By Mark Huffman

September 18, 2009
Scams are nothing new. Federal and state governments working together to combat them, however, is a more recent development.

In the last few months federal regulators and state attorneys general have shown a new aggressiveness in dealing with economic crimes aimed at consumers. Foreclosure rescue and other mortgage related scams have drawn special attention.

"A clear lesson of this financial crisis is that American consumers need better protection against fraud," said Treasury Secretary Tim Geithner. And while we will prosecute anyone who violated the law, going forward we will not wait for problems to peak before we respond. The Obama Administration is acting preemptively, across federal agencies and alongside state governments, to stop consumer fraud."

Treasury, Financial Crimes Enforcement Network, the U.S. Department of Justice, the Department of Housing and Urban development and the Federal Trade Commission have recently committed to taking proactive measures to curb abuse by coordinating information and resources across agencies to maximize targeting and efficiency in fraud investigations. This includes alerting financial institutions to emerging schemes, stepping up enforcement actions and educating consumers to help those in financial trouble avoid becoming the victims of a loan modification or foreclosure rescue scam.

"Our efforts to attack mortgage fraud must be, and are, concerted and coordinated," said Attorney General Eric Holder. "Working together, we can send a clear and straightforward message: Those who prey on vulnerable American homeowners cannot hide from the hand of the law. If you perpetrate mortgage fraud, we will find you and we will bring you to justice."

Geithner and Holder were among the officials meeting this week with 12 state attorneys general to compare notes on their respective anti-scam efforts. The officials reviewed emerging trends and proactive strategies to combat fraud against consumers in the housing markets as well as best practices to bolster coordination across state and federal agencies.

Meanwhile, the FTC announced two new law enforcement actions in a continuing crackdown on mortgage foreclosure rescue and loan modification scams, bringing to 22 the number of these cases the Commission has filed since the housing crisis began. The FTC also announced developments in similar pending mortgage-related actions, several of which have involved coordinated case work from FinCEN.

Connecticut Attorney General Richard Blumenthal said his state has adopted a landmark ban on upfront fees for mortgage repair schemes -- a model, he says, for national action in the battle against exploitation of consumers seeking to save their homes.

"Homeowners should never pay an upfront fee for help with negotiating a loan modification," said Illinois Attorney General Lisa Madigan. If youre asked to pay an upfront fee, thats a sure sign youre dealing with a scavenger whose only goal is to con you out of money you cant afford to lose, and who will ultimately rob you of any opportunity to save your home with the help of legitimate organizations."

Michigan victims get refunds

In Michigan, Attorney General Mike Cox says residents of his state victimized by foreclosure fraud schemes can receive refunds as a result of charges filed against SaveMyHome USA, Payment Doctors and the Michigan Economic Reinstatement Program. The companies were held accountable after an undercover investigation by the Attorney General's office discovered that the companies' representatives made misleading statements and charged borrowers upfront fees in violation of the Michigan Credit Services Protection Act.

"Families already facing a foreclosure crisis should not have to worry about being ripped off in the process," said Cox. "This sends a clear message to scam artists that we are watching."

The companies offered mortgage modification assistance to homeowners facing foreclosure. They claimed they would help homeowners by working with their lenders in an attempt to modify the borrower's mortgage.

However, an undercover investigation by the Attorney General's office discovered that the companies charged borrowers upfront fees, a practice prohibited by law. After paying the upfront fee, many borrowers found that the companies could not secure a modification and were subsequently unable to get their money back.