“Operation Mis-Modification” Targets Foreclosure Relief Companies


The CFPB continues to ramp up its enforcement actions and its collaboration with state AG offices as part of the new “Operation Mis-Modification.”

The CFPB, the FTC and fifteen states announced a series of lawsuits against what they characterize as “foreclosure relief scammers.” The CFPB filed three lawsuits against individuals and companies – all law firms or associated with law firms – seeking compensation for victims, civil fines and injunctions. The FTC filed six lawsuits. And, in line with Director Cordray’s previous statements that the CFPB was collaborating with state AG offices, the state AGs announced their intent to file 32 lawsuits. It is uncertain whether any of the state AG lawsuits will rely upon Section 1042 of Dodd-Frank, which, as we have previously reported, allows a state AG to bring a civil action for violation of the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices (UDAAP).

The CFPB alleges that the defendants used deceptive marketing to persuade thousands of consumers to pay them more than $25 million in illegal fees. The crux of the CFPB’s allegations are that these companies:

  • Charged consumers with advance fees before obtaining a loan modification in violation of Regulation O (formerly known as the Mortgage Assistance Relief Services Rule);
  • Misrepresented in marketing materials the likelihood they would help a consumer save substantial sums in mortgage payments;
  • Tricked borrowers into thinking that they would receive legal representation even though many borrowers never spoke with an attorney or had their case reviewed by one; and
  • Misled consumers to believe they were eligible for a loan modification or they would receive relief within a few short months when the defendants had not contacted the consumers’ lenders or requested or obtained any meaningful relief for them.

The CFPB’s new lawsuits are similar to the lawsuit the CFPB filed against Morgan Drexen, a nationwide debt-settlement company, for charging consumers fees for debt-relief services before it actually came to an agreement settling or altering the terms of the debt. As previously reported, the California district court rejected Morgan Drexen’s motion to dismiss based on a challenged to the CFPB’s constitutionality and the Ninth Circuit dismissed the appeal for lack of jurisdiction. That case remains ongoing.

The FTC lawsuits also charge the defendants for violating Regulation O, as well as the FTC Act. In each case, the FTC has sought an order freezing the defendants’ assets pending the outcome of the litigation.

The CFPB’s complaints are available here:




The FTC’s complaints are available here:








DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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