Campaign against loan modification scams launches in L.A.

A national housing nonprofit has launched an education campaign in Southern California to combat fraud targeting homeowners in peril of foreclosure.

Loan modification scams are on the rise, charging troubled homeowners thousands of dollars up front for mediation and counseling services that are provided free of charge by federally approved nonprofits, Eileen Fitzgerald, chief operating officer of Washington-based NeighborWorks America, said at a news conference this morning at Los Angeles City Hall. The nonprofit is starting its yearlong national education effort in Southern California because the region has been hit particularly hard by the foreclosure crisis, she said.

Troubled borrowers often pay fees ranging from $1,500 to $3,000 to loan modification companies, Fitzgerald said. The companies, in turn, promise to negotiate with lenders on the homeowner's behalf. In some cases the companies promise that loan amounts will be modified, a result that is difficult and rare, she said.

Aside from the money spent on unscrupulous companies, those facing foreclosure can also lose precious months that could be better spent with federally approved nonprofit counselors who do not charge for their services, Fitzgerald said.

Poorly informed homeowners desperate for help turn to loan modification consultants -- who are often attorneys, mortgage brokers or real estate agents -- who advertise on radio, television and in print.

“They are very good marketers,” Fitzgerald said.

This month, California Atty. Gen. Jerry Brown's office reported having received more than 2,500 complaints against loan modification consultants and their businesses this year, up from fewer than 200 in 2008.

Seniors, Latinos, African Americans and Asian Americans have been particularly victimized and will be a focus of the education campaign, Fitzgerald said.

For the next three weeks, community organizers and volunteers working with NeighborWorks and its local affiliate, Los Angeles Neighborhood Housing Services, will be distributing marketing materials to people and warning companies about loan modification fraud. The first stop today was the Sun Valley Workforce Center in Sun Valley.

“Many of these families believe they have nowhere to turn, nowhere to go for help or assistance,” Los Angeles Mayor Antonio Villaraigosa said at the news conference.

In April, the Los Angeles City Council passed an ordinance imposing penalties on companies that charge for such services.

Zulma Navarrete said that over the last year she had bad experiences with two different loan modification companies.

The 36-year-old native of Guatemala, speaking in Spanish at the news conference, said the first company charged her about $2,000 and the second, a law firm, charged her $3,495. Neither has gotten the lender to reduce the $2,900 monthly payment on her three-bedroom Huntington Park home. Navarrete said she got her money back from the first company but not from the law firm.

“I was robbed,” she said. “And I want my money returned.”

-- Alejandro Lazo

District attorney warns of loan modification scams

Los Angeles County Dist. Atty. Steve Cooley warned homeowners today to be careful to avoid foreclosure rescue scams.

Some companies offering to negotiate home loan modifications are instead opportunists who “promise quick results for a fee but actually provide nothing,” Cooley said in a news release.

Read more at California Consumer.

-- Stuart Pfeifer

Pomona man accused of running Ponzi scheme has companies shuttered

A Los Angeles federal judge barred Ben-Wal Leasing Co. and Ben-Wal Management Inc., and the owner of the two companies, from doing business in response to a complaint alleging investor fraud filed by the Securities and Exchange Commission.

The civil complaint said the two firms, based in Pomona and run by Jerry E. Benson, ran a Ponzi scheme that took nearly $6 million from about 125 investors, many of them elderly, from mobile home parks throughout California.

The court ordered a halt Wednesday to the alleged fraud and also froze the assets of Benson and his Ben-Wal companies. “Mr. Jerry Benson has and will continue to cooperate with the SEC’s efforts to recover investor funds,” Benson's lawyer, J. Brian Watkins, said in a statement.

“Though cooperating with the SEC, Mr. Benson disputes any allegations of fraudulent conduct and notes that the continuing shift from print to electronic media combined with the economic downturn resulted in a failure of the business,” Watkins said.

In the complaint, the SEC said that since about 1990 Benson had been offering and selling investments in Ben-Wal Leasing through promissory notes. Investors were lured with guarantees of 12% annual returns, and Benson told potential investors that others had earned returns as high as 18%, the commission said.

Ben-Wal Leasing raised at least $5.7 million from about 125 investors from 2004 to April of this year, court documents said. Mobile home parks across the state were specifically targeted with circulated advertisements, the complaint said.

Investors were falsely told that financiers had never lost money through Benson and that their money would be used to buy printing equipment that would be leased out with the lease payments producing the promised 12% returns, the SEC said.

Instead, much of the funds were transferred to a company owned and operated by Benson’s son, Scott W. Benson, known as CTR Web Printing Inc., court documents said.

CTR Printing also was the only company leasing printing equipment from Benson, though CTR failed to make regular lease payments to Ben-Wal Leasing, the complaint said.

