Bank of America, as part of a settlement it and other large banks made with state and federal regulators earlier this year, is offering about 200,000 homeowners significant mortgage debt relief through principal forgiveness on their home loans.

The average amount of principal forgiveness being offered is about $150,000, said Ron Sturzenegger, an executive at Bank of America. “And when you take their new principal amount times their new interest rate, it’s about a 35 percent savings from what they were paying before,” Sturzenegger said (“Bank Of America Offers To Cut Mortgage Principal,” NPR, May 8, 2012).

Only a small group of Bank of America’s borrowers qualified for the one-time offers, which are scheduled to arrive in the mail this week:

• They must owe more than their home is worth
• They must be at least two months delinquent on their mortgage payments as of the end of January
• Eligible mortgages must be held and serviced by Bank of America or by investors who authorized the bank to change the terms of its loans

However, Sturzenegger said he’s concerned that some homeowners, already wary of calls and mailings concerning their home loans, will ignore Bank of America’s one-time offer at principal forgiveness.

Many homeowners with Bank of America and other lenders have participated in loan modification programs, only to be kicked out in worse shape than they were before. And other homeowners may be wary of scammers targeting underwater homeowners for bogus debt relief services.

“And so [Bank of America’s homeowners] have become defensive and they have not responded,” Sturzenegger said. “We would like for them to know this one is different. I don’t want to say this is their best last chance, but I think it’s the best chance they’ve had so far.”

Bank of America said that homeowners who don’t qualify for the principal forgiveness offer may still apply for what the lender calls “dignified alternatives,” which are programs that allow homeowners to modify their loans without principal forgiveness or lease back their homes from the bank.

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A housewife from Wheeling, W. Va. who fought back against an allegedly abusive debt collector that harassed her and threatened her sexually over a debt she says she didn’t owe has won a $10 million judgment against the company, the largest ever against a debt collection firm.

It all started two years ago when Diana Mey got a call from debt collection firm Reliant Financial Associates, who threatened to put a lien on her home. Not only was the tactic a violation of federal and state fair debt collection laws, but the debt in question wasn’t even Mey’s. So Mey sent the company a cease-and-desist letter.

Exactly 23 minutes after Reliant Financial Associates signed for the letter, Mey began receiving a series of hang-up calls that showed up on her caller ID as coming from the local sheriff’s department. When she finally answered, a man on the other end responded with a vulgar, two-minute message.

“You’ve been really trying to get a hold of me, called quite a bit the last couple days,” Mey told the caller when she answered. “Yes,” the man replied. “I want to make sure you like being gang banged” (“West Virginia Woman Wins $10M Judgment From Abusive Debt Collector,” WPXI-TV, May 2, 2012).

Mey said she was frightened by the call and contacted police. A detective told her that the call didn’t come from the sheriff’s department and that the caller ID had been manipulated in a practice called spoofing. When she suspected the call may have come from Reliant Financial Associates, she did some research online and found that she wasn’t the only one that this had happened to.

Mey sued Reliant Financial Associates and won a $10 million default judgment against the debt collection firm — a record judgment against a debt collector — when its lawyer failed to show up in court. Neither the company nor its lawyer have been heard from since.

Although the company’s owners have been identified, collecting on the $10 million judgment may be a long shot. But Mey said that that her lawsuit wasn’t about the money. Instead, Mey said her lawsuit was about sending a message to other abusive debt collectors that they have to obey the law because there are people who will stand up against them.

And abusive companies might want to take notice, because Mey has a history of successfully fighting back. In 1999, Mey won a class-action lawsuit against a telemarketer who kept calling even after she asked it to stop.

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Accretive Health LLC, one of the nation’s largest medical debt collection firms, has struck out at Minnesota Attorney General Lori Swanson, calling her lawsuit against the company for alleged privacy and debt collection violations “unfounded speculation” and asking a judge to dismiss the complaint.

Swanson, who in Jan. filed a lawsuit against Accretive Health accusing it of violating federal and state privacy and health access laws, released a scathing report last week documenting the company’s overly aggressive tactics for obtaining funds from patients of Minneapolis-based Fairview Health Services.

The report detailed several highly controversial and allegedly illegal tactics, which included working with hospitals to staff emergency rooms with agents who use “stop lists” to demand payment from debtors who seek treatment, even for life-threatening conditions.

