WASHINGTON -- The federal government today launched a drive to find 100,000 homebuyers owed $70 million in refunds by the Department of Housing and Urban Development and began a crackdown on individuals and businesses that pose as federal agencies and charge people millions of dollars in needless fees for refunds.
"Uncle Sam could owe you money, and he wants to pay up," said HUD Secretary Andrew Cuomo, who announced the drive with Federal Trade Commission Chairman Robert Pitofsky.
"If we owe you money, HUD will do more than ever before to find you and get you your refund," Cuomo said. "We will also protect you from being charged needless fees to gain access to your money."
Under the initiative, HUD will work with the Internal Revenue Service to find thousands more people owed HUD refunds. HUD will also use the Internet and a toll-free phone line to give individuals easier access to information on their refunds, and will publicize the refunds with public service announcements. The refunds are owed to homebuyers who pay off mortgages insured by HUD's Federal Housing Administration in less than seven years.
The initiative also involves action by HUD and the FTC against companies and individuals -- called tracers -- that charge homebuyers 10 to 30 percent of their refunds to obtain the refunds. Tracer fees often reach hundreds of dollars per refund and sometimes top $1,000. Tracers also recruit people, often on the Internet, who pay fees to become tracers -- although the newcomers usually lack access to information needed to succeed in the business.
HUD today issued cease and desist orders against five of the tracers for giving the false impression that they are federal government agencies or representatives. One of the firms also told homebuyers they must pay a $300 fee to receive their refunds.
"We warn those who use the Internet to sell 'HUD tracer' get-rich-quick schemes that the FTC is on the beat and will not permit deceptive claims about earnings or their affiliation with HUD," Pitofsky said.
"Consumers should be wary of scam artists who want to take a hefty cut of their FHA refund," said Michelle Meier, Counsel for Government Affairs for Consumers Union, who joined Cuomo and Pitofsky at a news conference. "Consumers can go directly to HUD to get a full refund without dealing with expensive middlemen."
Refunds average about $700 per borrower for borrowers HUD has been unable to find. Refunds for borrowers found by HUD in fiscal 1997 averaged $980.
About 91 percent of all homebuyers owed refunds are found and paid in any given year. In the last fiscal year, 91.2 percent of refund recipients who were found were located by HUD and 8.8 percent were located by tracers. Refunds of $192.9 million went to 196,842 homebuyers in the 1997 fiscal year.
In 1997, tracers collected an estimated $1.8 million to $5.1 million in fees from people getting HUD refunds and in 1996 they collected about $2 million to $6 million in such fees.
The action HUD is taking against the tracers is part of a series of steps Cuomo has initiated to eliminate waste, fraud and abuse in all HUD programs. Highlights include:
A new agreement between HUD and the Internal Revenue Service to use IRS lists of current taxpayer addresses to find more people who are owed HUD refunds. The IRS, which has the most accurate and broadest address database in the nation, will search its database to locate people owed refunds. The IRS will then mail the people letters from HUD notifying them of refunds. Most of those owed refunds are expected to be found as a result.
A toll-free telephone line -- 1-800-697-6967 -- and a new Internet website -- http://www.hud.gov/cgi-bin/refund2 -- where people can learn whether they are owed a refund by HUD. Homebuyers can also write: U.S. Department of Housing and Urban Development, P.O. Box 23699, Washington, D.C. 20026-3699.
HUD public service announcements that will go to newspapers and radio stations to inform consumers about refunds.
An enforcement initiative by HUD against businesses and individuals that violate federal law by giving a false and misleading impression they have a connection with or authorization from HUD, the FHA or other parts of the federal government. If HUD finds that a tracer has broken this law and the tracer is prosecuted by the Justice Department and convicted, he or she could be fined and jailed for up to a year. HUD sent letters to five companies today ordering them to "cease and desist immediately from the making of such false statements" and warning of criminal prosecution. They are: ABC Publishing of Dearborn Heights, MI; FHA/HUD Mortgage Insurance Refund Tracer of Long Beach, CA; Independent Processors of Birmingham, AL; Pacific Associates HUD Tracer Group of Torrance, CA; and USA Software of Chesapeake, VA.
