Mass Joinder Lawsuits: A New Twist on Foreclosure Rescue Scams

provided as an educational service by
by
Richard Fonfrias, J.D.
Chicago’s Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC

A new scam now targets financially strapped homeowners across the country. So-called specialized law firms are sending invitations to homeowners, urging them to participate in “mass joinder” lawsuits against their mortgage lenders as a way to get favorable loan modifications and stop foreclosure.

The Federal Trade Commission (FTC), the nation’s consumer protection agency, cautions that the firms involved in this scam promise relief, but don’t deliver. In fact, many of the firms fail to use qualified attorneys or pursue homeowners’ cases, and often leave their clients in worse financial shape than before.

How the Scam Works

The firms market their services through direct mail solicitations to homeowners who are behind in their mortgages, or who are in default or foreclosure. The firms charge fees in advance that range from a few thousand dollars to more than $10,000. They falsely lead distressed homeowners to believe that by joining with other people in similar situations to sue their mortgage lender, they can (1) stop their foreclosures, (2) reduce their loan balances or interest rates, (3) get them money damages, and (4) even get them title to their homes, free and clear of their existing mortgages.

In March, 2012, the FTC filed a lawsuit against one company in Santa Ana, California, asserting that it had persuaded over 1,000 homeowners nationwide to pay $6,000 to $10,000 each to join “mass joinder” suits, which are similar to class-action lawsuits. (The main difference being that in a class action lawsuit, most class members don’t have to pay legal fees in advance.) Homeowners ended up with little or nothing in return, the FTC said.

Mass joinder scam artists often tout that they have an attorney on staff. But that attorney likely is not reviewing each homeowner’s file, and likely is not even licensed to practice in the homeowner’s state. In fact, a recent case filed by the FTC centered on consumers who responded to the scammers’ direct mail offers, and got legal advice from sales agents, not lawyers. The sales agents allegedly made deceptive claims about their experience and provided inaccurate legal advice about the likely results of joining the lawsuits.

These firms, and people posing as lawyers, have caused a 60 percent jump in complaints about mortgage scams this year, according to a report this month by the Homeownership Preservation Foundation, which helps distressed homeowners. The nonprofit group says the increase coincides with the announcement of new federal relief programs for homeowners.

Finding Legitimate Help

Even if the foreclosure process has already begun, the FTC and its law enforcement partners say that there are legitimate options you should explore to try to save your home.

Housing experts say that when you’re behind on your mortgage payments, maintaining communication with your lender is the most important thing you can do. Contact your lender or servicer immediately if you’re having trouble paying your mortgage or you’ve received a foreclosure notice. You may be able to negotiate a new repayment schedule.

If you choose to take legal action against your lender through a company that provides legal services, you should:

• Get the names of the lawyers who will represent you. Check them out with your state bar association: Are they licensed in your state? Have they been subject to any disciplinary actions? The National Organization of Bar Counsel has links to your state bar.
• Ask relatives, friends, and others you trust for the name of an attorney with a proven record of getting help for homeowners facing foreclosure.
• Ask to speak with the attorney directly.
• Ask questions, including how many mortgage-related cases the attorney has filed and handled through trial or settlement.
• Get specific information about the work the lawyer or firm will do for you in writing, including the cost and the payment schedule.
• Stay away from attorneys who make bold promises or who guarantee the outcome of your case. A reputable attorney doesn’t guarantee results, no matter what your circumstances.
• Don’t pay in advance.You can find many free services available at nonprofit groups certified by the Department of Housing and Urban Development.
• Maintain communication with your attorney throughout your case. Keep a file with a record of your conversations, correspondence, and paperwork.