Connecticut AG Seeks an End to Foreclosure Rescue Scams

Connecticut Attorney General Richard Blumenthal is the latest regulator to crackdown on foreclosure “rescue” scams — an increasingly troublesome issue among servicers who specialize in managing troubled mortgages, according to a number of HousingWire’s sources — through proposed legislation announced Tuesday at a press conference, where he also said he is investigating several debt reduction entities for misleading consumers. “Like quicksand, these supposed debt rescue schemes sink consumers deeper in distress the more they struggle,” Blumenthal said. “We must rescue families from false rescuers, who offer lead-filled lifelines.” The AG’s proposal, An Act Concerning Foreclosure Rescue Debt Reducers, would compel debt reducers to provide advance disclosures that “clearly and conspicuously explain their services, and prohibit advance fees,” according to the Attorney General’s Office. Under the legislation, specifically speaking, debt reduction services would have to provide an analysis of the consumer’s debt, including the likelihood that the debt can be reduced or foreclosure avoided, and a three-day right of cancellation. “My legislative proposal would ban the worst practices of these predators: profit-making organizations, deceptive pitches, advance fees and exploitive contracts,” the AG said. The legislation would also authorize the Banking Commissioner to investigate and reduce debt reducer fees that are excessive when compared to common industry fees and in relation to the consumer’s financial benefit of such services. Texas Attorney General Greg Abbot, along with Sen. Craig Estes (R-Wichita Falls) announced in December, they too were proposing new restrictions on foreclosure prevention consultants — other states, including California, are considering putting similar legislation into place as well. See Full Story. The unfortunate reality is as the number of struggling homeowners increases, the number of scam artists looking to profit from homeowners seeking to avoid foreclosure also rises. “Rescue predators pitch a variety of financial snake oil — promises to stop foreclosure and save homes…but deliver only hardship,” Blumenthal said. Blumenthal and other regulators alike have decided it’s time to step-in, often through new legislation, in order to protect their citizens. “My office will use existing law to fight any debt reducer that deceives consumers but stronger laws are vital,” Blumenthal said. Write to Kelly Curran at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.