FTC: Scam promised mortgage relief, did opposite

A company that calls itself Wealth Education allegedly taught numerous financially distressed homeowners an illegal and costly lesson, charging hefty upfront fees for mortgage relief services never rendered, while advising steps that left some facing foreclosure.

"Mortgage relief is one of the big categories that we see," Mitchell Katz, an FTC spokesperson, told CBS MoneyWatch, referring to scams in which consumers are persuaded to pay ahead for services that never materialize.

The situation was particularly acute in 2008, during the height of the financial crisis, he added.

Since at least October 2012, Los Angeles-based Wealth Education, operating under a variety of names, sold phony services, using outbound telemarketing to pitch to consumers in financial trouble, according to the Federal Trade Commission (FTC).

Promising to get monthly mortgage payments lowered or restructured for upfront fees that ran as high as $5,000, the company failed to make good on its offer of a full refund if the services were not provided, the FTC said.

"It's illegal to charge an up-front fee for the promise of a mortgage modification," Jessica Rich, director of the FTC's Bureau of Consumer Protection, said in a statement. "Companies offering such services can't charge a fee until you have an acceptable written offer from your lender or servicer. If they ask for payment first, walk away."

Making matters worse, the company allegedly told consumers to stop communicating with their lenders -- delaying them from discovering Wealth Educators was not working on their behalf -- and allegedly told consumers, many of whom had made timely mortgage payments, to stop making the payments, the agency said.

"They tell you to pay them; that they're going to do all the business on your behalf and you don't need to do anything; you stop paying your mortgage essentially, and that's not good, so you fall behind on your mortgage payments while paying them," Katz said.

A federal judge has temporarily halted the Los Angeles company from offering mortgage relief services at the FTC's request, the agency said Friday.

The agency's action comes as the result of the Mortgage Assistance Relief Services (MARS) rule issued by the FTC in late 2010 to protect homeowners from scams that sprung up during the mortgage crisis. The rule bans providers of mortgage rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that's acceptable to them.

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