Attorney General, District Attorney, Sheriff and Pagosa Springs Police Chief Warn Consumers About Homeowner Membership Promotions

Attorney General Ken Salazar, District Attorney Sarah Law, Archuleta County Sheriff W.T. (Tom) Richards and Pagosa Springs Police Chief Donald Volger today issued a joint consumer alert advising consumers to be careful in assessing certain homeowner membership clubs being promoted in the Pagosa Springs area. Of specific concern are out-of-state programs advertised under a variety of different organizations, all of which appear to promote costly buyers’ club programs which advertise mortgage loan payoffs for homeowners.

This alert is being issued because of inquiries in the Pagosa Springs and Grand Junction areas about certain mortgage loan payoff programs advertised as part of these homeowner membership clubs. Under such advertised programs, consumers are required to pay up to $3,000 for application and membership fees to join the Club and to obtain membership benefits such as mortgage loan settlements or payoffs. Some programs advertise that members can pay their monthly mortgage payments directly to the promoters of the program for short periods of time and then receive sufficient funds from affiliated charitable trusts to pay off their entire mortgage loan.

Another version of the program suggests that upon paying the up front fees, the members mortgage notes will be paid off in cash by an unnamed private interest foundation. The club claims that the private interest foundation will utilize a “friendly bank” who will facilitate trading the notes as negotiable instruments using fractional banking, reaping profits of up to 100% per month. According to the U.S. Treasury Department, these types of claims are hallmarks of “prime bank” or “high yield investment” schemes, which have cost victims billions of dollars in recent years.

These advertised programs claim that their membership services will allow club members to own their homes free and clear and without any further mortgage loan obligations. Similar schemes have appeared in several states in the past, falsely claiming to legally eliminate mortgages for an up-front fee. Homeowners around the country have lost millions of dollars to these schemes.

Based on the information received by the Pagosa Springs Police Department, these homeowners club programs typically advertise a variety of other membership benefits, including credit repair services, insurance products, and consumer loan services. One homeowners club advertises and offers an “On-line University,” complete with access to an on-line library and classes teaching members about “financial independence, investing, and staying debt-free.”

Contrary to the claims in promotional materials, law enforcement authorities have reason to believe that these types of homeowners clubs do not comply with Colorado consumer protection laws prohibiting advance fees for mortgage loans and credit repair services, that these program materials do not comply with the disclosure requirements for buyers’ club contracts, and that insurance products and consumer loans are being sold by unlicensed insurance agents and unlicensed supervised lenders.

“These types of advance fee schemes are illegal in Colorado,” warns Attorney General Salazar. “The advertised mortgage loan services are either non-existent or impossible to deliver. The huge sums of money that would be necessary to pay off the mortgage loans for all members will not magically appear. The only apparent purpose of programs like this is to bilk people out of their money,” said Salazar. “While there may be legitimate programs to pay off mortgage loans quickly, consumers should be wary of something that sounds too good to be true.”

“The obvious danger of these advance fee schemes is that once all the up-front money is collected, there is no incentive for the promoters to deliver the promised services,” said District Attorney Law. “Consumers should be very careful about being lured into these illegal schemes because of the near certainty that the local participants in these advertised programs will lose their money, with little chance of ever recovering it.”

Pagosa Springs Police Chief Volger expressed concerns about the effort to disguise these scam promotions. “What is disturbing about these membership programs are the attempts by the promoters to make participants believe that the program is perfectly legal and that the promotions fully comply with all federal and state laws. These claims of legality are completely untrue. While the promoters of the program make many claims of spectacular membership benefits, there doesn’t appear to be anything in place to back up these claims.”

The following are tips for consumers to avoid being victims of fraudulent advance fee schemes:

• Be skeptical of advertisements and hype that promise unusually attractive financial benefits, profits, or monetary windfalls. These promoters are not in the business of giving away a lot of money. They are in the business of making money.
• Check out the company’s track record. Are they registered with government authorities? Have they ever delivered the promised benefits? Are financial statements available from the companies?
• Be careful of financial programs or investment opportunities which hide the promoter’s true identity, and which fail to adequately describe the individuals, organizations, and businesses behind the program.
• Avoid investments in programs that try to create an air of legitimacy by constant references to complex banking rules and regulations, and which refer to complicated financial documents and transactions. Also, legitimate promotions do not need to advertise that they are in compliance with all federal and state laws.Avoid programs requiring payments of cash or cash equivalents, especially to organizations located outside of Colorado. If something goes wrong, it will be difficult to locate your money.
• Do not fall for advance fee schemes. Remember, if it sounds too good to be true, it probably is!

Anyone with information concerning suspected unlawful advance fee lending and credit repair schemes should contact their local police, sheriff, and district attorney offices. In addition, individuals who have lost money through such fraudulent promotional schemes may file small claims or county court actions against the local promoters or independent contractors advertising these programs. Consumer remedies available under the Colorado Consumer Protection Act include treble damages and mandatory attorney fees and costs.