New rules from the Federal Trade Commission that ban collection of advance fees by companies that promise to rescue struggling homeowners from foreclosure may be too late to help homeowners victimized by a Maryland firm that federal authorities have shut down.
Better Business Bureau said court action against Residential Relief Foundation of Halethorpe, Md., serves as yet another warning to homeowners looking for outside help in reducing payments and avoiding foreclosure.
“Many families have been persuaded that debt settlement or mortgage modification is an easy fix that will make their debt melt away effortlessly,” said Kim States, BBB President. “The truth is that there is no magic formula for debt relief. In many cases, dealing with these firms is a recipe for personal financial disaster.”
The Federal Trade Commission said that Residential Relief Foundation representatives violated federal law by falsely claiming they could modify loans and significantly lower mortgage payments. The FTC also said the company improperly disposed of consumers’ information by placing them in unsecured dumpsters. In addition, the company wrongly implied it was affiliated with the federal government.
A federal court ordered Residential Relief shut down, appointed a receiver and froze the defendants’ assets, pending trial.
BBB has processed more than 60 complaints about the company this year, originating in 27 other states.
Among the victims is an unemployed laborer from Dittmer, Mo., in Jefferson County. He said he and his wife paid Residential Relief Foundation $2,190 after the company promised to lower their mortgage interest rate to nearly zero and cut their house payment to $588 a month from $986. The company only contacted the man’s bank after he filed a complaint with the BBB.
Such promises would be illegal under the new FTC rule, which also prohibits companies from collecting fees until homeowners have a written offer from their lender or servicer that they find acceptable.
BBB has received more than 3,500 complaints about misleading debt settlement offers in the last three years. Many consumers said the firms left them deeper in debt instead of providing help in paying off creditors.
In addition to the advance fee loan ban, the new FTC rules require companies to disclose key information to protect consumers from being misled. Companies must disclose that:
- They are not associated with the government, and their services have not been approved by the government or the homeowner’s lender.
- The lender may not agree to change the consumer’s loan.
- Borrowers could lose their home and their credit rating may be damaged if they stop making payments.
Companies cannot make false claims about the likelihood that consumers will get the results they seek or about their affiliation with a government or private firm.
The FTC also bars companies from telling consumers to stop communicating with their lenders or mortgage servicers. Companies also must be able to back up any claims they make about the benefits, (more…)