Foreclosure-Rescue Scammers

By Sheridan, Terry | Mortgage Banking, December 2012 | Go to article overview

Foreclosure-Rescue Scammers


Sheridan, Terry, Mortgage Banking


There's a new twist to the old problem of foreclosure-rescue and loan-modification scams: More lawyers face charges for involvement in them. * It's still the usual cat-and-mouse game of false promises to reduce loan payments and prevent foreclosure with pay-me-first fees. Scammers have done that for years. But since the 2008 financial crisis and housing downturn, unfortunately, they've found especially easy pickings among millions of desperate homeowners who face foreclosure if and when efforts to modify their mortgages fail. * In 2010, approval of the Federal Trade Commission's (FTC's) Mortgage Assistance Relief Services (MARS) rule made it illegal to charge upfront fees for assistance. The fees-ban portion of the law took effect in January 2011. The rule now is known as Regulation O. * To get around that ban, scammers enlist the help of lawyers. Or, they are lawyers. That allows upfront fees to be charged, because everyone knows that lawyers charge fees for their services. Thing is, a big part of the scam is that they aren't providing services. And this problem is increasing. * In 2010, 18 percent of modification and foreclosure-rescue complaints involved lawyers, says Yolanda McGill, senior counsel for the Fair Housing and Fair Lending Project of the Lawyers' Committee for Civil Rights Under Law, Washington, D.C. The committee maintains a complaint database.

By the end of 201 1, 32 percent of the complaints involved lawyers. To date this year, that had risen another 4 percent.

"There's definitely an uptick in cases against lawyers in this area," says James Kohm, associate director of the FTC's Enforcement Division in Washington, D.C.

According to the FTC, Regulation 0 allows lawyers to charge an upfront fee only if they are licensed to practice law in the state where the homeowner lives or where the house is located; they provide "real" legal services; they comply with state ethics requirements for attorneys; and they place payments in a client trust account and withdraw fees from that account as they complete legal services, and tell the client about the withdrawal.

The numbers of lawyers involved in the wrongdoing--or charged with it--have grabbed the attention of the legal community in a big way.

The American Bar Association (ABA) hosted a panel discussion on mortgage loan-modification and foreclosure-rescue scams in October. Panelists included J. Reilly Dolan, assistant director for financial practices at the FTC; Mary Alestra, special counsel to the New York Attorney General's Bureau of Consumer Frauds and Protection; David Berenbaum, chief program officer for the National Community Reinvestment Coalition, Washington, D.C.; and Sheila Tuma, counsel to The Florida Bar, Orlando, Florida.

Moderators were the Fair Housing and Fair Lending Project's McGill; and Rutledge Simmons, deputy general counsel for NeighborWorks America, Washington, D.C., a national network of community development and affordable-housing groups.

"Everyone agreed that working with these scammers is not feasible as a lawyer" without putting themselves at risk, Simmons says.

Late last year, the Treasury Department and the Consumer Financial Protection Bureau (CFPB) formed a special joint task force with the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) to target loan-modification and foreclosure-rescue scams.

And the FTC is among dozens of federal law-enforcement, regulators and investigative agencies included in the Financial Fraud Enforcement Task Force (FFETF) established by President Obama in 2009.

"It is so needless for homeowners to be taken in by this," McGill says. "They don't need an attorney to modify a loan. What is so bad here is that you have professionals horning in on this because they can make good bucks."

While foreclosure defense is a legitimate legal practice, "That's not what these people are doing," she says of the lawyers involved in the scams.

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