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Foreclosure- and Mortgage-Related Consumer Protection Cases

The Office of the Attorney General’s Consumer Protection Section has vigorously pursued and prosecuted lenders, mortgage brokers and others who have preyed on and defrauded Colorado homeowners and borrowers. The major categories of enforcement actions include:

Deceptive and Misleading Advertising Cases

Prior to 2007 mortgage brokers were completely unregulated in Colorado. As a result it was relatively easy for anyone to advertise and originate residential mortgage loans. Also during this time, lenders were providing significant incentives to brokers to originate exotic loans. These two conditions combined to create a circumstance where borrowers were being sold loans that they did not understand and which contained risky terms, such as negative amortization, low teaser rates that reset within one month of closing and substantial prepayment penalties.

As a result, the office focused on stopping the deceptive advertising and cracking down on unscrupulous brokers who were taking advantage of borrowers. (For example: Consumers often were surprised to learn that the fixed payment schedule they believed they had signed up for actually resulted in negative amortization, i.e. owing more than the original loan. These loans may also carry prepayment penalties that prevent consumers from refinancing.)

Hundreds of Colorado borrowers got into these loans without knowing the true nature of the teaser rates, the significant negative amortization that they were adding to their principal balances and the prepayment penalties that came with these loans. Many senior citizens looking to save a little on their monthly payments fell for these advertisements.

We issued subpoenas to 16 separate brokers and eventually either sued or reached settlements with seven of them that prohibited them from running these ads. The following individuals and companies entered into Assurances of Voluntary Compliance and Discontinuance that restricted their advertising of option ARM loans:

Our actions also extended to brokers who were sending direct mail advertisements appearing to come from the consumers’ lenders or from the government:

Mortgage Broker Misconduct Cases

The Office of the Attorney General also has pursued cases against mortgage brokers who preyed on borrowers by giving them into loans that they could not afford. These cases focused on deceptive and misleading misrepresentations made to consumers by mortgage brokers.

Foreclosure Rescue and Loan Modification Scams

The rise in foreclosures throughout Colorado also has brought with it the increased threat of foreclosure-relief fraud. In 2006, based upon work done by a task force appointed by Attorney General Suthers, the Colorado General Assembly adopted the Colorado Foreclosure Protection Act. The Act governs “foreclosure consultants” and “equity purchasers.”Over the past several years, actions against these companies have been a major focal point of the Office of the Attorney General’s enforcement activity.

The Colorado Foreclosure Protection Act contains many protections for homeowners who are in foreclosure or behind on their loans.  The Foreclosure Protection Act prohibits foreclosure consultants from collecting up-front fees, taking a transfer of the home and requires that foreclosure consulting contracts contain language designed to protect consumers.  On March 20, 2009, Gov. Bill Ritter signed House Bill 09-1109, which expanded the protections of the Colorado Foreclosure Protection Act. This recent amendment now extends the Colorado Foreclosure Protection Act protections to principal places of residence encumbered by residential mortgage loans that are at least 30 days delinquent or in default. As a result, foreclosure consultants operating in Colorado now must comply with the Colorado Foreclosure Protection Act requirements when providing services to homeowners who are delinquent on their mortgage loans but whose lenders have not yet commenced a foreclosure action.

Foreclosure “consulting” businesses offer to save homes from foreclosure through lender “negotiation services.” Despite the fact that borrowers paid substantial upfront fees — which are illegal under the Colorado Foreclosure Protection Act — the homeowners complain that the foreclosure consultants fail to deliver on promises to save their homes. Ultimately, many homeowners lose not only these fees, but also their homes. In some cases the consultant convinces the homeowner to sign over the deed to the homes or allow the consultant to place a lien on the home to secure payment for the consulting services. It is illegal under Colorado law for the consultant to take a lien or title to the home.

The Colorado Attorney General has taken action against at total of 33 foreclosure rescue and loan modification firms. Seventeen of these actions were announced as part of two separate sweeps that more than two-dozen other state attorneys general have coordinated with the Federal Trade Commission.

The Office of the Attorney General has reached agreements or issued cease and desist notices to: