Bill would crackdown on 'foreclosure consultants'

PHOENIX — State lawmakers are moving to slam the door on what some see as fly-by-night scammers who hold themselves out as "foreclosure consultants.''

Legislation making its way through the House would establish for the first time ever some regulations on the practices of those who say they can help homeowners avoid losing their homes to foreclosure.

HB 2309 would not require state licensing or testing. It would set out rules for how they operate, including providing contracts to homeowners at least 24 hours ahead of when they have to sign and giving homeowners the right to cancel within three days.

But Assistant Attorney General Jennifer Boucek said the real key is a provision that bars consultants from getting paid up front.

"Those fees can range from $3,000 to $4,000, which, quite frankly, could represent a significant number of mortgage payments to go directly to the bank,'' Boucek told members of the House Commerce Committee when the measure came up for consideration.

She said the attraction of the consultants to homeowners is that they are faced with what can be the daunting task of appealing to lenders to modify the terms of their mortgages.

"This person approaches them and says, 'We will do that for you and we will take care of it and we will get results,''' Boucek said.

"In the end, the homeowner gets nothing. All they get is a bank account balance that's $3,000 to $4,000 less than it was before they were approached by the foreclosure consultant."

A ban on up-front fees, Boucek said, will enable her office's consumer fraud division to crack down on the scam artists. She said the problem is getting worse, as almost all of the other states in the region already have such laws, including one adopted by California just last year.

"Since they passed that law banning up-front fees, we've seen an increase in the number of foreclosure consultant complaints here in Arizona,'' Boucek explained. "So we think what we have is an influx of people coming over from California to prey on Arizona consumers.''

Boucek acknowledged that the practices of some of these scammers already is illegal under existing consumer fraud laws. But she said only the ban on up-front fees will make a real and immediate difference.

"Otherwise, we're going to have to go through a lengthy process under the Consumer Fraud Act to prove deceptive practices.

"We have to subpoena records, take depositions, get through a full investigation before we could close these people down,'' she continued. "With this kind of prohibition on up-front fees, we'd be able to take action immediately.''

Rep. Olivia Cajero Bedford, D-Tucson, was skeptical that adopting any new laws would make a difference. She said most homeowners won't know about the changes — and won't know that they don't have to give consultants money ahead of time.

"There's unscrupulous people doing foreclosure business,'' she said. "The consumer's not going to know about this good bill.''

But Boucek said her office is able to do things like monitor the advertising by foreclosure consultants to see if they were asking for up-front fees. And she said other public and private groups already are at work to inform consumers of their rights.

The measure contains both civil and criminal remedies.

Homeowners who have been injured can file suit to recover their lost cash plus reasonable legal fees and costs. And the law allows a judge to also award punitive damages equal to 150 percent of what was actually lost.

The proposal makes it a Class 1 misdemeanor for a foreclosure consultant to engage in fraud or deceit against a homeowner. That carries a maximum penalty of six months in jail and a $2,500 fine.