Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: Mortgage “Forensic Auditors” Settle FTC Foreclosure Scam Charges, (Feb 7, 2013)

By Tobias J. Gillett, J.D., LLM.

Providers of purported “forensic audit” services have settled FTC charges that they deceptively promised to help mortgagees avoid foreclosure, but failed perform the services they advertised (FTC v. Consumer Advocates Group Experts, LLC, FTC File Nos. 112 3137 and X120030, Case No. 1:11-cv-02448).

The FTC’s complaint filed in the federal district court in Los Angeles alleged that Consumer Advocates Group Experts, LLC, its owner, and two other affiliated companies, Paramount Asset Management Corporation and Advocates for Consumer Affairs Expert, LLC, offered “forensic audit” services that they claimed would allow consumers to modify their mortgages or avoid foreclosure. They allegedly claimed that “up to 95% of mortgages may be legally unenforceable due to defects like lost documents, improper notices, appraisal and/or predatory lending,” and that a “forensic audit” could find such defects.

Consumer Advocates charged $1,995 to $2,590 in fees to perform the audit, which the company claimed could then be used to negotiate with the lenders for reduced interest rates, a lower principal, or decreased monthly mortgage payments. Consumer Advocates’ representatives would often claim that the consumers would have a “100%” chance of receiving a refund or a loan modification, and that the company could lower payments by as much as 50 percent.

The company would allegedly tell consumers not to contact their lenders, and sometimes tell them to stop making payments on their mortgages. However, the company would frequently fail to contact the lenders, or fail to obtain loan modifications or reduced payments, and would not provide promised refunds to those consumers. The company would also fail to disclose that it was not affiliated with or approved by the government, that lenders may not agree to modify consumers’ loans, and that consumers could cease doing business with the company at any time. Consumers would often learn too late that their lenders had foreclosed on them, and their credit ratings were frequently damaged.

The FTC alleged that Consumer Advocates’ actions violated the FTC Act, the Commission’s Mortgage Assistance Relief Services Rule (MARS), and the Consumer Financial Protection Bureau’s Regulation O. The MARS Rule, issued pursuant to authority granted by Congress in 2009, limits the activities of mortgage relief services providers by imposing certain disclosure requirements, fee limitations, and record-keeping requirements, among other provisions. The Dodd-Frank Act transferred rule-making authority to the CPSC, which reissued the MARS Rule as Regulation O, but the FTC retains authority to enforce it.

The FTC’s settlement order prohibits the defendants from offering mortgage assistance relief, or any other debt relief, products and services; prohibits them from making specific misrepresentations about financial-related products and services; prohibits them from making misrepresentations about any other products and services; requires them to have reliable evidence to support representations about the benefits of products and services; and requires them to destroy any customer information obtained through the operation.

The order also imposes a $3.5 million monetary judgment, which is suspended due to the defendants’ inability to pay. Should the financial information they provided to the FTC later prove to be false, the full amount of the judgment will become due.

Companies: Consumer Advocates Group Experts, LLC; Paramount Asset Management Corporation; Advocates for Consumer Affairs Expert, LLC

News: ConsumerProtection FederalTradeCommissionNews