Airizona Attorney General Terry Goddard announced that he has gained a total of more than $1,370,000 in civil penalties and restitution for consumers as a result of two mortgage fraud lawsuits filed earlier this year. These enforcement actions come as part of Goddard’s crackdown on businesses that prey upon homeowners struggling to avoid foreclosure.
“The Attorney General’s Office will continue to aggressively fight mortgage fraud with all available tools,” Goddard said. “These operations misled vulnerable homeowners for profit, with no apparent concern for the damage their actions caused. I will continue to work with local, state and federal partners to root out mortgage fraud and protect consumers.”
Taken Care of Investments, LLC
In March, Goddard filed a lawsuit on behalf of his office and the Arizona Department of Financial Institutions against an alleged foreclosure rescue operation believed to have defrauded some 270 Arizonans of their homes.
In the suit, Goddard alleged that between 2003 and 2007, Richard Winer, 33, of Tempe, through his limited liability companies – Taken Care of Investments, LLC; Homeowner Solutions, LLC; Bourbon Street Property Management, LLC; and Filibuster, LLC – victimized homeowners facing imminent foreclosure with fraudulent offers to help them stay in their homes.
Winer identified potential targets through public records of delinquent borrowers whose properties were facing trustee sales. Winer or his salespeople approached those homeowners claiming to be experienced “distressed property consultants” who could, in many cases, “stop foreclosure within 24 hours.”
According to court documents, Winer and his salespeople persuaded struggling homeowners to deed him their homes in return for assuming their monthly mortgage payments and paying off the full value of their delinquent payments. Winer charged homeowners a monthly fee equivalent to the mortgage payment to remain in the home as a renter. Neither the owner’s mortgage lender nor servicer was notified of the transfer of title.
These owners-turned-renters had the option to repurchase the house from Winer within one year for a fee of approximately $15,000, if they met all of the conditions of the sale-leaseback agreement. If the owner-turned-renter violated any of the conditions, such as by making even one late rental payment, the option to repurchase the home became void and the individual was subject to immediate eviction.
The State’s lawsuit claimed that homes obtained under this scheme were resold within two weeks to investors who paid a commission to Winer. Almost all of the owners-turned-renters proved unable to repurchase their properties, at which time the investor sold or refinanced the home at full market value, earning profits in the tens or, in some cases, hundreds of thousands of dollars.
The lawsuit claimed that these actions violated numerous state laws, including the Arizona Consumer Fraud Act and the Arizona Debt Management Companies Act, by:
- Falsely and deceptively representing to homeowners that they would save their homes when, in fact, the defendants structured the transactions to take ownership and equity away from homeowners for the benefit and profit of defendants.
- Misleading homeowners and circumventing and concealing from them the defendants’ obligations and homeowners’ rights and remedies under a mortgage loan agreement.
- Evading the protections of the Federal Truth in Lending Act (TILA) which required defendants to disclose the annual percentage rate of the mortgage and the homeowner’s right to rescind the transaction within three days of receiving notification of the right.
- Evading of the protections provided by Arizona’s licensing requirements for mortgage bankers and mortgage brokers.
- Acting as a debt management company but failing to obtain a license, post the bond required, pay the required fees or maintain the required liquid assets.
- Making or negotiating mortgage loans, acting as a mortgage broker and receiving compensation in connection with arranging or negotiating mortgage loans without posting the required bond, passing the mortgage broker’s test, conducting the required investigations into employees or making the disclosures to consumers required of mortgage brokers by Arizona law.
According to the terms of the settlement, Winer must:
- Pay $391,500 in restitution to homeowners victimized by their alleged scheme.
- Pay $150,000 in civil penalties to the Attorney General’s Office and $150,000 in civil penalties to the Arizona Department of Financial Institutions.
- Refrain from participating in any manner in any financial institution or enterprise licensed by the Arizona Department of Financial Institutions.
This case was handled by Assistant Attorney General Rebecca Salisbury. Copies of the complaint and consent judgment are here.
Hope for Homeowners Now, LLC.
In July, Goddard filed a lawsuit alleging that Hope for Homeowners Now, LLC, a Glendale-based company, misled homeowners looking for help in modifying their mortgage.
In the suit, Goddard alleged that between December 2008 and July 2009, Matthew Castaneda, of Glendale, and Michael Winding, of Phoenix, through their limited liability company Hope for Homeowners Now, LLC, victimized homeowners facing imminent foreclosure with fraudulent claims of high success rates modifying mortgage loans.
Hope for Homeowners Now advertised loan modification services for an upfront fee of $3,195. According to court documents, the company solicited their modification services with claims including: “Over 80% of our customers have tried to deal with their lending institutions on their own and failed,” and “Loan modifications have a very small success rate if you try to do it with a non-profit organization or yourself.”
Based on the Attorney General’s investigation, Goddard alleged that Hope for violated numerous state laws by:
- Deceptively implying it was more successful at obtaining mortgage loan modifications than consumers who try to obtain modifications on their own or with the assistance of non-profit organizations. In fact, the company’s success rate was no better than that of it clients who tried to obtain loan modifications on their own.
- Misrepresenting that the company was comprised of real estate and financial professionals, as well as “professional mitigation attorneys,” and that attorneys negotiate on behalf of Hope for Homeowners’ clients.
- Charging consumers an upfront fee prior to the full performance of services and without first having obtained a surety bond.
- Failing to provide its loan modification clients with the necessary substantive disclosures required by the Arizona Credit Services Act.
Despite being served with the lawsuit and notice of a court hearing regarding the State’s claims, the defendants did not appear in court or otherwise respond to the allegations against them. As a result of their failure to respond, Maricopa County Superior Court Commissioner Jay Davis issued a default judgment in favor of the State.
According to the court judgment, the defendants must:
- Pay $424,935 in restitution to consumers.
- Pay $155,000 in civil penalties to the State of Arizona.
- Permanently refrain from providing loan modification or origination services in Arizona or on behalf of an Arizona consumer.
This case was handled by Assistant Attorney General Cherie Howe. Copies of the complaint and default judgment are attached.
Unfortunately, Goddard said, law enforcement alone is not enough to stop mortgage fraud. He continues to urge federal and state lawmakers to adopt heightened protections for homeowners, including state legislation prohibiting predatory lending and the creation of a Federal Consumer Protection Agency.