Like all scams, this one promised results that seemed too good to be true. A letter mailed to San Diego-area residents by companies claiming to be affiliated with the federal government promised that its consultants could help homeowners arrange a mortgage loan modification for little or no cost. All the homeowners had to do was send their monthly mortgage payments directly to the loan modification consultant, and not to their mortgage lender. Instead of being held in a reserve account as promised, the monthly payments were used to cover the consultants’ business and personal expenses, including cars and jewelry.
In the two years before the scam was uncovered, some 400 homeowners lost a total of $1.5 million to these white-collar thieves.Rather than helping save homes, these scammers caused many of the mortgages to go into default. Ironically, scams like this operate right alongside legitimate foreclosure avoidance and mitigation programs that offer assistance at no charge.
With far more crooks than prosecutors and billions of dollars in assistance at stake, the problem worsens each time a new foreclosure program is introduced. Mortgage scams are up 60 percent nationally so far in 2012, according to the nonprofit Homeownership Preservation Foundation, as scammers gear up to help themselves to a share of California’s $18 billion settlement with five of the nation’s largest mortgage lenders. Recently, the state Attorney General warned homeowners to be wary of solicitations from third parties promising to help them qualify.
So what can homeowners do to avoid becoming a victim?
• Never pay up-front fees. Foreclosure consultants are prohibited by law from collecting money before services are performed. Instead, call (888) 995-HOPE or visit www.995hope.org/ for a referral to a free HUD-approved housing counselor who can educate you about loan modifications, short sales, and other alternatives to foreclosure.
• Pay attention to letters from your lender or loan servicer. Bank of America, for example, recently sent letters to 200,000 holders of Bank of America/ Countrywide mortgages who may be eligible for loan modifications or principal reductions under the terms of the national mortgage settlement. Only your lender or loan servicer is authorized to help you file a claim for assistance. You can visit www.nationalmortgagesettlement.com for more information.
• Don’t transfer title or sell your home to anyone claiming to be able to rescue it from foreclosure by allowing you to stay on as a renter and purchasing it back in the future. Sometimes this scheme is part of a fraudulent bankruptcy filing. Ultimately, the perpetrator may claim ownership and evict the homeowner.
• Don’t make your mortgage payments to anyone other than your lender or loan servicer without the lender’s or servicer’s approval. Scammers generally keep the money for themselves, while your mortgage is likely to end up in default.
• Never sign any documents without first reading them. Many homeowners are falsely led to believe by scammers that they are signing documents for a loan modification or a new loan to pay off their old mortgage. Only later do they realize they have actually transferred ownership to someone who is now trying to evict them.
Finally, if you believe you have been the victim of a foreclosure scam, report it to the California Attorney General’s Office, the Federal Trade Commission, or to the California Department of Real Estate or California Bar Association if your complaint involves a real estate broker or attorney. If the amount you’ve lost is less than $10,000, you can file an action in Small Claims Court. Mortgage foreclosure fraud can be prevented with awareness, education, and enforcement – and an occasional reminder that if the solution to your problem sounds too good to be true, it probably is.