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07/25/14

CFPB, FTC and States Announce Sweep Against Foreclosure Relief Scammers


WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), and 15 states announced a 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 companies and individuals that collected more than $25 million in illegal advance fees for services that falsely promised to prevent foreclosures or renegotiate troubled mortgages. The CFPB is seeking compensation for victims, civil fines, and injunctions against the scammers. Separately, the FTC is filing 6 lawsuits, and the states are taking 32 actions.

“We are taking on schemes that prey on consumers who are struggling to pay their mortgages or facing foreclosure,” said CFPB Director Richard Cordray. “These companies pocketed illegal fees—taking millions of hard-earned dollars from distressed consumers, and then left those consumers worse off than they began. These practices are not only illegal, they are reprehensible.”

The first lawsuit names Clausen & Cobb Management Company and 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.

The CFPB alleges that 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. The defendants disguised their false promises of foreclosure relief for struggling homeowners with claims that they were performing legal work. 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 CFPB alleges that the defendants violated Regulation O, formerly known as the Mortgage Assistance Relief Services (MARS) Rule, which generally 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. It also prohibits deceptive statements and requires certain disclosures when companies market mortgage assistance relief services. In addition, the CFPB 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.

The illegal practices alleged in the complaints include:

  • 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 CFPB 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.

Today, the Bureau is also releasing a Consumer Advisory to help consumers recognize the red flags of foreclosure relief scams, especially when someone is claiming to provide legal help. Many scammers require consumers to send a third-party authorization form to their lender so that the scammer can communicate with the lender on the consumer’s behalf. Often, the scammer tells the consumer to no longer have any contact with the lender. The Consumer Advisory being released by the Bureau also helps consumers better understand what it means to authorize a third party to act on their behalf.

Read the full release here