Cracking Down on Loan Modification Fraud

California Attorney General Jerry Brown, Federal Trade Commission Jon Leibowitz and other top state prosecutors recently announced 189 lawsuits against loan modification companies nationwide, accusing them of scamming struggling homeowners trying to reduce their mortgage payments.

The lawsuits are part of a nationwide sweep against fraudulent mortgage consultants by the federal agency and 23 states. In California, the lawsuits targeted 14 companies and 21 individuals, including Lucas Law Center, Loss Mitigation Services Inc., United First, Inc., U.S. Homeowners Assistance and Home Relief Services LLC.

Brown issued a harsh condemnation of the companies named in the lawsuits, saying the accused “pocketed thousands of dollars from each victim and didn't provide an ounce of relief.”

Leibowitz said high foreclosure rates have prompted an outbreak of con artists eager to exploit the financial straits of distressed homeowners. Instead of getting financial relief, he said consumers find themselves in even more desperate circumstances.

For example, officials allege that U.S. Foreclosure Relief, an Orange-based company, collected more than $4.4 million from beleaguered homeowners, but typically failed to provide services and failed to respond to customer complaints or questions.

In August, Brown ordered nearly 400 mortgage foreclosure consultants to post $100,000 bonds and register with the state attorney general’s office. If they fail to register within 10 days, he said they risk prosecution.

He also ordered 27 companies to provide evidence supporting their advertising claims made in commercials for their loan modification services. Brown said the companies claim unusually high rates of success in preventing foreclosures in abnormally short periods of time.

According to officials, the California Department of Real Estate has received over 1,000 reports of loan modification swindles since October, resulting in more than 300 legal actions against the companies. In June of last year, the agency was investigating less than 10 such complaints.

Among the problems with loan modification companies is the limited oversight for these entities. Although the California Foreclosure Consultant Act was recently amended to provide more stringent guidelines, these types of companies have largely operated without significant regulations. This, combined with the current surge in home foreclosures, has provided an environment ripe for swindlers.

Homeowners hoping to avoid foreclosure through loan modification can take several steps to protect themselves. Rather than working with a loan modification company or foreclosure consultant, retain an experienced attorney or law firm.

Many loan modification companies mislead consumers into believing they are law firms or that attorneys are involved in handling their files. In their advertisements and sale pitches they tell consumers they claim are a “law groups” or “attorney driven” companies.

In fact these companies are typically businesses owned by a lawyer who has no involvement in handling the client’s file. Non-lawyers who are unsupervised and untrained perform the work, often with no benefit whatsoever.

Seek the advice of an actual law firm and make sure a lawyer or closely supervised paralegal will handle your matter. The right law firm or lawyer should be able to effectively address all legal issues relating to the loan modification process. Furthermore, attorneys must be licensed and are heavily regulated by the State Bar. This extra layer of oversight helps to ensure that homeowners are protected.

ABOUT THE AUTHOR: Weintraub & Selth, APC
At Weintraub & Selth, APC., we take pride in providing focused, inventive, and cost-effective legal representation for businesses and individuals in Southern California who are facing serious financial issues, such as bankruptcy, debt restructure, foreclosure, creditor and collections problems. We also represent individuals and businesses in commercial litigation such as breach of contract, defamation and fraud claims and business torts.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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