Finally, Florida & Connecticut AGs Shut Down Mass Joinder Lawsuit Scams
Well, it certainly took them long enough, but finally attorneys general from two states, Florida and Connecticut, have shut down and sued five supposed law firms in federal court.Â The suits claim the firms took millions of dollars in fees from homeowners facing foreclosure to enroll them into so-called â€śmass-joinder lawsuits,â€ť which deliver nothing in return.
The 39-page lawsuit starts out explaining that the foreclosure crisis gave birth to a flood of predators who “made money by charging distressed homeowners upfront fees on the promise that they could obtain mortgage modifications for these homeowners, often providing little or no actual assistance.”
And thatâ€™s certainly true.Â But, what no one in government wants to mention or admit having any role in, is what happened next.
The response to the proliferation of loan modification scammers was the MARS Final Rule, which simply made it illegal for non-lawyers to charge upfront fees in conjunction with loan modification services, but lawyers would still be allowed to charge clients up front as long as they put such funds into their trust accounts and received their fees from those accounts as they were earned.
In California, the State Bar went a step further with SB 94, which made it illegal for both lawyers and real estate licensees to charge upfront fees when offering loan modification services.
The result was predictable, and in fact, I wrote about what would happen as a result, on numerous times back then.Â The legitimate attorneys got out of the practice, and the scammers found ways to skirt the law while still charging homeowners thousands up front for essentially nothing.
One of the most insidious of these new fangled and hard-to-police scams was the â€śmass joinderâ€ť lawsuit, which sounded like a reasonable idea, and therefore sold like hotcakes to desperate homeowners who had nowhere to turn for help getting their loans modified.Â But, as opposed to loan mod shops, these scams would take years to expose and shut down.
The mass joinder sounded like it had the clout of a class action, but since everyone would participate in the costs, if successful, everyone would get a share of the spoils.Â The problem was, there was absolutely no chance of there ever being any spoilsâ€¦ the suits never had a chance.
To understand why this was always the case, you only have to look at any of the cases brought by homeowners that have been successful, and one thing youâ€™ll notice about each case is how fact specific they all are.Â In fact, no two are the least bit alike; each has its very own set of very specific facts.
The mass joinders, on the other hand, had hundreds or even thousands of plaintiffs all sharing the same complaint, and the simple fact is that if one complaint is broad enough to apply to that many homeowners, then itâ€™s not specific enough to result in a win for any one of them.
The AGs, in their complaint filed in federal court explain this to some degree, saying that following the curbing of loan modification activitiesâ€¦
“â€¦ veterans of such (loan modification) scams have shifted to selling homeowners’ participation in so-called ‘mass-joinder’ lawsuits. Homeowners are led to believe that they will be represented by real law firms and that joining a mass-joinder lawsuit will help them avoid foreclosure, reduce their interest rates and loan balances, and entitle them to monetary compensation.”
The prosecutors go on to say that defendants sent out: â€śâ€¦ misleading mailers that resemble class action notices to consumers notifying them that they are a potential plaintiff in a ‘national’ lawsuit against their particular mortgage lender or service for ‘multiple claims of fraud and misrepresentation.’Â The mailers create a sense of urgency for consumers to enroll by a certain date or risk exclusion and induce consumers into believing that by ‘opting-in’ they will receive a reduced interest rate, lower monthly payment, principal reduction, loan forgiveness, and monetary damages.”
And, at the end of the day, prosecutors say the defendants, “â€¦misled thousands of homeowners nationwide and … pocketed at least $4.7 million.â€ť
The real danger of these schemes is that the homeowners wouldnâ€™t find out for several years that theyâ€™d been scammed, when finally a court dismissed their suits, and they were harder for authorities to police and shut down because they appeared to be actual lawsuits.
According to the Courthouse News Service, the defendants included:
- â€śThe Resolution Law Group and Berger Law Group together referred to as the RLB/BLG Enterprise, the Berger Law Group, P.A., of Tampa; and Ian Berger, a Tampa attorney and president of the Berger Law Group, called “the Enterprise’s newest front man.”
- â€śThe Resolution Law Group, of Greenwich, Connecticut, and Tampa, Florida, a Connecticut corporation formed by defendant Broderick in November 2011, and Robert Geoffrey Broderick, of San Clemente, California, an attorney licensed in Connecticut, who was president of The Resolution Law Group, and “the Enterprise’s front man.”
- The Resolution Law Center, of Tampa, a Florida LLC formed by defendant Friedman in December 2011 and David Friedman, of Tampa, a non-attorney who “manages and controls the RLG/BLG Enterprise’s sales operation and is the president of defendant Resolution Law Center.”
