraudulent bankruptcy filings to stall foreclosures and rented the properties out. He earned more than $1.5 million in illicit rental income from more than a hundred properties by filing 300 bogus bankruptcy petitions. Meisinger didn’t admit to doing anything wrong.
More than $4 million being paid by Statewide Financial Group Inc. includes $2 million in restitution to over a thousand borrowers who were falsely promised modifications of their mortgage loans, California’s attorney general announced on July 24. The firm, which did business as US Homeowners Assistance and Webeatallrates.com, is accused of falsely promising loan modifications. The business’ owners — Zulmai Nazarzai, Hakimullah Sarpas and Fasela Sheren — were all found liable for violating the state’s Unfair Competition Law and False Advertising Law.
Hundreds of distressed borrowers were targeted by a group of Florida companies that charged $3,500 in up-front fees and falsely guaranteed that negative-equity mortgages would be voided, a news release last month from the Florida attorney general said. A temporary injunction and asset freeze was obtained by state.
William Timothy O’Toole was disbarred from the Florida Bar in July as a result of a May 22 court order (Case No. SC11-1815). He allegedly allowed non-lawyers to improperly solicit clients on his behalf for loan modifications and foreclosure defense on a nationwide basis even though he could only practice law in Florida. He also split fees with non-lawyers in violation of bar rules.
H&R Financial Services Inc. and its owners, William John Heckler and Richard Ruegsegger, were sued by Indiana’s attorney general, a June 13 statement said. The New Mexico company is accused of collecting $1,683 in up-front fees and failing to obtain the promised home-loan modification or provide a refund. H&R is accused of violating the Credit Services Organization Act, the Mortgage Rescue Protection Fraud Act and Deceptive Consumer Sales Act.
An appeal of a $414,000 judgment in favor of Lisa Reed against Loan Modification Group Inc. was denied and the judgment affirmed by the U.S. Court of Appeals, First Circuit, on Sept. 21. The parties had operated a partnership together before Reed was pushed out and started a competing business. Loan Modification filed and lost a copyright infringement lawsuit, while Reed was successful in a counterclaim that sought her share of the profits.
North Carolina’s attorney general announced that it filed three lawsuits on Sept. 21 against Community Mortgage Assistance Program, Lender Exchange and Tidewater Financial. The companies are each accused of collecting illegal fees and failing to provide promised modification services. The state wants to shut down each of the firms, ban their owners from offering foreclosure rescue and modification services and have the court order the defendants to pay refunds and civil penalties.
Forty statements of charges were filed by the Consumer Services Division of the Washington State Department of Financial Institutions against foreclosure rescue firms, an Oct. 9 news release indicated. The companies are charged with unfair or deceptive practices, obtaining property by fraud or misrepresentation and unlicensed activity. Advance fees charged by the firms sometimes reached $5,000. So far this year, 69 actions have been issued, more than the 45 for all of 2011.