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Loan Modification Boiler Room and Success Rate Exposed

Responding to a just-released report that exposes the inner workings of a loan modification boiler room, California Attorney General Brown warned homeowners to avoid “shadowy and unscrupulous” loan modification consultants who use aggressive telemarketing tactics and charge thousands of dollars in upfront fees for foreclosure relief.

The report, written by a court-appointed receiver, found that H.E. Servicing, Inc., a loan modification company that Brown sued last week, ran a “well-appointed telephone boiler room” focused on making money, rather than helping homeowners stay in their homes.

“From sun up to sun down, this shadowy and unscrupulous operation used high-pressure telemarketing tactics to bully homeowners into paying thousands of dollars for phony loan modification services,” Brown said. “In reality, the goal wasn’t to help these homeowners stay in their homes, but to rip them off and take their hard-earned dollars.”

On July 7, 2009, as part of “Operation Loan Lies,” Brown, the Federal Trade Commission and the State of Missouri sued US Foreclosure Relief Corp., George Escalante, Cesar Lopez and Adrian Pomery who operated a number of fraudulent foreclosure relief companies including H.E. Servicing, Inc. On the same day the suit was filed, the U.S. District Court for the Central District of California entered a temporary restraining order appointing an independent receiver to closely examine the structure, operation and finances of these companies.

After reviewing documents, tracing financial transactions, interviewing employees and speaking with state officials, the receiver made the following findings:

  • “Even if most of the deceptive sales practices could be cured, this is not a lawful advance fee loan modification business. It is not operated and managed by a lawyer or a properly licensed DRE broker. It is a phone sales operation selling unlicensed loan modification services with more than 80 percent of its clients residing outside of California.” (p. 2)
  • “At the outset, it is a challenge to precisely categorize this business. It is not a law practice. It is not a licensed mortgage or real estate company. Rather, I see this business as a high-pressure, cash-up-front telephone sales business targeting distressed homeowners. It appears that some homeowners may have been helped, but the overriding goal of the business was not to help homeowners, but to make money.” (p. 6)
  • “The Sales Department is essentially a well-appointed telephone boiler room with phone cubicles for 44 sales people – ‘counselors’ – and separate offices or stations for 3 on-site managers.” (p. 9)

In addition to the excerpts above, the receiver’s report, submitted July 15, 2009, made the following observations about H.E. Servicing, Inc.:

  • The sales department operated like a boiler room. Spread across 11,285 square feet of office space in Anaheim, the company operated as a “bustling enterprise” with phone cubicles for 44 sales people and offices for three on-site managers. Sales people handled approximately 500 incoming calls per day in staggered shifts from 5:00 a.m. to 5:00 p.m. Of the 60 employees, only eight “staff negotiators” communicated directly with clients and lenders about mortgage details.
  • The typical commission was $450 for a fully paid sale (i.e. $2,500 upfront payment) with an extra $25 if the consumer paid by debit card or wire transfer. If the consumer could only handle a payment plan (minimum $1,000 down), the sales person received a percentage (10-15%) of the amount actually paid, with no commission on the later payment. Other sales incentives were also offered, including a Rolex watch.
  • Sales people informed homeowners that the company successfully negotiated 10,000 loan modifications, when in truth, only 311 were completed. Sales people informed homeowners that the company had 10,000 confirmed and negotiated loan modifications, a 90% success rate, nationwide service and over 100 workers. According to company records, from November 2008 to July 8, 2009 a total of 2,960 loan modification files were opened with only 311 completed.
  • The company spent $70,000 a week on radio and television advertising in 100 media markets and had plans to expand to $80,000-$100,000, producing an estimated $270,000 a week in new business. The company also planned to aggressively hire additional sales staff.
  • The company advertised a money back guarantee, but just before being shut down it implemented a cap on refunds, regardless of the amount due to consumers.
  • Homeowners were led to believe that they were hiring a lawyer or law firm to save their homes. Sales people frequently referred to the company as “attorney-based.” One sales person had a note claiming that the attorney was “the most aggressive attorney in the mortgage industry.” By contrast, the receiver’s report says that the business is “not a law practice.”
  • In the first six months of 2009, a report prepared by an outside account reported a net income of $4.5 million.

Last Friday, with the temporary restraining order set to expire, the U.S. District Court for the Central District of California held a hearing to consider the receiver’s report and other evidence presented by the Attorney General, the Federal Trade Commission and the State of Missouri. After hearing this evidence, the court issued a preliminary injunction to keep the terms of the temporary restraining order in place.

The Court set a hearing for July 28, 2009 to consider options to assist homeowners, particularly those facing foreclosure.

Brown has been leading the fight against fraudulent loan modification companies. In addition to last week’s legal action against 21 individuals and 14 companies, he has sought court orders to shut down several companies including First Gov and Foreclosure Freedom and has brought criminal charges and obtained lengthy prison sentences for deceptive loan modification consultants.

As part of today’s consumer alert, Brown’s office issued the following tips for homeowners to avoid becoming a victim:

DON’T pay money to people who promise to work with your lender to modify your loan. It is unlawful for foreclosure consultants to collect money before (1) they give you a written contract describing the services they promise to provide and (2) they actually perform all the services described in the contract, such as negotiating new monthly payments or a new mortgage loan. However, an advance fee may be charged by an attorney, or by a real estate broker who has submitted the advance fee agreement to the Department of Real Estate, for review.

DO call your lender yourself. Your lender wants to hear from you, and will likely be much more willing to work directly with you than with a foreclosure consultant.

DON’T ignore letters from your lender. Consider contacting your lender yourself, many lenders are willing to work with homeowners who are behind on their payments.

DON’T transfer title or sell your house to a “foreclosure rescuer.” Fraudulent foreclosure consultants often promise that if homeowners transfer title, they may stay in the home as renters and buy their home back later. The foreclosure consultants claim that transfer is necessary so that someone with a better credit rating can obtain a new loan to prevent foreclosure. BEWARE! This is a common scheme so-called “rescuers” use to evict homeowners and steal all or most of the home’s equity.

DON’T pay your mortgage payments to someone other than your lender or loan servicer, even if he or she promises to pass the payment on. Fraudulent foreclosure consultants often keep the money for themselves.

DON’T sign any documents without reading them first. Many homeowners think that they are signing documents for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership to the “rescuer.”

DO contact housing counselors approved by the U.S. Department of Housing and Urban Development (HUD), who may be able to help you for free. For a referral to a housing counselor near you, contact HUD at 1-800-569-4287 (TTY: 1-800-877-8339) or on the web at www.hud.gov.

If you believe you have been the victim of a mortgage-relief scam in California, please contact the Attorney General’s Public Inquiry Unit.

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Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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