Homeowners, stuck between falling home prices and a slack economy, are increasingly turning to companies that, for a fee, promise to help them avoid foreclosure.

But consumer advocates warn that homeowners should think twice before writing a check to a so-called mortgage consultant.

On Thursday, Minnesota Attorney General Lori Swanson filed lawsuits against two Florida companies that she said have ripped off troubled Minnesota homeowners.

Swanson alleged that IMC Financial Services and American Financial Corp., which is doing business as National Foreclosure Counseling Services (NFC), violated Minnesota law by charging upfront fees of as much as $1,850 to renegotiate mortgage terms and not doing so.

American Financial Corp. also has been sued by the attorneys general of Illinois and Colorado. In August, Swanson sued another mortgage foreclosure consulting firm based in Florida, as well as one based in New Jersey.

"These [kinds of] companies are very creative in finding a number of ways to capitalize on the foreclosure crisis and skirt existing law," Swanson said in a statement Thursday. "We need to further tighten the laws on the books to provide the maximum level of protection to struggling homeowners in this rocky economy."

Robert Dallavia, director at NFC, said that the charges were "inflammatory" and said that Swanson's office had made the charges without an investigation. Calls to IMC were not returned.

Complaints against mortgage consultants are increasing at an alarming rate, according to Ed Nelson, a spokesman with the Minnesota Homeowners Center in St. Paul.

A Minnesota law enacted in 2004 said that such foreclosure consultants may not accept payments until they have "fully performed each and every service the foreclosure consultant contracted to perform, or represented he or she would perform."

Several companies have found loopholes -- some have simply avoided calling themselves foreclosure consultants -- and are now targeting homeowners who have struggled to pay their mortgages but aren't yet in default.

Swanson said she supports a bill to be introduced at the Legislature in the next couple of weeks to close such loopholes. She said the legislation would reduce the number of foreclosure consultants in Minnesota that are finding ways to accept fees before providing services.

Gretchen and Chris Hansen said they mistakenly turned to NFC to help save them from losing their home.

A decade ago, the Hansens bought an old Victorian-era house in St. Paul that had been in shambles and spent most of the time since fixing it up. Three years ago, they refinanced their mortgage to help pay medical bills and to finance completion of their kitchen renovation -- the last of many projects. They got an adjustable-rate mortgage with the promise that if their payment eventually went up, they could just refinance.

Ultimately, that didn't happen. Chris, a union painter, was laid off, and after lengthy negotiations with their lender, their payment still increased more than $400 per month.

Desperate to save the house they'd worked so hard to rescue from disrepair, they responded to what looked like a government letter from NFC imploring them to immediately contact its Ramsey County representative to help negotiate a loan modification. The company said that to qualify, they needed to be late on their payment and to submit a fee, so instead of making their mortgage payment, the Hansens sent the company $1,850.

'Absolute nightmare'

They got nothing in return, Gretchen Hansen said, and their house was sold at a foreclosure auction on Jan. 6.

"Our mortgage was always something we could make and make on time," she said. "It's been an absolute nightmare from the very beginning."

NFC's Dallavia said that the Hansen's upfront payment is considered an escrow deposit and that NFC negotiated a reduction in the amount in arrears for the couple, who he said failed to hold up their end of the deal. "All they had to do was pay the lender that amount and they'd be back on track," Dallavia said.

Nelson said that complaints against foreclosure consultants have been particularly common within the past 45 to 60 days, mainly about outstate companies. He said that many of the offers are being made by the same people who were selling risky mortgages four to five years ago. That includes many attorneys who work with a network of "agents" who help find homeowners who are in trouble.

"Our network is hearing it over and over again," he said. "We are getting several calls a day."

Jim Buchta • 612-673-7376

To see a copy of the letter received by the Hansens, go to www.startribune.com/business.