August 5, 2021

MP Now News

Mortgage News

HUD Issues Charge of Discrimination Against Mortgage Modification Companies | Ballard Spahr LLP

The U.S. Department of Housing and Urban Development (HUD) recently launched a charge discrimination under the Fair Housing Act (Act) against Louis Liberty & Associates, a PLC dba The House Lawyer, Liberty & Associates, a PLC dba The House Lawyer (THL) and owners, employees and representatives of THL (collectively the “Respondents” ), one of which was a lawyer. The fee was raised in connection with complaints filed with HUD by certain unidentified mortgage borrowers (the “Complainants”). While HUD alleges that respondents provided illegal and unfair assistance in modifying mortgages, the basis of the violation of the law charge is that respondents took action against Spanish mortgage borrowers and thus against certain prohibitions of the Act Against Discrimination on the Grounds have violated national origin.

Among other things, the law prohibits (1) discrimination against any person in relation to the terms or privileges of selling or renting an apartment or the provision of services or facilities in connection therewith, and (2) discrimination against any person in providing a transaction in the In connection with residential real estate or in the terms of any such transaction based on race, color, religion, gender, disability, marital status or national origin. The law defines a “residential property transaction” as (1) the granting or purchase of loans or other financial assistance (a) for the purchase, construction, improvement, repair or maintenance of a home, or ( b) security through residential real estate or (2) sale, brokerage or valuation of residential real estate. The law also provides that it is unlawful to coerce or intimidate any person in the exercise or enjoyment of or on account of the person who assisted or encouraged another person to exercise or enjoy a granted right threaten or disrupt or protected by sections of the law that contain the preceding prohibitions.

HUD claims respondents violated the law by:

  • Discrimination against complainants in the provision of services or facilities in connection with the sale of an apartment.
  • Discrimination against complainants in the provision of residential property transactions and in the terms of such transactions based on national origin.
  • Impairment of the complainants’ exercise or enjoyment of rights granted or protected by the sections of the Act containing the prohibitions set out in the first sentence of the previous paragraph.

The indictment includes factual allegations by HUD regarding the Complainants as well as general factual allegations regarding the conduct of the Respondents. The general allegations of fact include the following:

  • Respondents marketed and sold illegal or unfair mortgage modification services to financially troubled California homeowners, reached out to Spanish borrowers for financial assistance, and most of THL customers were of Spanish descent.
  • Most of THL’s radio, television and online advertisements were in Spanish, and THL’s radio and television advertisements were broadcast on Spanish language channels.
  • THL’s advertisements contained misleading information about THL’s ability to receive loan changes and THL’s fee payment structure. They also discouraged borrowers from seeking free loan modification assistance.
  • In a particular ad, one respondent stated that “nobody works for free” and that “if someone says they will help you for free, please be careful. . . “And incorrectly stated that THL” only requires individuals to pay after each step of the process is complete. “
  • THL staff, during personal consultations with prospective customers, provided false, inaccurate, or misleading information about the amount of mortgage relief THL would receive on their behalf and the prospect’s obligation to continue making mortgage payments while applying for a mortgage change. THL staff also advised customers against using legitimate loan modification services.
  • The defendant, who was an attorney, was solely responsible for the legal services offered by THL.
  • While California law prohibited attorneys from collecting or charging legal fees for loan modification services prior to entering into these services, respondents charged customers approximately $ 2,500 for providing mortgage modification services under an attorney-client agreement for the modification package and approximately $ 750 to $ 1,000 for services under an attorney-client agreement of the negotiation package, and that some, if not all, fees were typically paid before respondents completed the full range of services provided the first appointments were made by customers.
  • Respondents also charged customers a recurring monthly fee of $ 50.
  • When prospects did not appear to qualify for a loan modification because their mortgage payments were up to date, respondents routinely advised them to stop paying their mortgages and respondents failed to provide customers with accurate or inaccurate information about the mortgage risks associated with associated with non-payment of their mortgages.
  • Respondents ‘mortgage modification activities were carried out almost entirely by non-attorneys, although respondents’ advertisements and agreements misleadingly stated that mortgage modification clients would receive the services of a lawyer.
  • Respondents routinely disrupted customers’ relationships with their lenders by instructing customers to stop communicating with their lenders. Respondents provided a document with the title to customers Dealing with the bank during the loan modification process This advised customers that if their bank threatens foreclosure, they should not disrupt THL’s lender negotiations and instead forward all lender communications to THL. Nonetheless, respondents regularly failed to answer or return customer calls and failed to provide updates on the status of customers’ credit modification requests.
  • After THL convinced customers to stop paying their mortgages, charging for loan modification services, and promising they would receive loan modifications for customers, THL abruptly sent cancellation letters to customers and closed its office.

The alleged conduct in relation to the complainants began almost 10 years ago and the complaints were filed in December 2012 and July 2013. According to the HUD, the State Bar of California found in July 2013 that the respondent, who was an attorney, behaved in violation of California law by (1) charging an advance fee for the modification of the loan and (2) taking a lien on real estate personal property, or other collateral to secure payment of this mortgage loan modification fee. According to the HUD, the California Bureau of Real Estate revoked the same person’s real estate license in August 2015.

HUD is looking for a command that:

  • Explains that respondents’ practices were against the law.
  • Calls on respondents to discriminate against individuals based on their national origin in all aspects of selling or renting an apartment, including related services, and / or in transactions involving residential real estate.
  • Confers damage that fully compensates complainants for any damage caused by respondents’ behavior.
  • Evaluates a civil law sanction against each respondent for each individual and different discriminatory housing practice that the respondent has committed.
  • If necessary, gives additional relief.

Given the number of mortgage borrowers facing financial hardship as a result of the COVID-19 pandemic, it will be interesting to see if HUD or other regulators challenge companies that offer loan modification services or similar services, or mortgage loan service providers under fair housing or fair Lending laws when the services provided by the companies are deemed illegal, unfair, misleading, or abusive and are aimed at specific protected groups, or when the services vary depending on whether or not a borrower is a member of a protected company group. Please see our last blog entry Addressed an article advocating that regulators and individuals should view discrimination as an “unfair” practice, covered by federal and state laws that prohibit unfair, misleading, or abusive acts and practices.