New investor funds were used to make principal and interest payments to previous Ben-Wal Leasing investors, the SEC said.

In May 2009, Benson and Ben-Wal Leasing received a desist-and-refrain order issued by the California Department of Corporations, which demanded the man and his business stop offering or selling securities in California in violation of state law.

The SEC’s complaint said that Ben-Wal Leasing stopped making interest payments to investors in June 2009, but then started up a new company, Ben-Wal Management Inc. to continue selling notes.

When Benson stopped paying investors, he told them it was because of an audit; later investors were told they weren’t getting paid because the SEC wasn’t approving his payments, but that he was working with the commission to “expand business,” the complaint said.

The court order also froze the assets of CTR Printing and appointed a temporary receiver over the two Ben-Wal companies and CTR. Investors are asked to contact the SEC’s Los Angeles Regional Office by telephone at (323) 965-4574 or by e-mail at ben-wal@sec.gov if they have questions about the commission’s actions or future court hearings.

-- Nathan Olivarez-Giles

Tips to avoid loan modification scams

The Federal Trade Commission has teamed with local and state authorities in a nationwide crackdown on loan adjustment scams, as reported in the Business section of The Times.

But one of the biggest challenges the FTC and its allies are up against is reaching homeowners looking to stave off foreclosure before the scammers reach them and dupe them, promising mortgage modification services that they never deliver.

The FTC produced a video on how to avoid scams as part of its inter-agency crackdown, dubbed "Operation Loan Lies," which can be watched and downloaded at www.ftc.gov/YourHome, or below.



The FTC's video, "Real People, Real Stories," is also available in Spanish, which can also be seen below.



For those seeking to lower their monthly home loan payments, here are some tips on avoiding scams. The suggestions come from the FTC and the office of California Atty. Gen. Jerry Brown:

• The first thing anyone seeking to modify an existing loan should do is call his lender.

• Lenders want to hear from homeowners and will probably be more willing to work directly with them than with a foreclosure consultant. Do not ignore letters from your lender. Many lenders are willing to work with homeowners who are behind on their payments.

• Contact housing counselors approved by the U.S. Department of Housing and Urban Development, who may be able to help you for free. For a referral to a housing counselor near you, contact HUD at (800) 569-4287 or www.hud.gov.

• It is illegal for foreclosure consultants to demand money before they give you a written contract  and before they actually perform all the services described in the contract, such as negotiating new monthly payments or a new mortgage loan.

• However, an advance fee may be charged by an attorney, or by a real estate broker who has submitted the advance fee agreement to the California Department of Real Estate for review.

• Do not transfer title or sell your house to a "foreclosure rescuer." Fraudulent foreclosure consultants often promise that if homeowners transfer title, they may stay in the home as renters and buy their home back later.

• Fraudulent foreclosure consultants claim that transfer is necessary so that someone with a better credit rating can obtain a new loan to prevent foreclosure. Beware -- this is a common scheme so-called rescuers use to evict homeowners and steal all or most of the home's equity.

• Do not pay your mortgage payments to someone other than your lender or loan servicer, even if he or she promises to pass the payment on. Fraudulent foreclosure consultants often keep the money for themselves.

• Do not sign any documents without reading them first. Many homeowners think that they are signing documents for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership to the "rescuer" who is actually a scammer.

Homeowners who think they have been ripped off can file a complaint with the California Department of Real Estate through their website here. The department also offers tips on how to avoid getting scammed and what to do if you think you've been scammed here.

Complaints can also be made directly to the FTC by phone at (877) 382-4357, the FTC's Headquarters or Financial Services Division in Washington, D.C., at (202) 326-2222. The FTC also has regional offices; in San Francisco at 901 Market St. and in Los Angeles at 10877 Wilshire Blvd.

HUD can set up homeowners with personalized guidance from housing counseling agencies they've certified at (888) 995-4673. More information on how to find free certified counseling services is available at HUD's guidance website at www.hopenow.com or the Obama Administration's website loan modification website, www.makinghomeaffordable.gov.

-- Nathan Olivarez-Giles

Lawsuits filed against 21 people, 14 companies suspected in loan rescue scams [Updated]

The Federal Trade Commission and California Atty. Gen. Jerry Brown unveiled lawsuits today designed to shut down 14 Southern California companies and 21 people accused of running loan-modification scams that ripped off thousands of struggling homeowners looking to avoid foreclosure.

The lawsuits were announced as part of a nationwide crackdown on foreclosure rescue scams known as "Operation Loan Lies," which pairs the FTC with state and local authorities to go after fraudulent companies preying on homeowners desperate for mortgage relief.

Under the operation, 189 lawsuits, cease-and-desist orders and other legal actions have been filed in 20 states,  FTC Chairman Jon Leibowitz announced at a morning press conference held with Brown in downtown Los Angeles.

