Attorney General Lori Swanson Expands Litigation Against Fraudulent Foreclosure Consultants And Issues Warning To Minnesota Homeowners In Mortgage Trouble To Seek Reputable Help And Steer Clear Of Scam Artists

Minnesota Legislators and Attorney General also propose legislation to tighten laws and stop new breed of mortgage modification companies that prey on homeowners in trouble

January 30, 2009 – (RealEstateRama) — Attorney General Lori Swanson today filed a lawsuit against Allina Health System in Hennepin County District Court, alleging that it violated state usury laws by charging rates of interest of up to 18 percent on medical debts owed by patients.

Attorney General Lori Swanson today filed lawsuits against two so-called mortgage “foreclosure consultants” alleging that they targeted homeowners facing foreclosure with illegal up-front fees and empty promises to save their homes. The lawsuits are against IMC Financial Services, LLC (“IMC”) and American Financial Corp. d/b/a National Foreclosure Counseling Services (“NFC”), both with offices in Florida. The lawsuits allege that both companies unlawfully charged up-front fees as high as $1,850 and failed to deliver promised services to save the homes from foreclosure. Today’s lawsuits bring to twelve the number of bogus foreclosure consultants sued by the Attorney General in the last year.

“These foreclosure consultants exchanged the hard-earned money of desperate homeowners for empty promises. Nobody should ever pay money in advance to a company promising to save their home from foreclosure,” Swanson said.

Foreclosure consultants typically represent that they will save a homeowner’s home from foreclosure by negotiating or modifying the terms of the homeowner’s existing mortgage. A 2004 Minnesota law bars “foreclosure consultants” from charging any compensation until after the foreclosure consultant has “fully performed each and every service the foreclosure consultant contracted to perform or represented he or she would perform.”

The Attorney General also expressed concern about a new breed of company that operates like a foreclosure consultant in promising to negotiate or modify the terms of the homeowner’s existing mortgage, but instead targets homeowners who may be struggling financially but are not yet in default or foreclosure. Swanson and state legislators proposed legislation designed to close loopholes in existing state law regulating foreclosure consultants and to prohibit so-called mortgage modification companies from soliciting up-front fees and then failing to deliver the promised services.

“These companies are very creative in finding a number of ways to capitalize on the foreclosure crisis and skirt existing law. We need to further tighten the laws on the books to provide the maximum level of protection to struggling homeowners in this rocky economy,” Swanson said.

“People in foreclosure are frequent targets for scams and fraud. The Legislature made great inroads in 2004 when we passed legislation to regulate so-called mortgage foreclosure consultants, and now we need to close the loopholes as these companies constantly find new and unfair ways to peddle their services,” said Representative Joe Mullery (Minneapolis), chair of the Civil Justice Committee.

Added State Senator Lisa Fobbe (Zimmerman): “The foreclosure crisis is hurting homeowners in all parts of the state. We should do everything possible to stop companies that seek to take unfair advantage of desperate homeowners in this troubled economy.”

State Senator Kevin Dahle (Northfield) also added: “I have met with far too many teary eyed constituents who have lost their home to foreclosure. It is a daunting and emotional experience, and we should tighten protections for these folks where we can.”

The Attorney General issued these suggestions for consumers struggling to pay their mortgage:

• Take immediate action to contact the lender if you are having trouble paying a loan. The lender may be willing to work out a repayment plan, loan modification, forbearance, reinstatement, etc. Don’t wait to contact the lender, as delays may jeopardize your options.
• Contact a reputable mortgage counselor. Borrowers may find legitimate counselors by contacting the Minnesota Housing Finance Agency (“MHFA”) or the U.S. Department of Housing and Urban Development (“HUD”).
• Never pay money in advance to a “foreclosure consultant.” Minnesota law bans foreclosure consultants from collecting a fee until after they deliver their services. Swanson also suggested that homeowners not pay money in advance to companies promising to modify or negotiate terms of existing mortgages where the homeowner is struggling financially but not yet in default.

Today’s lawsuit against IMC was filed in Hennepin County District Court, and the lawsuit against NFC was filed in Ramsey County District Court. Both lawsuits seek injunctive relief, civil penalties, and restitution for homeowners. NFC has been sued by the Attorneys General of Colorado and Illinois.

Swanson noted that in November, her office proposed a “homeowner-lender mediation act” under which lenders would offer homeowners an opportunity to mediate a loan default before a foreclosure could occur. Representative Mullery is a co-author of that bill. Mullery and Swanson said the bill would help prevent unnecessary foreclosures and reduce the market for bogus foreclosure consultants. The bill is being introduced in the Minnesota Senate today by Senator Linda Scheid and others, and in the House today by Representative Debra Hilstrom, Representative Joe Mullery, and others.

Homeowners who feel they have been taken advantage of by a mortgage foreclosure consultant may file a complaint with the Attorney General’s Office by calling 1-800-657-3787 or 651-296-3353. Consumers also may download a Consumer Complaint Form from the Attorney General’s website at www.ag.state.mn.us and returning the completed form to: 1400 Bremer Tower, 445 Minnesota Street, St. Paul, MN 55101-2131.