In the category of better late than never, a federal appeals court upheld a freeze of all the assets of a company that claimed to win mortgage loan modifications for distressed homeowners but instead allegedly fleeced them by pocketing high fees and allowing customers to fall into foreclosure.
The 9th US Circuit Court of Appeals Monday kept in place an injunction won by the Federal Trade Commission against Las Vegas-based Consumer Defense, and a network of inter-related firms run by Jonathan Hanley, Sandra Hanley and Benjamin Horton, a lawyer who worked for them.
Beginning in 2011, the Hanley’s and Horton had run the allegedly deceptive operation in the aftermath of the mortgage crisis by promising distressed homeowners they were 98 percent successful in gaining mortgage modifications and lower interest rates.
They typically charged $3,900 in monthly installments of $650 and told consumers they would not start work on the file until they received full payment and before any modification was obtained, according to the FTC’s 2018 complaint.
Homeowners were strung along for months by assurances that Consumer Defense was working on the modification package and in addition would tell consumers not to pay their mortgages or communicate with their lenders. Instead, all contact information was transferred to the Hanley’s and Horton, the FTC alleged.
The FTC won an injunction against Consumer Defense, Preferred Law of Salt Lake City, Consumer Link, and other linked entities.
Consumer Defense appealed arguing the FTC failed to demonstrate it would suffer “irreparable harm” if the injunction was not issued.
Judge Johnnie Rawlinson wrote that while a showing of irreparable harm is typically required for most injunctions, it is not when the government seeks an injunction in connection with a legal enforcement action when that law authorizes use of injunctions.
The panel went even farther to explain that its standard for injunctions was not undercut in a 2008 US Supreme Court decision (Winter v. NRDC), and could survive.
The injunction immediately froze the assets of the network of Consumer Defense companies in Utah and Nevada, which had advertised to consumers all over the country.
The consumers allegedly victimized in this scheme were left to negotiate on their own with lenders, often wracking up considerable interest and even falling into foreclosure, the FTC said.
Once consumers paid the fees they often could not reach defendants with calls or emails.
The amount of assets frozen was not disclosed.
Joining Rawlinson were Judges Paul Watford and Michelle Friedland.
FTC v. Preferred Law, No. 18-15462