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Illinois Uses New Law to Sue Mortgage Rescue Company

First case under the state's new Mortgage Rescue Fraud Act

September 17, 2007

The law, which went on the books in January 2007, prohibits mortgage rescue companies from requiring payment from consumers prior to completing all the terms of a rescue contract. It also requires rescue businesses to disclose fully to a homeowner the exact terms and nature of the proposed rescue services and their rights to cancel the contract.

The suit contends that Florida-based Mortgage Assistance Solutions, LLC, and its managing member Michael Thomas Stoller, of Beverly Hills, California, defrauded desperate homeowners who enrolled in its “Fresh Start” program by falsely promising to negotiate with the homeowners' lenders to reduce their mortgage payments or save their homes from foreclosure. The company requires an upfront enrollment fee but, in the end, provides homeowners with little or no help.

“The last thing financially-pinched consumers on the verge of losing their homes need are so-called ‘rescue' firms that do little more than separate homeowners from their money,” said Madigan. “We worked hard to draft this new law to protect homeowners from unscrupulous businesses engaged in mortgage rescue fraud.”

Madigan's complaint describes how the defendants, in some cases, solicit homeowners by taking advantage of their fear of losing their homes with postcards that read, “YOU WILL LOSE YOUR HOME IF YOU DON'T CALL NOW!!!!”

When contacted by potential customers, Mortgage Assistance Solutions refuses to discuss the specific programs available until they receive a $1,200 payment from the homeowners.

The defendants allegedly claim they can obtain a better deal from lenders than the homeowners can obtain on their own. Once homeowners make this payment and execute a “Fresh Start” mortgage service agreement, the company generally fails to contact the homeowners' lenders to work out forbearance agreements in a timely fashion, leaving the homeowners in worse financial shape than before.

In addition to violating the Mortgage Rescue Fraud Act's provision that businesses cannot charge consumers before completing all of the terms of a rescue contract, the complaint says the company is violating other provisions of the act by failing to provide homeowners with (1) full disclosure of the exact terms and nature of the proposed rescue services and (2) notice of their right to cancel the contract.

The lawsuit also maintains that the defendants violate the Consumer Fraud and Deceptive Business Practices Act by misrepresenting that they can save homeowners' homes from foreclosure when, in fact, Mortgage Assistance Solutions generally fails to follow through and work out forbearance agreements with mortgage lenders.

The attorney general is asking the court to order restitution for the defrauded homeowners and to order the defendants to stop all deceptive business practices. The suit also seeks a civil penalty of $50,000 and additional penalties of $50,000 for each violation found to have been committed with the intent to defraud.

Madigan's office has sued seven mortgage rescue companies to stop deceptive practices and successfully participated in three multi-state settlements against major subprime lenders Household Finance, Ameriquest and First Alliance Mortgage Company. To date, she has obtained more than $600 million in enforcement actions against these lenders.

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