For decades, Sunbelt cities, notably spots in South Florida and southern California have been hotbeds of telemarketing scams that rely on misrepresentations, if not outright lies, to fleece the public. Gunning from aging offices pre-equipped with multiple phone hookups, scammers have hawked near-worthless certificates for dream vacations in the Bahamas, dubious precious metal investments, even shares in ostrich farms, often closing up shop a step ahead of authorities, then moving on to a new product and site.
Federal officials unwittingly handed scammers a new and highly profitable product in 2009 when they launched the Home Affordable Modification Program, or HAMP. The voluntary campaign, hatched after the housing bubble burst in 2008, encouraged lenders to offer loan modifications, which officials hoped would prevent millions of people from being forced out of their homes. But HAMP quickly spawned a new financial menace for the very people it was intended to save: Telemarketers bilked vulnerable people out of thousands of dollars by charging them advance fees for loan modifications that never materialized, or for other foreclosure “rescue” services that they didn’t provide.
The following year, officials banned advance fees for loan modifications in a move to snuff out scams run by boiler room pros. But they yielded to pressure from the legal community and exempted attorneys from the ban. That decision turned lawyers into valuable allies in the burgeoning loan-modification racket.
A Center for Public Integrity investigation identified more than 1,000 attorneys nationwide who have since signed on to loan modification ventures that have drawn law enforcement scrutiny, at least partly, because they attracted clients through misleading, if not downright false, promises made by telemarketers, deceptive mailings or websites.
Most of the lawyers played no direct role in hiring or supervising marketers, though they accepted referrals from attorney-directed companies that often did. These hybrid firms have been accused by state and federal consumer-fraud investigators of cheating desperate homeowners out of tens of millions of dollars, court records show.
Stamp of Approval
The cachet of having “law firm” in the corporate name has clearly been a major selling point for many people fearful of losing their homes to foreclosure.
That was true for James Lorde, of Bridgeport, Connecticut, who was behind on his mortgage payments and had been denied a modification by his lender.
“This made me feel more comfortable about working with them because I expected lawyers to perform the mortgage modification process competently,” he said in a 2014 affidavit.
Lorde agreed to pay an upfront fee of $1,200 to the California-based operation, and $800 a month for three months in hope of making his mortgage more affordable. He became concerned when the emails he sent to check on the progress of his case bounced back. He later learned that the law firm’s office was a mail drop.
When he finally reached the lawyer in charge of his case and demanded a full refund, the lawyer refused, saying the firm “had spent considerable time and effort on my case,” according to Lorde’s affidavit. The lawyer promised a $500 partial refund within five days, but Lorde said he never received it.
In a separate case, an Orange County, California, lawyer’s office had telemarketers tout its legal pedigree to set itself apart from the competition.
“First let me start by saying that we are NOT a loan modification company. We are a law firm made up of real estate attorneys who have been helping homeowners save their homes from foreclosure and battling mortgage lenders for more than a decade now,” according to a script. Federal authorities said the firm had no such network.
Thomas McNamara, a California lawyer who as a court-appointed receiver has reviewed several defunct loan-modification businesses involving attorneys, believes that sales tactics employed by boiler rooms, so-called for their high-pressure atmosphere, simply don’t mesh with the practice of law. For starters, he noted most states prohibit lawyers from splitting fees with nonlawyers.
Then there’s the commission-payment structure that rewards hype and overselling over prudent counsel. McNamara concluded the degree of deception was so great at one firm, A to Z Marketing, that it could not be profitable if run legally and ethically.
“They are not law firms or even legal service providers. They are sophisticated telemarketing sales operations targeting distressed homeowners and charging illegal advance fees,” according to a 2013 document MacNamara filed in a lawsuit headed by the U.S. Federal Trade Commission. “They deceptively portray themselves as service providers for lawyers, but this is all fiction – the telemarketers are the drivers of the business. … The associated lawyers provide nominal services and serve primarily to promote the illusion that the consumer has retained a law firm.”
The FTC has since won a judgment against A to Z Marketing.