The Mortgage Scams Minefield

Where We Are and How We Got Here

Warnings about mortgage scams have taken over the news headlines lately and for good reason. For every homeowner in trouble there seems to be a scam artist ready to make it worse.

After a period of tremendous economic growth, we now face the flipside with a declining real estate market and rising unemployment rates creating a perfect storm for mortgage hardship. As a result, countless numbers of homeowners are now glorified renters, paying large mortgages for homes valued much lower, as well as property taxes and maintenance costs. To prevent the looming avalanche of foreclosures, lenders, along with federal and state governments have joined forces to educate homeowners on programs designed to help them restructure their existing loans and keep their homes.1

Put simply, a loan modification takes your existing mortgage and changes either the interest rate, term of repayment or even the principal balance (sometimes all three!) to bring the monthly payment to a more manageable level. But, qualifying for a modification is not a sure thing. In fact, getting a modification is dependent on a number of factors and many homeowners find the process of applying for a modification confusing, frustrating and just as frightening as the process of foreclosure itself.

There are many legitimate places a confused homeowner can turn to for help: government agencies, non-profit organizations, attorneys and for profit loan modification companies.2 These sources provide a variety of services to a distressed homeowner. You can get information on government assistance programs. Or you can get advice for dealing with your lender if you are going to ask for a modification on your own. You can even get information on a company you are thinking about hiring to obtain a loan modification on your behalf.

In this process, you may come across various scam artists claiming to be a homeowner’s savior while actually looking to make a quick buck off their hardship. You must be able to tell the difference between the legitimate sources of assistance and a scam artist to avoid losing valuable time, money and even your home. Luckily, there are several things you can do to ensure you are not victim to the latest scams.

The Most Common Scams

1 Federal Trade Commission, Federal and State Agencies Crack Down on Mortgage Modification and Foreclosure Rescue Scams, www.ftc.gov/opa/2009/04/loanfraud.shtm.

2 Ibid. 1

There are variations on the approach, but generally the mortgage modification scam is straightforward, costly and often difficult to identify before it’s too late. A scam artist always presents himself and/or his company as a specialist in the field. They generally contact you directly or through a massive marketing campaign and offer to act as your agent and may promise results that sound too good to be true. After putting on this convincing show, they insist on collecting their fee, or a portion thereof, prior to doing any work. Getting their fee may be accomplished with the use of high-pressure sales tactics if you are hesitant about paying up front. Once your check clears the bank the scam artists stop taking your calls and tend to simply disappear, without ever once contacting your lender to negotiate a modification.

Another type of scam is the foreclosure rescue. Here, the scam artist promises to repay your delinquency while allowing you to stay in the home. They assure you that you can buy the home back from them when you are financially back on your feet. Unfortunately, this scheme requires you to sign the deed to your property over to the scam artist, after which the scam artist cashes out equity in the home and disappears, never making a payment on the mortgage. After that, it’s only a matter of time before the lender evicts you for failure to pay the mortgage. Having deeded your property to someone else, you’ll have few legal rights to do much about it.

Knowing whether or not you are in the grips of one of these scams can be difficult. But there are several red flags to look for that will let you know if you’re in the danger zone.

How to Sniff Out the Scam Artists

The red flag that screams you are dealing with a scam artist is their requirement that you pay up front for any services.3 The federal and most state governments have made this practice against the law. However, be aware that licensed attorneys are exempt from this regulation. If you hire an attorney to obtain a loan modification, they can - and very likely will - have you sign their standard retainer agreement while requiring at least partial payment before starting the work. Also, do not hire a lawyer to obtain a loan modification for you if you are unable to find them listed with your state’s bar association.

Other potential warning signs of a scam are unsolicited calls and letters coming from people claiming they can save your home. Homes pending foreclosure are on public lists and serve as giant targets for these scam artists. If you didn’t seek out the assistance yourself, be extremely careful about whose assistance you use. Similarly, massive advertising campaigns that use sales-speak like “guaranteed” or claim a high percentage of “success rates” are indicators you may not be dealing with a legitimate business.4

3 Comptroller of the Currency Administrator of National Banks, Consumer Advisory CA 2009-1, http://www.occ.gov/ftp/ADVISORY/2009-1.html.

4 Federal Trade Commission, Federal, State Partners Announce Multi-Agency Crackdown Targeting Foreclosure Rescue Scams, Loan Modification Fraud, www.ftc.gov/opa/2009/04/hud.shtm.

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Also, pay special attention to any specific promise made or bragging about having a special relationship with the lenders. Don’t fall for a sales pitch claiming they have someone on staff that used to work for your lender. Assuming the statement is true, it’s irrelevant due to the inability to predict the terms of any loan modification. They vary per lender and depend heavily on the loan’s investor as well as the borrower’s own finances. Legitimate companies do not promise anything other than trying their best to help. If anyone promises they can use an inside contact, obtain a certain interest rate or a principal reduction, walk away and don’t turn back.

How to Protect Yourself and Your Home

The most effective way to avoiding a scam is to simply educate yourself on the process and the company you are thinking about hiring. Ask questions of those “in the know.” Research the company and call your state’s regulatory agency to determine if the business is legitimate. Contact the Better Business Bureau for any complaints.

And by all means, use government agencies! These agencies are there for a reason and they are free. The Housing and Urban Development agency will provide free analysis of your finances and loan.5 A HUD representative can tell you if you are eligible for any special government modification programs and provide you with the contact information for local assistance. Plus, if you qualify for a modification or refinance a HUD counselor will help you with the “hardship package” you can submit to your lender on your own.

Additionally, there are statements you will more likely hear from a scam artist than a legitimate modification company. If you are told any of the following, seriously consider taking your business elsewhere:

“Don’t talk to your lender. Tell them to call us.” Unless you have hired an attorney that sent a Cease and Desist notice to your lender, thereby preventing the lender from being able to legally contact you, this is a sign that the company you hired is not on the up and up. They are potentially attempting to stop you from finding out from your lender that they are not actually doing any work towards getting a modification.

“We have an underwriter/negotiator that used to work for [your lender] and knows who to talk to and how to play their system.” Look, the reality is, it doesn’t matter who they know if your mortgage loan doesn’t meet the investor’s guidelines for modification.

Ultimately, the most powerful weapon against becoming a victim to one of these scams is the knowledge that scammers depend on you to be too lazy to check the facts. You must listen to your intuition and use common sense. If you have done your due diligence, used the Checklist provided, and have any doubts whatsoever about the company, don’t hire them. There are plenty

5U.S. Department of Housing and Urban Development, Talk to a Housing Counselor, http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm.

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of legitimate sources to help out there and no reason to add to your stress by risking involvement with someone who may be out to rip you off.

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