With more than $3 billion in estimated losses nationwide last year, mortgage relief scams are at an all-time high.
With promises of a loan modification or relief from foreclosure, deficiency balances and negative credit, con artists seek out vulnerable homeowners. For an advance fee, many scammers claim they have connections within most major mortgage companies and will save the homeowner from losing their home on the courthouse steps.
Fraudsters use a variety of tactics to locate homeowners in distress. Some sift through public foreclosure notices in newspapers and on the Internet while others review public files at the local courthouse.
Some scammers are bold enough to claim affiliation with governmental agencies or programs through late night television commercials and fancy websites. In most cases, they make promises, take a struggling homeowners money and then fail to deliver.
Some Scams Currently in Circulation:
The Forensic Audit — In the forensic audit scam, a mortgage loan “auditor” contacts the distressed homeowner with an offer to have an “attorney” review mortgage loan documents to determine if the real estate agent and mortgage company followed the law when originating the transaction. In exchange for an advance fee of several hundred dollars, these companies claim that a homeowner can use their audit findings to stop foreclosure, speed loan modification, reduce mortgage debt or — in some cases — cancel the loan entirely. In the majority of cases, there is no evidence that a forensic loan audit will accomplish any of these things.
Rent–to–Buy Scheme — In the rent–to–buy scheme, homeowners are encouraged by a scammer to surrender title to their home while remaining in the home as a renter. The scammer claims that this will give the homeowner a better credit rating and more financial options when attempting to repurchase the home at a later date. What is not known to the homeowner is that the terms of the deal are so typically expensive that they will never be able to repurchase the home. In other instances, the scammer periodically raises the rent until the homeowner can no longer afford it and is subsequently evicted.
Mass Joinder Lawsuits — A recent twist on foreclosure rescue schemes involves mass joinder lawsuits — the joining of two or more legal issues that are sufficiently similar to be heard in one hearing. As part of this scam, distressed homeowners are solicited by a “specialized” law firm inviting them to participate in a mass joinder lawsuit as a way to obtain a loan modification or avoid foreclosure.
The law firms charge fees between several thousand dollars to over $10,000 and claim that they will join the case with other homeowners in similar circumstances to file suit against their mortgage lender.
Many of these scammers claim they can stop foreclosures, reduce loan balances or interest rates and even remove the debt from the home so that the homeowner is free and clear of their existing mortgage. In most cases, there is no attorney reviewing the homeowner’s case or the attorney of record is not licensed to practice in the state where the homeowner resides. Homeowners are often left in worse financial shape than when they started, with some losing their homes in foreclosure.
Loan Modification Scam — In the loan modification scam, a company contacts the homeowner promising to negotiate with their lender for an advance fee. In some cases, they claim to be mortgage brokers or attorneys. These scammers often advise the homeowner to stop talking to their mortgage company and to stop making monthly payments. In other instances, they advise the homeowner to make the mortgage payments directly to them while they deal with the lender. Once they have collected the money, these scammers stop returning phone calls and then disappear.
Know Your Rights — Under the Federal Trade Commission’s Mortgage Assistance Relief Services (MARS) Rule, it is illegal for a company to require payment until they provide you a written offer of loan modification or other relief from the mortgage lender AND the homeowner accepts the offer. Companies must also disclose that they are not affiliated with the government in their telemarketing calls and advertisements.
The company also cannot advise you to stop contacting your lender. They must tell you that your mortgage lender may not agree to modify the loan and that failure to pay your mortgage could result in the loss of your home or damage your credit rating. The company must also remind homeowners of their right to reject the offer without any charge.
Attorneys are generally exempt from the MARS Rule if they meet three conditions: they are engaged in the practice of law, they are licensed in the state where the homeowner or the dwelling is located, and they are complying with state laws and regulations governing attorney conduct related to the rule. To be exempt from the advance fee ban, attorneys must also meet a fourth requirement — they must place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts.
“The days of simply opening up shop and starting a mortgage relief firm have come to an end,” said Carlos J. Reyes, a foreclosure defense attorney with the Reyes Law Group in Fort Lauderdale. “Individuals or businesses providing loan modification services must be licensed in order to conduct business and cannot charge advance fees.”
The Federal Trade Commission works to prevent mortgage relief and loan modification scams. To file a complaint, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website also provides free information on a variety of consumer topics at www.ftc.gov.