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Avoiding Loan-Modification Hoaxes

January 10, 2013  | By LISA PREVOST  |  New York Times  |  Link to article

HOMEOWNERS wary of being taken in by bogus “loan modification specialists” should not assume that a law office is the safest conduit to their lender. Consumer advocates say a growing number of fraudulent modification services involve lawyers, or people who say they are lawyers.

Increasingly, lawyers are lending “their names, their offices, their credentials” to fraudulent operations that vaunt superior skills in obtaining loan modifications, said Linda Mullenbach, a senior counsel at the Lawyers’ Committee for Civil Rights Under Law in Washington.

Last month, the Lawyers’ Committee filed a lawsuit in Suffolk County, New York, alleging that a series of companies run by Rory M. Alarcon, a lawyer licensed in New York, defrauded 17 homeowners out of tens of thousands of dollars. The suit claims that the companies promised owners loan modifications and lower mortgage payments in return for thousands upfront. “To our knowledge, no one received the services that they were promised,” said Ms. Mullenbach, who works on the panel’s Fair Housing and Fair Lending Project.

Only three of the homeowners suing Mr. Alarcon live in New York; the rest are scattered across nine states. They are claiming losses from $2,500 to $8,000 apiece.

“These are not individuals who are unsophisticated — some have been extremely well educated,” Ms. Mullenbach said. “But they were looking for solutions for how to save their homes.”

Mike Furman, a lawyer who says he is representing Mr. Alarcon, said it would be premature to comment on the lawsuit. The Web site for R.M.A. Legal Network, one of the entities named in the suit, said the firm was no longer accepting new clients.

This is the seventh modification-fraud lawsuit the Lawyers’ Committee has filed in Long Island since 2011. Three of the other lawsuits also involve lawyers, according to Ms. Mullenbach.

While Federal Trade Commission rules and New York state law generally prohibit demanding upfront fees for mortgage relief services, there is a narrow exception for lawyers. They may charge clients in advance for assistance if the service is part of their general practice of law, and not outside of that practice.

Certainly, many lawyers provide legitimate foreclosure-avoidance services. But Ms. Mullenbach advises borrowers that “when you go to a lawyer and his sole business is loan modifications, that’s a real signal.”

She notes that some bogus operations have been quick to change their practices as homeowners get wise to their tactics. Instead of selling loan modification services, they are advertising so-called loan workouts and forensic loan audits. Some are even posing as nonprofit groups.

Services that falsely advertise legal expertise have also been a problem. “We’ve seen an increase in our overall percentage of complaints involving people who are claiming to be attorneys,” said Josh Fuhrman, the senior vice president for government and community relations of the Homeownership Preservation Foundation, which operates a hot line for homeowners.

The Homeownership Preservation Foundation and the Lawyers’ Committee both belong to a coalition of public and private agencies that maintain a national database of loan-modification complaints. Since March 2010, some 28,000 homeowners have reported potential fraud. Their reported monetary losses total around $66 million.

Mr. Fuhrman notes that the counseling services offered through his foundation are free. So are the counseling services from housing agencies certified by the Department of Housing and Urban Development.

“People struggling with their mortgages usually don’t have the resources to pay for what can be done by a nonprofit housing counselor,” he said. That makes high-fee fraud all the more deplorable, he added, calling fraudulent services “the knockout punch” for borrowers on the brink of foreclosure.

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