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FTC sues firms in mortgage aid scam crackdown

(MoneyWatch) The Federal Trade Commission announced Tuesday that it has sued three companies, alleging that they have scammed homeowners out of millions of dollars by falsely claiming that they could save troubled homeowners from foreclosure.

The suits, which seek to immediately shut the the companies down, are part of the "distressed homeowner initiative," a federal effort to halt predatory home rescue, mortgage modification, short-sale and bankruptcy frauds that target financially struggling homeowners.

Since 2008, the FTC has brought more than 40 cases under the initiative and says it has saved hundreds of millions of dollars in bogus charges as a result. The agency, which is charged with enforcing fraud and false advertising laws, also passed a new rule in 2010 that banned mortgage foreclosure rescue and loan modification companies from collecting fees until homeowners had received written proof that their lender was willing to provide the requested relief.

"With many homeowners still struggling to hold onto their homes, the FTC takes a hard line against con artists who are seeking their next victim," said FTC Chairman Jon Leibowitz in a statement.

In all three cases announced Tuesday, the FTC charged that the defendants peddled bogus mortgage relief schemes in violation of the FTC Act and the Mortgage Assistance Relieve Services rule, which ban advance payment for mortgage relief services.

The defendants, which do business under dozens of corporate aliases, including Prime Legal Plans, Consumer Legal Plans, American Mortgage Consulting, Home Guardian Management Solutions, Expense Management America and New Life Financial Solutions, could not be reached for comment.

Two of the companies have been placed into receivership while awaiting trial. The phone at the final company, Expense Management America, was continually busy on Tuesday. An attorney who filed paperwork to represent some of the E.M.A. defendants said his client denies the charges, but would not comment further because the case is pending.

The FTC alleges that while the mortgage scams were similar, they all followed somewhat different paths. Prime Legal Plans, also known as Reaching U Network and American Legal Plans, told consumers in both English and Spanish that they would have their attorneys review mortgage loan documents to help save their homes and negotiate better terms. But instead of helping borrowers, the defendants allegedly charged up to $750 a month and did little or nothing to save the consumers' homes.

The Commission said that American Mortgage Consulting Group, which also went by the name Home Guardian Management Solutions, claimed a phony affiliation with the U.S. government, saying it could negotiate substantially reduce mortgage payments in exchange for a up-front fee ranging from $1,495 to $4,495. Although the firm claimed consumers could get a full refund if it was unable to help, the company did little of service and failed to refund consumer fees, the FTC says.

Expense Management America, which claims to solve a range of consumers financial problems, including those related to credit cards, mortgages, student loans or auto debt, charged an up-front fee of $2,200 to $10,000 that the company said was used to pay off debts at a reduced rate. One brochure put out by the company told consumers that they must follow the "Golden Rule," which was to cease all communication with their creditors while EMA negotiated for them, the FTC says.

"Sometimes [creditors will] go to extremes in an attempt to force you into an agreement by saying things like 'We've never heard of EMA,' the company said in marketing documents. "Don't be fooled by them. Let EMA do the talking."

The FTC alleges that EMA's claims that it could negotiate more favorable terms than consumers could on their own are false. David Seltzer, who an attorney who represents six corporate entities under the EMA umbrella, says his client denies the FTC's allegations and will vigorously fight the charges in court.

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