FTC Secures Summary Judgment Over Alleged Fraudulent Mortgage Relief Scheme

On September 20, the Federal Trade Commission (FTC)  announced that the U.S. District Court for the Central District of California entered summary judgment against two law firms and two individuals for their participation in an allegedly fraudulent mortgage relief scheme.

According to the FTC, the law firms misrepresented to consumers that they could obtain monetary recoveries of up to $75,000 and cancellation of consumers’ mortgage liens if the consumers joined mass lawsuits against their mortgage lenders.  The law firms allegedly told consumers that they had a “strong case” and that obtaining a significant judgment was “basically a done deal.”  The law firms required large upfront fees and monthly payments to join the litigation.  The FTC also alleged that the law firms failed to keep the fees in a client trust account and failed to include certain disclosures required by law in their written communications with consumers.

The Court determined that the law firms violated Section 5 of the Federal Trade Commission Act (FTC Act), 15 U.S.C. § 45(a), by making false representations to consumers about the strength of their legal claims, their experience and capabilities in litigating mass joinder lawsuits, and failed to pursue cancellation of the mortgage liens despite promising consumers they would do so.  The Court also found that the law firms violated the MARS Rule, 16 C.F.R. § 1015.3-.5, by failing to provide required disclosures, asking for and receiving payment before consumers had obtained a written loan modification offer from their mortgage lender, and misrepresenting mortgage relief services.  The Court permanently enjoined the individual defendants from providing debt relief services, and found them liable for $18 million in restitution.

As previously reported by Enforcement Watch in January, the FTC previously entered into stipulated orders with two​ other individuals in the case. ​