For more than two years, the Hoffman Law Group of Palm Beach, Florida, told clients it was converting their legal fees into justice. The firm was suing banks over abusive practices, it claimed, actions that would force the banks to lower mortgage payments and even pay cash damages to aggrieved borrowers.
But the cases fizzled and clients grew angry. On Wednesday, federal law enforcement officials unsealed a civil complaint that appears to validate the worst fears of those who trusted the firm with thousands of dollars: that instead of funding viable legal challenges, the firm's managing partner and his two non-lawyer business associates allegedly used the fees to pay for car leases and meals, and directed thousands of dollars to personal American Express credit card accounts.
"Defendants do little or nothing to actually assist consumers," the Florida attorney general and the Consumer Financial Protection Bureau allege in the legal action, brought in West Palm Beach federal court. "Instead, they usually exacerbate consumers' problems -- sometimes pushing them into foreclosure or bankruptcy -- while pocketing astonishing profits."
The Hoffman complaint was made public as part of "Operation Mis-Modification" -- a crackdown by the CFPB and Federal Trade Commission on mortgage modification scams. Such schemes typically collect large upfront fees in exchange for assistance that seldom comes. The attorneys general of 15 states, including Florida, also brought cases against 32 other alleged mortgage modification scammers on Wednesday, in addition to the three brought by the CFPB and six filed by the FTC.
"We are trying to send a strong message to the industry that we are watching, and that this behavior won't be tolerated," said Ori Lev, the deputy enforcement director at the CFPB, in a call with reporters.
It wasn't immediately clear how many of the operations targeted by regulators are going concerns. The Mortgage Law Group and the Consumer First Legal Group, accused by the CFPB of scamming $19.2 million from homeowners, were previously sued by Indiana and Arizona law enforcement officials, respectively.
Lawyers are increasingly involved in mortgage modification schemes, usually as frontmen for boiler room-type operations, a previous Huffington Post examination found. The HuffPost report focused closely on the Hoffman firm, which former employees said had scammed thousands of clients.
The firm's pitch was crafted to capitalize on mistrust and anger felt by untold thousands of homeowners who had sought a mortgage modification under one of the government-backed programs, only to see paperwork lost and claims denied. Most clients of the firm paid an upfront fee of $6,000, plus an additional $500 a month to retain the firm's services. According to the complaint by the CFPB and state attorney general, one client claimed he was told that his case would take six to nine months, and that when the firm prevailed, he would own his house and have no mortgage.
HuffPost found that most of the cases filed by the Hoffman firm purportedly on behalf of clients lacked the most basic elements of a valid legal filing -- and that almost all had been tossed out of court by irate judges or withdrawn by the firm itself. State and federal law enforcement officials contend that the Hoffman firm continued to collect fees even after most filings had been dismissed or withdrawn.
"Many, if not all, of these lawsuits are flagrant abuses of the federal court system adding up to a massive misuse of court resources," the complaint alleges.
Federal law bans mortgage foreclosure rescue and other loan modification services from collecting fees until homeowners have a written offer from their bank that they find acceptable.
Two days after legal documents were filed in the Hoffman case on July 14, law enforcement officials raided the firm, freezing the firm's assets as well as those of its managing partner, Marc Hoffman, and the two non-lawyer managers of the firm, Michael Harper and Benn Wilcox.
According to legal filings, Harper had already signed an agreement with the Florida attorney general's office promising not to participate with attorneys in mortgage rescue businesses, after the state investigated an earlier operation.
Hoffman, Harper and Wilcox have not responded to repeated requests for comment.
All told, the Hoffman firm reaped more than $5 million in fees from thousands of clients, according to the lawsuit. The firm has been placed in receivership by the court, with an outside attorney, Mark Bernet of Tampa, overseeing its assets. Receivership usually precedes liquidation. Bernet will likely be tasked with figuring out how much money is left, and how best to return it to clients.
Also on Wednesday, regulators released a consumer advisory guide to assist homeowners who are seeking mortgage modification assistance.