Politics & Government

FTC Shuts Down Baltimore County Mortgage Scam

Agency claims that Residential Relief Foundation conned $10 million from 24,000 consumers.

In a boiler room operation in a nondescript business park in Baltimore County, a group of businesses scammed thousands of people by charging up to $1,495 for mortgage and credit relief assistance services, failing to provide the promised services and then tossing confidential client records into a dumpster, according to the Federal Trade Commission.

In response to a suit filed by the FTC, the U.S. District Court in Baltimore Sept. 30 permanently shut down Residential Relief Foundation, Silver Lining Services and Mitigation America--businesses that the agency claimed used fraudulent and deceptive practices to scam as much as $10 million from about 24,000 people across the country.

The businesses were all based at 1502 Joh Avenue in Violetville, just outside Baltimore City limits, and all were operated by attorney James W. Holderness, Michael Valenti, Bryan Melanson and Jillian Melanson, according to the FTC.

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A second boiler room operation was located in the White Marsh area, according to the FTC. The scheme employed about 100 people.

The group operated “a business permeated by fraud,” FTC attorneys said in court documents.

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They “callously take advantage of consumers who are behind on their mortgage payments and facing foreclosure,” the FTC charged.

U.S. District Court Judge J. Frederick Motz signed an order freezing the assets of the companies and principals involved, imposing a $10.5 million judgment and appointing a receivership to liquidate assets to compensate defrauded consumers.

The order also prohibits the principals from working in mortgage or credit relief assistance services in the future, according to Gregory Ashe, senior staff attorney in the FTC’s Bureau of Consumer Protection, who was lead counsel on the case.

The case is among the latest in a growing number of home rescue scams that have emerged since the launch of the Home Affordable Modification Program in March of 2009.

According to the FTC, about 30 mortgage modification scam operations have been prosecuted in the last 18 months.

“Ever since the housing crisis began, these scams have been very popular,” Ashe said. “Unfortunately, there are always people who will take advantage of a financial crisis.”

A Year of Deception

According to the FTC, Residential Relief Foundation began engaging in deceptive practices in September of 2009.

The company sent direct mail solicitations to financially distressed homeowners in official-looking envelopes that bore the seal of the U.S. government, the agency said in legal documents.

Using the appearance and language of official documents, Residential Relief Foundation falsely claimed that its loan modification program would lead to the waiver of late mortgage payments, late fees and legal fees, according to the FTC.

The group claimed that it could convert adjustable mortgage rates to fixed rates as low as 1 percent and reduce mortgage payments by up to 40 percent, the agency said.

Residential Relief Foundation claimed a high success rate and quick results for consumers, who were told to stop making mortgage payments, according to the FTC.

The company promised legal representation and offered to conduct a “forensic audit” that supposedly would uncover violations by bankers and mortgage holders that consumers could use as leverage to negotiate a loan modification.

“The forensic audit was simply a matter of gathering financial information from consumers, printing it out and giving it back to them,” Ashe said. “The information provided was regurgitated back to the client to handle on his own.”

The material that was provided to consumers “was not the services that were promised,” Ashe said.

In a final insult to conned consumers, agents of the Special Inspector General for the Troubled Asset Relief Program (SIG TARP) discovered in an unsecured dumpster behind Residential Relief Foundation documents with confidential information such as Social Security numbers, bank routing numbers and credit card numbers.

Between September of 2009 and November of 2010, when the FTC initiated legal action, the scheme raked in more than $10 million, according to the FTC.

While much of the $10 million was spent on employee salaries and overhead, the court-appointed receiver is searching account and other assets to satisfy the judgment and ultimately return at least some money to duped consumers, Ashe said.

“We’ve been trying to recover as much as we can, but not nearly enough to make everybody whole,” he said.

Although the settlement with the FTC prohibits Holderness from representing debtors in cases involving mortgages or loans, he remains in practice out of a North Calvert Street office in Baltimore, representing banks and creditors.

“Nothing prevents him from representing creditors,” Ashe said. “If he wants to rip off bankers, that’s between him and the bankers.”

Holderness, contacted for comment, said, “I could talk with you for hours,” but he then referred inquiries to his lawyer. “I should talk with him first,” he said.

Avoiding Scams

There are legitimate resources available for those facing foreclosure. Free information is available at MakingHomeAffordable.gov. Free foreclosure counseling assistance is available by calling the Homeowner’s HOPE Hotline at 888-995-HOPE or by visiting HopeNow.com.

Consumers should be skeptical any time fees are involved for mortgage or loan relief assistance, Ashe said.

“You should not have to pay money to get out of debt,” he said. “If any entity is trying to take an advance fee, don’t do it.”

Specific promises are another warning flag.

“Anybody making promises, especially if they don’t know your specific circumstances, is being misleading,” Ashe said. “Unfortunately, there are no guarantees. Anybody who tells you otherwise is probably lying.”

 

Editor's Note: A PDF of the settlement, a stipulation and order accompany this article. The principals signed it, agreeing to the facts without admitting guilt, and waiving rights to an appeal.


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