DOJ Files Suit Against California Lenders Alleging Discriminatory Loan Modification Scheme

On August 23, 2016, the Department of Justice (DOJ) announced the filing of a lawsuit in the United States District Court for the Northern District of California against several California-based mortgage loan modification service providers.  The complaint alleges that defendants violated the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA) by intentionally targeting and discriminating against Hispanic homeowners.  The lawsuit arose as a result of complaints filed with the U.S. Department of Housing and Urban Development (HUD) by two affected homeowners.  HUD referred the case to the DOJ Civil Rights Division, which subsequently filed this action.

According to the complaint, defendants marketed and encouraged homeowners to pay for unnecessary and ineffective loan audits that defendants claimed were essential for a loan modification.  DOJ further alleges that defendants’ advertising encouraged homeowners to stop making mortgage payments and cease contact with their lenders.  This purportedly caused many of the homeowners to default and lose their homes.

DOJ is seeking declaratory and injunctive relief against all defendants, as well as monetary damages for all the homeowners that were allegedly harmed by the defendants’ discriminatory practices.