- Litigation Law LLC, an administratively dissolved Florida LLC founded by defendant Gary DiGirolamo in May 2011, which operated out of Pinellas Park, Florida.Â DiGirolamo is a non-attorney, from Mission Viejo, California, who the complaint refers to as, “the RLB/BLG enterprise’s most senior manager.”
If the name Gary DiGirolamo sounds familiar, itâ€™s because he was also behind the mass joinder lawsuits brought by California attorneys Phillip Kramer and Mitchell J. Stein a few years ago, that ultimately were similarly shut down by the California Attorney General, Kamala Harris.Â The result was the, “entry of a final judgment and permanent injunction against DiGirolamo and two companies that he controlled,” the attorneys general say in this latest complaint.
That injunction permanently enjoined DiGirolamo from contacting consumers â€śregarding any real or imaginary lawsuits against lenders,â€ť but prosecutors say that he â€śestablished the current scam in Florida and Connecticut almost immediately after that judgment was entered.â€ť
So, very nicely done there.Â I guess what happens in California doesnâ€™t matter in Florida.
The only problem I have with the whole thing is that it took Floridaâ€™s and Connecticut AGs over two years to shut down the same mass joinder scam that Californiaâ€™s AG had already taken a couple of years to shut down.Â Washingtonâ€™s AG warned residents of that state about these lawsuits as well, but a warning wasn’t enough. Â And all that time, just consider how many millions were scammed from desperate homeowners.
The attorney’s general complaint explains that, “although the RLG/BLG Enterprise charges consumers varying amounts, typically there is an initial upfront payment of typically $6,000, often described as an ‘investigation fee,’ followed by a $500 monthly ‘maintenance fee.’
“The RLG/BLG Enterprise later induces consumers to continue making monthly payments by providing them with misleading information regarding the status and progress of the lawsuits and by making further misrepresentations regarding the benefits of participating in the lawsuits,” also according to the complaint.
Think about that for a minuteâ€¦ $500 a month.Â Letâ€™s say you have 1,000 homeowners on boardâ€¦ thatâ€™s $500,000 a month!Â Iâ€™m thinking you could get some of the best lawyers on the planet for $500,000 a month.Â For $500,000 a month, Iâ€™d want better than some unknown attorney from Tampa, thatâ€™s for darn sure.
The states are seeking an injunction barring the defendants from contacting any more consumers regarding mass-joinder lawsuits, and civil penalties for misrepresentation, civil theft and violations of both the Connecticut and Florida Deceptive and Unfair Trade Practices Acts.
A month after Hoffman Law shut down for similar reasonsâ€¦
This action comes only a month after Florida Attorney General Pam Bondi and the Consumer Financial Protection Bureau filed a joint lawsuit against the Hoffman Law Group of North Palm Beach, Florida, alleging that the firm received millions of dollars from distressed homeowners.
Promising homeowners outcomes including forgiveness of mortgage debt, loan modifications and even cash awards, Hoffman Law allegedly charged homeowners $6,000 to sign up and $500 per month after that to participate in lawsuits filed against lenders.
In a written statement, Floridaâ€™s Attorney General Pam Bondi saidâ€¦
â€śFloridaâ€™s distressed homeowners should not have to worry about being swindled by scammers who hide behind law firms to try to avoid the MARS rule.Â I appreciate the Consumer Financial Protection Bureauâ€™s partnership in this effort to protect Floridaâ€™s homeowners.â€ť
Actually, I donâ€™t think homeowners in any state should be worrying about being swindled by law firms promising results from lawsuits that no one has ever seen before, and no legitimate attorney thinks are likelyâ€¦ or even possible.
Just go back and read any of the lawsuits that have been considered successful for homeowners.Â You can go all the way back to the Ibanez decision in Massachusetts, or consider the Glaski decision from last year in California.Â Or look at any of the â€świnsâ€ť Tom Cox has had on behalf of homeowners in Maine.
Or read the Ninth Circuit published decision in Corvello v. Wells Fargo, or even the recent $16 million verdict in the Linza v. PHH Mortgage case (or at least I think thatâ€™s the name of that caseâ€¦ I donâ€™t have it in front of me at the moment, but you know which one I mean, right?)
Iâ€™m sure there are others Iâ€™m not think about, but myÂ point is the same regardless.
Every one of those decisions is based on a unique set of facts.Â Iâ€™m talking about the sort of facts that could only apply to one borrowerâ€™s situation, certainly not to hundreds, much less thousands.Â Very specific facts, not general allegations about Countrywide knowing the market would collapse, or how their actions caused the collapse of the housing market, or how WaMu was pumping up appraisals, or any of those things that may be true in general.
