Legislation targets foreclosure scam artists

AUSTIN — The rising number of home foreclosures in Texas is spawning opportunistic scam artists who falsely promise to help vulnerable homeowners in exchange for hefty fees, Texas Attorney General Greg Abbott said Wednesday in pledging a state crackdown against the schemes.

Abbott threw his support behind legislation toughening regulations on companies that present themselves as “foreclosure rescue consultants.”

State Sen. Craig Estes, R-Wichita Falls, said his bill is designed “to send a very clear signal that these actions by unscrupulous mortgage foreclosure consultants will not be tolerated.” The measure will be considered in the legislative session that convenes in mid-January.

Abbott also announced an enforcement agreement against Arizona-based Abell Mediation, accused of making false claims that it could protect homeowners from imminent foreclosure. Abbott’s office secured similar agreements against two other companies last year, Foreclosure Assistance Solutions of Florida and Southern Residential of Texas.

Ripe for fraud

Foreclosure scams are becoming a “growing problem in Texas,” Abbott said. “It’s growing because foreclosures are growing. I don’t see it abating anytime soon.”

Although Texas has avoided the precipitous housing downturn facing other states, the economic slump has generated a growing number of foreclosures in the Lone Star State. In the Fort Worth area as of mid-November, foreclosures were up by about 18 percent for 2008 compared with last year.

Dallas-Fort Worth is ripe for foreclosure fraud because “there are so many homes and homes being foreclosed upon,” Abbott said.

Enforcement agreements

After combing official records to locate homeowners who are in danger of losing their residences, foreclosure consultants contact the owners and charge fees of at least $1,200 to negotiate with the mortgage company and offer other assistance. Unscrupulous operators, Abbott said, collect the money but take no action, leaving the homeowners to default on their mortgage with a ruined credit record.

Under the November enforcement action against Abell Mediation, the company and its president and vice president — Elizabeth Cory and Michael Cory respectively — were ordered to pay a total of $1.5 million in fines, restitution and attorney fees. The company is also prevented from conducting a “foreclosure mitigation” business.

But Dallas attorney Patricia Nolan, who represented the defendants, said the agreement was not an admission of guilt.

“The defendants have denied engaging in any wrongdoing or in any violation of Texas law,” she said. “When faced with the prospect of defending against the great state of Texas, they elected to settle.”

The company solicited customers on its Web site, Abbott’s office said, saying it had saved more than 7,000 homes from foreclosure. It also touted relationships with banks and mortgage lenders nationwide, the state said.

In the cases against Southern Residential and Foreclosure Assistance Solutions, customers signed contracts agreeing not to contact their lenders, the state alleged. Customers of Foreclosure Assistance paid fees of at least $1,200 but “rarely heard from the company’s representatives again,” the state said in a news release describing the case.

Southern Residential charged its customers up to $2,000. Additionally, some customers said the company’s “renegotiations” with lenders required immediate balloon payments totaling tens of thousands of dollars, the attorney general’s office said. Southern Residential received between $100,000 and $150,000 a month in fees, but many of the homeowners nevertheless lost their homes to foreclosure or went into bankruptcy, the state alleged.

The bill

Estes’ proposed Foreclosure Rescue Fraud Prevention Act would require foreclosure prevention consultants to provide customers with a written contract outlining the proposed services. It would also require a written disclosure statement advising customers to contact an attorney or housing counselor before signing mortgage rescue agreements.

Prosecutors could also obtain civil penalties under the state’s deceptive trade practices act.

By DAVE MONTGOMERY
dmontgomery@star-telegram.com

To Our Success,
Mark

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