Consumer Law

Scam Alert: Mortgage Relief Scams Keep Coming

Beginning with the housing industry's breakdown in 2007, scams involving home refinancing and foreclosure have become rampant. The federal government arrested and charged 41 people involved in a huge mortgage fraud scheme, accusing them of pocketing $64 million in bogus loans.

"Operation Bad Deeds" involved many professionals, including six lawyers, three mortgage brokers and seven loan officers. A variety of scams were involved, including stripping houses of equity in home-flipping schemes, and using straw buyers and false loan applications. One scam even involved a property appraiser inflating the value of a house by submitting photos from other houses during the loan process.

As this housing industry situation remains bad, scam artists prey on desperate people seeking help to save their homes by offering them seemingly helpful refinancing and foreclosure prevention deals. Here are some common scams.

Foreclosures Rescue Scam

Type 1

In this trick, scammers first search public records for names of people facing foreclosures. They send them letters promising to rescue their home with statements such as "Stop Foreclosure Now" and "Save Your Home."

When you follow up with a phone call, an "agent" charms you until he gains your trust, and then before you know it, begins working his scam. First, the company may charge an up-front fee for acting as a go-between you and your lender. Then, the company does little or nothing, and you fall further behind in your payments. Eventually, the company disappears and you realize that you were been scammed. By then, you really may be facing foreclosure and have bigger worries.

Type 2

Another popular scam involves convincing you to sign over the title to your home, while you rent it, so you can buy it back six months later. The promise is that during this time he'll reduce the debt owed to your lender. However, the scammer doesn't make any mortgage payments, and instead, uses up all of the equity from the property. The scammer may even sell the property to someone else, running away with the money and leaving you with nothing except a lapsed rental agreement.

Type 3

Scam companies may also convince you that they can work with your lender to save your home. The company bombards you with huge amounts of paperwork, one of the documents being a transfer of the home's title to the company. You aren't even aware that you signed over your title.

Refinancing Scams

After President Obama signed the Making Home Affordable bill, which included a $75 billion stimulus-refinance plan to help millions of homeowners to refinance their mortgages, many scams soon followed.

Scam companies try to get you to pay an upfront fee that may cover expenses such as "refinance counseling" or a "refinance consultation." These fees may be hundreds or even thousands of dollars. The company ends up doing little or nothing, keeping the fee but not refinancing your home. Additionally, the scam company may promise the 2% interest rate guaranteed in the stimulus plan, but then, at the closing, raises the rate tacking on extra fees and costs.

Tips if You Are in a Foreclosure or Seeking Refinancing

  • Don't ignore the problem, it will not go away and will probably get worse if you don't try to remedy it right away
  • Make sure that you are actually in a foreclosure. If you are behind in payments, you will receive a deficiency notice that notifies you of your delinquency and gives you a chance to resolve the debt. If you receive a Notice of Trustee's Sale, or similar document, you are in foreclosure
  • Communicate with your lender, try to work with him to restructure or refinance the loan
  • Familiarize yourself with the laws regarding foreclosure in your state to know your rights and how much time you have to remedy the situation
  • You can contact a counseling agency. Make sure that the counselor is certified by the Department of Housing and Urban Development (HUD)
  • Don't make mortgage payments to anyone other than your lender
  • Contact an attorney; those with housing and consumer protection law experience may have the most familiarity with these situations, or you can find one through the National Association of Consumer Advocates
  • Have your attorney review any proposed sales contracts or deeds
  • Investigate any lender that you may be thinking about for refinancing a loan to make sure it is reputable and that the new agreement is protects your rights

Tips to Avoid Falling Prey to Scams

Foreclosure scams can be costly and emotionally exhausting; you will have to pay for attorney fees, time and intervention by state regulators. Scammers prey on the desperate; they understand that when people are need and will believe just about anything. Remember, if an offer sounds too good to be true, it is.

Keep these tips in mind:

  • Ignore posters, fliers and letters offering help for your foreclosure
  • Don't fall for promises of a "rescuer" buying your home and then selling it back to you at some point. Often times, the "rescuer" sets the rental price at a level that you can't afford, and then they move to evict you for failure to pay the rent
  • Don't take advice of "rescuers" recommending that you break off contact with your lenders or any counselor that have been working with. If you are in a foreclosure, you should be in contact with your lender to find out what you can do to fix the problem
  • Be aware of tactics of scammers such as lies, exaggeration, misinformation and pressure

What to Do if You Get Caught in a Foreclosure Rescue Scam

If you find yourself caught in one of these scams, contact a consumer protection lawyer right away. A lawyer helps you deal with hearings with enforcement agencies and eviction hearings.

Never rely on a letter to save your home from foreclosure. Instead, find and use the many valid resources that are available.

If you're contacted by a company you believe is trying to scam you, turn over the scam information to your state attorney general. The attorney general's office can then investigate the company. Use common sense and research anyone you work with to ensure they are reputable. If you have questions, contact a counseling agency or a lawyer.

Questions for Your Attorney

  • I need help with mortgage relief, specifically refinancing through the various relief programs that are available. Can you help me navigate the process? Have you had any experience helping other property owners in my situation?
  • I'm trying to nail down mortgage relief under a Making Home Affordable program, and it's different that the refinancing I'm familiar with as a homeowner. Can you represent me in this process, handle closing and help me understand the transaction?
  • I'm the victim of a mortgage relief scam, and it looks like I've signed over an ownership interest in my property to the scammers. Can anything be done to reverse or cancel the documents I've signed? Can any notices be recorded in the county property records so nothing else negative happens while I seek a solution?
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