Documents released by Swanson also show Accretive Health staffing hospitals with agents, indistinguishable from medical staff members, who take down sensitive information, including patient health information, and ask incoming patients to make a credit card payment. Agents are instructed by upper management to stall patients entering the emergency room until they have agreed to pay a prior balance and, in boiler-room sales fashion, use quotas and threaten agents with termination if they fail to collect.

Overall, Swanson has alleged that Accretive Health may have broken state and federal debt collection laws and may have violated state healthcare law by using aggressive collection tactics that “may constitute a threat to withhold medical treatment” (“Debt Collector Wants MN AG’s Lawsuit Thrown Out,” Twin Cities Business, May 1, 2012).

Debt Collector: AG Can’t Sue Us Because of Similar Legal Action From DOC

In a statement issued Sunday, Accretive Health fired back at Swanson, saying that “the inaccuracies, innuendo, and unfounded speculation that have been part of the Minnesota attorney general’s recent allegations are extensive” and that the lawsuit “includes allegations that are factually baseless and legally indefensible.”

As an example of one of the lawsuit’s supposed inaccuracies, an allegation in Swanson’s’ report that a father was approached for payment prior to his child being provided care was incorrect. According to Accretive Health, a family member had requested financial consultation in advance of treatment and “the father expressed his appreciation for our assistance.”

“Nevertheless, we take any patient’s concerns seriously,” Accretive Health said in a statement. “One of our fundamental principles is that patients should never believe that the critical work we do has interfered with their access to care. We are committed to understanding and addressing any situation where a patient expresses concern.”

Accretive Health slammed Swanson for orchestrating “a nationwide media campaign” against he company rather than litigate the case in a courtroom. Accretive Health hinted that such a campaign was responsible for encouraging Fairview Health Services to terminate its billing contract with the debt collection firm.

In its motion for dismissal, Accretive Health said that since the company has received a consent order from the Minnesota Department of Commerce in February to “address its debt collection practices in Minnesota,” it can’t be sued by Swanson over identical claims.

After Swanson released her report last week, several law firms announced they were filing class-action lawsuits against Accretive Health on behalf of investors in the company, who claim that Accretive Health and its leaders violated securities laws by issuing false and misleading statements about the business and failed to disclose that it was violating state and federal laws, as alleged by Swanson.

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One of the nation’s largest medical debt collection firms is under fire for its highly controversial and allegedly illegal tactics, which include working with hospitals to staff emergency rooms with agents who use “stop lists” to demand payment from debtors who seek treatment, even for life-threatening conditions.

Accretive Health contracts with some of the largest hospital systems in the United States to collect their debts. But according to hundreds of documents released Tuesday by Minnesota Attorney General Lori Swanson — who filed a lawsuit against the debt collection firm in January — the company’s business practices paint the firm as having a boiler room mentality and a policy of routinely obstructing patients’ access to medical care.

Documents show that, in order to have patient debts collected by Accretive Health, hospitals must agree to turn over the management of their front-line staffing (including patient registration, scheduling, and billing) and back-office collection activities to Accretive Health. Once that happens, Accretive Health staffs hospitals with agents, who routinely use confidential patient health records to try and wrangle money from debtors.

The agents, who are indistinguishable from medical staff members, take down sensitive information, including patient health information, and ask incoming patients to make a credit card payment. Internal documents also show that if incoming patients don’t have credit cards, agents are told to say, “If you have your checkbook in your car, I will be happy to wait for you.”

Accretive Health debt collection agents, who call themselves “financial counselors,” are instructed by upper management to stall patients entering the emergency room until they have agreed to pay a prior balance, according to the documents released by Swanson.

The documents also reveal a boiler-room mentality by upper management, which instructs agents to use a so-called “stop list” to identify supposed debtors, much in the same way that the FAA uses a no-fly list to track passengers who are supposed security risks. If agents don’t collect, they’re told they will be fired, according to documents and agent statements.

“It is absolutely stunning that the company has systematically trampled on patient rights, perverting the charitable mission of a hospital,” Swanson said (“Debt Collectors Sued Over Emergency Room Tactics,” Idaho Statesman, April 25, 2012).

Firm: We Have ‘Great Track Record’ of Helping Hospitals Enhance Quality of Care

Documents show that hospital employees feel that patients are “harassed mercilessly,” discouraging some from seeking life-saving treatments, and that medical care at the hospitals that contract with Accretive Health has declined precipitously. But the debt collection firm dismissed such claims as “country club talk.”

“We have a great track record of helping hospitals enhance their quality of care,” an Accretive Health spokeswoman said.

