• Borrowers Need to be Made Aware of Mortgage Relief Scams
  • September 23, 2014 | Author: Larry R. Rothenberg
  • Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Cleveland Office
  • While the media places great emphasis on lawsuits alleging wrongdoing by mortgage lenders against homeowners, less emphasis has been placed on egregious frauds perpetrated against distressed homeowners by supposed providers of mortgage assistance relief services (MARS).

    As we all know, the Consumer Financial Protection Bureau (CFPB) has imposed burdensome and arguably excessive regulations on lenders.  At the same time, the CFPB has implemented regulations to crack down on unscrupulous MARS companies. For example, MARS companies are prohibited from misrepresenting any material aspect of any relief service, such as the likelihood of success and/or the amount of time required to complete a loan modification.  They are also required to disclose that they are not associated or approved by the government or any lender, and that the lender may not agree to modify a loan.

    On September 4, 2014, a scammer was sentenced to 35 years in prison based on a scheme in which his company promised to aid homeowners to avoid foreclosure and repair their credit. Without the homeowners' knowledge, the scammers substituted "straw buyers," often their friends and family, on the titles of the properties, and then drained the homes of available equity.

    On July 23, the CFPB, the Federal Trade Commission and 15 states announced the filing of 41 lawsuits against various MARS companies nationwide.  Many MARS companies named as defendants are alleged to have promised, in exchange for an upfront and/or a monthly payment to the company, to advocate on behalf of the borrower for a loan modification, and then never made an attempt to contact the lender.

    In one case, the MARS company promised homeowners that they would receive legal representation from "expert loan modification attorneys," and advised them that they were pre--qualified for federal mortgage relief. They falsely stated that only 5% of homeowners who go it alone are successful, and deceptively advised that the company was affiliated with large lending institutions. One consumer was even advised that the consumer's lender specifically referred his account to the MARS company for assistance. The company charged consumers $500-$3900 upfront and $195 per month, yet the consumers never spoke with an attorney or obtained any mortgage relief.

    Another case alleged that the company convinced homeowners to pay for the opportunity to be involved in mass-joinder lawsuits against their bank. It charged the consumers a $6000 initial fee and on average $495 per month during the pendency of the alleged suits.  A few mass-joinder lawsuits were filed, but many have already been dismissed and none have resulted in any recovery for the consumers.

    One MARS company solicited distressed homeowners to pay $1000-$3200 upfront, plus a monthly fee, to "use these legal violations to knock out your lender with a swift uppercut," and provided no assistance to the homeowners.

    Another MARS company was accused of falsely advising consumers that its employees were "federal loan officers" of non-existent governmental entities, such as the "Federal Debt Commission," and that if the consumer was approved for the "Federal Assistance Program," the Federal Debt Commission would purchase and service their mortgages at a significantly lower monthly payments. The consumers were advised to send their new monthly payment to the Federal Debt Commission and the money would be applied to their unpaid principal balance. The company also directed consumers to cease communication with their lenders and to disregard any warnings relating to foreclosure proceedings.

    Credit unions should report MARS scams that may come to their attention.  While there may be many legitimate MARS companies, members should be on guard.   A MARS company requiring upfront or monthly payments prior to completion of a loan modification, or that advises borrowers to cease communicating with their lender, present a huge red flag.