On May 8, the FTC announced that the U.S. District Court for the Central District of California entered a preliminary injunction on April 27 at the FTC’s request against a mortgage assistance relief operation and its principals (defendants), prohibiting them from misrepresenting material facts to consumers and imposing an asset freeze and other equitable relief. According to a complaint filed by the FTC on April 12, which sought “temporary, preliminary, and permanent injunctive relief, rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief,” the defendants allegedly violated the FTC Act and the Mortgage Assistance Relief Services Rule (Regulation O) in their marketing and sale of mortgage relief services to distressed homeowners.
The FTC claimed in its press release that the defendants “misrepresent[ed] the likelihood of success” of their mortgage payment reduction program and directed “confirmed” consumers to pay thousands of dollars in “closing costs” prior to discussing the defendants’ terms with their loan holders or servicers. Furthermore, the defendants allegedly discouraged consumers from communicating with their mortgage lenders and encouraged consumers to stop payments to their lenders without informing them that their actions could lead to foreclosure or damage their credit ratings.
In granting the preliminary injunction, the court ruled that there was good cause to believe that, unless the defendants continued to be restrained and enjoined by order of the court, “the court’s ability to grant effective final relief in the form of monetary restitution and disgorgement of ill-gotten gains will suffer immediate and irreparable damage from [the] [d]efendants’ transfer, dissipation, or concealment of [a]ssets or business records.” Furthermore, the court found good cause to (i) appoint a temporary receiver; (ii) grant the FTC limited expedited discovery from third-parties related to assets; and (iii) freeze defendants’ assets.