On June 6, 2014, the United States District Court for the Eastern District of Pennsylvania entered a Stipulated Order for Permanent Injunction and Civil Penalty Judgment (the “Order”) against Heritage Homes Group, Inc. and a number of related companies (“Heritage”) and in favor of the Federal Trade Commission (“FTC”).  The FTC alleged in a complaint filed on June 4, 2014, that Heritage misled consumers concerning certain mortgages that it advertised in connection with the purchase of homes.  The FTC used its power under the Mortgage Acts and Practices Advertising Rule (the “MAP” Rule) and “Regulation N” to bring its action against Heritage.

Heritage’s Alleged Deceptive Mortgage Advertising

In its Complaint, the FTC alleged that “[s]ince at least August 19, 2011, [Heritage had] made numerous commercial communications offering prominently, among other things, ‘ZIP. ZERO. NADA.,’ ‘$0 Money Down,’ and ‘$0 For Paid Closing Costs.’  In fact, the program and financing offered by [Heritage] requires consumers to pay a minimum deposit of up to $2,000 at contract signing, a funding fee of 2%, an annual fee of .4% of the loan at settlement, and other charges.”  Perhaps most troubling, Heritage offered home financing through the United States Department of Agriculture’s (“USDA”) Rural Development Loan Program (“Rural Loan Program”) without adequately disclosing the program’s qualifying restrictions.  Instead, at best, Heritage occasionally published advertising that advised “restrictions apply,” but failed to include detail as to what those restrictions were.

The Settlement

As part of its settlement for deceptive mortgage advertising, Heritage agreed to be enjoined from “misrepresenting, expressly or by implication, any term of any mortgage credit product.”  Additionally, Heritage is now prohibited from failing to maintain certain evidence of compliance with the Order.  Heritage has a 20 year reporting requirement, and agreed to a judgment totaling Six Hundred and Fifty Thousand Dollars ($650,000.00), which has been suspended pending financial verification.

Protect Yourself

The FTC has been cracking down on what it perceives as “deceptive advertising” in general, and “deceptive mortgage advertising” in particular.  With the regulatory environment becoming more restrictive every day, it is increasingly important that companies approach their business practices with caution, and consult competent counsel to review all associated marketing practices.