FTC Targets Foreclosure Relief Scams
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- Kirk Haverkamp | November 20, 2010
A new rule protecting at-risk homeowners from foreclosure relief scams has been issued by the Federal Trade Commission.
The rule targets so-called mortgage relief or foreclosure rescue services that promise to help financially distressed homeowners restructure their mortgage for a fee. The rule bans such services from collecting any fees until the homeowner receives a written offer from their lender or mortgage servicer that they find acceptable.
Services promised, but not delivered
The FTC and state attorneys general have received widespread consumer complaints about companies that promise to help homeowners negotiate a loan modification or other means of avoiding foreclosure, often charging thousands of dollars in up-front fees, but then fail to produce results. In some cases, customers complained that companies refused to pay refunds despite guaranteeing results that were never achieved.
“At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage relief services have taken hundreds of millions of dollars from hundreds of thousands of homeowners without ever delivering results,” FTC Chairman Jon Leibowitz said. “By banning providers of these services from collecting fees until the customer is satisfied with the results, this rule will protect consumers from being victimized by these scams.”
The FTC, state and federal law enforcement agencies have brought charges in hundreds of cases involving operations such as these.
One notable exception to the rule is for attorneys, although they will still be required to place any advance fees collected into a trust account and abide by state laws and regulations covering such accounts. It's not immediately clear what effect, if any, the regulation might have on nonprofit agencies that offer foreclosure and mortgage counseling services for a small fee or no charge.
Other abuses targeted as well
The new rule also imposes a number of other restrictions that are designed to address common abuses that have been reported in conjunction with foreclosure rescue operations. These include forbidding a company from falsely claiming to be associated with or approved by the government or the borrower’s lender. Loan modification services will also be prohibited from telling a customer to cut off communications with their lender and deal with them exclusively through the company.
In addition, customers must be told that they can accept or reject any offer from their lender or mortgage servicer, do not have to pay the company’s fee if they reject the offer and that they can stop doing business with the company at any time.
The advance-fee provisions of the rule take effect on Jan. 31, 2011; the rest of the rule becomes effective Dec. 29, 2010.
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