Such fraudulent schemes are rampant in California, Leibowitz said.

"Part of the reason why we're out here today is because California consumers have been among the most hard hit and also because a lot of these malefactors are based in Orange County," Leibowitz said. "It's one of the hotbeds of mortgage scam activity."

Brown and the FTC are demanding millions in civil penalties, restitution for scammed homeowners and permanent injunctions to prevent the defendants and companies from offering mortgage-relief programs.

In documents filed in U.S. District Court in Los Angeles and Orange counties, Brown and the FTC allege that the California firms charged from $500 to $5,500 in upfront fees for loan modification services, often promising to help modify mortgages to make payments more affordable.

Firms named in the suits include:

• U.S. Homeowners Assistance, based in Irvine, and its executives Hakimullah "Sean" Sarpas and Zulmai Nazarzai. U.S. Homeowners Assistance also did business as Statewide Financial Group Inc.

• U.S. Foreclosure Relief Corp. and its legal affiliate, Adrian Pomery, based in the city of Orange

• Home Relief Services, with offices in Irvine, Newport Beach and Anaheim, and its legal affiliate, the Diener Law Firm

• RMR Group Loss Mitigation and its legal affiliates Shippey & Associates and Arthur Aldridge. RMR Group has offices in Newport Beach, Orange, Huntington Beach, Corona and Fresno

• United First Inc. and its lawyer affiliate, Mitchell Roth, based in Los Angeles.

Representatives for the accused companies and individuals weren't immediately available for comment.

[Updated at 11:55 a.m., July 16: An earlier version of this post described We Beat All Rates and U.S. Homeowners Preservation Center as alternate business names of U.S. Homeowners Assistance. Those two companies aren't affiliated with U.S. Homeowners Assistance and were sued separately.]

 -- Nathan Olivarez-Giles

FTC investigates Van Nuys companies

A local company is among the targets of a Federal Trade Commission crackdown on consumer fraud. From The Times' Jim Puzzanghera:

One of the FTC's new cases alleged that five Van Nuys companies had bilked consumers out of about $300 million by selling fraudulent programs related to real estate or online businesses.

The companies -- John Beck Amazing Profits, John Alexander, Jeff Paul, Mentoring of America and Family Products -- and five people who had founded or run those companies were accused of violating federal laws related to telemarketing and consumer fraud.

The FTC accuses the companies of making "false and unsubstantiated claims about potential earnings" that customers could make by following their advice in books, CDs and DVDs titled "John Beck's Free & Clear Real Estate System," "John Alexander's Real Estate Riches in 14 Days" and "Jeff Paul's Shortcuts to Internet Millions," which were sold for $39.95 each.

People who purchased the programs, advertised through infomercials, unknowingly were signed up for additional monthly charges of $39.95 and offered "personal coaching services" that cost several thousand dollars.

Messages left at the companies' offices were not returned Wednesday.

Anyone in L.A. Land have any first-hand experience with any of these outfits? By the way, the FTC is calling this push "Operation Short Change."

-- Lauren Beale

Thoughts? Comments?

 

Older California homeowners in loans they can't afford

Older California homeowners who can't afford their mortgages are at the heart of a story from the Wall Street Journal:

As the government presses lenders to modify mortgages, a large subset of distressed borrowers is being left out: older homeowners on low fixed incomes. Many of them are now facing foreclosure, say legal-aid advocates and AARP attorneys, because they were sold loans they could never afford, often fraudulently.

Many of these homeowners had lived for decades in their home and had built up substantial equity, but had low incomes. This made them tempting targets for brokers who persuaded them to refinance their mortgages, telling them they could lower their monthly payments. Instead, many of these loans were loaded with fees and exploding interest rates and quickly became unaffordable.

These borrowers' incomes are often so low -- many are living solely on Social Security -- that few qualify for mortgage-relief programs. Even if lenders agree to reduce the interest rate and stretch out the repayment period, strategies at the heart of the Obama administration's antiforeclosure guidelines, "they won't get payments low enough," says Tara Twomey, an attorney with the National Consumer Law Center.

Hundreds of thousands of people in once-hot markets such as California's Central Valley fall into this camp, say housing counselors. Often the only way to keep these people in their homes is if lenders rescind the fraudulent loans or reduce the principal, steps most are unwilling to take.

The U.S. House of Representatives has endorsed legislation that would allow bankruptcy judges to modify or rescind loans even if lenders are unwilling. But lenders oppose the measure and the legislation has stalled in the Senate.

Seems during the mortgage run-up, older owners were targeted by cold-calling mortgage brokers, and some were drawn in by low teaser rates. Some of the foreclosures are being challenged by attorneys on the grounds that the homeowners were defrauded. These types of cases certainly make an argument for bankruptcy judges to order "cramdowns."

-- Lauren Beale

Thoughts? Comments?