Prosecutors nationwide filed 189 legal actions Wednesday against loan modification consultants accused of bilking homeowners who are desperate to make their mortgage payments more affordable.
The lawsuits and cease-and-desist orders announced by Federal Trade Commission Chairman Jon Leibowitz and California Attorney General Edmund G. Brown were part of a nationwide sweep of alleged sham consultants by the federal agency and officials in 18 states.
Leibowitz used the announcement to put scam artists on notice and urged homeowners to protect themselves from being exploited.
He said fraudulent loan modification consultants are “full of hollow promises designed to fatten the pockets of criminals and con men.”
The lawsuits filed by the FTC included allegations that Aliso Viejo-based Lucas Law Center persuaded distressed borrowers to stop paying their mortgages in order to pay the firm’s fees of up to $3,995.
The agency also filed suits against Orange-based U.S. Foreclosure Relief Corp., Santa Ana-based Loss Mitigation Services Inc., and Apply2Save Inc., of Coeur d’Alene, Idaho.
The lawsuits Brown’s office filed in Orange and Los Angeles counties include allegations against five companies and their subsidiaries and staff members.
“We are going to do everything we can to stop it, realizing that there are more rats to come out of their holes than we can stomp on,” Brown said. “But we will keep doing the best we can because it is horrible to take advantage of somebody who is vulnerable with their family exposed to foreclosure.”
Dean Schafer, CEO of Loss Mitigation Services, said he sympathized with the FTC’s goal of weeding out bad players in his industry and was surprised his company had been singled out. He said he was still reviewing the lawsuit and had no comment on its specific allegations.
The lawsuits seek millions of dollars in civil penalties, restitution for victims and a permanent injunction to keep the companies and the defendants from offering mortgage-relief services.
One defendant, Irvine-based U.S. Homeowners Assistance, is accused of collecting up to $3,500 each from dozens of borrowers in danger of losing their homes.
Court documents allege one victim had her signature forged and financial information falsified on documents filed with her lender.
Also named in the lawsuits are Home Relief Services LLC, with offices in Irvine, Newport Beach and Anaheim; RMR Group Loss Mitigation, which has offices in Newport Beach, Orange, Huntington Beach, Corona and Fresno; Los Angeles-based United First Inc.; and U.S. Foreclosure Relief, which was also targeted by an FTC complaint.
Authorities said they also arrested a Newport Beach man Tuesday who was accused of using the names of the Department of Housing and Urban Development and other government agencies as part of his business.
Leibowitz said the FTC was working on rules that would prohibit a mortgage modification service from accepting upfront payments. He said he hoped to have the regulations in place by the end of this year.
In the meantime, officials urged borrowers having trouble making mortgage payments to avoid foreclosure counselors that demand upfront fees. Homeowners should never redirect mortgage payments to consultants who promise to pass the money on to lenders, the officials said.
They said lenders are often more willing to work directly with borrowers than with foreclosure consultants, so borrowers should contact lenders themselves.
HUD can also provide referrals to approved counselors, many of whom offer free services.
“We want to say to those who are being ripped off, don’t fall for any of these schemes,” Brown said.
A voicemail message seeking comment was left Wednesday at the offices of U.S. Homeowners Assistance. Lucas Law Center’s voicemail box was full and accepting no messages.
Calls to the other companies led to messages saying the phone numbers were no longer in service.