Former mortgage brokers profit from foreclosures by offering loan modification services

Many people are earning less these days as a direct or indirect result of the subprime mortgage crisis. But not those who had a hand in issuing the loans that caused it. Former mortgage brokers, many of whom arranged for dubious and questionable loans for riskier borrowers, are now making money as loan consultants. In essence, these former brokers are offering to assist borrowers now facing foreclosure as a result of the loans they should not have obtained in the first place. It should come as no surprise that these loan modification services are no more helpful to borrowers than the advice given to them in the first place.

In Los Angeles, former high risk broker Jack Sousanna reorganized his office under the name Federal Loan Modification Law Center. The new business venture charged large up front "retainer" fees, as much as $3500, and, according to a New York Times investigation, often produced little result for its clients. FedMod, the company who ran the modification center, is now defending itself in a lawsuit brought by the Federal Trade Commission.

As discussed in a previous post, Florida passed the Foreclosure Fraud Prevention Act to guard against such questionable business dealings. In Florida, foreclosure assistance firms or "rescue consultants"- defined as anyone who is not a lawyer, cannot charge upfront fees and must complete work as promised before collecting a fee.

But there is a relatively easy way to circumvent this law. A foreclosure consultant firm (which can be any set of individuals with little or no experience in law or real estate) can bring in an attorney partner and claim that they are operating as a law firm, as FedMod attempted to do. While this may ultimately land the attorney participating in such a scheme in considerable trouble, not to mention facing the loss of his/her license to practice law, that will be little consolation to anyone who gets caught up in such a scheme, and who may lose their home as a result of trusting an unscrupulous company masquerading as a law firm.