Attorney general sues firms offering home-loan help

To folks months behind on their mortgage, the official-looking letter offering a lower interest rate and reduced payments seemed like the solution to Cynthia and Robert Fritsche's nightmare. As it turned out, the nightmare was only beginning. The couple paid $1,250 to American Modification Consultants, the company that sent out the letter, to save their Oak Park Heights home of 20 years from foreclosure.

The company failed to negotiate a solution for the couple, and now the Fritsches are contemplating a short sale, filing for bankruptcy or losing the house. They didn't know that a Minnesota law enacted in 2009 makes it illegal for so-called mortgage modification companies to charge fees before making good on promised services.

On Friday, Minnesota Attorney General Lori Swanson sued American Modification Consultants of Philadelphia and Discount Mortgage Relief of Scottsdale, Ariz., alleging that the companies violated this law when they offered to help troubled homeowners fix their mortgage issues, but only after receiving thousands of dollars in fees to get the ball rolling.

"No homeowner should pay advance fees to companies for assistance in modifying the interest rate or terms of the mortgage," Swanson said.

American Modification Consultants, also known as American Mitigation Consultants, charged advance fees of up to $1,250. Discount Mortgage Relief group charged as much as $3,000. American Modification Consultants declined to comment. Discount Mortgage Relief group did not return a phone call.

Swanson said backlogs within the legitimate loan modification process have created a "market niche" for these companies.

Consumers complain about being passed around to powerless call center employees and filling out the same paperwork again and again, only to wait weeks, if not months, for an answer. Lenders counter that some consumers fail to provide all the necessary financial information, making it difficult to make a decision.

In desperation, some homeowners "end up hiring bad guys to be their advocate," Swanson said.

In response to criticism, legitimate mortgage servicers have begun to offer more loan modifications in recent months. About 1 million borrowers had a modified mortgage in February, according to the latest report from the government's Home Affordable Modification Program (HAMP). Of those modifications, 168,708 are permanent and 91,843 are pending permanent status.

In Minnesota, there were 18,728 loan modifications through the program -- 14,959 trial modifications and 3,769 permanent modifications. Still, just 1.8 million out of the 6 million borrowers who are now 60 days behind on their payments are eligible for a government modification through the HAMP program.

'We didn't know what to do'

The trouble began for the Fritsches in January 2008, when Cynthia, 55, left her job because of a health issue. A year later, Robert, now 61, lost the job he held for more than 30 years at Tenere Manufacturing. They depleted their retirement savings trying to stay afloat and are now living on unemployment and what Cynthia earns watching three grandchildren.

Fritsche admits she didn't try working things out with Wells Fargo. "We were so beside ourselves, we didn't know what to do," she said. Then the letter from American Modification Consultants arrived. "I thought maybe they could help us catch up," she said. She paid the $1,250, was told not to communicate with her lender, and diligently called every two weeks for a progress report.

When Wells Fargo's home preservation department called in January to inquire about the past-due payments, and told her that American Modification Consultants had called just once in November, Cynthia realized her error.

She asked for her money back, but was told the payment could not be refunded because of the work attorneys had already performed.

"I said 'What work?'''

Wells Fargo spokeswoman Peggy Gunn said that in a letter the bank sends out to homeowners with mortgages that are 45 days past due, it warns consumers "to be wary of any person or organization that asks them to pay a fee in exchange for housing counseling services or modification of a delinquent loan."

Wells Fargo also has information about foreclosure rescue scams on its website: www.wellsfargo.com/ homeassist.

Consumers experiencing mortgage troubles need to be vigilant, as unscrupulous businesses are quick to find ways to stay within the law while continuing to profit from the economic problems of others, Swanson said.

To find a HUD-approved housing counselor, visit www.hud.gov or call 1-800-569-4287. The Minnesota attorney general can be reached by calling 651-296-3353 or visiting www.ag.state.mn.us.

Kara McGuire • 612-673-7293