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Meltdown Spawns Foreclosure Scams

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By MARLON A. WALKER and KATHLEEN HENNESSEY

The Associated Press

Published: March 13, 2009

LAS VEGAS - They call themselves loan modification consultants, negotiators or specialists. Some are legitimate, but many are simple con artists looking for desperate marks facing foreclosure amid the wreckage of the nation's housing market.

It's a good business, too, since in most states there's not much of a chance they will end up before a judge or in a jail.

"It's difficult for us to get prosecutors to do the investigations on misdemeanors," said North Carolina Attorney General Roy Cooper.

Some states recently toughened penalties for perpetrating the booming business of foreclosure scams, and some prosecutors have used existing fraud statutes to bring criminal charges, but the reaction of many state prosecutors in places where foreclosure scams are common is civil action designed to recover a victim's money.

Only in a few states are attorneys general offices, which tend to be a focal point of consumer protection efforts, willing and able to seek criminal charges and prison for such con artists.

Though consumers might be helped financially by the civil cases, advocates say criminal prosecutions would do more to stop the scams.

"You've got to do something to get their attention, because what's being done - these civil actions - isn't," said Tom Bartholemy, president of a Better Business Bureau office in southern North Carolina. The fake foreclosure fixers are operating in a target-rich environment. More than 2 million homeowners faced foreclosure proceedings in 2008, and the number is expected to rise this year.

That's the audience for roadside billboards that scream "Save my property!" and radio ads that promise "expert help." Some companies comb property records and send mail designed to look like it's from the homeowner's lender: "We have reviewed your property information and determined that you may be eligible for a loan modification."

After Hugo Malara lost his job at a neon sign company and fell behind on his home loan, he called Derric Robinson, a loan modification specialist who advertises a "money back guarantee."

Malara and his fiancee, Maria Sorto, paid Robinson an $800 fee but say they rarely heard from Robinson again. In fact, the bank had sold their stucco bungalow when they handed Robinson the check.

"He was recommended by a friend. He said he could fix the problem," said Malara, a 48-year-old immigrant from El Salvador.

Robinson said he made calls to the home's new owners on Malara's behalf. He blamed Malara for not cooperating and said the fee was compensation for his time.

"That's how much my time was worth," he said, adding that the work was done outside his job as a loan modification specialist for a California company.

It's difficult to gauge whether even legitimate offers to help are more effective than nonprofit credit counselors who work with lenders at no charge.

"There are plenty of HUD-approved nonprofits who will do this work for free, and that's what we recommend," said Rick Simon, a spokesman for Countrywide Financial Corp., once the nation's largest mortgage lender.

Homeowners who have gotten mixed up with scammers are flooding Better Business Bureau chapters, state attorneys general and consumer protection offices with complaints. Bartholemy said his office in Charlotte, N.C., received about 1,700 in 2008, and the Bureau of Consumer Protection in Nevada takes in more than 100 a month.

The response from state prosecutors, according to a national Associated Press survey, largely has come on the civil side of the court docket. Florida Attorney General Bill McCollum has filed several civil lawsuits, including one against a company with an estimated 600 clients. So have attorneys general in at least a dozen other states.

In Maryland, state criminal prosecutors have filed no charges under a new foreclosure rescue statute. Ditto in Massachusetts, which recently barred for-profit mortgage foreclosure rescues entirely.

In several states, attorneys general can bring a criminal case only when asked by a local district attorney; in others, they lack the jurisdiction entirely.

Lawmakers in Nevada, which has one of the highest foreclosure rates in the country, took steps in the fall to make foreclosure fraud a criminal offense. Five people have been charged under the new statute; none has gone to trial.

The new law there makes defrauding a homeowner in foreclosure a felony punishable by up to 20 years in prison and a $50,000 fine.

IN FLORIDA

Florida has gotten tougher on foreclosure rescue companies. The Florida attorney general's office last year opened more than 50 investigations and sued several companies for not making good on promises to consumers. A new law last year prohibits foreclosure rescue companies from accepting any form of payment until all services are completed. It also creates a three-day right of cancellation for homeowners who sign a contract for such services.

The government has created free nonprofit programs to help navigate the mortgage bureaucracy. The Hope Now program, an alliance of nonprofit, government and lending agencies, offers counseling at no charge through hundreds of local organizations at 1-888-995-HOPE.

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