Earlier this week was the 66th anniversary of the so-called Roswell UFO incident. No, Mulder and Scully aren't on temporary assignment to the FTC and we don’t have any “now it can be told” government news on the subject. But we can offer insights into what happening on MARS: the Mortgage Assistance Relief Services Rule. As X Files fans would say, "The truth is out there," but one place it appears to be lacking is in promotions making overhyped promises to homeowners in financial trouble.
The MARS Rule — also known post-Dodd-Frank as Regulation O — makes it illegal for companies to misrepresent the results they’ll get on homeowners’ behalf. It also bans upfront fees for mortgage assistance relief services and requires specific disclosures. But according to a lawsuit filed by the FTC, six companies and three individuals, including California attorney William D. Goodrich, violated the MARS Rule and Section 5 of the FTC Act when they charged homeowners hefty upfront fees for legal help and “forensic audits” of their mortgage paperwork, but delivered much less.
How did the operation work? The defendants advertised on TV and radio, online, via direct mail, and through telemarketing. According to the complaint, one marketing flyer had the appearance of an official document, complete with a file number, a form number, a reference to the statute of limitations, and a heading in all caps that read:
MORTGAGE REDUCTION NOTIFICATION
YOUR IMMEDIATE PARTICIPATION IS REQUIRED
(A later version changed “required” to “recommended.”) One form claimed — falsely, says the FTC — that “Thousands of homeowners have taken advantage of this opportunity and have reduced their monthly mortgage payment by 30-60%.” Another promotion stated, “Our records also indicate that you may be the victim of predatory lending practice.” (How’s that for irony?)
Once homeowners called, they were told that defendant William Goodrich or another attorney would represent them, would conduct a “forensic audit” to look for illegalities in their original paperwork, and would negotiate a loan modification with their lender. According to the FTC, the defendants’ representatives often promised “guaranteed” results, including interest rates as low as 2% or a reduction in what they owed often within 60 to 90 days. Homeowners who signed contracts with the defendants authorized them to withdraw an advance fee ranging from $2000 to $4000 either as a lump sum or in installments.
But the FTC says homeowners didn’t get the promised legal representation. Most never met or spoke with Mr. Goodrich or other attorneys whose names were associated with the promotion. Once they’d paid the defendants, many customers had difficulty even getting their phone calls answered. Those loan modifications that would reduce mortgage payments or help stave off foreclosure? According to the complaint, the defendants didn’t live up to their promises. The FTC alleges that the only “modification” many consumers received was to their bank balances, which wound up thousands lighter due to the defendants’ fees.
A temporary restraining order entered by a federal judge shuts down the defendants’ websites, freezes their assets, and provides for the appointment of a receiver pending trial. But there’s still a lot companies can learn from the case. First, under both the FTC Act and the MARS Rule, express or implied claims about mortgage assistance relief services have to be truthful. That includes promises about legal representation.
Furthermore, the MARS Rule makes it illegal to collect so much as a penny from a consumer until there’s a signed contract in hand between the consumer and the lender that incorporates the agreement the MARS provider was able to reach on the consumer’s behalf. In addition, “commercial communications” of MARS services — that includes ads and other marketing materials — must include specific disclosures, including that the company “is not associated with the government and our service is not approved by the government or your lender” and that “Even if you accept this offer and use our service, your lender may not agree to change your loan.”