HUD Charges Discriminate Against Mortgage Modification Companies | Ballard Spahr LLP



The US Department of Housing and Urban Development (HUD) recently released a load of discrimination under the Fair Housing Act (Act) against Louis Liberty & Associates, a PLC dba The House Lawyer, Liberty & Associates, a PLC dba The House Lawyer (THL), and the owners, employees and agents of THL (collectively, the “Respondents”), including a lawyer. The charge arose in connection with complaints filed with HUD by specific unidentified mortgage borrowers (the “Complainants”). Although HUD asserts that the Respondents engaged in unlawful and unfair mortgage modification assistance, the basis of the charge alleging violations of the law is that the Respondents were targeting Hispanic mortgage borrowers and, therefore, violating some of the prohibitions in the National Origin Discrimination Act.

Among other prohibitions, the Act prohibits (1) discriminating against a person in the terms, conditions or privileges of selling or renting accommodation, or in the provision of services or facilities relating thereto, and (2) discriminate against any person by making available a transaction related to residential real estate, or in the terms or conditions of such a transaction, on the basis of race, color, religion, sex, disability, status family or national origin. The Act defines a “residential real estate transaction” as (1) the granting or purchase of loans or the provision of other financial assistance (a) for the purchase, construction, improvement, the repair or maintenance of a home, or (b) guaranteed by residential real estate, or (2) the sale, brokerage or valuation of residential real estate. The law also provides that it is illegal to coerce, intimidate, threaten or interfere with any person in the exercise or enjoyment of, or because of the person having aided or abetted another person in the exercise or enjoyment of all rights granted. or protected by sections of the Act which include the above prohibitions.

HUD claims that the respondents violated the Act by:

  • Discrimination against complainants in the provision of services or facilities in connection with the sale of housing.
  • Discrimination against plaintiffs in the provision of residential real estate transactions, and in the terms or conditions of such transactions, on the basis of national origin.
  • Interfere with the exercise or enjoyment by complainants of the rights granted or protected by the articles of the law containing the prohibitions set out in the first sentence of the previous paragraph.

The charge includes factual allegations by HUD regarding the Complainants, as well as general factual allegations regarding the Respondents’ conduct. The general factual claims are as follows:

  • The respondents marketed and sold illegal or unfair mortgage modification services to financially troubled California homeowners, targeted Hispanic borrowers for financial assistance, and most of THL’s clients were of Hispanic origin.
  • Most of THL’s radio, television and online commercials were in Spanish, and THL’s radio and television commercials were broadcast on Spanish-language stations.
  • THL’s advertisements contained misleading information regarding THL’s ability to obtain loan modifications and THL’s fee payment structure, and also discouraged borrowers from seeking free loan modification assistance.
  • In one ad in particular, one respondent stated that “no one works for free” and that “if someone says they will help you for free, please be careful. . . “, And falsely stated that THL” only forces individuals to pay after each step of the process. “
  • THL staff made false, inaccurate or misleading statements during in-person consultations with prospective clients regarding the extent of mortgage relief THL would obtain on their behalf and the obligation of prospective clients to continue to make payments. mortgage while seeking to modify their mortgage. THL staff have also discouraged clients from seeking legitimate loan modification services.
  • The Respondent, who was a lawyer, was solely responsible for the legal services offered by THL.
  • While California law prohibited attorneys from charging or collecting legal fees for loan modification services prior to the completion of those services, the respondents charged clients fees of approximately $ 2,500 for the provision of loan modification services. mortgage modification as part of a solicitor-client fee agreement, and approximately $ 750 to $ 1,000 for services under a negotiation package solicitor-client fee agreement , and that some, if not all, of the fees were generally paid before the Respondents completed all of the services they represented that they would perform in the initial appointments with clients.
  • The respondents also charged the clients a recurring monthly fee of $ 50.
  • When potential clients did not appear to qualify for a loan modification because they were up to date on their mortgage payments, respondents regularly advised them to stop paying their mortgage, and respondents did not provide accurate information or provide information. no inaccurate information to clients about the risks of non-payment of their mortgages.
  • The Respondents ‘mortgage modification activities were carried out almost exclusively by non-lawyers, although the respondents’ advertisements and agreements erroneously indicated that mortgage modification clients would receive the services of a lawyer.
  • The respondents regularly interfered with clients’ relationships with their lenders by asking them to stop communicating with their lenders. The respondents provided the clients with a document entitled How to manage the bank during the loan modification process who informed clients that should their bank threaten foreclosure they should not interfere with negotiations with THL’s lenders and instead should forward all communications with the lenders to THL. Nonetheless, respondents routinely failed to answer or return customer phone calls and provide updates regarding the status of customer loan modification requests.
  • After convincing clients to stop paying their mortgages, collect fees for loan modification services, and promise that they would get loan modifications for clients, THL abruptly sent opt-out letters to clients. and closed his office.

The alleged conduct towards the complainants began almost 10 years ago and the complaints were filed in December 2012 and July 2013. HUD states that in July 2013, the State Bar of California found that the practices of the defendant who was a lawyer violated California law by (1) taking an advance on loan modification fees, and (2) taking a lien on real estate, personal property or other collateral to secure payment of these fees for mortgage modification work. HUD also states that in August 2015, the California Office of Real Estate revoked the same individual’s real estate license.

HUD looks for a command that:

  • Declares that the Respondents’ practices violated the law.
  • Prevents respondents from discriminating against any person on the basis of national origin in any aspect of the sale or rental of housing, including related services, and / or in any residential real estate transaction.
  • Awards damages that will fully compensate the plaintiffs for all damages caused by the conduct of the respondents.
  • Evaluates a civil sanction against each respondent for each distinct and distinct discriminatory housing practice that the respondent has committed.
  • Grants additional relief, if applicable.

Based on the number of mortgage borrowers facing financial hardship due to the COVID-19 pandemic, it will be interesting to see whether HUD, or other regulators, will challenge companies providing loan modification services or similar services, or mortgage loan managers, under fair housing laws or fair loans if the services provided by the entities are considered illegal, unfair, deceptive or abusive and target certain protected groups, or if the services vary depending on whether or not the borrower is a member of a group. Please see our recent blog post addressing an article that advocates that regulators and individuals should consider challenging discrimination as an “unfair” practice covered by federal and state laws prohibiting unfair, deceptive or abusive acts and practices.


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