Federal officials unwittingly handed scammers a new and highly profitable product in 2009 when they launched the Home Affordable Modification Program, or HAMP. The voluntary campaign, hatched after the housing bubble burst in 2008, encouraged lenders to offer loan modifications, which officials hoped would prevent millions of people from being forced out of their homes. But HAMP quickly spawned a new financial menace for the very people it was intended to save: Telemarketers bilked vulnerable people out of thousands of dollars by charging them advance fees for loan modifications that never materialized, or for other foreclosure “rescue” services that they didn’t provide.
The following year, officials banned advance fees for loan modifications in a move to snuff out scams run by boiler room pros. But they yielded to pressure from the legal community and exempted attorneys from the ban. That decision turned lawyers into valuable allies in the burgeoning loan-modification racket.
A Center for Public Integrity investigation identified more than 1,000 attorneys nationwide who have since signed on to loan modification ventures that have drawn law enforcement scrutiny, at least partly, because they attracted clients through misleading, if not downright false, promises made by telemarketers, deceptive mailings or websites.
Most of the lawyers played no direct role in hiring or supervising marketers, though they accepted referrals from attorney-directed companies that often did. These hybrid firms have been accused by state and federal consumer-fraud investigators of cheating desperate homeowners out of tens of millions of dollars, court records show.
Stamp of Approval
The cachet of having “law firm” in the corporate name has clearly been a major selling point for many people fearful of losing their homes to foreclosure.
That was true for James Lorde, of Bridgeport, Connecticut, who was behind on his mortgage payments and had been denied a modification by his lender.
“This made me feel more comfortable about working with them because I expected lawyers to perform the mortgage modification process competently,” he said in a 2014 affidavit.
Lorde agreed to pay an upfront fee of $1,200 to the California-based operation, and $800 a month for three months in hope of making his mortgage more affordable. He became concerned when the emails he sent to check on the progress of his case bounced back. He later learned that the law firm’s office was a mail drop.
When he finally reached the lawyer in charge of his case and demanded a full refund, the lawyer refused, saying the firm “had spent considerable time and effort on my case,” according to Lorde’s affidavit. The lawyer promised a $500 partial refund within five days, but Lorde said he never received it.
In a separate case, an Orange County, California, lawyer’s office had telemarketers tout its legal pedigree to set itself apart from the competition.
“First let me start by saying that we are NOT a loan modification company. We are a law firm made up of real estate attorneys who have been helping homeowners save their homes from foreclosure and battling mortgage lenders for more than a decade now,” according to a script. Federal authorities said the firm had no such network.
Thomas McNamara, a California lawyer who as a court-appointed receiver has reviewed several defunct loan-modification businesses involving attorneys, believes that sales tactics employed by boiler rooms, so-called for their high-pressure atmosphere, simply don’t mesh with the practice of law. For starters, he noted most states prohibit lawyers from splitting fees with nonlawyers.
Then there’s the commission-payment structure that rewards hype and overselling over prudent counsel. McNamara concluded the degree of deception was so great at one firm, A to Z Marketing, that it could not be profitable if run legally and ethically.
“They are not law firms or even legal service providers. They are sophisticated telemarketing sales operations targeting distressed homeowners and charging illegal advance fees,” according to a 2013 document MacNamara filed in a lawsuit headed by the U.S. Federal Trade Commission. “They deceptively portray themselves as service providers for lawyers, but this is all fiction – the telemarketers are the drivers of the business. … The associated lawyers provide nominal services and serve primarily to promote the illusion that the consumer has retained a law firm.”
The FTC has since won a judgment against A to Z Marketing.
‘Network of Attorneys’
Court records in other cases show that telemarketers have often appealed to raw emotions, such as fear of losing a home, or a deep-seated feeling that the homeowner had been victimized by a bank and deserves a break. That so many homeowners had been unable to get a loan modification on their own — government figures show rejection rates as high as 75 percent — undoubtedly has helped make these pitches enticing.
