A district court in California has shut down a foreclosure rescue fraud that urged homeowners to pay thousands of dollars to join lawsuits against their lenders, the Federal Trade Commission said on Thursday.
The FTC, which filed the legal action to halt the alleged fraud, said the lawsuits were either neglected or dismissed.
The case is one of many arising from the mortgage and foreclosure crisis that hit the United States in 2007 and caused a subsequent recession.
Defendant Sameer Lakhany allegedly used three websites to target people in trouble with their mortgage lender by promising to help them, victimizing hundreds of people and taking in more than $1 million, the FTC said.
Reuters was not immediately able to reach Lakhany by telephone.
The FTC said it would seek money for possible refunds for consumers.
In one instance, the FTC said, Lakhany created a company called the Precision Law Center to file class-action lawsuits that it said would help people in trouble with their lender.
The firm charged $6,000 to $10,000 in advance and promised a halt to foreclosure proceedings and damages, but they hired lawyers only to file the lawsuits, the FTC said.
The FTC said this was its first case alleging a "mass joinder" lawsuit scam.
The FTC said Lakhany pursued another scheme in which his companies charged between $795 to $1,595 to investigate a lender's mortgage and record, saying they would probably find violations that would allow homeowners to receive substantially better mortgage terms.
The U.S. District Court for the Central District of California froze the assets of Lakhany's operation on March 19 and appointed a receiver to run it as the FTC pursues the case against him.
The FTC's pursuit of mortgage relief scams is a small part of the legal action surrounding the mortgage crisis.
Roughly 11 million Americans owe more than their homes are worth. The housing market has fallen 33 percent from a 2006 peak reached because of easy lending, often to people with dubious credit records.
In early February, the U.S. government and 49 state attorneys general reached a $25 billion housing settlement that requires the nation's largest banks to cut mortgage debt amounts and extend $2,000 payments to certain borrowers who lost their homes to foreclosure.
The banks still face a host of other potential government enforcement actions and investor lawsuits related to mortgage-related activities, including their packaging of home loans into securities.
(Reporting By Diane Bartz)