FTC halts mortgage operation for misrepresentation of loss mitigation
At the request of the Federal Trade Commission, a federal court has halted a bogus mortgage foreclosure prevention operation that misrepresented both the “loss mitigation” services it offered and the earnings potential of the business opportunity it sold. The FTC seeks to end this deceptive scheme and make the defendants give up their ill-gotten gains.
According to the FTC’s complaint, the defendants sold “loss mitigation” services to homeowners at risk of foreclosure, falsely claiming they could prevent foreclosure in 97 percent of cases and misrepresenting that they would make a full refund if they failed. Before performing any loss mitigation services, the defendants required homeowners to pay the equivalent of one month’s mortgage payment. Their contracts instructed homeowners not to contact lenders or their contract and its money-back guarantee would be voided. In some cases the defendants’ consultants told homeowners to stop making their mortgage payments while the defendants were working on their cases.
The FTC alleged that, contrary to the defendants’ claims, they completed loan modification in only about 6 percent of cases and routinely failed to return consumers’ repeated telephone calls. In numerous instances, the defendants had not contacted the consumers’ lenders or had made only non-substantive contacts with them, resulting in late fees, penalties, and other costs for the homeowners. After failing to secure loan modifications, the defendants also failed to honor their refund policies.
The FTC’s complaint also alleges that the defendants sold a “loss mitigation consultant” business opportunity for up to $1,500, falsely claiming that purchasers (consultants) could earn various amounts, including up to $6,000 per week, by referring homeowners to them and by recruiting new consultants. In fact, throughout the defendants’ entire operation, no consultant has earned that much money.
The defendants are charged with violating the FTC Act by misrepresenting that they would obtain a loan modification or stop foreclosure in all or virtually all instances; that they would give full refunds in all instances when they failed to obtain a loan modification or stop foreclosure; and that purchasers of their business opportunity could earn the levels of income claimed in their promotions.
The defendants are Freedom Foreclosure Prevention Services LLC, Loss Mitigation Training Center of America LLC, Jeffrey C. Segal, and Michael R. Workman. The Commission vote to authorize staff to file the complaint was 4-0. The complaint was filed in the U.S. District Court for the District of Arizona. On June 1, 2009, the court entered a temporary restraining order against Freedom Foreclosure Prevention Services, Loss Mitigation Training Center of America, and Segal. The court entered a preliminary injunction against those defendants and defendant Michael Workman on June 18, 2009.
The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law.
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