Lenders and servicers are not the only targets in the crosshairs of the Consumer Financial Protection Bureau when it comes to foreclosures. The CFPB, the Federal Trade Commission, and fifteen states announced a sweep against foreclosure relief companies that allegedly used deceptive marketing tactics to rip off distressed homeowners. The CFPB and the FTC have filed multiple lawsuits against companies and individuals that collected millions in fees for services that falsely promised to prevent foreclosures or renegotiate mortgages teetering on default. In the wake of the foreclosure crisis, borrowers across the country have sued companies under state consumer protection laws alleging that they were falsely promised that the companies could save their homes from foreclosure. The lawsuits often share the same grievances: Companies collect fees before obtaining a loan modification, inflate the success rate and likelihood of obtaining a loan modification, and dupe consumers into thinking they would receive legal representation. In the past, state regulators and borrowers have sought relief under old unfair and deceptive practices acts and new laws specifically designed to stamp out foreclosure relief fraud. Now, the CFPB and FTC have joined in the legal fight. In its lawsuits, the CFPB claims that defendants violated Regulation O, formerly known as the Mortgage Assistance Relief Services Rule, and the Consumer Financial Protection Act. Regulation O generally bans mortgage assistance relief service providers from requesting or receiving payment from consumers for mortgage modifications before a consumer has signed a mortgage modification agreement from their lender.
The CFPB also issued a consumer advisory to help consumers avoid foreclosure relief scams. Also, the CFPB wants servicers to join in the campaign against foreclosure relief fraudsters. It issued a model third-party authorization form “that was developed as part of loan modification scam prevention efforts by representatives from government agencies as well as consumer advocacy groups, housing counselors, and the mortgage industry.” The CFPB states that the new form “provides additional questions that will help mortgage servicers build on existing privacy and fraud controls by collecting information that will make it easier for servicers to spot red flags of a foreclosure rescue scam.” The form can be used by servicers to alert their borrowers about foreclosure relief scammers and inform them about the personal information that is often exchanged in loss mitigation review.