Although the rate of foreclosures nationwide has declined by April, 694,000 homeowners were still in some form of foreclosure, according to CoreLogic, a leading market analyst. Unfortunately, these consumers are also the targets of businesses charging costly, up-front fees for services that are never provided.
On July 23, a coordinated state and federal enforcement action led to 41 lawsuits against these predatory operations. "Operation Mis-Modification" was the name given to joint actions by 15 state attorneys general, the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC). Together, these government officials filed 41 lawsuits charging deceptive marketing, false promises, and pocketing illegal fees.
Alleged violations occurred between 2010 and December 2013. Businesses and principals typically told consumers they could lower their homeowners' mortgage payments and interest rates – or – prevent foreclosures. In return, consumers were asked to pay as much as $4,000 in advance and incurred additional monthly fees ranging from $399-$500. Despite oral promises, the businesses never submitted a loan modification application and nor did they negotiate or perform promised services.
In some cases, consumers thought they were paying for legal representation; but never spoke to a lawyer. In others, such as in California, where law firms were involved, the California State Bar initially referred misconduct charges to the CFPB. For example, CFPB charged the Mortgage Law Group and the Consumer First Legal Group for taking in $19.2 million in fees from more than 10,000 troubled homeowners nationwide. Most, if not all of this money was advance fees charged for "loan modification services." With both firms now having ceased operations, CFPB is seeking redress for harmed consumers from the firms' principals.
"We are taking on schemes that prey on consumers who are struggling to pay their mortgages or facing foreclosure," said CFPB Director Richard Cordray. "These companies pocketed illegal fees – taking millions of hard-earned dollars from distressed consumers, and then left those consumers worse off than they began. These practices are not only illegal, they are reprehensible."
Participating attorneys general acted on behalf of consumers in: Arizona, Delaware, Florida, Indiana, Kansas, Louisiana, Maryland, Michigan, New Mexico, New York, North Carolina, Ohio, Washington, and Wisconsin.
The FTC filed charges against six operations and its commission members voted 5-0 to authorize staff to file complaints and seek additional relief against defendants. The only time FTC files a complaint is when it has reason to believe that the law has been or is being violated and it further appears to the Commission that a proceeding is in the public's interest.
Katie Fallow, FTC's deputy director for consumer protection, said of those charged, "Not only do they collect hundreds or thousands of dollars in upfront fees from homeowners and then not deliver any results; but they make the loss of people's homes even more likely by telling consumers not to pay their mortgage or to take their lenders or servicers."
To avoid more consumers suffering a similar fate, CFPB issued a related consumers' advisory. Specific warning signs for foreclosure relief scams and bogus legal help include:
- Demands for payment up-front. Licensed attorneys can only receive up-front payments if they meet requirements about what they charge, how they deposit the money and only if they comply with all other state laws and regulations.
- Any claim that a modification is guaranteed. Consumers should be wary of lawyers and others guaranteeing modifications. Your mortgage company must agree on any modification.
- Pushy, hard sell tactics.Business representatives that urge consumers to sign documents before answering questions or explaining details is another warning sign.
Illinois Attorney General i Lisa Madigan indicated that the deluge of lawsuits may yet lead to others. She said, "My office has been – and will continue to be – aggressive in shutting down operations that prey on homeowners who are desperate for a lifeline."