WE’RE HEARING some attorneys who prey on vulnerable homeowners in need of a modification are in for a surprise from outraged peers who are trying to make these alleged fraudsters pay back for being a disgrace to their profession.
Acting on behalf of 14 homeowners from 10 states, The Lawyers' Committee for Civil Rights Under Law and pro bono counsel Cooley LLP filed a lawsuit in Orange County, Calif., against a network of for-profit loan modification companies.
The suit alleges that these loan companies defrauded vulnerable homeowners out of tens of thousands of dollars “by falsely promising to obtain much-needed mortgage modifications on their behalf.” Allegedly, these fraudsters would require substantial upfront fees and monthly payments, while “consistently failing to deliver results.”
According to senior counsel for the Fair Housing and Fair Lending Project of the Lawyers’ Committee, Linda Mullenbach, this lawsuit seeks justice for victimized homeowners and also represents an effort “to halt a disturbing trend of attorney involvement in the scam operations.”
Homeowners are defrauded out of thousands of dollars in illegal fees, and suffer other losses “as a direct result of the scammers’ activities and deceit,” she said, committed by attorneys who use their experience and status as an attorney to gain trust.
“This type of scam activity continues to have a severe impact on financially distressed homeowners who are desperately trying to save their homes,” added Mullenbach.
The Lawyers’ Committee has so far filed 12 loan modification scam lawsuits nationwide, including four in California.
The lawsuit is part of a wider effort by the Lawyers’ Committee and the Loan Modification Scam Prevention Network “to put an end to the fraudulent and deceptive behavior” of a number of attorneys in California, Florida, Georgia and New York.
Since the launch of the national LMSPN database in March 2010 data through November 30, 2012 show over 28,000 homeowners nationwide have reported loan modification scams or potential scams resulting in losses totaling over $66 million.
Up to $20 million of that total reportedly resulted from over 5,600 complaints submitted by California homeowners. New York homeowners have submitted 1,495 of these reports and have reported losses of nearly $5 million.
In December 2012 the Lawyers’ Committee and McDermott Will & Emery LLP filed a similar pro-bono loan modification lawsuit in Long Island, N.Y., on behalf of 17 homeowners from New York and nine other states. It was the seventh case filed in New York since 2011, Mullenbach said.
The Culliver et al. v. Alarcon Law Group PC et al. complaint alleges New York attorney Rory M. Alarcon defrauded vulnerable homeowners. It alleges Alarcon falsely advertised loan modification services and used referral companies as agents to attract homeowners in exchange for advance fees of up to $8,085, also collected in violation of New York and federal law.
Both complaints list among allegations breach of contract, breach of implied covenant of good faith and fair dealing, breach of fiduciary duty and fraud. They seek monetary damages, including the return of the illegal upfront and monthly fees paid by plaintiffs, and “injunctive relief to put a halt to the deceptive practices” of the named defendants.
Amilda Dymi is the managing editor of Mortgage Servicing News. She has been covering the mortgage industry since 2001.