FTC Broadens Case Against Mortgage Relief Scheme; Charges That Forensic Audits Were Unlikely to Help Homeowners

The Federal Trade Commission has named several new defendants and added new charges concerning so-called “forensic audits” to its lawsuit against an operation that allegedly bilked homeowners who were trying to lower their mortgage payments. The action is part of an ongoing crackdown on scams that target consumers who are behind in their mortgage payments or at risk of foreclosure.

The FTC has added as defendants Bradford R. Geisen; Maurice Jackson; Patrick Butler; Credit Services Alliance Inc.; and CreditLawGroup, a law firm run by two of the original defendants, John W. Smith and Glenn E. Gromann. The original defendants also included The Debt Advocacy Center LLC; Smith, Gromann & Davidson P.A.; and Kevin McCormick.

According to the FTC’s amended complaint, the new defendants, along with Smith and Gromann, offered “forensic audits” – checking a homeowner’s loan documents for law violations that would give them leverage in negotiating with lenders to obtain a loan modification or a “short sale” (sale of a house for an amount less than the mortgage balance). Their ads stated, “We have found that between 80-90% of all loans that we have audited have some form of rights violations.” They collected $995 in advance for each audit even though an audit was unlikely to assist in negotiations with lenders, the complaint alleges.

The FTC charged the new defendants, and Smith and Gromann, with falsely claiming that as a result of forensic loan audits consumers would obtain completed short sales or loan modifications that would make their mortgage payments substantially more affordable. They are also charged with telemarketing without paying the required annual fee to access telephone numbers on the National Do Not Call Registry.

The FTC’s original complaint, filed in November 2009, alleged that The Debt Advocacy Center, operated by several individuals, charged customers $1,500 based on the alleged false promise that it would get homeowners’ loans modified to make their mortgage payments more affordable. The FTC alleged that defendants falsely claimed that they had helped more than 90 percent of their clients, and that they would refund consumers’ money or pay a penalty if they failed. They are also charged with debiting consumers’ bank accounts or charging their credit cards without their consent. The court halted the operations and froze the defendants’ assets, pending resolution of the case. (See November 24, 2009 press release http://www.ftc.gov/opa/2009/11/stolenhope.shtm)

The FTC created Forensic Mortgage Loan Audit Scams: A New Twist on Foreclosure Rescue Fraud, to inform consumers about legitimate resources to help save their homes.

The Commission vote to file the amended complaint was 5-0. The complaint was filed in the U.S. District Court for the Northern District of Ohio, Eastern Division.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. A complaint is not a finding or ruling that the defendants have actually violated the law.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,800 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.