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Feds Look at Tougher Foreclosure 'Rescue' Rules

Desperate homeowners often victimized by con artists

June 2, 2009

Are these services unfair or deceptive? Should they be reined in by proposed rules that would set standards to protect consumers?

“Homeowners who are facing foreclosure or struggling to make mortgage payments shouldn’t have the added burden of being misled by unscrupulous businesses promising assistance that never comes,” FTC Chairman Jon Leibowitz said. “We deeply appreciate Senator Byron Dorgan’s and Chairman Jay Rockefeller’s efforts to give us the authority to use standard, efficient rulemaking procedures to begin this process.”

The rulemaking for the Mortgage Assistance Relief Services is looking into the proliferation of loan modification and foreclosure rescue services in the current economy. Public comment will allow the Commission to assess whether rules would be useful in protecting consumers of these services.

The FTC is particularly interested in receiving comment on the costs and benefits of prohibiting or restricting the payment of advance fees for loan modification and foreclosure rescue services. The 45-day public comment period ends Wednesday, July 15, 2009.

In addition, the FTC is seeking comment on a second rulemaking, the Mortgage Acts and Practices rulemaking, which addresses activities that occur throughout the life-cycle of a mortgage loan: advertising and marketing; origination, including underwriting, loan terms, and disclosures; appraisals; and servicing. Public comment for this rulemaking has a 60-day public comment period ending Thursday, July 30, 2009.

California crackdown

In the latest state acton, California California Attorney General Jerry Brown yesterday issued a directive forcing foreclosure consultants to register with his office and post a $100,000 bond by July 1, 2009.

Those who fail to do so will be in violation of state law, subject to criminal penalties of up to a year in jail and fines ranging from $1,000 to $25,000 per violation.

"California is awash with con artists who prey on vulnerable families facing foreclosure," Brown said. "By forcing foreclosure consultants to submit detailed information to my office and post a $100,000 bond, this registry will help bring long-overdue transparency to this shadowy world."

In California, as well as other states, scam artists pose as legitimate foreclosure consultants, promising homeowners they will prevent foreclosure. In reality, these scam artists charge huge up-front costs, but don't provide any help. Often, they make matters worse.

Earlier this month, Brown's office prosecuted a scam artist who allegedly provided hundreds of homeowners with forged bank documents and directed them to send their mortgage payments to accounts she had created, instead of the homeowners' lender.

Additionally, Brown's office has seen a significant increase in the number of complaints from homeowners regarding foreclosure consultants.

The registry unveiled Monday will provide Californians with information about potential consultants and recourse in the event that a consultant violates the law.

All foreclosure consultants operating in California must post a $100,000 bond and register with Brown's office by July 1, 2009 and submit the following information:

• Name, address, and telephone number;

• All names, addresses, telephone numbers, websites, and e-mail addresses used or proposed to be used in connection with their business;

• Copies of all advertising;

• Copies of each different contract the consultant will use with consumers; and

• A copy of its $100,000 bond.

Foreclosure consultants who provide proper information will receive a Certificate of Registration. Brown's office, however, may refuse to issue, or revoke, a Certificate of Registration if the foreclosure consultant has made any misstatement in its registration form, has been convicted of fraud or misrepresentation, has been convicted of a violation of the state's foreclosure consultant laws, California's false advertising, unfair or deceptive practices laws or other laws dealing with mortgages.

If the company violates the law, Brown said a court may order restitution to victims out of proceeds from the $100,000 bond.

In order to obtain a Certificate of Registration by July 1, 2009, foreclosure consultants should send in their registration application and materials as soon as possible so they can be reviewed prior to July 1.

The registry was established through legislation sponsored by Speaker of the Assembly Karen Bass, AB 180, which was signed into law last year.

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