Last year, publically-traded Accretive Health reported $29.2 million in net income, up 130 percent from a year earlier.

Swanson’s lawsuit against the company charges Accretive Health with violations of the Health Insurance Portability and Accountability Act for inappropriately accessing confidential patient health records.

It is unclear if the hospitals that contracted with Accretive Health were being investigated for providing agents of the company with access to those confidential records.

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The Attorney General of Ohio filed a lawsuit Thursday against a California-based mortgage debt relief operation that allegedly scammed Ohioans out of thousands of dollars in advance fees in exchange for false promises to lower consumers’ mortgage payments and prevent foreclosures.

The complaint by Ohio Attorney General Mike DeWine accused Christopher Rojas of Irvine of regularly changing the name of his business when complaints began to surface in an attempt to hide his fraudulent activity from consumers.

“This individual takes thousands of dollars up front but fails to provide promised services,” DeWine said in a statement. “He also changes his business names regularly so he can keep operating in the same pattern without consumers catching on” (“Ohio Attorney General Sues Over Scam Foreclosure Fix Scheme,” Huntington News, April 19, 2012).

According to the complaint, Rojas has done business as National Juris Solutions, US National Legal Solutions, Weston & Wyatt, Merrill & Warren, and Legacy Holdings Group.

Rojas has been charged with failure to deliver, a violation of Ohio’s Consumer Sales Practices Act, and charging excessive fees in violation of the Debt Adjusters Act. DeWine is seeking injunctive relief, consumer restitution, and civil penalties.

In a statement, DeWine reminded Ohioans who are worried about making their mortgage payments to consider some basic advice:

• Never pay up-front fees for mortgage debt relief or foreclosure prevention services. By law, mortgage debt relief companies are prohibited from charging and accepting fees until consumers receive and accept a loan modification offer from their lenders.
• Research businesses before giving them any money or information. Make sure to check with the Better Business Bureau and the Ohio Attorney General’s Office to see if consumers have filed any complaints.
• Free foreclosure assistance is available from Save the Dream Ohio. For more information, visit www.savethedream.ohio.gov or call (888) 404-4674.

Consumers who believe they have been treated unfairly or have been the victim of fraud are encouraged to file a complaint online with the Ohio Attorney General’s Office or by calling (800) 282-0515.

Further Reading

Complaint and Request for Declaratory Judgment: State of Ohio v. Christopher Rojas. Filed April 17, 2012.

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America’s college students may need some major credit card debt relief in the near future, according to a recent study of financial literacy on campus.

The study, “Financial Literacy and Credit Cards: A Multi Campus Survey,” conducted by researchers from five U.S. universities, was published this April, coinciding with Financial Literacy Month. The study found major problems with U.S. students’ understanding of credit cards and credit card debt:

• Seventy percent of students have credit cards
• Five out of six of those students are unaware of their cards’ interest rates
• Seventy-five percent of those students don’t know what their late-payment fees are
• Seventy percent of those students don’t know what their over-balance fees are

As a result, more than 90 percent of college students who have credit cards are carrying monthly credit card debt. Perhaps more shocking was that nearly all of the 725 students who participated in the 2009 survey were business majors.

“Our students lacked even basic financial knowledge of a common credit tool that many of our students used every day,” the study said. “There is no way to describe these results as a success in education of financial literacy” (“Survey: Students Fail the Credit Card Test,” Fox Business, April 16, 2012).

There were several other troubling findings in the study as well:

• Credit card use “has snowballed in the last decade” on campus; in 2004, the average student credit card debt was $946, but by 2009 the average had climbed to $4,100
• Nearly a third of college students with credit cards had more than one card
• Only 9.4 percent of students paid their credit card debt in full each month, a steep decline from 32 percent in 2003
• Only 14.6 percent of students claimed to know their interest rates
• Demographically, younger students used credit cards more than older students; students who had taken an ethics class were more aware of interest rates, and employed and married students tended to be more responsible users of credit cards

In the end, the study’s conclusions were disturbing. “This result may also explain part of our national problem with credit,” the study said. “If our college students do not understand credit costs, what can we expect from the larger portion of our society without a college education?”

“These results should serve as a wakeup call for both our college students and our college outreach efforts into the community to train people about the costs of credit. It is clear the status quo of financial literacy is a failure.”

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On the heels of reports that the head of the top regulator of Fannie Mae and Freddie Mac has softened his stance on providing mortgage debt relief for underwater homeowners, two U.S. Senate Republicans are urging the government to instead use the mortgage debt relief funds to pay down the national debt.

