State officials are turning up the heat on businesses that target struggling homeowners, ordering nearly 400 mortgage foreclosure consultants to post $100,000 bonds and register with the state attorney general’s office or risk prosecution.
Authorities acknowledge that they have been caught off guard by the rapid proliferation of such businesses -- many of them less than reputable.
The growth has outpaced attempts to enforce state regulations requiring bonding and registration for consultants offering to help homeowners who can’t make mortgage payments, and authorities have been inundated with complaints about shady operators.
“We’re in the midst of an unprecedented series of scams and exploitation in our state,” California Atty. Gen. Jerry Brown said at a Los Angeles news conference Wednesday. “This is not some garden-variety problem. This is out of control. It’s huge.”
Brown said he was giving the unregistered companies, which can be found on a list posted on his website, 10 days to “get their act together” or his office would take legal action.
Letters ordering companies to register were sent Friday and the 10-day warning period began Monday, he said.
In addition, Brown ordered more than two dozen companies to back up advertising claims about their loan modification efforts. The 27 companies have touted unusually rapid mortgage adjustments and a 90% success rate for staving off foreclosures -- which law enforcers find highly suspicious, Brown said.
Letters to businesses ordered to substantiate their ads were sent Monday, and they have 20 days to prove their claims or face lawsuits, he said.
“Too many homeowners are paying money in advance because they are desperate, and they’re coming up empty-handed because they are being scammed,” Brown said.
California Real Estate Commissioner Jeff Davi said the Department of Real Estate had received 1,067 reports of loan modification scams since October.
The complaints resulted in 317 legal actions taken against fraudulent businesses, he said.
Reports of mortgage scams are rolling in to the Department of Real Estate in numbers never seen before, said Thomas Pool, a department spokesman. In June 2008, the agency was investigating fewer than 10 complaints about loan-modification consultants, Pool said in a recent interview.
Brown’s office also launched a website called Stop Loan Modification Fraud that lists consulting firms that have registered with the state as well as individuals and businesses accused in lawsuits of fraud and other illegal actions related to the mortgage business.
The site offers tips on avoiding fraud and what to do if a person thinks he or she is being scammed.
The website also has links to free counseling approved by the U.S. Department of Housing and Urban Development and the California Department of Real Estate’s website, which has similar resources and lists trustworthy companies.
The warning letters to businesses suspected of ripping off homeowners follow the filing of 189 lawsuits, cease-and-desist orders and other legal actions in 20 states last month by Brown’s office and the Federal Trade Commission. Dubbed Operation Loan Lies, the sweep’s targets included 14 companies and 21 people based in Southern California.
More than 200 of the nearly 400 loan modification businesses named Wednesday are in Los Angeles and Orange counties, Brown said.