On July 23, 2014, the Consumer Financial Protection Bureau
(“Bureau”) and the Federal Trade Commission (“FTC”) jointly issued an
announcement, entitled “CFPB, FTC and States Announce Sweep Against Foreclosure
Relief Scammers” (“Announcement”).[i]
It seems that the perps (aka “perpetrators”) are out in full
force, using deception and false promises to “collect more than $25 million in
illegal fees from distressed homeowners.”[ii]
The Bureau and the FTC were joined, as well, by 15 states
(collectively, the “agencies”), letting the world know about their collective
“sweep against foreclosure relief scammers that used deceptive marketing
tactics to rip off distressed homeowners across the country.” The Bureau is
filing three lawsuits against the perps, those companies and individuals that allegedly
collected more than $25 million in illegal advance fees for services that
falsely promised to prevent foreclosures or renegotiate troubled mortgages. The
CFPB seeks compensation for victims, civil fines, and injunctions against the
scammers. The FTC is filing 6 lawsuits of their own, and the states are taking
32 actions.
The first lawsuit names Clausen & Cobb Management
Company and its owners Alfred Clausen and Joshua Cobb, as well as Stephen
Siringoringo and his Siringoringo Law Firm. The second lawsuit is against The
Mortgage Law Group, LLP, the Consumer First Legal Group, LLC, and attorneys
Thomas Macey, Jeffrey Aleman, Jason Searns, and Harold Stafford. The third
lawsuit is against the Hoffman Law Group, its operators, Michael Harper, Benn
Wilcox, and attorney Marc Hoffman, and its affiliated companies, Nationwide
Management Solutions, Legal Intake Solutions, File Intake Solutions, and BM
Marketing Group.
Here’s the allegation, in brief: the scammers used deceptive
marketing to persuade thousands of consumers to pay millions in illegal,
upfront fees for promised mortgage modifications. Each of the scammers was a
law firm or was associated with one. It is further alleged that the defendants
disguised their “false promises of foreclosure relief for struggling homeowners
with claims that they were performing legal work.”[iii]
The plaintiffs assert that these tactics are used by foreclosure relief scams
to attract victims, add credibility to their schemes, or exploit certain legal
exemptions for the practice of law.
The applicable Regulation that is cited is Regulation O, previously
known as the Mortgage Assistance Relief Services (MARS) Rule. The FTC actually
provides a guide on this rule, called “Mortgage Assistance Relief Services
Rule: A Compliance Guide for Business” (“Guide”).[iv]
Generally, this Regulation bans mortgage assistance relief service providers
from requesting or receiving payment from consumers for mortgage modifications
before a consumer has signed a mortgage modification agreement from their
lender. The Regulation also prohibits deceptive statements and requires certain
disclosures when companies market mortgage assistance relief services.
Some highlights of the Guide are worth noting:
· It's illegal to charge upfront fees.
The foreclosure relief firm can't collect money from a customer unless it delivers – and the customer agrees to – a written offer of mortgage relief from the customer's lender or servicer.
· The foreclosure relief firm must clearly and prominently disclose certain information before it signs people up for your services.
It must tell customers upfront key information about its services, including:
o
the total cost,
o
that they can stop using the firm’s services at
any time,
o
that the firm is not associated with the
government or their lender, and
o
that their lender may not agree to change the
terms of their mortgage.
· If the firm advises someone not to pay his or her mortgage, it must clearly and prominently disclose the negative consequences that could result.
It must warn customers that failure to pay could result in the loss of their home or damage to their credit rating.
· The firm must not advise customers to stop communicating with their lender or servicer.
Under the Rule, it's illegal to tell people they shouldn't communicate with their lender or servicer.
· The firm must disclose key information to its customers if it forwards an offer of mortgage relief from a lender or servicer.
It must give the customer a written notice from the lender or servicer describing all material differences between the terms of the offer and the customer's current loan.
The firm must also tell its customers that if the lender or servicer's offer isn't acceptable to them, they don't have to pay the firm’s fee.
· The firm must not misrepresent its services.
Under the Rule, it's illegal to make claims that are false, misleading, or unsubstantiated.
Pertinently, the Bureau also alleges that some of the
defendants violated the Dodd-Frank Wall Street Reform and Consumer Protection
Act, which generally prohibits deceptive practices in the consumer financial
market.
Now compare the foregoing requirements under the Rule with
the illegal practices alleged in the complaints:
· Collecting fees before obtaining a loan modification: Companies cannot legally accept payment for helping to obtain a mortgage modification for a consumer before the consumer has a modification agreement in place with their lender. All of these companies charged consumers advance fees without having first obtained modifications for them, which was not only illegal but also caused significant harm to consumers who often paid thousands of dollars without ever receiving a modification. The Bureau alleges that, after pocketing illegal fees from one distressed homeowner after another, defendants typically stopped returning consumers’ phone calls and emails.
· Inflating success rates and likelihood of obtaining a modification: The firms’ marketing materials misrepresented the likelihood that they would help consumers save substantial sums in mortgage payments. Ultimately, many consumers who paid these companies advance fees did not receive a mortgage modification and ended up worse off than they began.
· Duping consumers into thinking they would receive legal representation: All of these companies engaged in a particularly egregious scam where the perpetrators used their status as attorneys to dupe consumers into thinking they would receive legal representation when many consumers never spoke with an attorney or had their case reviewed by one.