Remember what the court asked Mr. Glaski about the â€śrobo-signedâ€ť signatures that were presented in his case?Â They asked Mr. Glaski what he did or didnâ€™t do as a result of those signatures, and how was he damaged by whatever he did or didnâ€™t do.Â When he couldnâ€™t respond specifically, the court dismissed both fraud causes of action.Â Mr. Glaski needed to be very specific about how he was damaged by those signatures, it didnâ€™t matter that the name was signed in all different handwriting styles.
Call around, ask different lawyers the question: If a complaint is broad enough to apply to hundreds or thousands of people, is it specific enough to win for even one?Â I know what theyâ€™ll say, Iâ€™ve already called lawyers from all over the country.Â And if anyone would like, Iâ€™m sure I can have Max Gardner or Tom Cox come on a podcast and tell you the same thing Iâ€™m telling you now.
Judge declines to certify borrowers as a classâ€¦
Oh, and do you remember last fallâ€¦ the federal judge in Boston that ruled that the lawsuit accusing Bank of America of reneging on promises to help homeowners with loan modifications and instead driving them into foreclosure, could not proceed as a class action lawsuit?Â It was U.S. District Judge Rya Zobel who said that the claims “may well be meritorious,” the claims were also too different to justify allowing a single, nationwide lawsuit.
According to Reutersâ€¦
Zobel said class certification was improper because of a “nearly endless series of individual questions” affecting the various borrowers, amid a “Kafkaesque bureaucracy that decided which documents were required of which borrowers.”
She said these questions included whether borrowers provided accurate documentation to verify their incomes, lived in their homes as their principal residences, obtained credit counseling, made trial payments on time, “and so on, and so on, and so on.”
And that was only forty-three individuals and couples from 26 U.S. states that were accusing Bank of America of failing to help them obtain loan modifications.Â Only 43 sets of facts, and the court ruled they werenâ€™t similar enough to be considered a â€śclass,â€ť how can any mass joinder lawsuit possibly hope to prevail on behalf of hundreds of homeowners all suing based on identical causes of action?
The answer should be obviousâ€¦ it canâ€™t.Â
But, at least participating in class action lawsuits doesnâ€™t cost members of the class any money.Â Mass joinders, on the other hand, most certainly do cost homeowners thousands upon thousands to participateâ€¦ their hopes are raised to think they might win money or at least save their homesâ€¦ but the truth is that itâ€™s only money the homeowners might as well have set on fire.
I understand why homeowners are taken in by these scams.Â For one thing, the salespeople are darn good at what they do.Â Secondly, the homeowners are scared to death over the possibility of losing their homes, so theyâ€™re not thinking clearly.Â And thirdly, the idea of a mass joinder, on the surface anyway, seems to make sense.
Iâ€™ve wanted to write this sort of article for some time now.Â I havenâ€™t done so because every time I say anything about lawsuits not having a chance of prevailing, I get all sorts of upset homeowners writing to me about how Iâ€™m wrong.Â I havenâ€™t been wrong yet, but I donâ€™t take any pleasure in thatâ€¦ I wish I could be wrong about every single suit. Â But, there’s no chance of that.
Iâ€™m of course very happy that the AGs are finally getting around to shutting down these mass joinder lawsuit scams, I wish they would have been able to do so years ago, before they had a chance to rob thousands of homeowners out of millions of dollars.Â But I also understand why it takes so long… itâ€™s not easy to tell whatâ€™s a scam and whatâ€™s not.Â Itâ€™s not like the AG can just go marching into any law office and proclaim whatâ€™s going on to be a scam.Â It takes a while to build such a case, and by then itâ€™s too late for hundreds or even thousands of homeowners.
Itâ€™s also a crime that often goes unreported because by the time homeowners realize theyâ€™ve been ripped off, theyâ€™re losing their homes and theyâ€™re too embarrassed to tell anyone about any of it.Â So, they just try to put it all behind them, and they suffer in silence.
How do I know?Â Because I hear from and talk to homeowners every day, and itâ€™s not until weâ€™ve been talking for an hour or so, when theyâ€™ve become comfortable with me, that they admit being ripped off multiple times in the past.
A few years ago, like in 2010 or 2011, it was once for $5,000.Â By 2013, it was 2-4 times for numbers that went into the tens of thousands.Â And this year, I have one couple that paid their attorney just under $100,000, and several that admitted to paying $40,000 and $50,000â€¦ all in pursuit of a simple loan modification.
I remember one husband who admitted getting scammed out of $10,000, but he was hiding the loss in his business so as not to have his wife find out.Â I donâ€™t blame him for that.Â Who would want to admit to getting conned out of ten grand when your house is at risk of foreclosure?
