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]
