The FBI is now forming task forces all over the country to investigate the issue. Massachusetts is the first state to ban foreclosure rescue companies outright, and New Jersey may soon take action as well.
Now, here is one family's experience, which serves as a warning to anyone in financial trouble.
"If the FBI came in here right now, they could look at my documents and I wouldn't have a problem, because I know what I did," Elite Services owner Steve French said.
The owner of the foreclosure rescue company, headquartered in Scotch Plains, New Jersey, says his business is on the up and up. But homeowner Kevin Petterson says his deal with the firm led to his downfall.
"Basically I was lied to," he said.
Petterson's home, in Rutherford, was in foreclosure when he got a flyer from Elite Financial Services.
"My back was against the wall," he said. "The pitch was to stop the foreclosure, clean your credit...You're starting fresh."
But where the Petterson's started, and ended up, was back in foreclosure. And thousands of dollars they'd built up in equity in this house is now gone. They say it happened so fast, with Elite handling everything: a temporary buyer, a new mortgage and even an attorney.
"They said it was not being sold, it was just the way the program worked," Petterson said.
The deal set up by Elite was a lease-buyback agreement, in which the Petterson's essentially became renters in their own home. After paying off the old mortgage, the firm arranged for a man to take out a new $525,000 mortgage on the house. That's more than $100,000 more than the old one. And to get their home back, The Pettersons would have to re-purchase it at that higher amount.
"Bottom line is these borrowers could never have repurchased the house at the price of $525,000," independent real estate attorney Bob Schandler said.
We asked Schandler to review the Petterson-Elite deal.
"They could never afford it from day one, and the eventuality was they were going to lose their house and lose all the equity in their house," he said.
And what about the man Elite arranged to get that $525,000 mortgage? He works as a technician and never intended to live in the house.
Sarah: "Do you know how you qualified?" Buyer: "Yeah, that was checked out by Elite." Sarah: "Elite checked it out?" Buyer: "Yeah." Sarah: "And you got paid how much?" Buyer: "For that, I got paid barely anything for that." Sarah: "You got $10,000." Buyer: "Yes."
Here's how the Elite settlement broke down: The new buyer got $10,000 for signing his name. Elite got a consulting fee of $15,000. The mortgage company Elite found got nearly $16,000.
"The fees that were charged by everyone were excessive," Schandler said.
The bottom line is that the Petterson's ended up with "rental" payments that were hundreds of dollars more than the mortgage payments they couldn't afford in the first place. And because they didn't make those payments, the deal they agreed to allowed all the remaining equity in the home to be used up.
"All I did was I got Mr. Petterson somebody that could help him stay in his home," French said. "I put legal documents together to help him get to where he is."
Elite's owner defends the company's practices.
"I did not do the mortgage, so I can't tell you how he qualified," French said. "I put the two together."
He admits he facilitated the deal, but now claims it's Kevin Petterson's fault because he didn't make payments.
"Mr. Petterson did not do his part," he said. "That's why he's in the position in which he's in today."
Foreclosure rescue companies are now under heavy scrutiny. New Jersey Assemblyman Neil Cohen plans to hold public hearings on these firms.
"More of these companies are going to pop up," Cohen said. "So we either regulate them or we ban them."
In the meantime, the Petterson's may soon be packing up more than Christmas decorations.
"I just want my home back," Petterson said.
Many families don't contact lenders when they fall behind on payments. You've got to do that. Experts also say it's critical to find a real estate attorney, your own. And if someone says you don't need one, or they'll find one for you, walk away.
