The following editorial was published in the Summer 2009 newsletter of the Association of Corporate Counsel, Washington State Chapter.
By Attorney General Rob McKenna
In one of the worst economic downturns since the Great Depression, attorneys from the public and private sectors are stepping up to lend a hand to struggling consumers.
At the heart of this recession are homeowners who face a severe crunch in their ability to afford their mortgage payments, as interest rates rise and employment opportunities vanish. To make matters worse, scam artists and fraudulent businesses have seized on the suffering of homeowners. That’s why now more than ever, my office is doing everything within its power to protect Washington state consumers.
Last October, we announced a landmark settlement brokered by Washington and other states requiring sub-prime lender Countrywide Financial Corp. to provide loan modifications for as many as 395,000 borrowers nationwide. As a result, nearly 10,000 Washington homeowners will receive about $200 million in payment relief. The settlement resolves allegations that Countrywide employed unfair and deceptive tactics in its loan-origination and servicing activities, and that borrowers were often put in structurally unaffordable loans.
Under that agreement, eligible borrowers are modifying the terms of their loans to make monthly payments more affordable. Modified loan terms vary according to the circumstances of the borrower, but may include an automatic freeze or reduction in interest rates, conversion to fixed-term loans, and refinancing or reduction of principal owed.
Threats to state families on the brink of foreclosure also include a new type of bottom-feeder. Earlier this month, I announced that our office has joined the Federal Trade Commission and other states in a nationwide crackdown on “foreclosure rescuers” and loan modification businesses that charge hefty upfront fees and often provide little or no help. This includes five new cases by our Consumer Protection Division, more than doubling the number of foreclosure-assistance actions filed by my Office since 2007.
We took action after we saw a spike in complaints to our Consumer Resource Center, like the Brier woman who said that she called one such operation to ask for a modification. Instead, they took her $2,300.00. “I had to file Chapter 13 to keep from losing my home,” she said. “[B]ecause of this company my home went into foreclosure.”
A common denominator in many of these cases is that often a homeowner could have received the same assistance at no cost had they personally contacted their lender or a nonprofit organization. Worse, these companies instruct homeowners not to talk to their lender or to stop making payments.
We filed suit against one California-based company for operating in Snohomish and Kitsap Counties without authorization, and for violating Washington’s Consumer Protection Act. In another case, a Burien homeowner who filed a complaint with the Attorney General’s Office said she and her brother paid a modification firm an upfront fee, but the company withdrew twice that amount from her checking account, causing an overdraft.
With so many borrowers looking for an opportunity to refinance or modify their loan terms, it’s not surprising that we’ve seen a new crop of shady operators looking to make an easy buck. But these frauds are not merely perpetrated by loan modification companies. When the housing bubble collapsed in September, our office called attention to “foreclosure rescue” operations. These companies approach homeowners on the brink, promising to help them keep their homes, but instead take their money, home, or equity.
Some “phantom help” scammers promise to negotiate a deal with lenders, charge high fees and provide nothing in return. Other “rent to buy” ploys lead homeowners to sign over their property by promising to sell the home back once the homeowners are back on their feet, while allowing them to remain in the home as tenants in the meantime. In the end, of course, the homeowner can't buy the house back and the supposed rescuers take most, if not all, of the equity. A third “bait and switch” fraud involves tricking victims into signing documents purportedly for a new loan, but really transferring ownership of the home. Worse yet, the victims still owe the mortgages.
In response to these scams, our office mailed more than14,000 letters to homeowners facing foreclosure because of missed mortgage payments. We also sent warning letters to county treasurers, for posting with tax foreclosure notices, and for distributing to their county web sites, local newsletters, and weekly newspapers. The letters warned at-risk homeowners about these scams.
While state attorneys general have come together to negotiate settlements with major lenders requiring loan modification programs and other remedies, many homeowners still find themselves in need of legal assistance to save their homes. That's why we’ve partnered with private agencies to address such scams and to protect consumers.
This month, with the support of my office along with the Governor and Chief Justice of the State Supreme Court, the Washington State Bar Association (WSBA) announced the opening of their Home Foreclosure Legal Aid Project.WSBA President Mark Johnson summed it up well: “In times of trouble, lawyers are there to help, stepping up to provide assistance to those in need and tangibly demonstrating generosity, kindness, and concern for the welfare of others.”
I’m proud to encourage the attorneys in my office to serve their communitiesthrough this project, and to be part of an “all hands on deck” approach to protecting the citizens of our state during a time of great economic vulnerability.
Media Contact: Kristin Alexander, Media Relations Manager, (206) 464-6432, firstname.lastname@example.org