Sept. 2, 2014, Class Action Law Reporter
As agencies crack down on mortgage-relief scams, homeowners settle claims against law firm
Courtney L. Davenport
Colorado homeowners who fought foreclosure in the height of the mortgage crisis have settled a class action against a law firm that regularly charged inflated fees to post foreclosure notices. The federal government and states across the country are pursuing law firms that have scammed homeowners out of millions of dollars, including some that promised homeowners could pay to join “mass joinder” lawsuits that would force banks to modify their loans.
Colorado homeowners who fought foreclosure in the height of the mortgage crisis have settled a class action against a law firm, Aronowitz & Mecklenburg, LLP (A&M), that regularly charged inflated fees to post foreclosure notices. The federal government and states across the country are pursuing law firms that have scammed homeowners out of millions of dollars, including some that promised homeowners could pay to join “mass joinder” lawsuits that would force banks to modify their loans.
Mortgage servicers hired A&M and its owners—Robert Aronowitz, his daughter Stacey Aronowitz, and his son-in-law Joel Mecklenburg—to process their foreclosures, which included posting notices on the houses, mailing hearing notices, undertaking title searches, and paying for court filing costs. Servicers charged homeowners for all fees paid to A&M. If homeowners wanted to cure the default and keep their homes, they had to pay the incurred fees and costs, which A&M represented were reasonable and necessary.
But a 2013 Colorado attorney general investigation found that A&M grossly inflated its fees and took advantage of homeowners desperate to keep their houses. A&M hired Xceleron, LLC, to post two notices required in foreclosure—a notice of a limited opportunity to defer foreclosure and a notice of a foreclosure hearing—on the house. Although most companies charge $25 for the postings, Xceleron charged A&M $50 to $75 per posting. A&M inflated that cost to $125 or $150 per posting when it charged the mortgagors. The investigation revealed that Xceleron was a straw company owned by the Aronowitzes and Mecklenburg. The attorneys also inflated their hourly fees and other fees, such as $10 to $25 for a military status search that is free.
The state also found that A&M, the second largest foreclosure firm in Colorado, conspired with its biggest competitor, the Castle Law Group, to set a minimum fee of $125 for deferment postings. In July, the state sued A&M and the lawyers for “extensive fraud.” The defendants agreed to cease all foreclosure work in Colorado for nine years and to pay $10 million. (Suthers v. Aronowitz & Mecklenburg, LLP, Unknown Case No. (Colo., Denver City & Co. Dist. July 14, 2014).)
“Defendants’ multimillion-dollar unjust enrichment came at a tremendous expense to the public,” said Attorney General John Suthers’s complaint. “Not only does it harm desperate homeowners facing foreclosure and persons buying properties at auction, it reverberates to the public at large, as servicers hiring the law firm pass along these costs to taxpayer-funded investors or insurers.”
Rodrick Kemp brought a class action on behalf of homeowners who paid inflated fees to cure their loans or whose homes were foreclosed but for less than the amount due, requiring them to pay the excessive fees out of pocket. His father, Oliver Kemp, had made each payment on his house loan until he died unexpectedly in April 2011. That August, A&M initiated a foreclosure action. To cure the default, Kemp had to pay A&M attorney fees of almost $2,200, posting costs of $125, and $500 in title costs. Denver attorney Matthew Wolf, who represented the class, said it’s easy for companies to get away with these scams.
“The prospect of a foreclosure is very stressful and confusing for homeowners. Homeowners are focused on trying to save their home. They are not focused on every charge passed on to them from the foreclosing law firm and lender,” he said. “For those few who identified the excessive charges, the cost of litigation was prohibitive. The class vehicle enabled homeowners to achieve justice.”
The defendants agreed to a settlement worth about $2.68 million. Class members who cured their loans will receive $225, while class members whose homes were foreclosed will receive $20. Homeowners who cured their defaults, reinstated their loans, or entered into loan modification, but who are not part of the two subclasses, will receive up to $100 from a fund capped at $1.1 million. (Kemp v. Aronowitz & Mecklenburg, LLP, No. 13CV033468 (Colo., Denver City & Co. Dist. settlement approved Aug. 2014).)
Many states and the federal government have sued several law firms paid by homeowners who thought the firms were working on their behalf to modify their loans. Connecticut and Florida recently joined forces to sue a business operating as Resolution Law Group in Connecticut and Berger Law Group in Florida, as well as affiliated businesses and attorneys, for charging homeowners up-front “investigation fees” of about $6,000 and monthly $500 “maintenance fees” to join a mass-joinder lawsuit to save their homes. In reality, the businesses—which made about $4.7 million—did not do anything to help homeowners. (Off. of the Atty. Gen., St. of Fla. v. Berger Law Group, P.A., No. 8:14-cv-01825 (M.D. Fla. amend. compl. filed Aug. 22, 2014).)
“In a twist on the typical loan modification rescue scam designed to avoid regulatory scrutiny by creating the appearance of legitimacy, some veterans of such scams have shifted to selling homeowners’ participation in so-called ‘mass-joinder’ lawsuits,” the complaint said. “Homeowners are led to believe that they will be represented by real law firms and that joining a mass-joinder lawsuit will help them avoid foreclosure, reduce their interest rates and loan balances, and entitle them to monetary compensation.”
Connecticut and Florida based their claims partially on Regulation O, which prohibits mortgage assistance relief service providers from seeking payment for modifications before the consumer has signed a modification agreement with the lender. The Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC), as well as 15 states, recently announced “Operation Mis-Modification,” a sweep of suits against fraudulent foreclosure relief law firms or associated companies. These companies took thousands of dollars in up-front fees, followed by monthly payments of about $500, telling consumers they would provide legal representation that would lead to loan modifications. Some even told their clients to stop paying lenders and promised a full refund if they didn’t receive a modification. Instead, the defendants stopped communicating with the clients after receiving the money, never had an attorney review the case, and never contacted lenders or obtained any relief, leaving the consumers “worse off than they began,” according to the CFPB.
“The defendants disguised their false promises of foreclosure relief for struggling homeowners with claims that they were performing legal work,” said the CFPB in the statement. “These tactics are used by foreclosure relief scams to attract victims, add credibility to their schemes, or exploit certain legal exemptions for the practice of law.”
The CFPB filed three lawsuits, the FTC filed six, and the states filed a total of 32 actions. Some of the companies are already out of business, but the agencies sought injunctions against their principals. Courts have issued preliminary injunctions against companies that are still in business and have frozen their assets pending the outcome.