Another South Florida telemarketer stated in an affidavit that she used an auto dialer to make on average at least 100 calls per day to homeowners behind on their mortgages.
She billed herself as an “intake case manager” and told customers they would receive “expert” legal advice from a “network of attorneys who were the best in their field and had won cases across the nation,” according to an affidavit.
Authorities say such claims are dubious at best. So was the oft-repeated suggestion that lawyers might uncover misconduct by mortgage lenders that could yield huge rewards for the homeowner.
The woman said the bosses instructed her to tell customers that judges were ruling in favor of homeowners over banks. Some clients, she told them, had seen “reductions of up to 75 percent” in the balance of their loans, while other customers “received their homes free and clear or had their entire mortgages rewritten.”
Authorities say these sorts of fantastic results seldom are achieved by any lawyer in any case. But touting the possibility clearly offers hope, which some marketers have exploited from their first contact with a homeowner.
“The reason I am calling you today is about your mortgage. It appears that you may be having some problems with your mortgage and might be in a predatory or fraudulent loan created by your lender. It’s not your fault you’re in this situation,” reads the opening of one script.
When people hedge or raise questions about loan modifications, telemarketers have written answers to bulldoze through their reluctance. These are called “rebuttals” or “objections” in the trade, and telemarketers often have dozens of them to refer to in a pinch.
Telemarketers who sensed a sale was slipping away because the customer wanted more time to think about it had a snappy comeback to keep them on the line: “You should think about your options. You can continue on your current path that will lead you to losing your home, usually with very little notice.”
When the homeowner seemed resigned to losing property to the bank, the telemarketer suggested an upset win for the little guy could happen.
“You have to understand during the last 10 years, millions of loans were given to homeowners whether they qualified or not and a lot of predatory lending was done during that time, meaning many errors whether intentional or not were committed,” the telemarketer’s script read. “The banks know this and they usually don’t like to do battle with expert attorneys in court.”
Fees for the “expert” legal services were negotiable. The sellers tried to talk the homeowner into a plan that cost them $750 a month, but had the discretion to reduce the fee to $595 a month to close a deal. Telemarketers were paid commissions of $350 to $400 for each deal, according to an affidavit.
Many telemarketers banked on the fact that consumers had no way to verify many of the sales claims they made, such as success rates for loan modification. There’s no place to verify who gets the best results, or whether it is worth even hiring an attorney, for instance.
That didn’t stop telemarketer Sweeney from making up a figure that would convince just about any customer to stick with the plan.
Sweeney’s job in the Fort Lauderdale sales room was to keep homeowners paying fees month after month, usually through automatic withdrawals from their bank accounts. He testified that he was hired on the spot in 2011 after a five-minute interview.
He said he was assigned 180 clients and told to “keep them enrolled from month to month,” with the understanding that if he didn’t retain a high percentage, management would fire him. Ideally, the company wanted to keep each customer long enough to generate about $5,000 in fees, he said.
Sweeney said in early 2012 the company began offering a free credit report to people who had had made payments over five months, which he described in testimony as a tactic “to throw consumers a bone and keep them in the program and making monthly payments.”
Sweeney said he often received complaints from people who had been paying for months without seeing any progress on their loan modification. He blamed any delays on the banks.
People who tired of the delays and wanted a refund had to kick up a major fuss to get it. Those who complained to a state attorney general went to the top of the list, according to Sweeney. Many other sales rooms also made refunds to the small number of angry customers who complained to law enforcement or state legal authorities; failing to do so could bring official heat down on the boiler room.
The bottom line, according to California lawyer McNamara: Businesses such as A to Z Marketing took advantage of people who were in desperate financial straits and wanted a glimmer of hope for a way out.
“Its real business model,” McNamara said, “was to target the large number of vulnerable homeowners who would pay $2,500 – $5,000 to an anonymous voice on the phone offering them hope and affordable legal representation.”
Reporter Fred Schulte’s story is one part of a four part, nationwide look at mortgage foreclosure scams titled “Low Bar: The false promise of foreclosure relief.” You can read them here: Center for Public Integrity.