Dozens of Mortgage Relief Firms Cited by CFPB, States Over Mod Scams
Two federal agencies and 15 states have taken more than 40 actions against foreclosure relief operations, alleging the firms charged distressed borrowers millions of dollars in fees without following through on service.
The actions jointly announced Wednesday by the Consumer Financial Protection Bureau, the Federal Trade Commission and the states are part of an ongoing enforcement sweep dubbed Operation Mis-Modification. Regulators are trying to rein in firms that used deceptive marketing by promising to modify a loan or prevent foreclosure but charged upfront fees before services were rendered.
The CFPB has already filed three suits against companies and individuals over a combined $25 million in illegal fees.
"As mortgage assistance relief service providers, the companies are legally prohibited from requesting or receiving payment from consumers before a mortgage-modification agreement is in place" with the lenders or servicer, said Steve Antonakes, the CFPB's deputy director, in a conference call.
"In some cases, we heard from consumers who said they could not even reach anyone at a company once they had paid the initial fee."
Any civil penalties or restitution amounts are pending with the courts or a settlement. The FTC has taken actions against six mortgage relief operations while the CFPB filed suits against the three law firms in July. The 15 state attorneys general have taken 32 actions as part of the joint operation.
Most of the actions relate to firms charging upfront fees and falsely promising to lower an interest rate or stop a foreclosure. For example, in one of the lawsuits filed by the CFPB, the agency alleges that Clausen & Cobb Management Co. charged individuals upfront fees between $1,995 to $3,500, and a monthly fee of $495 to thousands of California homeowners.
Some of the suits also allege that companies gave poor legal advice and used misleading marketing to lure consumers into getting a modification. For example, in a case against Jacksonville, Fla.-based Lanier Law, the FTC alleges that the firm told consumers their chances of getting a loan modification was 85% to 100% and advised them in some cases to stop paying their mortgage while the modification was pending.
Lanier instead typically charged $1,000 to $4,000 in upfront fees on an ongoing monthly fee of at least $500. The FTC has now taken 48 actions against mortgage relief companies of similar charges since 2008.
"Our federal and state actions are designed to put a halt to these specific schemes, have a deterrent effect on the industry and increase consumer awareness of the perils of third-party loan modifications," said Katie Fallow, the FTC deputy director for consumer protection, on the conference call.
"Given the seriousness of the conduct here, it is important for federal and state agencies to focus on this issue...It's through joint federal and state efforts like the one we are announcing today that law enforcement is able to multiply its effectiveness to protect American consumers."