N.J. Legislature bill would regulate foreclosure rescue fraud, offer relief to distressed homeowners
By Sarah Portlock

They call themselves "foreclosure rescue" companies, but in many cases they end up enriching themselves while destroying whatever credit-worthiness a distressed homeowner has.

A bill to regulate the industry overwhelmingly passed both the state Senate and Assembly last week and housing and foreclosure experts said it will at least bring some relief to the already daunting task of helping people stay in their homes.

"It’s some of the most egregious kind of predatory lending, the foreclosure rescues," said Peggy Jurow, who leads the Foreclosure Defense Initiative at Legal Services of New Jersey. She said it can take years to help victims sort through the complicated mass of subsequent lawsuits and paperwork, even if the consultant has been jailed.

"People want to believe that they can get help and they get this card in the mail and it says, ‘I can help you save your home,’" she added. "It’s literally a swindle. This regulates it and puts some bright lines into this practice, which is important."

There are currently more than 118,000 houses in some stage of foreclosure in New Jersey, and another 55,200 properties that are more than 90 days delinquent on the mortgage, according to LPS Applied Analytics, a real estate data firm.

In foreclosure rescue frauds, companies promise to help homeowners avoid foreclosure, keep their homes and repair their damaged credit by paying certain fees and transferring the property title to the consultant or a third party with the promise the homeowner will get their house back once the "rescue" is completed. The companies then take out additional mortgages on the property without the homeowners’ knowledge and, in some cases, by falsifying information on the loan application. The homeowners lose their fees, any equity they have built in the house and frequently lose all ownership of the house.

Last year, Attorney General Paula Dow obtained $17 million in legal settlements through rescue fraud prosecutions, including Hope Now Financial Services and Hope Now Modifications of Cherry Hill, New Hope Modification of Bellmawr, and New Day Financial Solutions of Somerset County, said spokesman Lee Moore. The office continues to investigate similar consumer complaints.

The U.S. Attorney’s Office in New Jersey has also prosecuted several foreclosure rescue fraud cases, and in May U.S. Attorney Paul Fishman announced the guilty plea of Ronald Harris, of Piscataway, who admitted to his role in a scheme that defrauded mortgage lenders of over $10 million, $1.15 million of which Harris personally received.

Not all mortgage rescue companies are out to hurt homeowners, however, experts said.

The Foreclosure Rescue Fraud Prevention Act would regulate the industry and require foreclosure consultants to obtain a license and post bond with the Department of Banking and Insurance before conducting business in the state.

The consultants must also write a contract that outlines their services, fees and costs, and they are not allowed to collect any money before the terms of the contract are complete and they have secured relief for the client. The homeowner would also be paid at least 82 percent of the property’s fair market value when transferring the title. Civil penalties would be $10,000 for the first offense and $20,000 for the second and each subsequent offense.

Assemblyman Gary Schaer (D-Passaic) first introduced the bill four years ago after seeing the large number of foreclosed properties and for-sale signs on houses in his district.

What the bill guarantees is homeowners will now have "fair and complete information" about foreclosure rescue options, Schaer said.

"When people are at their most vulnerable, they expect that those people with whom they are speaking, who are making commitments and promises to them, are making those promises and commitments truthfully and rightfully," Schaer said.

"Government needs to provide a level playing field, and this bill hopefully achieves that," he added.

New Jersey Citizen Action worked with Schaer to make the bill’s wording stronger. Its executive director, Phyllis Salowe-Kaye, said the organization offers outreach to try to prevent people at risk of losing their home from accepting help from unreputable foreclosure rescue firms.

If the bill is signed, Salowe-Kaye said, "the people who are desperate to save their homes will have some protection."

Gov. Chris Christie has not taken a public position on the bill and has 45 days from June 29, when it passed, to review its contents before taking action, said spokesman Kevin Roberts.

Sarah Portlock: (973) 392-5994 or [email protected]