The Federal Trade Commission (FTC) has filed three separate suits in federal court to halt the allegedly deceptive tactics of three operations that preyed on distressed homeowners by falsely claiming they could save their homes from foreclosure, and then charging them thousands of dollars upfront, while delivering little or no help and often driving them deeper into debt.
“With many homeowners still struggling to hold onto their homes, the FTC takes a hard line against con artists who are seeking their next victim,” said Jon Leibowitz, chairman of the FTC.
Leibowitz appeared with U.S. Attorney General Eric Holder, FBI Associate Deputy Director Kevin Perkins, and HUD Secretary Shaun Donovan, and announced the FTC cases as part of the Distressed Homeowner Initiative, a federal effort to stop predatory foreclosure rescue, mortgage modification, short sales, and bankruptcy schemes that target distressed homeowners.
In November 2010, the FTC issued the Mortgage Assistance Relief Services (MARS) Rule, which provided new protections and banned mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they deem acceptable.
In all three cases announced, the FTC took action against defendants who allegedly peddled bogus mortgage relief services, in violation of the FTC Act and the MARS Rule. The agency also charged that two of the operations violated the Telemarketing Sales Rule.
►Prime Legal Plans/Reaching U Network: The FTC alleged that from at least mid-2010, the defendants behind this scheme marketed mortgage relief services in English and Spanish, including under the names “Reaching U Network,” and “American Legal Plans.” They allegedly told consumers who were in debt that attorneys would review their mortgage loan documents to see if their lenders complied with state and federal mortgage laws, and would use the resulting “forensic audit” information to help save their homes and negotiate more favorable mortgage terms. The defendants told consumers that “80 percent of mortgages contain some fraud,” and “Our network attorneys have helped hundreds of Americans stay in their homes,” according to the FTC complaint. Instead of helping consumers, the defendants charged them up to $750 a month, while little or nothing was done to save their homes from foreclosure, and running an operation that a court found was “permeated with illegal practices,” according to the FTC.
The FTC alleged that on company Web sites, the defendants would falsely claim to be a “private charity working for struggling consumers that can’t afford legal representation.” When responding to consumers who called the toll-free number on the websites, and when cold-calling consumers, including those listed on the Do Not Call registry, the defendants routinely failed to provide the disclosures required by the MARS Rule, collected up-front fees, and misrepresented the results that consumers could expect, according to the complaint. The FTC charged that the defendants violated the Telemarketing Sales Rule, the FTC Act, and the MARS Rule by: calling consumers whose numbers were listed on the Do Not Call Registry; not paying the required annual fee to access the Registry; misrepresenting that they would get mortgage modifications to make consumers’ payments significantly more affordable and help prevent foreclosure, and that they would use so-called forensic audits to do this; misrepresenting the amount of time it would take to get results; failing to provide required disclosures about mortgage modification relief; and collecting advance fees.
►American Mortgage Consulting Group: The FTC alleged that since early 2011, the defendants claimed a phony affiliation with the U.S. government, pretended to be attorneys, and promised to substantially lower monthly mortgage payments in exchange for an up-front fee ranging from $1,495 to $4,495. Along with two companies he controls—American Mortgage Consulting Group LLC and Home Guardian Management Solutions LLC—defendant Mark Nagy Atalla allegedly violated “nearly every provision of the Mortgage Assistance Relief Services Rule.” The defendants telemarketed mortgage relief services to consumers nationwide, often stating that they were paid by the federal government to assist homeowners and obtain so-called “Home Saver” grants from the government to reduce consumers’ up-front fees, according to the FTC’s complaint. They also allegedly proclaimed themselves to be “a California Professional Legal Team,” sent documents to consumers from their so-called “Legal Department,” and referred to their operation in e-mails as a “law office.”
The defendants claimed they were virtually certain they could obtain loan modifications for their clients, and that the clients would receive a full refund if that did not happen, even though they did little or nothing to help consumers and they failed to provide refunds, according to the FTC.
►Expense Management America: Presenting themselves as the solution to all the consumer’s financial problems, the defendants have cold-called thousands of U.S. consumers from their call center in Montreal since at least mid-2010, including those whose numbers were registered on the Do Not Call Registry, according to the FTC complaint. Whether the consumer was struggling with a mortgage, credit card debt, student loans, car payments, or a poor credit score, the defendants charged an up-front fee of $2,200 to $10,000 that they claimed was being used to pay off debts, according to the complaint. The defendants allegedly claimed that their relationships with lenders and their ability to negotiate on behalf of large groups of consumers made it possible to substantially reduce their payments. But according to the FTC, the defendants failed to produce any of the promised results.
The defendants, Expense Management America, six affiliated companies, and five individuals, who operated in Canada and the United States, also used a series of Web sites that lured consumers to call them, according to the complaint. After pitching consumers by phone, the defendants allegedly would send brochures and financial documents to consumers via e-mail, and obtain their authorization to withdraw funds from their checking accounts. One brochure, the Expense Management Guide, explicitly told consumers they must follow the “Golden Rule,” which was to cease communicating with their creditors and let the defendants do the talking:
“Sometimes [creditors will] go to extremes in an attempt to force you into an agreement by saying things such as ‘We’ve never heard of E.M.A.’ Or ‘We don't deal with them.’ ... Sometimes [creditors] even break the law. Don't be fooled by them. Let E.M.A. do the talking!” The FTC charged that the defendants violated the Telemarketing Sales Rule, the FTC Act, and the MARS Rule by: falsely claiming they could secure more affordable payments and reduce the principal on consumers’ loans; making deceptive claims about the price and material aspects of debt relief and other goods and services; charging advance fees for debt relief; calling consumers whose phone numbers are listed on the Do Not Call Registry; telling consumers not to communicate with their lenders; and failing to make the disclosures required by the MARS Rule.