Foreclosure Scams and How to Prevent Them

A few years ago, hardly anyone could have imagined that the phrase ‘home mortgage loss mitigation’ would become such a part of our lexicon. Loss mitigation has become a growth industry due to economic events we have experienced in the past few years. That being said, the number of businesses engaging in unethical, unscrupulous and downright illegal activities has also skyrocketed. It can be very difficult to know exactly who to turn to when you need help. While government and non-profit agencies publicize free counseling services, some of them do nothing more than to help the homeowner put together their financial income/expense statement, and offer no real negotiating power with the lender’s loss mitigation department. Other non-profit “loan modification help websites” offer little more than links to OTHER non-profit resources and/or your lender’s website. In many cases you will find yourself spending as much time with these organizations as you would negotiating your own loan modification with your lender, wasting valuable time only to have these organizations tell you what you already know.

It is important to point out that your lender will rarely audit their own loan documents to determine if they made any errors, and it is equally important to note that the average homeowner may not have the ability to analyze their own documents for mistakes or discrepancies. If they did, they probably would not have found themselves in the position of needing to modify their loan in the first place. Whether you do it yourself or hire a professional, the more knowledge you have on your side with regard to your loan modification, the better your chances of success. 

If you feel you have legitimate discrepancies in your loan documentation that is affecting your mortgage payment, you may submit a Qualified Written Request to your lender as is your right under Section 6 of the Real Estate Settlement and Provisions Act (RESPA). The letter should include the following information:

• Describe the issue or the question you have and/or what action you believe the lender should take.
• Attach copies of any related written materials. •Describe any conversations with customer service regarding the issue and to whom you spoke. •Describe any previous steps you have taken or attempts to resolve the issue. 
• List a day time telephone number in case a customer service representative wishes to contact you. 

Also, the letter should NOT be included with your mortgage payment, but should be sent separately to the customer service address (which may differ from your lender’s payment address). 

The Qualified Written Request requires the lender to respond within 20 days that they have received your request, and also requires them within 60 days to review your loan for the errors that you have noted in your request and provide resolution to any issues. You may find more information regarding the Qualified Written Request, and samples Qualified Written Request letters at www.hud.gov. 

If you are considering seeking professional help in your foreclosure prevention efforts there are some things to be aware of: 

1. Know the laws in your state regarding fee-based loan modification/foreclosure consultant firms. Check your state’s website or contact your state’s Attorney General’s office to find out what laws protect you as a consumer.
2. NEVER pay a fee up front UNLESS the loss mitigation firm complies with the law. In most states it is perfectly acceptable for attorneys-at-law, who perform these services as part of their practice, to accept an advance retainer fee. They are offering legal counsel as well as performing a forensic review of your documents as part of the loan modification and negotiation process. However, you must still perform your own due diligence to insure the firm you hire is performing their tasks within the limits of the law. You can verify a law firm’s status through your state’s Bar Association.
3. Some non-attorney loan modification companies may accept fees up front ONLY if they are registered with the Department of Real Estate and meet other criteria based on their state’s laws and provisions. The loan modification contracts must spell out in detail the services offered and provide a right of rescission (I.E.: your right to cancel the contract) prior to accepting any fees. Some states are also now requiring loan modification companies and foreclosure consultants to register with the Department of Justice and to obtain a surety bond. Again, check with your state’s Attorney General Office for details. The Department of Real Estate DOES NOT APPROVE loan modification companies, so beware of any advertisements that contain verbiage to that effect. Under certain conditions that may vary state-to-state, Licensed real estate brokers (and sales agents working under the licensed brokerage) MAY perform loan modification services on behalf of troubled homeowners under the following conditions:
   
   Broker must complete Sample Advance Fee Agreement (RE 880, enclosed) by following the instructions outlined in the enclosed instructions. 
   
   Upon acceptance, DRE simply states ‘No Objection’ (That DOES NOT mean APPROVED!) and will place brokerage on ‘Advance Fee Agreement Listing’ list of brokers.
   
   
4. Be sure you know EXACTLY what the fee-based loan modification company will do for you. If they are only offering services that you can do yourself, you will need to weigh the cost of their service (in most cases charges will exceed $1000) versus the value of your own time. That being said, paying an attorney who has your legal protection as well as your loan modification interests in mind may be much more valuable to you than going it alone.
5. Beware of “Foreclosure Relief” companies who claim to help you save your home by having you make payments to THEM instead of your lender. These companies claim to relieve you of the threat of foreclosure by renegotiating with the lender on your behalf. They state that THEY will pay the newly renegotiated mortgage to the lender while you pay them a monthly fee. They of course pocket your money and make no contact with your lender whatsoever, leaving you in worse financial shape than you were in the beginning. Many unfortunate people across the country have lost their homes due to this scam.
6. Beware of any unsolicited marketing attempts, especially if your lender has filed a Notice of Default against your property. This information becomes public knowledge and scammers are ready to take unscrupulous advantage of your unfortunate situation. Remember, if an ad sounds too good to be true, IT PROBABLY IS!
7. NEVER agree to exchange title ownership of your home in lieu of cash payment for loan modification or loss mitigation services. This is illegal in most cases and you will find yourself no longer owning your home. Any individual or organization who offers to purchase your home with a “leaseback” option is typically unscrupulous and does not care about your well being. It usually works like this: You are facing foreclosure. You are approached by an individual or organization who offers a “leaseback option” as a way out of your troubles. You “sell” your home to this individual or organization but are still allowed to live there. Your monthly payments might include a “lease” term with an “option” to buy back your own home after a certain period of time.
   The problem is that your new landlord, who now has title to your home, can do whatever he/she/they want with it; including cashing out any remaining equity for questionable purposes, or worse, selling the home out from under you leaving you without a place to live. This option leaves you very little protection, so beware of ANYONE who approaches you with such an offer. Most states have specific laws regulating this practice. Check your state’s legislation for details.

It is unfortunate that these scams exist in such trying times. The news is full of stories about homeowners all over the country who have been victims of these and other rip-offs. Protecting yourself through research and knowledge can help you if you are solicited by such individuals seeking to exploit your situation. Even if you are approached with a “solution” that sounds legitimate, do not hesitate to investigate the company or individual. Make use of such organizations as the Better Business Bureau, Department of Consumer Affairs, and the Federal Trade Commission’s Bureau of Consumer Protection to insure your protection against scam artists. Do not hesitate to contact your local District Attorney’s office if you think you are, or have been, a victim of a crime.