Home Affordable Direct, a Farmingdale, N.Y., firm, is facing allegations by New York State Attorney General Eric Schneiderman that it defrauded struggling homeowners in a scheme to collect advance fees as part of a home loan modification business.
The attorney general, in a petition filed Tuesday in Manhattan Supreme Court, asked the court to block Home Affordable Direct from doing business until it deposits $2 million in escrow, hands over customer files and pays restitution to customers.
On Wednesday, the AG secured a temporary restraining order that bars the company from collecting advance fees unless they accept loan modification agreements and says they cannot operate their business unless they provide disclosures required under federal Mortgage Assistance Relief Services, or MARS, rules. The order also freezes company bank accounts.
“The TRO [temporary restraining order] sought by petitioner is essential to protect the public from further harm and to ensure that funds are available from which to recover restitution for the many consumers victimized by respondents’ deceptive and illegal scheme,” said Assistant Attorney General Adam Cohen in a sworn affidavit.
The AG is also asking the court for $5,000 in penalties for each consumer affected by the alleged scheme and to block company officials from transferring any assets. Officials say the firm has closed four different bank accounts since 2012.
The AG named four affiliate firms in the petition: Home Affordable Solutions, of Farmingdale, N.Y.; JR Holding Group of Babylon, N.Y. and Clear Solutions and Settlements, of Tampa, Fla.
Schneiderman served notice in July that his office planned to file suit as part of a 15-state investigation by the Consumer Financial Protection Bureau, the Federal Trade Commission and state officials into mortgage servicers that allegedly prey on struggling homeowners.
According to court records, Home Affordable Direct, led by its president Javier Gutierrez and secretary Shadi Soumekh, falsely promised loan modifications to homeowners in return for thousands of dollars in advance fees, which is a violation of the federal MARS rule. That rule, among other things, prohibits the collection of advance fees.
According to the Attorney General’s petition, the firm has made false claims that it has been in the ‘home preservation’ business for 12 years, when it was in fact incorporated in New York State in May 2013.
The Better Business Bureau gave the firm an F rating, according to court filings by the AG. And in June, the state of Connecticut issued a cease and desist order against Home Affordable Direct and ordered the firm to pay $100,000 in civil penalties.
Attorney Frederick Stern, who represented the firm in response to several consumer complaints made to the AG but is not the lawyer of record in this case said: “To the point of the petition, I’m not aware of any wrongdoing. I’m told there was a pattern of puffery. If it’s just puffery it seems like a bit to do about puffery.”
A court hearing on the temporary restraining order is scheduled for Sept. 11.
Gutierrez and Soumekh were not immediately available for comment. A spokesperson for the AG declined to comment.