Republican Senators David Vitter of Louisiana and Jim DeMint of South Carolina sent a letter Tuesday to Treasury Secretary Timothy Geithner criticizing the Obama administration for encouraging federally-backed mortgage giants Fannie Mae and Freddie Mac — which together hold 60 percent of all U.S. home mortgages — to provide mortgage debt relief via loan principal reductions to struggling homeowners.

Edward DeMarco, the head of the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, has been stubbornly against principal reductions, despite frequent calls by the Obama administration and Democratic lawmakers to provide them as a means to help struggling homeowners stay in their homes. However, DeMarco seemed to take one step back by saying recently that offering homeowners reductions on their mortgage principal balances may make sense after all, but that more study was needed.

DeMarco’s comments prompted the letter by Vitter and DeMint, in which the Senators argued against the Obama administration’s plan to use some of the $46 billion set aside for the 2008 Troubled Asset Relief Program (TARP) on foreclosure prevention. The pair said that big banks holding second mortgages will be the ones that benefit from write-downs, not homeowners. The plan “will pay off the mega banks with taxpayer cash in exchange for reducing the principal balance on some mortgages,” Vitter and DeMint wrote. “We write to urge you, on behalf of the taxpayers, to reconsider and, instead, return this money to the Treasury to pay down the national debt” (“GOP Senators: Forget Write-Downs, Pay Down Debt Instead,” The Wall Street Journal, April 17, 2012).

Michael Steagman, a Treasury housing official, said prior to the Senator’s letter that he disagreed with the notion that big banks, instead of homeowners, would reap the benefits of mortgage principal reductions.

“Principal reduction is by no means the solution for all borrowers struggling to pay their bills,” Stegman said. “But it is smart economic policy for some, and where it is we should provide that help.”

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A measure of mortgage debt relief may be on the way for struggling U.S. homeowners.

Under pressure from Congressional Democrats, Edward DeMarco, the head of the Federal Housing Finance Agency — the top regulator of Fannie Mae and Freddie Mac, which together hold 60 percent of America’s home mortgages — said that offering mortgage debt relief to underwater homeowners via a reduction on their home loan principal balances may make sense after all, but that more study was needed.

DeMarco has been stubbornly against principal reductions, despite frequent calls by many Washington lawmakers to allow them. Although DeMarco’s recent comments may have opened the door to the idea of principal reductions on home mortgages, he repeated the reasons why he has been opposed the idea, including concerns over a moral dilemma in which homeowners who aren’t in trouble flood lenders with demands of principal reductions (“FHFA Chief DeMarco Loosens Up a Bit on Principal Reduction,” MSNBC, April 10, 2012).

Shaun Donovan, Secretary of Housing and Urban Development, told a Senate panel earlier this year that increasing data showed that mortgage debt relief via principal reduction would be good for homeowners, investors, and communities. Principal reductions would “allow people to pay [their bills], stay in their homes and increase the value of those mortgages,” Donovan said.

Meanwhile, private lenders are offering principal reductions to their borrowers. “Private lenders are doing it for an increasing share of their [mortgage portfolios] when it makes sense,” said Andrew Jakabovics, a research director at Enterprise Community Partners, Inc. “If [Fannie Mae and Freddie Mac] aren’t willing to do it there are plenty of investors who are buying these notes because economically it makes a lot of sense.”

But DeMarco, thus far, hasn’t been persuaded. Instead, DeMarco has said that borrowers have a moral obligation to repay their mortgages. “The far larger group of underwater borrowers who today have remained faithful to paying their mortgage obligations are the much greater contingent risk to housing markets and to taxpayers,” DeMarco said.

As a result of DeMarco’s position — which he holds despite the government having propped up the money-losing mortgage agencies with more than $150 billion in taxpayer funds — the FHFA has offered only interest rate deductions, loan term extensions, and principal forbearance, which postpones the repayment of a portion of a loan balance, but doesn’t permanently reduce it. For his part, DeMarco cited data on Fannie Mae’s loan modifications showing that lowering monthly payments is a more effective way of preventing defaults than reducing principal balances.

Since the U.S. housing market collapse in 2006, the value of American homes has plunged $7 trillion dollars, leaving about 11 million homeowners owing more on their homes than they’re worth.

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A federal court has agreed to a $3.89 million default judgment against a collection of mortgage debt relief firms that allegedly defrauded homeowners out of thousands of dollars in exchange for false promises to modify their mortgages and prevent foreclosures.

