CFPB, California Courts Shut Down Two Foreclosure Scams

Based on complaints from the Consumer Financial Protection Bureau (CFPB) a California court has shut down the operations of two alleged loan modification scams based in the state but operating throughout the U.S.   CFPB said it believes that thousands of homeowners were defrauded of more than $10 million by the Gordon Law Firm and the National Legal Help Center.

CFPB's complaints allege violations of the Dodd-Frank Act and Regulation O, formerly known as the Mortgage Assistance Relief Services Rule. These laws prohibit unfair, deceptive, or abusive acts or practices and protect distressed homeowners from mortgage relief scams.   Both complaints allege that the defendants:   

• Illegally charged large upfront fees before services were provided. The defendants in both cases allegedly collected fees typically ranging between $1,000 and $4,500 early in the process for services that seldom materialized.
• Used deceptive language and mailings with government logos and other markings in order to appear their mortgage relief services were sponsored by or associated with government programs or agencies.
• Misrepresented their qualifications, claiming they were experienced negotiators who would substantially reduce mortgage payments, and that they would identify legal violations by consumers' banks or mortgage companies to use as leverage in loan modification negotiations. However, it appears that defendants failed to provide meaningful relief for consumers.
• Told financially distressed consumers to avoid interactions with their lenders and to stop mortgage payments because the defendants would provide relief, potentially putting the consumers unknowingly at risk of losing their homes and/or ruining their credit scores.

The CFPB also alleges that, after the fees were illegally collected the defendants in both cases typically stopped returning consumers' phone calls and emails. In the end, many consumers learned that the defendants had not contacted their lenders or obtained any meaningful relief for them. Ultimately, homeowners across the country lost thousands of dollars each and suffered significant economic injury, including losing their homes.

The CFPB is targeting loan modification operations that attempt to disguise their false promises of relief for struggling homeowners with claims that they are performing legal work or are a law firm. The Bureau is also particularly concerned with schemes that attract victims with false claims that they are endorsed by or represent the government. These tactics are used by mortgage relief scams to attract victims, add credibility to their schemes, or exploit certain legal exemptions for the practice of law.

CFPB sought an injunction against National Legal Help Center and its principals Najia Jalan and Richard K. Nelson on December 3.  The two California residents appear to have targeted consumers in all 50 states, falsely claiming they would provide legal representation even though the individual defendants are not attorneys and consumers received no actual legal representation.  They also falsely claimed that, for a fee, they could help consumers get benefits from government-affiliated programs including the nationwide mortgage servicing settlement and that they were associated with the Independent Foreclosure Review program overseen by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve. . The accused were initially brought to the attention of CFPB by the Office of the Special Inspector General for the Troubled Asset Relief Program and Treasury's Office of Financial Stability.

Action was brought against the Gordon Law Firm and California residents Chance Edward Gordon and Abraham Michael Pessar and their companies last July. The CFPB alleges they are responsible for operating a network of mortgage loan modification businesses that targeted consumers in over 25 states. The defendants allegedly gained homeowners' trust by using Gordon's "law firm" status and led consumers to believe that a law firm was working with their banks and mortgage companies to modify mortgage loans or provide foreclosure relief, while the defendants typically failed to deliver relief.