Consumer Corner: "Debt Adjusting"

Consumers should be wary of companies promising help with managing debts, foreclosure assistance, or debt or foreclosure counseling. A number of companies have taken advantage of North Carolina homeowners in recent years when those homeowners are at their most vulnerable. These companies regularly review court dockets to obtain the names and addresses of homeowners who have recently been named as defendants in foreclosure proceedings. After getting a list of names of homeowners in foreclosure, these companies typically send a flyer or letter solicitation to the distressed homeowner, urging the homeowner to contact the "debt relief" or "foreclosure assistance" company for "foreclosure counseling." When homeowners contact the company, the homeowners are typically told that the company can likely save the homeowners' home from foreclosure. The company will often represent that their success rate in preventing foreclosure is "about 95%." The company will tell the homeowner that the company must collect a "foreclosure counseling fee" before it begins "foreclosure assistance" or "foreclosure consulting services." These companies then often tell the homeowner that the homeowner must have no further contact with their mortgage lender.

After collecting their service fee, usually equal to the homeowner's mortgage payment, the company will do nothing that is of any benefit to the homeowner. For instance, the company may simply contact the consumer's mortgage lender to confirm the amount of the arrearage and the amount the lender would be willing to accept to reinstate the mortgage. This information, of course, is of no benefit to most consumers because they are already aware of the amount they owe their mortgage lender and are unable to pay that amount. As a result, the consumer loses money they desperately need to try to get current with their mortgage loan and ultimately fall further behind with their payments. Meanwhile, the "debt relief" or "foreclosure assistance" company does nothing worthwhile, avoids the customer's calls or represents that "they are working on it" until shortly before the scheduled foreclosure hearing, when the company may finally concede that it is unable to stop the foreclosure of the borrower's home. In addition to misrepresenting to homeowners what the company will or can do to "help," a number of these companies have falsely represented that they are non-profit organizations.

The actions of these companies are unfair and deceptive. As of December 31, 2005, those practices, known as "debt adjusting" are expressly unlawful. North Carolina General Statute § 14-423(a)(2) makes it illegal to collect an up-front fee for acting as an intermediary between a debtor and his or her lender or other creditor. Thus, the practices described above, where a company offers to provide "foreclosure assistance" or otherwise engages in "debt adjusting" for an advance fee is unlawful.

Consumers should be aware of companies promising help with "foreclosure assistance" and "debt relief." If you or someone you know has lost money due to unfair or deceptive consumer practices, please feel free to contact our firm for a free consultation regarding your legal rights.