U.S. prosecutors filed 189 legal actions Wednesday against debt consultants accused of bilking homeowners 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 "loan consultants" conducted by the federal agency and 23 states.
In Colorado, Attorney General John Suthers announced Wednesday that seven loan modification companies agreed not to do business there until they follow state laws.
Under Colorado law, a consultant can’t charge a fee up front for foreclosure-related services.
Fraud on the rise
The still-unfolding subprime mortgage crisis has kicked off all manner of suspect financial activities. FBI data suggests fraud related to mortgage activity, including sham loan consultants, increased 36 per cent to 63,713 instances in fiscal 2008.
Brown said the lawsuits his office filed in Orange and Los Angeles counties include allegations against five companies and their subsidiaries and staff members. In all, 21 individuals and 14 companies were named.
'They throw them an anchor instead of a lifeline.' —FTC chair Jon Leibowitz
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, Brown said.
"The loan modification industry is teeming with confidence men and charlatans who rip off desperate homeowners facing foreclosure," he said. "Despite firm promises and money-back guarantees, these scam artists pocketed thousands of dollars from each victim and didn't provide an ounce of relief."
One defendant, Irvine, Calif.-based U.S. Homeowners Assistance, is accused of collecting up to $3,500 US each from dozens of borrowers in danger of losing their homes.
The suit says one victim had her signature forged and financial information falsified on documents filed with her lender.
Another company, U.S. Foreclosure Relief Corp., collected more than $4.4 million from borrowers during a nine-month period, but failed in most instances to provide any services and avoided responding to consumers' inquiries, the officials said.
"These con artists see the high foreclosure rates as an opportunity to prey on people in distress," Leibowitz said. "They promise to rescue homeowners in troubled financial waters, but after they take their money they throw them an anchor instead of a lifeline."
Leibowitz said the FTC was working on rules that would prohibit a mortgage modification service from accepting up-front payments. He said he hoped to have the regulations in place by the end of this year.
Also named in the California 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; and Los Angeles-based United First Inc.
A voicemail message seeking comment was left Wednesday at the offices of U.S. Homeowners Assistance. Calls to the other companies led to messages saying the phone numbers were no longer in service.