Samuel Paul Bain and three of his mortgage debt relief companies — U.S. Homeowners Relief Inc., Waypoint Law Group Inc., and American Lending Review Inc. — were sued by the Federal Trade Commission for allegedly charging consumers up to $4,250 in exchange for promises to reduce their mortgage payments, interest rates, and sometimes even their loan balances. According to the lawsuit, however, the companies in reality were scams that collected hefty up-front fees while failing to deliver any mortgage modification or foreclosure prevention services (“FTC Action Leads to Court Order,” FTC press release, April 6, 2012).

There were initially nine defendants in the FTC’s lawsuit. Six have already settled FTC charges. Under the order, which resolves the lawsuit against U.S. Homeowners Relief, Bain and the remaining three companies are required to pay $3.89 million in refunds and fines and, like the other six defendants, are permanently banned from selling any mortgage assistance or debt relief products or services.

The FTC encourages consumers to report fraudulent, deceptive, and unfair business practices by filing a complaint in English or Spanish using the FTC’s online Complaint Assistant or by calling the FTC toll-free at (877) 382-4357.

Further Reading

Default Judgment and Order for Permanent Injunction and Other Equitable Relief: Federal Trade Commission v. U.S. Homeowners Relief Inc., et al. Filed February 13, 2012.

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In what can only be described as a bit of irony, the nation’s largest debt relief company, embattled in recent years for its allegedly deceptive business practices involving the use of franchises to avoid state laws regulating attorney-model debt relief operations, was sued by a debt resolution franchisee for allegedly deceiving the franchisee and violating state law.

Legal Helpers, an Illinois-based debt relief company, has had several legal actions filed against it in recent years, including a lawsuit in Ohio and a class action lawsuit in Washington, alleging that the company set up debt resolution franchises in all 50 states that were supposed to be directly overseen by attorneys in those states but were, in fact, nothing more than shells designed to maintain the appearance of attorney involvement. The suits alleged that Legal Helpers used the shell franchises, which had no actual connection to the attorneys in question, to avoid limitations on debt help firms that employed lawyers to provide debt relief services, including state licensing limitations, and to take advantage of ubiquitous state laws that allowed attorneys to avoid advance-fee limitations placed on non-attorney debt relief firms.

Now one of Legal Helpers’ shell franchises, Velocity Processing Debt Resolution, based in Frisco, Texas, has filed a class-action lawsuit against Legal Helpers (as well as the law firm of Macey, Aleman, Hyslip & Searns, partners Thomas Macey, Jeffrey Aleman, Jeffrey Hyslip, Jason Searns, and Dallas attorney C. Bryan Fears) over allegations that the debt resolution company fired Velocity Processing, without due cause and in violation of Illinois franchise law, after Velocity Processing helped build Legal Helpers into a national organization (“Franchise Sues Big Debt Relief Firm,” Courthouse News Service, April 9, 2012).

According to Velocity Processing’s complaint, the defendants sold franchises to debt help firms like the plaintiff’s to take advantage of state and federal laws that make it easier, and more profitable, for attorneys to provide debt relief services. In exchange, franchisees would get marketing help from Legal Helpers and service debt resolution accounts under the Legal Helpers brand. However, “Once Legal Helpers built its national law firm up to a level that had between 15,000 and 20,000 clients nationwide, it terminated its relationship with each and every one of its franchisees on the same day with the same form letter without any notice and without establishing good cause for termination,” the complaint states. “By failing to provide notice and to establish good cause for termination, Legal Helpers violated the Illinois Franchise Disclosure Act.”

“Then, to the shock of everyone,” the complaint continues, “Legal Helpers instructed Global Client Solutions, the payment processor, to stop all contract payments owed to Velocity Processing and its various marketing affiliates. Indeed, given that all of the marketing work performed by the various marketing affiliates of Velocity Processing was completed at the time of termination, Legal Helpers’ unlawful misappropriation of the money constitutes outright theft. For Velocity Processing, it is estimated that Legal Helpers has misappropriated between $800,000 and $1 million from Velocity Processing and its marketing affiliates. Of this amount, Legal Helpers was only entitled to $4,900 for outstanding ‘retainer fees.’ ”

Velocity Processing is seeking a temporary injunction against Legal Helpers while it moves forward with its complaint. Velocity Processing is seeking damages for wrongful termination of franchise, conversion of personal property, money had and received, and personal liability under the Illinois Franchise Act.

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