New Jersey Goes After Loan Modification and Debt Settlement Companies. Suits Filed.

Continuing the State’s effort to combat mortgage-related fraud, New Jersey Attorney General Anne Milgram announced today the filing of two new lawsuits charging a total of 10 individual and corporate defendants with selling bogus loan modification services to distressed homeowners.

Defendants in the two unrelated cases are charged with collecting unlawful “up-front” fees for loan modification services that either never materialized or made homeowners’ situations worse. The defendants also are charged with misleading consumers through false advertising and deceptive solicitations, and engaging in debt adjustment activity without a license.

In one of the two lawsuits, the defendants also are accused of violating federal law governing credit repair activity, and with founding a non-profit “financial advocacy council” solely to legitimize their fraudulent enterprises. The state has identified 42 homeowners victimized by the latest schemes.

“The conduct charged in these two cases is outrageous. It epitomizes the kind of callous, greedy and opportunistic fraud we are committed to halting,” said Attorney General Milgram. “In both cases, the defendants took advantage of desperate people who looked to them for help. They gained the trust of their victims through deceptive advertising and misleading sales pitches, then collected thousands of dollars in unlawful fees and provided nothing in return but empty promises and added financial misery. We intend to hold these defendants accountable.”

“Loan modification services are supposed to serve as a lifeline to homeowners facing foreclosure, but instead the unscrupulous operators in these cases used these programs to cheat struggling families and make a profit,” said New Jersey Department of Banking and Insurance Commissioner Steven M. Goldman. “This type of activity is particularly reprehensible when it occurs in tough economic times when people are fighting to stay in their homes and are especially vulnerable.”

With the lawsuits announced today, the state has filed a total of 11 civil mortgage fraud complaints since June 2008 naming 102 individual and corporate defendants, affecting more than 950 victims and property worth more than $29.1 million. The state has also obtained indictments or guilty pleas in seven criminal mortgage fraud cases involving a total of 10 defendants who were charged with victimizing close to 60 individuals and banks in connection with loans worth nearly $11 million.

The conduct charged in the state’s civil and criminal cases has included fraud that victimized people seeking to obtain loans through a broker, or seeking to own investment properties. Victims have also included those hopeful of improving their living situations via “rent-to-own” opportunities, as well as financially-desperate homeowners in need of loan modification help.

Named as defendants in one of the State’s new lawsuits are Ejike N. Uzor, a licensed attorney who lists offices in Linden and Newark, and Stephen Pasch of Green Brook Township, Somerset County. Charged in the same lawsuit are corporate defendants New Day Financial Solutions, a Newark-based company owned and operated by Pasch, and three other Pasch companies: NDROA, Inc., which operates from Pasch’s home in Green Brook Township, American Credit Repair and Settlement, LLC, and Paramount Debt Settlement USA, LLC, both of which operate from the same address as Pasch’s New Day Financial at 701 McCarter Highway, Suite 303, Newark.

Also named as corporate defendants are two Uzor companies: Uzor Financial Solutions, LLC and Ejike N. Uzor and Associates. Both companies list the same corporate address on McCarter Highway in Newark as the multiple companies run by Pasch. The American Financial Advocacy Council, a registered non-profit which lists both Pasch and Uzor as officers, is also named as a defendant. The complaint charges that American Financial functions as nothing more than a tool to further the fraudulent activities of Pasch and Uzor.

The State’s other new lawsuit names as a defendant Best Interest Rate Mortgage Company (BIRMCO), located on Haddon Avenue in the Westmont section of Haddon Township, Camden County.

Although the approach used by BIRMCO to defraud customers was different – the company used direct mail solicitations while defendants in the New Day lawsuit used Web-based advertising, radio ads and telephone outreach — the outcome was the same: homeowners seeking loan modification help were induced, through misleading promotional materials and deceptive sales pitches, to pay BIRMCO thousands of dollars in advance fees and got either nothing in return, or ultimately saw their financial situations become worse.

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Details of the State’s two complaints are as follows:

Milgram v. New Day Financial Solutions, etc: Filed in New Jersey Superior Court in Essex County, the State’s seven-count complaint charges individual defendants Pasch and Uzor — along with seven corporations operated by Pasch, Uzor or both — with violating New Jersey’s Consumer Fraud Act. The complaint also charges violation of state advertising regulations, the New Jersey Debt Adjustment and Credit Counseling Act and the federal Credit Repair Organizations Act.

The suit also charges that the American Financial Advocacy Council was essentially a ploy to encourage consumer confidence in the services of Pasch and Uzor and their companies, through bogus “independent” recommendations made by the “non-profit.”

According to the State’s complaint, Pasch’s New Day Financial operated from at least September 2008 through March 2009, charging customers thousands of dollars – payable in advance – for loan modification services, and offering a “100 percent money-back guarantee” if the company failed to deliver. New Day representatives urged customers to stop making mortgage payments while the company sought loan modification on their behalf. The complaint charges that, typically, New Day failed to obtain loan modification for its customers, and in many instances put them in worse financial standing by instructing them to stop paying their mortgages.

