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From Banking and Finance Law Daily, July 23, 2014

Phony mortgage relief schemes swept up in “Operation Mis-Modification”

By John M. Pachkowski, J.D.

The Consumer Financial Protection Bureau, the Federal Trade Commission, and 15 states have undertaken a sweep against “foreclosure relief scammers that used deceptive marketing tactics to rip off distressed homeowners across the country.” The enforcement sweep was dubbed “Operation Mis-Modification.”

The bureau filed three lawsuits against companies and individuals that collected more than $25 million in illegal advance fees for services that falsely promised to prevent foreclosures or renegotiate troubled mortgages. The CFPB is seeking compensation for victims, civil fines, and injunctions against the defendants. Separately, the FTC has filed six lawsuits, and the states are taking 32 actions.

Reg. O violations. In their actions, the CFPB and FTC alleged that the defendants, a mix of law firms and persons associated with those firms, violated Regulation O, formerly known as the Mortgage Assistance Relief Services Rule, by engaging in a number of illegal practices. Specifically, it was alleged that the defendants:

  • collected fees before obtaining a loan modification, and once fees were collected typically stopped returning consumers’ phone calls and emails;

  • inflated success rates and the likelihood of obtaining a modification; and

  • made false promises about loan modifications to consumers.

CFPB lawsuits. In its lawsuit against Clausen & Cobb Management Company, Inc., its owners, Alfred Clausen and Joshua Cobb, and their business associate, attorney Stephen Siringoringo, the bureau alleged that the firms’ joint operation charged initial fees ranging from $1,995 to $3,500, in addition to monthly fees of $495, to thousands of California homeowners in distress.

The CFPB’s second lawsuit was filed against The Mortgage Law Group, the Consumer First Legal Group, and their principals Thomas Macey, Jeffrey Aleman, Jason Searns, and Harold Stafford. The complaint alleged that the two groups took in over $19.2 million in fees from distressed homeowners nationwide in just two years.

The final bureau lawsuit was filed against the Hoffman Law Group, where it was alleged that since April 2012 the law firm accepted millions of dollars in illegal advance fees, beginning with an upfront fee of $6,000 and a $495 monthly maintenance fee thereafter. As part of this lawsuit, the CFPB also sought and received a court order appointing a receiver to take over the law firm’s operations, freezing its assets, and prohibiting the illegal conduct.

FTC lawsuits. The FTC alleged that the Utah-based Danielson Law Group touted a success rate that exceeded 90 percent and enticed consumers to pay hefty advance fees ranging from $500 to $3,900—falsely promising that attorneys would negotiate loan modifications with substantially reduced mortgage payments using their special relationships with lenders or mortgage analysis reports produced by a proprietary software program. The defendants also urged homeowners to stop paying their lenders and falsely promised full refunds if they did not obtain a loan modification, according to the FTC. At the request of the FTC, a U.S. district court temporarily halted the operation, which allegedly took more than $35 million from distressed homeowners, and some of the defendants have stipulated to preliminary injunction with an asset freeze.

In its second lawsuit, the FTC alleged that from at least February 2011, Fort Lauderdale, Fla.-based FMC Counseling Services, Inc., made false claims that it was affiliated with the federal government’s Making Home Affordable assistance program and that it would renegotiate consumers’ mortgages, reducing them by several hundred dollars. After collecting more than $600,000 in payments from hundreds of consumers, the lawsuit claimed that the defendants did nothing for consumers and failed to apply any funds received from consumers to their existing mortgages, which resulted in many consumers losing their homes as well as their mortgage payments. At the request of the FTC, a U.S. district court temporarily halted the operation, and then entered a preliminary injunction with an asset freeze against Jonathan L. Herbert.

In filing suit against Lanier Law, a Jacksonville, Fla.-based business, the FTC alleged the law firm typically told consumers that they would get a loan modification or that their chance of getting one was 85 percent to 100 percent. The defendants collected an upfront fee of $1,000 to $4,000, or an ongoing monthly fee of $500 or more, and in some cases told consumers not to pay their mortgages while their supposed loan modifications were pending and that the business would conduct an audit of consumers’ mortgage documents to find errors or fraud committed by the lender. As part of the lawsuit, a U.S. district court judge ordered the defendants to stop making misrepresentations about loan modifications and froze defendants’ assets to preserve the possibility of providing redress to consumers.

The FTC alleged that from at least August 2010, California-based Mortgage Relief Advocates sold fraudulent mortgage assistance services on its websites and through telemarketing. The business charged an up-front fee of $1,000 to $3,200 and the FTC alleged that the business rarely provided the promised mortgage relief. As part of the lawsuit, the FTC requested that the federal district court enter a temporary restraining order.

In filing suit against Home Relief Foundation, an Austin, Texas-based business, the FTC alleged that, from approximately October 2010 to December 2013, Home Relief Foundation made false promises that, because of its affiliation with a government program, it would be able to lower consumers’ interest rates and monthly mortgage payments. The lawsuit noted that the business charged advance fees ranging from $500 to $4,000 and collected more than $500,000 during the course of its operation. A U.S. district court judge also granted the FTC’s request that the company be ordered to stop making misrepresentations about loan modifications and froze defendants’ assets.

The final FTC lawsuit was filed against Southern California-based CD Capital Investments. In this lawsuit, the FTC alleged that from mid-2011, CD Capital Investments often promised consumers would receive mortgage relief services within two to four months and often claimed affiliation with the Obama administration’s “Making Home Affordable Program.” The complaint further claimed that CD Capital Investments collected over $1 million in revenues by charging up-front fees of $495, supposedly to “process” the consumer’s application, and monthly fees that averaged about $399, for what it called “post application monitoring,”

Commenting on “Operation Mis-Modification,” CFPB Director Richard Cordray stated, “We are taking on schemes that prey on consumers who are struggling to pay their mortgages or facing foreclosure. 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.”

Florida Attorney General Pam Bondi, who joined with the CFPB on the Hoffman Law Group lawsuit, added, “Florida’s distressed homeowners should not have to worry about being swindled by scammers who hide behind law firms to try to avoid the MARS Rule. I appreciate the Consumer Financial Protection Bureau’s partnership in this effort to protect Florida’s homeowners.”

Companies: BM Marketing Group; CD Capital Investments; Clausen & Cobb Management Company; Consumer First Legal Group, LLC; Danielson Law Group; File Intake Solutions; FMC Counseling Services, Inc.; Hoffman Law Group; Home Relief Foundation; Lanier Law; Legal Intake Solutions; Mortgage Relief Advocates; Nationwide Management Solutions; Siringoringo Law Firm; The Mortgage Law Group, LLP

MainStory: TopStory CFPB DoddFrankAct EnforcementActions Loans Mortgages UDAAP

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