· Making false promises about loan modifications to consumers: During meetings, some consumers were misled into believing that they were eligible for a loan modification. Other consumers were promised that they would receive relief within a few months. In the end, many consumers learned that the defendants had not contacted their lenders or obtained any meaningful relief for them. Ultimately, homeowners across the country lost thousands of dollars and suffered significant economic injury, including losing their homes.
Just to break this down a little further. Let’s see what
each of these defendants are alleged to have done, starting with the same order
stated in the agencies’ announcement.
First up is Clausen & Cobb Management Company, Inc. and
Siringoringo Law Firm. The Bureau’s complaint is against three individuals,
Stephen Siringoringo, Alfred Clausen, Joshua Cobb, and a corporation, Clausen
& Cobb Management Company, Inc. (CCMC), for allegedly charging homeowners
illegal advance fees for mortgage loan modifications. Their 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 complaint alleges
that Clausen, Cobb, and CCMC managed, staffed, and supported the deceptive loan
modification operations of Stephen Siringoringo’s southern California law firm.
The State Bar of California initially referred the misconduct to the Bureau.[v]
Secondly, there is the complaint against The Mortgage Law
Group (TMLG) and the Consumer First Legal Group (CFLG), alleging that they took
in over $19.2 million in fees from over 10,000 distressed homeowners
nationwide, with most, if not all, of that money coming from illegal advance
fees for so-called loan modification services. Both TMLG and CFLG have ceased
operations, but the Bureau is seeking redress for consumers harmed by their
practices and permanent injunctive relief against the principals, Thomas Macey,
Jeffrey Aleman, Jason Searns, and Harold Stafford.[vi]
The third perp is Hoffman Law Group (HLG), for allegedly
accepting over $5 million in illegal upfront fees since April 2012. The Hoffman
Law Group sold consumers the chance to join mass lawsuits as a plaintiff and
falsely promised them that the lawsuits will help them get mortgage loan
modifications or foreclosure relief. HLG typically charged consumers an upfront
fee of $6,000 plus a $495 monthly maintenance fee every following month. The
Bureau alleges that the Hoffman Law Group frequently failed to help consumers
obtain relief, and often did not answer or return phone calls and emails from
consumers who had already paid their fees.
The Bureau’s complaint against the Hoffman Law Group was
filed jointly with the Attorney General for the State of Florida. Upon filing
their complaint against the Hoffman Law Group, the Bureau and the State of
Florida sought a temporary restraining order that was issued by the court,
freezing the company’s assets and installing a receiver to oversee the business
and ensure that the company’s illegal conduct ceases.
In a post published on the Bureau’s blog, issued the same
day as the Announcement, the Bureau’s Susan Stocks offered these three “warning
signs” to consumers seeking foreclosure relief:
1 Demands for payment upfront. If a lawyer or someone claiming to offer legal help wants to be paid first - before you receive a modification - they may be breaking the law. A licensed lawyer can ask you to pay first but only if the lawyer is licensed in the state where you live or where your house is located. Even a licensed lawyer in your state can only receive up-front payments if they meet other requirements about what they charge for, how they deposit the money, and if they comply with all other state laws and regulations.
2 Any claim that a modification is guaranteed. Your mortgage company must agree before you can get a modification. A lawyer or someone claiming to offer legal help cannot guarantee you will get a loan modification.
3 A hard sell. Most licensed lawyers do not call or e-mail you directly and push you hard to pay money right away. If someone claiming to be a lawyer calls you on the phone and asks you to sign papers or pay them right away, ask some more questions to be sure it’s not a scam.[vii]
The post further advises the consumer that “When it comes to
actually getting help with foreclosure relief, your mortgage company may
require you to authorize a third party to act on your behalf, so it’s important
to know what this means for you.”[viii]
With this in mind, the Bureau has developed a new model third party
authorization form the purpose of which is to prevent loan modification scam
efforts. The form is to be used by representatives from government agencies as
well as consumer advocacy groups, housing counselors, and the mortgage
industry. According to the post, “the form may be useful for mortgage servicers
who can choose to use the form in whole, or in part, by adapting other existing
forms.” The new model form is called “Borrower Authorization of Third Party,”[ix]
which provides additional questions that will help mortgage servicers build on
existing privacy and fraud controls by collecting information that will make it
easier for servicers to spot red flags of a foreclosure rescue scam.[x]
Those who commit foreclosure relief scams on the down and
out – the perps avariciously leeching onto victims caught in the process of
possibly losing their homes – ought to
receive the harshest censure and opprobrium. As Euryalis declared in Virgil’s
Aeneid, “Me, me, adsum qui feci, in me convertite ferrum!” Which I freely
translate thus: “It is I! It is I! Here I stand the perpetrator of the crime -
turn then your sword on me!”[xi]
________________________________________
Jonathan Foxx
President & Managing Director
Lenders Compliance Group
[ii]
Idem
[iii]
Idem
[v]
Op. cit. 1. Note: the complaints may be downloaded from the cited website
location.
[vi]
Op. cit. 1
[vii]
Smith, Stocks, Consumer advisory: Don’t fall for a foreclosure relief scam or
bogus legal help, July 23, 2014, http://www.consumerfinance.gov/blog/consumer-advisory-dont-fall-for-a-foreclosure-relief-scam-or-bogus-legal-help/
The enumerated items are the exact verbiage from the post.
[viii]
Idem
[x]
Idem
[xi]
Publius Vergilius Maro, Aeneid, Line 1346. (9.47) Another translation could be
“On me, on me, who did the deed, turn your swords.”
