As part of national consumer protection week, the Lawyers’ Committee for Civil Rights Under Law and pro-bono counsel Davis Polk & Wardwell LLP filed a lawsuit on March 9 against for-profit loan modification companies who targeted vulnerable New York State homeowners.
In the lawsuit filed as Rush v. Save My Home, a group of closely related entities that operated out of a single building in Garden City, N.Y., targeted to steal money from low- and middle-income homeowners.
Throughout the course of their operations under the names Save My Home, Save My Home Now, Save My Home Today, Selig Law Group, Express Modifications Inc., Express Debt Solutions, Express Home Solutions, Express Home 411, Empire Home Saver Inc. and Empire Home Savings, the defendants offered to negotiate mortgage loans for the nine plaintiffs despite not being registered “mortgage brokers” as required by New York Banking Law.
According to the lawsuit, the scheme began when a so-called loan specialist located a homeowner through the Internet, print ads and cold calls, who were struggling to make a monthly mortgage payment and feared the possibility of foreclosure. The scammer gained the homeowner’s trust by promising to save the home and lower the monthly mortgage payments.
After agreeing to a written or oral contract with the homeowner, the “specialist” demanded an upfront payment in exchange for the promise to renegotiate the mortgage.
In some cases, there was a demand for additional payments, claiming that the lender or servicer rejected the request for a loan modification.
To increase the likelihood of obtaining a modification, the scammers told the homeowners to stop sending monthly mortgage payments to the bank and to not have any type of communication with the bank.
By following this advice, the homeowners fell behind in their mortgage payments and accumulated debt, lender fees, missed penalties and their credit score became impaired.
During the entire process, the homeowners were unaware that they could have received this type of loan modification services for little to no cost by a HUD-approved housing counselor.
“These for-profit loan modification companies are making a bad situation worse,” said Jon Greenbaum, chief counsel and senior deputy director for the Lawyers’ Committee. “Vulnerable homeowners come in contact with someone posing as an expert to help them negotiate better mortgage terms. Little did they know it was a scam.”
In April 2009, the Massachusetts attorney general forbade one of the defendants, Express Modifications Inc., and its owner David Gotterup, from offering foreclosure-related services in the state. As part of the final judgment by consent, the company admitted that they made “misleading, unfair and deceptive statements” to Massachusetts’ consumers.
Another defendant that was ordered a cease and desist order in May 2010 from the Maryland Commissioner of Financial Regulation was Save My Home. This company was engaging in “willful conduct which was intended to deceive and defraud” and the commissioner said it “demonstrated a complete lack of good faith and fair dealings.”
The plaintiffs in the New York lawsuit are seeking to recover at least $80,000 with prejudgment interest at the statutory rate of 9% a year. They are also looking to receive damages including the loss of equity, fees paid to their mortgage lender or servicers, the effects of impairment on their credit ratings and the costs associated with foreclosure proceedings.
“Amidst a nationwide foreclosure crisis, scammers are preying on vulnerable homeowners, offering to help modify their mortgages and then running off with the money,” said Eunice Rho, associate counsel for the Lawyers’ Committee’s Loan Modification Scam Prevention Network.
The Rush v. Save My Home lawsuit marks the beginning of a legal campaign by the network to track scammers who have exploited New Yorkers affected by the financial crisis.
The network, which was launched in February 2010, features a national database collection of complaints for loan modification scams. There are currently more than 10,000 filed complaints that total over $27 million in lost money. Out of all the complaints, 500 are from New York residents with reported losses of over $2 million.
Rho said California led the nation for homeowner complaints about loan modification scams. She said scammers are gravitated toward this region due to a combination of strict laws, the current economic times and high foreclosure rates.
Florida ranked behind California for complaints regarding loan scams. Rho said New York usually is the fourth or fifth highest state because there are consumer friendly laws pertaining to loan modification scams.