The experiences of four different New Day victims, including three from New Jersey, are described in the complaint. In one case, a Sayreville woman paid New Day $2,500 for loan modification help and later learned her lender had no record of any contact with New Day. The woman, who had coincidentally received a loan modification offer from her lender, asked New Day for a refund after learning the company had done nothing for her, but never received one.

In another case, a woman from Howell paid $4,200 for New Day’s services in September 2008. She was instructed to make her check payable to Pasch’s company, NDROA. In early 2009, the woman received a letter from her mortgage company indicating that no loan modification review could begin because required documentation had not been provided. The woman tried repeatedly to contact New Day, but was unable to reach a representative except for one time, when she was instructed to be patient. Ultimately, the woman worked directly with her lender to modify her loan, but New Day never refunded her $4,200.

According to the State’s lawsuit, New Day posted notice on its Web site in March 2009 that it would no longer be soliciting loan modification clients. It was around that time, the lawsuit asserts, that the other defendant corporations belonging to Pasch and Uzor – including the non-profit American Financial Advocacy Council — formed and began soliciting loan modification and other debt-adjustment-related business.

According to the complaint, Pasch’s American Credit Repair and Debt Settlement, and his company Paramount Debt Settlement USA, as well as Uzor and Associates, jointly began operating a Web site called www.creditrepair199.com . The Web site offers credit repair and debt adjustment services, and provides a phone number to call to obtain such services. The same Web site advises consumers that they will be charged an “application/enrollment fee” of $199 per individual and $319 per couple, plus a $79-a-month service fee. (It is illegal in New Jersey to charge for credit repair services not yet rendered.)

The lawsuit also charges that the Pasch/Uzor “non-profit” American Financial Advocacy Council — through its Web site at www.lordsavemyhome.com — has sought to instill consumer confidence in the defendants’ bogus, for-profit operations. The complaint quotes the Web site as saying American Financial works “with a select group of Christian-owned companies that are able to assist consumers who are experiencing financial hardships.” The same Web site provides links to the Web sites of Pasch’s companies American Credit Repair and Debt Settlement and Paramount Debt Settlement USA, as well as the Uzor companies Uzor Financial Solutions, LLC and Uzor and Associates. None of the companies are licensed debt adjusters.

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Among other things, the State’s lawsuit against Pasch, Uzor and the other defendants seeks to dissolve the non-profit American Financial, and asks the court to order a halt to the defendants’ unlawful business practices. It also seeks restitution for consumers and the imposition of maximum civil penalties.

Milgram v. Best Interest Rate Mortgage Company (BIRMCO): Filed in Superior Court in Mercer County, the State’s four-count complaint charges BIRMCO with violating the Consumer Fraud Act, state advertising regulations and the New Jersey Debt Adjustment and Credit Counseling Act. According to the complaint, BIRMCO is a state-licensed mortgage lender, but has no state license to conduct debt adjustment activity.

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Despite having no license, BIRMCO has solicited loan modification customers since at least November 2008, typically by sending distressed homeowners direct mail solicitations that appear to have been sent by a government agency. The mailings describe the targeted homeowner’s specific mortgage information, discuss the availability of various government programs to help financially-strapped mortgage holders, and include a telephone number to call for further information. The telephone number is actually for BIRMCO, although the company’s name appears nowhere on the original mailing.

Once a consumer calls the number, he or she is promised that BIRMCO can negotiate a loan modification resulting in a lower interest rate and lower monthly payments. Consumers who accept the offer are charged an up-front fee of several thousand dollars and must sign a contract, but they are promised a refund if BIRMCO fails to obtain a loan modification. They are also told to stop making mortgage payments and to avoid contacting their lenders, purportedly to strengthen their position in seeking loan modification.

In fact, the State’s lawsuit charges, BIRMCO often does little or no work toward obtaining loan modification for its clients. The suit contends that clients who hire BIRMCO and heed the company’s advice to stop making mortgage payments end up learning – typically through a call from their lenders – that they are not only delinquent on their mortgages, but that nothing has been done to modify their loans. Ultimately, the suit charges, customers end up working directly with their lenders and obtaining loan modifications that would have been available in the first place.

Nonetheless, BIRMCO typically forwards a letter to the consumer afterward claiming credit for negotiating a beneficial modification. Customers who seek a refund after negotiating their own loan modifications or realizing BIRMCO did nothing for them usually either get nothing, or only a partial refund, the suit charges.

The State’s complaint describes the experience of several BIRMCO victims, including a Belleville woman who paid the company $2,900 up front and ended up with a loan modification that actually increased her mortgage payment by $70 a month because she followed the company’s advice to stop making mortgage payments. BIRMCO ultimately returned only half of her up-front fee.

As with the New Day complaint, the State’s lawsuit against BIRMCO asks the court to order a halt to the defendants’ unlawful business practices, seeks restitution for consumers and the imposition of maximum civil penalties.

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