When Hattie Peartree of Pikesville received a call from the law office of Mark H. Klein last July, she thought she had found relief for her high mortgage payments. The representative told Peartree he would reduce her home loan if she paid $3,000.
“I told the person I didn’t have it,” she said. “And he indicated ‘well we can make a payment plan’.”
Since August, Peartree says she paid more than $2,000 to the Florida-based company and per their advice, stopped making her mortgage payments.
She said she “felt good” about the plan until she received notification from her lender threatening foreclosure.She realized the Mark Klein office was fraudulent in October, when she learned most legitimate modification companies offer free services.
Her tale echoes the experiences of many homeowners across the nation, who, blind-sided by seemingly opportune deals to reduce their mortgages, fall victim to scammers. The Federal Trade Commission has brought more than 30 cases against such companies.
In response to the swarm of mortgage swindlers, the FTC will enact new regulations for mortgage modification companies January 2011.
U.S. Rep. Elijah E. Cummings hosted a news conference, Dec. 6, informing the public of these critical measures to protect residents “already in danger of losing everything.”
“There are many unscrupulous people out there who are preying on the vulnerability of those homeowners,” he said at the news conference. “While we cannot prevent every foreclosure and eviction, we must try to protect those who are facing these troubling times from being ripped off by unscrupulous people who seek to profit on the misery of others.”
Since the recession began in Dec. 2007, Americans experienced more than 2.5 million home foreclosures. Another 3.3 million homes are expected to face foreclosure in the next four years, Cummings said.
It is already illegal in Maryland for loan modification companies to charge up-front fees for services, Cummings said, but the new FTC rules provide an “additional layer of protection for homeowners.”
Under the regulations, mortgage relief companies cannot collect fees until customers receive a written offer from their lender, claim affiliation to a government or lending agency or guarantee loan modification. Relief businesses must also disclose service costs up front and are barred from advising homeowners to cease their mortgage payments. Violators face civil penalties and high fines.
Laura Sullivan, a representative for the FTC said the new rule allows federal and state regulators to prosecute fraudulent companies regardless of their state location. Oftentimes, swindles are perpetuated across state lines, she said.
“These companies have generally distracted and deterred consumers from getting real relief,” said Sullivan. “This rule culminates a nearly two-year effort on the FTC and our state counterparts to prosecute these types of companies aggressively.”
The provisions also apply to attorneys, who must deposit all advance fees into a client trust account and follow restrictions authorized by their state.
Mark Kaufman, Maryland Commissioner of Financial Regulation says state officials have conducted over 200 investigations into alleged scammers and have recovered over $100,000 for victimized homeowners.
“The problem is, at the end of the day, I can get your $3,000 back, hopefully and in many cases successfully, but I can’t solve the underlying problem, which is the foreclosure,” he said at the news conference.
Late last month, state officials indicted a Virginia-based lawyer, who allegedly defrauded 10 Prince George’s County homeowners out of thousands of dollars in a widespread loan modification scam. The FTC has ordered a temporary freeze on his company’s assets and is taking measures to close the business.
Peartree is hoping for a similar outcome in her case and is working with the state to retrieve the thousands she’s lost. She has not heard from the law office in over a month. She is also fighting to secure her home of 17 years. She faces a $10,000 bill for late mortgage payments.
“Be aware,” she warned homeowners at the news conference.
Cummings will host a foreclosure prevention workshop for city homeowners Dec. 18.