Capitalizing on the collapse of the housing market, a Fair Oaks, California company claimed to provide loan modification services while siphoning money from clients on the brink of losing their homes, say several former clients and employees.
Superior Properties, formerly 2nd Chance Negotiations, operates by soliciting an upfront fee from homeowners facing foreclosure in return for legal counsel, a lower principal on their mortgage, and a "100% money back guarantee." It's the type of promise that the Federal Trade Commission says is typical of mortgage scams that are the subject of a recently-announced nationwide crackdown by the federal government.
2nd Chance Negotiations attracted over 1,000 customers before the California Departments of Corporations (DOC) and Real Estate (DRE) issued separate desist and refrain orders on March 24. The joint investigation that led to the desist orders stated that the business was "not licensed and/or legally authorized" to perform its promised services, nor to collect fees in advance -- fees that ran as high as $6,000.
Former employees say 2nd Chance co-founders Christopher Mesunas and Michael Garcia were largely undeterred by the legal orders to cease operations. According to Deborah O'Campo, who served as one of five negotiators at 2nd Chance from February 10 to April 1 of 2009, the company only ceased operations for 48 hours before reopening under a new name, Superior Properties.
"They asked us to start calling banks before we had filed the requisite legal permission to negotiate on behalf of our clients under the name Superior Properties," O'Campo told The Huffington Post. O'Campo says she was the only licensed broker of the five negotiators employed by 2nd Chance.
When confronted with this allegation, Garcia questioned O'Campo's knowledge of the legal system. "There can't be one employee of mine who you talked to who has the skill to know what an appropriate document would be," he said. (Mesunas did not respond to requests for comment.)
Garcia also claimed that the California DRE has been changing the rules. He says that only recently has the DRE required that mortgage negotiators have a broker's license. "Now they [the DRE] want people negotiating on the phone with the bank to be licensed. As of last week, everyone on the phone with the bank is licensed, because that's when we got the information."
O'Campo says employees were "alarmed and befuddled" when Mesunas loaded 2nd Chance's case files into employees' cars after receiving the desist and refrain orders. "Even our new 21 year-old assistant loaded files into his truck," said O'Campo. "Then they drove them around town for a couple days. When they finally came back and returned the files, there was no explanation to the staff and Chris [Mesunas] refused to answer my questions."
The files that had been dispersed via car trunk throughout the Sacramento area included Social Security numbers, bank accounts and the complete contact information of 2nd Chance clients, said O'Campo.
Michael Garcia responded, "Not all the files were taken out of the office. We had an attorney we were working with and he wanted to see the files and he didn't want to come to our office." Garcia would not provide the name of this attorney. "I have a right to take the files wherever I want to take them," said Garcia. "They're my files."
When these files were returned to the office days later, employees were told to contact each and every client and convince them to sign a release that would transfer their account from 2nd Chance to Superior Properties, allowing caseworkers to negotiate with banks under the new name. The reason given to customers followed a general story line; 2nd Chance had folded and Superior Properties, which claimed to be completely separate company, would take on their caseload if the client just signed on the dotted line.
Mesunas had registered Superior Properties with the California DRE in 2000 but did not begin using the name until 2nd Chance was served the desist orders. He has also operated under the names "A Superior Mortgage," "Realty Word--Superior Realty," "2nd Chance Capital," "Mesunas Properties Inc." and others.
Among 2nd Chance's clients were Pamela and Richard Zombeck of Salem, Mass. whose foreclosure story HuffPost featured in February. The Zombecks were driven to look for outside help after the government-sponsored Hope for Homeownership program failed to renegotiate their adjustable rate mortgage with Ocwen Financial Services. The loan's interest rate was quickly climbing to over 13 percent and the Zombecks were exhausted from months of negotiation with Ocwen, where they say just getting someone on the phone was a battle. "Once we would finally get someone on the phone," said Pamela Zombeck, "we lacked the vernacular and know-how to negotiate a better mortgage."
In its online ads, 2nd Chance promises to "offer the best customer service available at a very low cost, to allow you and your family the chance to stay in your home in the easiest way possible." The Zombecks say they were guaranteed weekly updates, a dedicated lawyer for their case, and a money-back guarantee if 2nd Chance was unsuccessful in negotiating a better loan. These promises carried extra weight because a friend and local mortgage broker, who the Zombecks trusted, referred them to 2nd Chance.
Both the Zombecks and their friend were unaware that charging upfront fees for loan modification services is illegal in Massachusetts. The Massachusetts Attorney General's office has recently filed multiple charges against organizations for this crime and an uptick in mortgage negotiation fraud has spurred the AG's office to release a Public Service Announcement warning, "If you are going to pay someone to help represent you in attempting to avoid foreclosure, it is illegal for them to demand or accept a fee in advance."
The Zombecks stopped hearing from 2nd Chance soon after sending in their final check. Under an entry titled "December 30" in her daily record of mortgage related activities, Mrs. Zombeck writes, "Left message with Aileen [at 2nd Chance] and grew increasingly suspicious and angry that we were not receiving weekly updates. All updates we received were a result of tenacious emailing and calling." 2nd Chance transferred the Zombecks between three loan negotiators over the next three months.
