The Federal Trade Commission (FTC) has stepped up its efforts in the battle against real estate and mortgage fraud. As I reported in September of 2007 (see “FTC Issues Warning on Mortgage Lenders Ads“), the FTC has long had its eye on deceptive practices within the real estate industry, so it comes as no surprise that the Commission today announced a massive crackdown on suspected fraud and deception by loan modification companies.
The FTC, which administers a wide variety of consumer protection laws, is seeking to halt the proliferation of mortgage relief scams—which, Flipping Frenzy readers know, targets distressed and vulnerable homeowners who are delinquent on their mortgage payments or facing foreclosure—through increased law enforcement, consumer outreach, and close coordination with federal, state, and non-profit partners.
Watch FTC Chairman Jon Leibowitz explaining today’s development:
Specifically, the FTC announced law enforcement actions against five loan modification and foreclosure rescue operations using what it calls “deceptive tactics to market their mortgage modification and home foreclosure relief services,” including firms that marketed their services by giving what the FTC calls “the false impression they were affiliated with the federal government.” Today’s move brings to 11 the number of loan modification and mortgage foreclosure rescue scams brought down by the FTC in the last year.
The FTC also announced today it has sent warning letters to 71 companies who may be deceptively marketing loan modification or foreclosure rescue services. The FTC identified these companies through a nationwide review of Internet and other advertisements and warned these companies that their ads may violate federal law.
The FTC’s five law enforcement actions target what’s what the Commission believes to be perpetrators of mortgage-related scams. According to the FTC, these schemes typically operate in the following way.
- First, they use terms like “guarantee” and “97% success rate” to mislead consumers about the mortgage modification or foreclosure relief services they can provide
- They charge up-front fees for these services—fees legitimate nonprofit organizations do not charge
- They use copycat names or look-alike Web sites to appear to be a nonprofit or government entity
- Often, after collecting the fee, these companies do little or nothing to help consumers, contends the FTC
In each case described below, the FTC is seeking or has already obtained a temporary restraining order to halt the company’s alleged illegal conduct:
- Federal Loan Modification Law Center (FedMod). FedMod markets mortgage loan modification and foreclosure relief services to homeowners who are in financial distress, delinquent on their mortgages, or in danger of losing their homes to foreclosure. According to the FTC’s complaint, FedMod charges consumers from $1,000 to $3,000 in fees for these services, much of which must be paid up-front, but fails in numerous instances to obtain the promised loan modifications. In radio advertisements, the FTC alleges, FedMod induces homeowners to call its toll-free number by misrepresenting that it is part of or affiliated with the federal government, although it is not. According to the complaint, FedMod often fails to answer or return consumers’ calls or provide updates about the status of their loan modifications, and assures consumers that negotiations with their lenders are proceeding when, in fact, little or no effort has been made to contact the lender.
- Bailout.hud-gov.us. According to the FTC’s complaint, defendant Thomas Ryan used a foreign Internet registrar to falsely register two sites – bailout.hud-gov.us and bailout.dohgov.us. The sites were used to entice financially strapped consumers to seek mortgage loan modification services under the guise that the services were associated with, or were actually, the U.S. government, including HUD and the Treasury Department. The FTC alleges that the defendant misled consumers nationwide. A federal district court granted the FTC’s motion for a temporary restraining order which required the Internet Service Provider (ISP) hosting the sites to immediately remove them from the Internet. The FTC and the defendant stipulated to a preliminary injunction prohibiting him from holding himself out as an agency of any U.S., state, or local government, or as being affiliated with any such agency.
- Home Assure d/b/a Expert Foreclosure. In this case, the FTC alleges that the defendants promise consumers facing imminent home foreclosure that they can stop the foreclosure, regardless of the amount the consumer owes his or her lender. The defendants are charged with falsely claiming that they have special relationships with lenders, have helped thousands of consumers avoid foreclosure, and will provide a 100 percent satisfaction money-back guarantee. They typically charge consumers an up-front fee of $1,500 to $2,500 but, the FTC alleges, do little or nothing to help them avoid foreclosure and fail to give refunds when foreclosures are not stopped.
- Hope Now Modifications LLC and New Hope Property LLC d/b/a New Hope Modifications LLC. On March 24, the FTC announced two related cases alleging that the defendants misled consumers about their ability to provide mortgage loan modification and foreclosure relief, and misrepresented that they were affiliated with or part of the HOPE NOW Alliance, the non-profit, HUD-endorsed organization that is a broad-based coalition of credit and home ownership counselors, lenders, and other mortgage market participants. In each case, the court issued a temporary restraining order with an asset freeze and set dates for a preliminary injunction hearing. The New Jersey Attorney General also filed state court actions against both sets of defendants, and those cases are in litigation.