The Lawyers' Committee for Civil Rights Under Law has filed a lawsuit in Los Angeles County, Calif., against a network of for-profit loan modification companies on behalf of eight California homeowners.
The lawsuit filed in state court reflects a battle against a troubling trend: Just as the housing bubble prompted predatory lenders to foist subprime loans on consumers, the foreclosure crisis has given birth to shysters that defraud distressed homeowners out of tens of thousands of dollars by falsely promising to obtain—for substantial upfront fees—much-needed mortgage modifications on the homeowners’ behalf. And as with predatory lending, these schemes disproportionately target minorities.
Baker, et al. v. Platinum Law Group, et al., is the Lawyers’ Committee’s 14th loan modification scam lawsuit filed nationwide and its fifth filed in California.
“These scamming activities have a devastating effect on vulnerable homeowners who are seeking solutions and, instead, find themselves at a greater risk or foreclosure and in greater financial peril as a result of the deceptive and unlawful conduct,” said Linda Mullenbach, senior counsel for the Fair Housing and Fair Lending Project of the Lawyers’ Committee, in a statement.
The most recent complaint alleges that the defendants promised to work directly with plaintiffs’ lenders to renegotiate their home loans and to secure lower monthly payments and interest rates in exchange for significant advance fees of up to nearly $3,700, collected in violation of California and federal law.
The defendants lured the plaintiffs by touting their specialized experience in the industry, claiming success rates of 90 percent or higher and promising a refund of all or most of the fees paid if they defendants did not obtain loan modifications for the plaintiffs, the complaint further claims.
However, the defendants broke all of those promises, the suit alleges.
If a purported loan modification company requests advance payment or instructs the homeowner to not contact his or her lender, those are “red flags” that the company may be fraudulent, the FBI warns.
Such scams surged by nearly 60 percent last year, especially after the federal government launched programs aimed at helping homeowners who were in foreclosure or on the brink of foreclosure, according to the Housing Preservation Foundation.
The Lawyers’ Committee’s legal campaign against such deceptive practices is part of its work with the Loan Modification Scam Prevention Network (LMSPN), which it leads along with Fannie Mae, Freddie Mac, and NeighborWorks America. The broad coalition also includes representatives from key governmental agencies, such as the Federal Trade Commission, federal Housing and Urban Development (HUD), Justice, and Treasury departments, the FBI, and the offices of numerous state attorneys general.
Since the launch of the national LMSPN database in March 2010 through April 30, 2013, more than 32,000 homeowners nationwide have reported loan modification scams or potential scams that have resulted in total losses of over $78 million. Approximately 6,300 of these reports have been submitted by California homeowners, who have reported losses of over $22 million in fees paid to alleged loan modification scammers.
Consumers can report scams or get more information about loan modification schemes and LMSPN’s efforts at its website: www.PreventLoanScams.org.
And read more about the Lawyers’ Committee loan modification scam litigation at: http://www.lawyerscommittee.org/projects/fair_housing/page?id=0107