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Case Law

Appeals court vacates CFPB’s $59 million judgment in foreclosure relief suit

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Case Law
Monday, August 9, 2021

An appellate court has vacated a $59 million judgment against two former mortgage relief service providers and their principals the Consumer Financial Protection Bureau (CFPB) sued for alleged foreclosure relief scams.

The CFPB filed suit against the Mortgage Law Group (TMLG) and Consumer First Legal Group (CFLG) in 2014 under then-bureau Director Richard Cordray.

The case is Consumer Financial Protection Bureau v. Consumer First Legal Group LLC et al (Seventh Circuit Court of Appeals, No.  19-3396).

The complaint alleged the companies took in more than $19.2 million in fees from more than 10,000 distressed homeowners nationwide, with most, if not all, of that money coming from illegal advance fees for so-called loan modification services. The CFPB also accused the companies of failing to make required disclosures.

“Appellants urge us to vacate all aspects of the remedial order,” Seventh Circuit Court of Appeals Judge Diane Wood wrote in her majority opinion. “They argue that the restitution order was legally erroneous because it exceeded the firms’ net profits. They also contend that the court’s civil penalties were excessive because they were based on a miscalculation of the penalty period and on an erroneous finding that appellants acted recklessly. Finally, they assert that the district court’s injunction was over-broad. We agree with appellants on all three points.”

Both TMLG and CFLG have ceased operations, but the CFPB sought redress for consumers harmed by their practices and permanent injunctive relief against the principals, Thomas Macey, Jeffrey Aleman, Jason Searns and Harold Stafford.

In 2019, The Western District of Wisconsin found TMLG, Macey, Aleman and Searns jointly and severally liable for $18,716,725.78 for the advance fees that TMLG collected from consumers.

CFLG, Macey, Aleman and Searns were ordered to pay $2,897,566 for the advanced fees CFLG II collected from consumers. Stafford and CFLG were found liable for $94,730 in restitution for the advanced fees that CFLG collected from consumers.

In addition, civil penalties were assessed as follows: Macey, $11.3 million; Aleman, $14.7 million; Searns, $8 million; Stafford, $35,250; CFLG, $3.1 million.

The lower court also granted the CFPB’s injunction request. Macey, Aleman, Searns and CFLG were barred permanently from the mortgage assistance relief business in any capacity. Stafford was banned for five years.

The three-judge Seventh Circuit panel remanded the case back to the Western District to recalculate penalties. Circuit judges Frank Easterbrook and Amy St. Eve concurred.

The defendants took issue with the district court’s conclusion that Macey, Aleman, Searns, and Consumer First II recklessly violated the Consumer Financial Protection Act.

“Appellants insist that they were not aware of a risk that their conduct was illegal, nor should they have been, because Regulation O prohibits conduct that is commonplace for lawyers, such as requiring advance retainer payments and providing advice not to communicate with opposing parties,” Wood added. “They also maintain that because Regulation O is a complicated regulatory regime, their violations were more a product of misapprehending the regulation’s applicability than of recklessness. Finally, they point to a legal opinion they received; that opinion informed them that their structure qualified as a national law firm. They contend that this opinion led them to believe they would be exempt from Regulation O.

“Appellants have a point. Although we have found that they were not engaged in the practice of law, the question was a legitimate one. We consider it a step too far to say that they were reckless—that is, that they should have been aware of an unjustifiably high or obvious risk of violating Regulation O. We thus vacate the district court’s recklessness finding with respect to Macey, Aleman, Searns, and Consumer First II. On remand, the district court must apply the penalty structure for strict-liability violations.”

The suit was one of three filed by the CFPB in connection with a nationwide sweep against foreclosure relief scammers who used deceptive marketing tactics to rip off distressed homeowners across the country. The Federal Trade Commission filed six lawsuits in the sweep, and 15 states filed a total of 32 actions.

Today's other top stories
CFPB to rescind mortgage guidance materials
State AGs oppose HUD roll back of fair housing rule
CFPB to back off oversight of Buy Now, Pay Later loans and TILA
VA winds down Veterans Affairs Servicing Purchase program
McKernan’s CFPB nomination in limbo as he’s tapped for Treasury role


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12 USC Section 2605 or Section 6 is titled Servicing of mortgage loans and administration of escrow accounts. It pertains to qualified written requests, notices of transfer of servicing and the administration of escrow accounts.
An arrangement that involves a person who is in a position to refer business as part of a real estate settlement service and who has an interest in a settlement services provider.

In the arrangement, the person, who has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a settlement services provider, directly or indirectly refers business to that provider or influences a consumer to select that provider.
An arrangement that involves a person who is in a position to refer business as part of a real estate settlement service and who has an interest in a settlement services provider.

In the arrangement, the person, who has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a settlement services provider, directly or indirectly refers business to that provider or influences a consumer to select that provider.
A mortgage disclosure that lists all estimated charges and fees associated with your loan. In addition to fees and charges, it will list your loan amount, mortgage rate, loan term and estimated monthly payment. Your escrows due at closing for insurance and taxes will also be outlined. Mortgage lenders are legally required to provide a GFE within three days of receiving your application.
A mortgage disclosure that lists all estimated charges and fees associated with your loan. In addition to fees and charges, it will list your loan amount, mortgage rate, loan term and estimated monthly payment. Your escrows due at closing for insurance and taxes will also be outlined. Mortgage lenders are legally required to provide a GFE within three days of receiving your application.
Under RESPA Section 2605(e)(1)(B), a qualified written request is a written correspondence that includes: 1) the name and account of the borrower, or has enough information to allow the servicer identify that information; and 2) a statement of the reasons for the belief of the borrower that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.

A QWR cannot be written on a payment coupon or other payment medium supplied by the servicer.
Under RESPA Section 2605(e)(1)(B), a qualified written request is a written correspondence that includes: 1) the name and account of the borrower, or has enough information to allow the servicer identify that information; and 2) a statement of the reasons for the belief of the borrower that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.

A QWR cannot be written on a payment coupon or other payment medium supplied by the servicer.
12 USC Section 2609 or Section 10 is titled Limitation on requirement of advance deposits in escrow accounts. It governs escrow accounts including notifications and statements to borrowers. Section 10 also sets out penalties for those who violate the section.
RESPA Section 3 provides that a thing of value includes any payment, advance, funds, loan, service or other consideration

Regulation X says thing of value includes: monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing monies that may be paid at a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity, special bank deposits or accounts, special or unusual banking terms, services of all types at special or free rates, sales or rentals at special prices or rates, lease or rental payments based in whole or in part on the amount of business referred, trips and payment of another person’s expenses or reduction in credit against an existing obligation.
A form used by a settlement or closing agent itemizing all charges imposed on a borrower and seller in a real estate transaction. This form represents the closing transaction and provides each party with a complete list of incoming and outgoing funds. RESPA requires the HUD-1 to be used as the standard real estate settlement form in all transactions in the U.S. involving federally related mortgage loans.
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