This week the Federal Trade Commission, Consumer Financial Protection Bureau and 15 states announced a slew of lawsuits against companies and individuals for allegedly misleading homeowners and illegally charging them for foreclosure relief that never came. The lawsuits are result of "Operation Mortgage Mismodification," a joint investigation effort that revealed scams that cost consumers millions of dollars in illegal fees and, in many cases, their homes.
The FTC, CFPB and prosecuting states allege firms used deceptive marketing tactics to lure distressed homeowners into their loan modification programs, where consumers were charged steep upfront and monthly fees for nonexistent relief. They also allege that after paying for the services, consumers often never heard from the firms again, leaving them worse off than they were when they started working with the companies.
Companies Allegedly Preyed on Desperate Homeowners: Companies are legally prohibited from taking payment before attaining a loan modification agreement with clients' lenders. In schemes dating back to 2011, possibly as far back as December 2010, companies charged hundreds, sometimes thousands, of dollars in upfront fees, in addition to monthly fees of about $500 for their allegedly false promises of loan modification and legal representation. The lawsuits claim consumers were told they could receive lower interest rates, lower mortgage payments and that foreclosure proceedings would stop. Such deceptive practices are illegal under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
"They promised the homeowners that in exchange for an upfront fee they will obtain a loan modification or help avoid foreclosure by negotiating with the homeowner's lender," said Katie Fallow, FTC deputy director for consumer protection, in a media call announcing the actions. "They made the loss of people's homes even more likely by telling people to stop paying their mortgage."
Companies Under Fire: The CFPB names Clausen & Cobb Management Co., owners Alfred Clausen and Joshua Cobb, and Stephen Siringoringo and Siringoringo Law Firm as defendants in the first suit. The second is against The Mortgage Law Group, the Consumer First Legal Group and attorneys Thomas Macey, Jeffrey Aleman, Jason Searns and Harold Stafford. The third lawsuit includes the Hoffman Law Group, Michael Harper, Benn Wilcox, Marc Hoffman, and the group's affiliated companies: Nationwide Management Solutions, Legal Intake Solutions, File Intake Solutions and BM Marketing Group. Separately, the FTC filed six lawsuits against the following companies: Danielson Law Group, FMC Counseling Services, Lanier Law, Mortgage Relief Advocates, Home Relief Foundation and CD Capital Investments.
The CFPB, FTC and states bring these lawsuits with the intention of seeking restitution for the victims of the alleged scams.The three schemes being pursued by the CFPB apparently cost consumers more than $25 million in illegal fees. Meanwhile, consumers grapple with the weight of their financial losses.
Foreclosure and loan delinquency have seriously negative effects on one's credit standing, which can determine how much consumers pay in interest rates, utility deposits and insurance premiums. (To see how your mortgage affects your credit, you can get two free credit scores through Credit.com.)
In conjunction with the announcement of the enforcement actions, the CFPB published a consumer advisory listing signs of foreclosure relief scams, like demands for upfront payment and guarantees of loan modification.