The Consumer Financial Protection Bureau and the State of Florida announced Friday that a federal judge granted final judgment against a Florida law firm and its associated companies, requiring the companies to pay $27.7 million for their part in a massive foreclosure relief scam that defrauded approximately 2,000 consumers.
The CFPB and the State of Florida first sued the Hoffman Law Group, its operators, Michael Harper, Benn Wilcox, and attorney Marc Hoffman, and its affiliated companies, Nationwide Management Solutions, Legal Intake Solutions, File Intake Solutions, and BM Marketing Group, in July 2014, alleging that the companies preyed on delinquent homeowners or those facing foreclosure by offering the false promise of mortgage modifications.
The CFPB and the State of Florida announced Friday that judgment was granted against Hoffman Law Group, its operators and its associated companies to the tune of $27.7 million for deceiving consumers and collecting illegal advance fees.
Unfortunately, Hoffman and associates don't have anywhere near that kind of cash.
The companies were accused of using deceptive marketing practices and scamming distressed homeowners into paying illegal advance fees. Working together, five companies tricked consumers into paying millions of dollars in illegal upfront fees to join frivolous lawsuits that the companies falsely claimed would pressure banks to modify their loans or provide foreclosure relief, the CFPB said.
The CFPB said that the Hoffman Law Group was a law firm set up to give the appearance that consumers in financial distress needing to modify their mortgage loans or save their homes from foreclosure would get specialized help from attorneys. The related companies, which were run by Harper and Wilcox, existed to market and support the scheme.
“These companies preyed on vulnerable consumers who were trying to save their homes from foreclosure,” said CFPB Director Richard Cordray. “The false promises made by these companies lured struggling homeowners into scams that led to greater financial hardship. We are working to protect consumers from illegal predatory practices by holding bad actors accountable for their actions.”
According to the CFPB, the court found the corporate defendants liable for $11,730,579 – the full amount of illegal fees paid by consumers – and ordered them to pay a $10 million civil penalty, in addition to penalties to the State of Florida.
Although, due to the companies’ financial situation at the time the suit was filed, the affected consumers will likely receive far less than the $11.7 million they’re owed.
When the CFPB and the State of Florida first sued the Hoffman companies, the companies’ assets were frozen and the court ordered a receiver to take charge of all the assets that were flowing from the scam.
Now that the judge has granted judgment in favor of the CFPB and the State of Florida, the receiver will pay the entire amount of the estate – only $655,737 – to the CFPB to be used for redress for the victims. And that amount will be even less, thanks to administrative expenses and funds required to pursue additional recoveries, which will be deducted from the amount recovered from the companies.
The court also ordered the receiver to auction of certain personal possessions belonging to Harper, Wilcox and Hoffman, including eleven watches, sixteen pieces of jewelry, two handguns, a computer, and a television, the proceeds of which will be paid to the receivership estate.
The CFPB’s lawsuit charged Hoffman Law Group, its affiliated companies, and the individual defendants with violating Regulation O, formerly known as the Mortgage Assistance Relief Services rule, and Florida state law. Regulation O prohibits charging advance fees for mortgage loan modification services, making misrepresentations about loan modification services, and it requires that consumers be given certain disclosures.
According to the CFPB, the companies collected fees from homeowners before obtaining a loan modification. “Companies cannot legally accept payment for helping to obtain a mortgage modification for a consumer before the consumer has a modification agreement in place with their lender,” the CFPB said in a release. “The Hoffman companies charged consumers advance fees without having first obtained modifications for them, which was not only illegal but also caused significant harm to consumers who often paid thousands of dollars without ever receiving a modification.”
Additionally, the CFPB said that companies artificially inflated their success rates and the likelihood that a borrower would secure a loan modification. “The firm’s marketing materials misrepresented the likelihood that they would help consumers save substantial sums in mortgage payments,” the CFPB said. “Ultimately, many consumers who paid these companies advance fees did not receive a mortgage modification and ended up worse off than they began.”
According to the CFPB, the companies also discouraged consumers from talking to their lenders and from making their mortgage payments, claiming that they would handle all communication.
The CFPB said that the companies not only discouraged customers from making mortgage payments to their lenders, but told the customers to make their mortgage payments to the Hoffman companies instead. According to the CFPB, the companies told consumers that this practice would “better demonstrate financial hardship.”
The CFPB said that as a result of this, many consumers were subject to negative credit ratings and/or foreclosure.
As part of the ruling, the companies are required to pay a $10 million civil penalty for the violations of Regulation O and a $6 million state penalty for violation of the Florida Deceptive and Unfair Trade Practices Act, although the receivership estate does not currently have enough funds to pay those penalties, the CFPB said. The individual defendants were also required to pay penalties under the stipulated judgment.
The companies have been permanently dissolved and can no longer operate or do business of any kind, the CFPB said. The individual defendants are permanently banned from, among other things, advertising or selling any mortgage assistance relief product or service or any debt relief product or service. In addition, Hoffman relinquished his license to practice law in the state of Florida.
"Scamming homeowners worried about losing their homes is not only illegal, it is despicable, and thanks to the great work of my consumer protection division and the Consumer Financial Protection Bureau, these defendants will pay for preying on Florida homeowners facing foreclosure,” said Florida Attorney General Pam Bondi.
"Foreclosure rescue scammers cannot evade the law by hiding behind a law firm,” Bondi continued. “It is discouraging that there are attorneys out there that will allow their licenses to be used by shady companies to target people facing foreclosure."