The real estate crisis that began in 2007 brought with it a whole new industry of loan modification and foreclosure rescue scams that have become a major problem for both homeowners and law enforcement across the country.
The loan modification scam stories are all quite similar.
A person or group of people start a company with the intentions of stealing money from unsuspecting consumers such as struggling homeowners who are looking for professional help to save their homes from foreclosure. These companies than make false promises to these homeowners that they cannot keep in order to obtain a large upfront fee usually to the tune of a few thousand dollars. In the end, these companies end up taking the money and not performing the promised work they said they would handle for the homeowner who ends up losing their money and often their home in the process.
These scams are often successful because these stressed out homeowners they defraud are often desperate to save their homes. This makes them the perfect target for white-collar crooks who capitalize on their vulnerability by creating elaborate scams so they can easily steal money from these people.
The best way to avoid these scams is for people to simply educate themselves on what to look out for. In this article I will list the most common type of frauds that homeowners encounter when seeking professional help for a loan modification.
1. Phantom Foreclosure Counseling
This loan modification scam might be one of the most common forms of fraud out there because it takes advantage of a delinquent homeowner’s desire to do anything to stay in their home. Generally this scheme would involve collecting high fees (generally upfront fees) in exchange for modifying a loan or delaying foreclosure.
Methods that individuals can use to reel anyone in using this method often involve isolating the victim from other counselors (lenders, lawyers, HUD counselors), persuading the vulnerable that services cost money, tricking helpless people by advertising themselves with official names falsely (like TARP), or trying to charge for free government assistance.
It is vital to know that under the FTC’s Mortgage Assistance Relief Services (MARS) Rule, it has been illegal to charge upfront fees for foreclosure assistance services since the beginning of 2011. Remaining unaware of this knowledge is one way to fall victim under this scheme.
Our advice if you run into someone claiming to offer a service for any upfront payment is to look the other way and run. The result of a phantom foreclosure counseling session is almost always nothing in return. Scammers conducting this loan modification scheme are known to never do any work toward getting their customers a loan modification. By the time a victim realizes this, it may be too late.
Earlier this month, LoanSafe analyzed a report that was filed by the Sarasota Police Department in Florida. The indictment found that a Bankruptcy lawyer was arrested for possibly stealing tens of thousands of dollars in payments from homeowners seeking a loan modification. This example shows that you must even be weary when seeking assistance from professionals.
2. Forensic Loan Audit Scams
According to the Federal Trade Commission (FTC), this loan modification scam is one of the latest methods to deceive homeowners in need.
In this scheme, so called mortgage professionals that are often attorneys offer to review your mortgage documents in hopes to uncover any loopholes that may help to pursue a loan modification.
The results of the loan audit are supposed to be violations found that do not coincide with local or federal laws. Reality has shown that zero errors are usually found from these reports, because they are simply bogus. Federal law does not require your lender to modify your loan if these errors are found anyways.
According to the FTC, “There is no evidence that forensic loan audits will help you get a loan modification or any other foreclosure relief, even if they’re conducted by a licensed, legitimate and trained auditor, mortgage professional or lawyer.”
Because of the uselessness of this information for homeowners who wish to seek a loan modification, the conductors of forensic loan audits are just getting away with any upfront payments that were acquired early on in the deal.
3. Playing as the Negotiator Scam
Many people in the situation of delinquency would probably agree that talking to a lender or another servicer is never a piece of cake. The ability to have someone to negotiate for you may sound like a dream come true for many homeowners seeking a loan modification. That is just what any con artist is just hoping for. By convincing a borrower to ignore their lender, the fraudster has the ability to promise to negotiate with a lender and to make their payments for them.
In another case from earlier this month, another loan modification scam ringleader admitted that she was a part of a loan modification scheme that used unethical principles to scam homeowners who were looking for help. In one of Michele Stephen’s ads that the Huffington Post had mentioned was cited by the FTC, she had told consumers, ““We have special relationships with banks that can speed up the approval process.” This is the kind of statement that could ultimately be used by loan modification scammers to real in unsuspecting borrowers. If they can be trusted to be paid to make negotiations, what is stopping them from running with the money?
On top of this, ignoring your lender is not a wise idea either. Even if the criminal is caught, in the end things probably are not going to look the best for you when it comes time to foreclose.
4. Signing over your property
Another way for loan modification scammers to take advantage of borrowers in their time of need, would be to trick them into thinking that they could aid them better if they had full control of the situation. A decent professional would never go as far as to put this kind of pressure on a borrower, and it is a sign that they are acting in a deceptive manor. It is advised to talk to a HUD-approved Housing counselor before making a decision like this. This is a better option than trusting someone you do not know, considering that foreclosure prevention counseling through HUD is free of charge. You can find the nearest HUD approved counselor in your state at this HUD link.
Doing a simple background check on the so called “professional” through the Better Business Bureau (BBB), or your state’s consumer protection office can assist anyone to weed out the legitimate sources from the fakes.
5. False representation
It may be difficult to know without doing research, but scam artists have been known to pose as legitimate organizations affiliated with the government or even your lender handling your mortgage. This scam is very common. Things to look out for are official looking .com websites, and government or bank mailings that look official and make claims that they work with the federal government or are the lender handling the mortgage.
To find out if they have even been approved by a federal entity or that they are the lender, call your mortgage servicer.
You can use the BBB and other state organizations to see if all of their licenses check out.
This would be another area where communicating with your lender is a good thing. If there is a scamming company out there, real lending representatives may know the difference between a real and a fake.
6. Licensed Lawyers Who Make False Promises and Defraud Homeowners
Not all criminals hide in the shadows. Some of them are actually licensed professionals who have turned to the dark side.
For example, many lawyers over the last several years have been busted for operating large scale foreclosure and loan modification scams that have wreaked havoc on unsuspecting homeowners. People who thought they were hiring someone they could trust, but unfortunately, many of these homeowners were defrauded to the tune of thousands of dollars. Some of them would lose their homes.
There are legitimate law firms out there that can help you with your loan modification, but the facts are that they are too far and few in between to even list here. A good place to locate consumer advocate attorneys who have made a pledge to protect consumers in the National Association of Consumer Attorneys or NACA. You can find them at NACA.net
Here are some additional links to help you avoid scams:
If you are the victim of one of these scams, you can report it to the Consumer Protection Financial Bureau (CFPB) online or by calling 1-855-411-CFPB (2372). You can also report the crime to your state attorney general and the FBI at 1-877-236-8947 or the FTC at (1-877-382-4357).