There are still mass joinder lawsuits happening in California, there was one last year in New England, as I recall, and Iâ€™m guessing theyâ€™re going on elsewhere too.Â Although, maybe actions like this one in Florida will scare the next lawyers who consider being involved in one, out of doing so.Â I certainly hope so.
It was a fait accompliâ€¦
This is what happens when our government tries to stop scammers by passing a law making it illegal to get paid up front.Â All that happens is the legitimate operators leave the playing field, the scammers donâ€™t leave, they just find a way around the law.Â Scammers donâ€™t care about laws, which is why we call them scammers in the first place.
You see, paying up front was never the problemâ€¦ lawyers have always required retainers in advance of performing services.Â So have many other professionals.Â Itâ€™s not paying up front thatâ€™s the problemâ€¦ itâ€™s paying and then not getting thatâ€™s the problem.
The state and federal governments should have regulated the loan modification industry, required training, special licensing, the posting of bonds, the carrying of insurance, criminal penalties for breaking the laws governing the industry.Â If they wanted to limit the practice to lawyers, they could have had attorneys register in advance, answer questions under penalty of perjury, agree to annual audits and special reporting requirementsâ€¦ there are lots of ways to regulate an industry.
But, they couldnâ€™t figure any of that out, and understandably, they were in a hurry to do somethingâ€¦ I spoke with Tom Pahl of the FTC before the MARS RULE was even drafted, we had dinner in Park City, Utah… following a conference at which he and I were both speakers on the same panel… soÂ I understood the government’s limitations. The MARS Rule was simply the best they could do at the time and under the circumstances.
And so, they told homeowners to call their banks directly, or to call a HUD counselorâ€¦ and thatâ€™s what homeowners did, and when that didnâ€™t work, homeowners went to seek out something else, something hopefully better. Â Because I donâ€™t care what my government says, before I lose my house, Iâ€™ll write a check to organized crime if thatâ€™s all there is available. Â It’s a case of what economistsÂ might call perfectly inelastic demand.
Remember how we tried to get rid of bootleggers during prohibition?Â We smashed their stills, we dumped their beer in the streets, and we shut down their Speakeasies.Â Did any of it work?Â No, it did not. Those sorts of actions only made them smarter and harder to catch.
How did we finally get rid of bootleggers?Â It turned out to be quite simpleâ€¦ we put a legal liquor store on the corner and prestoâ€¦ no more bootleggers.
If the government wanted to stop homeowners from being scammed, they needed to make legitimate assistance abundant.Â That would have put the scammers out of business overnight.Â Like, what if the State of California had announced that legitimate assistance with loan modifications could be found at any Starbucksâ€¦ prestoâ€¦ no more scammers, because homeowners would have known where to find legitimate help.
Instead, the government went after loan modifications by making it illegal to charge money up front, so all the legitimate helpers stopped offering to help and all that were leftâ€¦ scammers.Â And they found new ways to scam people out of their money, because we still had millions of homeowners in a panic.Â And when people are in a panic, thatâ€™s when they get scammed.
So, instead of loan modifications, we now had hundreds of lawyers offering litigation and bankruptcy, while hundreds of others started selling audits of every imaginable flavorâ€¦ because those things still allowed them to charge up front fees, but those services were also much harder to police if they were scams.
Now the message from the government went like this: Call your bank directly, or call a HUD counselor, and if neither of those things works, go fishing in the pool of scammers weâ€™ve created for you to fish in.Â Iâ€™m sure the amounts scammed run into the hundreds of millions and perhaps the billions.
Itâ€™s the only way this crisis could have been made worse.Â And as I said to a room full of lawyers and judges at a meeting of the Inns of Court late last yearâ€¦ If youâ€™re at risk of foreclosure in this country, the most dangerous thing you can do is try to find a lawyerâ€¦ and that would be funny, were it not so accurate and true.
Recently, a homeowner wrote to me asking the question: How do I know I can trust you?
It only took me a second to reply, I said: You donâ€™t.Â
Donâ€™t trust anyone you donâ€™t know, and even with those you knowâ€¦ verify everything with independent sourcesâ€¦ ask for proof of anything youâ€™re told.Â If the person is legitimate, they wonâ€™t mind at all.Â If they get upset with your questions, run the other way.Â And if they talk fast and you donâ€™t understand what theyâ€™re sayingâ€¦ itâ€™s not youâ€¦ itâ€™s them.
Whatever you doâ€¦ be careful out there.
P.S. And if you’re really interested in learning about why we had and have so many scammers hunting for homeowners during this crisis, here’s a link to my article firstÂ posted in April 2011:Â Â They Once Were Lenders – Understanding Government’s Failure to Stop Bankers or Scammers from Destroying Homeowners.