An enforcement initiative by HUD and the FTC. The Federal Trade Commission Act authorizes the FTC to bring enforcement actions against "unfair or deceptive acts or practices in or affecting commerce." FTC and HUD officials last week joined forces to hold a "Surf Day" on the Internet that targeted HUD tracer solicitations. The officials identified 330 web sites, news group postings, and bulk e-mail messages that made questionable earnings claims or purported to be affiliated with or authorized by HUD. As part of the crackdown, the FTC and HUD sent e-mail messages warning the site operators that if their claims cannot be substantiated, they could be violating the law. If, after 30 days, the FTC finds that any of the operators is continuing to mislead consumers or publish false statements, further action may be taken.
"The Internet poses unique opportunities and difficult challenges for consumers," Pitofsky said. "The 'Surf Day' approach takes advantage of this new medium and turns it into a tool for warning potential illegal site operators that they can't count on going undetected."
The HUD refunds are owed to homebuyers for upfront mortgage insurance fees they paid to the FHA. Homeowners who sell their FHA-insured homes after less than seven years are often owed the refunds, to get back a portion of the advance mortgage insurance payment premiums they paid at the time of mortgage closing. Such up-front payments have been charged since 1983.
In addition, some homebuyers who received FHA-insured mortgages before 1983 are due refunds from earnings by FHA's mortgage insurance fund. Such payments -- similar to earnings from a mutual fund -- were halted in 1990 and are now reinvested in the insurance fund.
HUD attempts to contact homeowners who are due refunds through a series of mailings. When the FHA mortgage insurance on a loan is terminated, HUD's computer system automatically generates a refund application that is mailed to the homeowner's last known address. If a homeowner does not respond, additional applications are mailed at 30 day intervals, for 90 days. If a homeowner still does not respond, an occupant letter is mailed.
In a further attempt to reach individuals due refunds, HUD twice a year requests from credit bureaus the current addresses for all homeowners who have not been located. Once a year the Department also sends state property offices the names of individuals from that state who have not claimed their refunds.
Some people who have changed addresses without leaving forwarding addresses are not found through the searches. Others who have changed their names or are heirs of deceased homebuyers who were entitled to refunds are also not found.
After two years, HUD is required to release, under the Freedom of Information Act, the names of all homebuyers who have not collected refunds.
When tracers obtain names of homebuyers under the Freedom of Information Act and find them after further searches, they can target homebuyers with phone calls and letters, demanding payment in return for information about refunds.
It is not illegal for borrowers to use tracers or for tracers to be paid a fee for their service. However, it is illegal for a tracer to tell a homebuyer that the homebuyer must pay the tracer a fee in order to get a refund.
Patricia O'Brien of Mebane, NC, was approached by three tracers who told her that for a price they could help her collect $3,052 she was owed because of a house she had owned in Virginia.
"One of them said he could help me get my money if I gave him 30 percent," O'Brien said. "I was suspicious because he wanted me to sign a contract and was pushing me really hard. I thought 30 percent was too much, so I didn't go through with it."
Cuomo presented O'Brien with her $3,052 refund at today's news conference -- at no charge.
The FHA, which was created in 1934 to expand homeownership, today insures about $400 billion worth of mortgages. The insurance enables many homebuyers to qualify for mortgages that they could not otherwise have received. More than 24 million American have purchased homes with the help of the FHA since 1934.
President Clinton has approved four cuts in the upfront insurance fees for FHA mortgages for first-time homebuyers since taking office, resulting in an average savings of $1,200 for first-time homebuyers around the country and $1,400 for first-time homebuyers in central cities.
Copies of consumer education materials, tips the FTC offers consumers investigating business opportunities advertised on the Internet and "Surf Day" press releases are located at the FTC's World Wide Web site at: http://www.ftc.gov and also from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, DC 10580. Phone: 202-326-2222.
NOTE: Lists of refunds by city in each state are on HUD website.
|HUD No. 97-276