Frustrated, the Zombecks say they recently asked for their money back and were told that their request would take thirty days to be processed. When asked if 2nd Chance Negotiations or Superior Properties had ever provided a refund, Garcia told The Huffington Post that neither organization ever had a 100 percent money back guarantee. "All our affiliates offered [money back] guarantees and we have told them there is no way to provide these guarantees... It states in the contract that there is no money back guarantee."
Garcia argued that his company is not responsible for the way that affiliates sell clients on 2nd Chance's services. When asked why Superior Properties has processed people's requests for a refund instead of simply denying such requests he said, "We still provide partial refunds for people because that's called having integrity."
After just three weeks, the Zombecks realized they were not receiving the service they had been promised -- it took some 2nd Chance employees much longer to figure out that the operation was a sham.
Michael Buckalew had worked in various sales departments for over a decade when he joined 2nd Chance's sales team in October 2008. Once Buckalew successfully signed a customer, he passed the case to a mortgage negotiator like Deborah O'Campo. When one of his clients called in February to complain that no one had contacted him in weeks and nothing had happened on his account, Buckalew realized something was amiss.
Buckalew was one of 22 salespeople in the Northern California office. There were only five caseworkers who negotiated new loans. Buckalew claimed he didn't notice the disparity until later, when he saw that cases were coming in "by the truckload."
"[2nd Chance] had affiliates that would bring us cases every week," Buckalew told The Huffington Post. "They would come in and unload a hundred cases at a time. They had three to five hundred new files per month and they never expanded their negotiating capacity the whole time I was there."
Deborah O'Campo said the five caseworkers were overwhelmed, which made it difficult to get results. "I cannot recall even one success story," O'Campo said. "When I left, there might have been only two [mortgage negotiations] that were headed in the right direction as far as almost getting approved."
The sales pitch, according to 2nd Chance's clients, focused on making the homeowner feel powerless to negotiate their own loan. Jessi Barnes in Plumas County, California, who paid 2nd Chance $5,000 in December 2008, said the representative she spoke with made it sound like she required a lawyer to negotiate with her lender. In reality, all borrowers have the right to negotiate with their lender and lawyers cannot negotiate on their behalf without written legal consent. Barnes says that 2nd Chance did not provide the legal assistance that had been promised. "You are quite literally getting all the information together yourself, then faxing it to [2nd Chance] that then faxes it to the banks and [2nd Chance] charges $3000-$6000 for this," said Barnes.
At the beginning of April, Barnes says she was notified by her lender that her house was in foreclosure and that the bank had closed her case in February because they had received an incomplete loan restructuring application from 2nd Chance.
According to O'Campo, 2nd Chance shuffled cases between negotiators to give the impression that something was getting done. If a client ever complained to 2nd Chance affiliates who were securing new cases for the company or asked for the promised 100 percent refund, O'Campo says Mesunas would blame the case manager and move the client's case to a new loan negotiator.
Buckalew said the company's sales practices aroused his suspicious from the beginning. He said that he and the entire 22-person sales staff were allowed to charge whatever price they could convince their client to pay.
"Did you ever see Boiler Room? Working in the sales room kind of felt like that," said Buckalew.
According to Buckalew and O'Campo, it was company policy for sales people to receive a 100 percent commission on charges over $1,500. Buckalew said he closed cases at an average of $2,500, but he knew salesmen who charged potential clients twice as much.
The Huffington Post has received a number of emails from people who paid over $4,000 to hire 2nd Chance. Erik Lingvall, who shares a condominium with her mother in Northern California, said she paid $6,000 to become a 2nd Chance client. Lingvall received a call in early April informing her that 2nd Chance had been shut down by California's Department of Real Estate and that Superior Properties, which the caller claimed was a completely separate entity, would take over all of 2nd Chance's loan modifications.
Upfront fees are illegal in California unless the company has a fee agreement approved by the DRE. Michael Garcia said that Superior Properties has now secured this agreement, but they are working on cases that were purchased through 2nd Chance, which did not obtain the required legal agreement. The California DRE's website warns consumers to be wary of individuals or companies who offer to help negotiate a loan modification:
You must be very careful if you are asked to pay for any of these services in advance, whether in cash, check or by charging your credit card. First, California Civil Code Section 2945, which regulates "foreclosure consultants", forbids anyone who falls under the definition of a "foreclosure consultant", as well as a real estate licensee, from collecting any advance fees for these types of services if a Notice of Default has been recorded against your property.
Despite this warning, fraudulent schemes that prey on people who risk losing their homes are on the rise. Last July, the California Department of Real Estate had fewer than a dozen complaints involving loan modification companies, while the department had over 500 pending investigations at the beginning of April. The California DRE Commissioner Jeff Davi explains, "With so many folks struggling to stay in their homes, foreclosure rescue scams have risen dramatically." Have you been taken advantage of by an organization asking for advanced payment to renegotiate your mortgage? If so, email your story to submissions+fraud@huffingtonpost.com.