Two owners of a Southern California-based loan modification company were arrested Tuesday on charges that they scammed thousands of distressed homeowners across the country out of more than $6 million, according to a press release from California Attorney General Kamala Harris' office.
Christopher Fox and Curtis Melone, both 37, are accused of illegally charging struggling homeowners $3,500 each in exchange for assistance in securing loan modifications that the attorney general says were never performed.
Fox and Melone's company, Green Credit Solutions -- later renamed Guardian Credit Services and Get My Credit Grade -- allegedly collected fees from customers before performing services, despite California law prohibiting foreclosure assistance firms from taking money until the related services have been performed.
In addition, the company allegedly stated that loan modification services would be performed by lawyers, when its only staff attorney was a disbarred Tennessee lawyer who claimed to have partners at "Smith Harris PLLC," an already defunct law firm.
The arrests come as part of Attorney General Harris' ongoing efforts to repair the damage done to her state by the housing crisis. Earlier this week, Harris announced that she would be partnering with Nevada Attorney General Catherine Cortez Masto to share resources in pursuit of a variety of mortgage-related frauds, including those committed by some of the nation's largest banks. In August, California's mortgage fraud strike force sued a law firm that allegedly stole millions from desperate homeowners.
California remains a central figure in the nation's ongoing foreclosure crisis. The state saw the second-highest percentage of housing units enter the foreclosure process in October, behind only Nevada, according to the California Attorney General. Last year the state led the nation with a total of 546,669 foreclosure filings, or 4 percent of the state's total housing units.
"Homeowners continue to struggle throughout California and across the country to hang onto their homes, and this prosecution is another warning to predators who would seek to profit from their distress: this kind of criminal conduct will meet with swift and certain consequences," said Harris in a statement.
Some former customers of Green Credit Solutions have taken to the Internet to record their complaints. "I paid $6,300 to Green Credit Solutions and they accomplished nothing in four months and now they only want to give me $2,000 out of all that money I gave them," reads one comment at LoanWorkout.org.
Paying fees in advance puts customers in danger and makes the receipt of a refund less likely, explained James Dolan, assistant director for financial practices at the Federal Trade Commission. "Generally, we found that consumers seeking loan modifications are significantly injured if they have to pay a fee in advance of receiving promised services, especially if those promises are false," Dolan said.
In 2009, California became the first state in the nation to outlaw the collection of advance fees for services related to loan modifications. A year later, the Federal Trade Commission issued its Mortgage Assistance Relief Services Rule, which includes a ban on advance fees that applies to all states.
"The legislation helped curb a number of violations because there's no gray area anymore," said Tom Pool, a spokesman for the California Department of Real Estate, one of the first agencies to investigate Green Credit Solutions. "It just prohibited it, period, regardless of if you're an attorney or counselor or broker or anything else. That really helped, though we're still seeing violations."
In addition to arresting the two men, Attorney General Harris is seeking extradition of King Harris III, 42, of St. Louis, a senior executive at Green Credit Solutions.