South Florida foreclosure rescue firms ordered to shut down

A Palm Beach Circuit Court judge granted an emergency ruling that four mortgage modification operations who are currently under investigation by the Attorney General's Office must cease doing business. The companies are: FHA All Day.Com, Safety Financial Services, Housing Assistance Law Center and Housing Assistance Now.

Two of the companies named above have been shut down. However, when investigators showed up at the businesses, they found employees shredding documents. Investigators reported that among the about to be shredded documents was personal information belonging to alleged clients of the firm.

State regulators have launched 81 investigations against mortgage modification operations, including 14 where lawsuits have been filed. Officials said investigators are looking at 86 additional companies and that the numbers may grow. The Federal Trade Commission also has launched a major crackdown on foreclosure rescue firms with its Operation Loan Lies, announcing 189 actions in 25 states earlier this month.

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.

Florida homebuyers face bidding wars while lenders hold back foreclosures to increase competition

Florida real estate investors and first time homebuyers, seeking to make profit or capitalize on the $8,000 tax credit, are facing competition for homes priced under $200,000. It is not uncommon, in fact it is becoming the norm, for homes in this price range to become the object of a bidding war and, in some instances, to sell for more than the asking price.

Despite the encouraging signs of this apparent turnaround- prices leveling off, inventory being reduced, market researches warn that the foreclosure crisis is far from over. For one thing, it will take more than investors and first time homebuyers to bring the market back from its current sluggishness. Another concern is that Florida unemployment keeps rising, which means that more homeowners will likely face foreclosure.

But more disturbing is the suspected practice of lenders in creating an artificial price increase. Some observers suspect that lenders are holding back the supply of foreclosed homes, promoting bidding wars to increase prices now before the flood of new listings further depresses prices. Banks dispute that notion. They say they're overwhelmed with foreclosures and try to market them for sale as quickly as possible. Holding onto foreclosed properties, the banks argue, only costs the bank more money. One can't help but wonder: if the banks realize that foreclosure is not in their best interest, then why are the banks fighting alternatives to foreclosure?