Caution: Foreclosure Scams May be Hard to Spot

by on May 12, 2012Shannon O'Brien

Like vultures to carrion, scam artists choose people at their weakest point in life to swoop in and try to make the kill. Over the past five years, these fraudsters have turned their attention to distressed homeowners and have come up with a number of ways to separate them from their houses, all under the guise of “foreclosure avoidance.”

foreclosure scamsThe scam artists employ a variety of tactics to locate and defraud distressed homeowners, from poring over public foreclosure notices in the newspaper to checking files at county courthouses. Many take the process a step further and advertise their services with seductive headlines screaming that they can stop your foreclosure or modify your loan.

If you’re facing foreclosure, the last thing you need is one more stressful event. Let’s take a look at some common scams, how to identify if you’re being scammed, and how to protect yourself.

The Mediator

This guy, posing as a lawyer or as a representative of a group of lawyers, asks for a fee to negotiate with your lender on your behalf. He promises to get you lower payments or that he’ll save your home, in some mysterious way, from foreclosure.

Part of the scam is that, while he will tell you not to contact your lender directly during the negotiation process, you should continue making your loan payments to him and he will handle getting them to the lender.

After paying the up-front fee and several months of mortgage payments, you will never hear from him again.

Forensic Loan Auditors

This is another up-front fee scam (are you noticing a pattern yet?). This scammer promises that the fee covers the cost of a forensic loan audit – the review of your mortgage documents by an attorney – to find loopholes that can be exploited to avoid foreclosure.

According to the Federal Trade Commission (FTC), forensic loan audits do nothing to help you get mortgage relief.

Fractional Interest Transfer

A popular scam on the West Coast, according to the Department of Justice, these scammers promise that for the transfer of a fractional interest in your home they will pursue an automatic stay of the foreclosure.

How they do this is by transferring this interest to another perpetrator that is already in a bankruptcy proceeding. The lender can’t foreclose on the home until the stay is lifted. Sometimes, according to the DOJ, each time the stay is lifted, the perpetrator’s interest is transferred to another bankruptcy case.

The DOJ warns homeowners that this type of scam constitutes bankruptcy fraud and carries heavy penalties.

How to Know When You’re Being Scammed

The United States Department of Housing and Urban Development (HUD) offers the following tips to avoid becoming the victim of a foreclosure scam:

  • Never pay anyone an up-front fee for loan modification or counseling services.
  • Never sign papers unless they come from your lender.
  • Never sign papers or sign over your deed without speaking with an attorney.
  • Never make a mortgage payment to anyone but your lender of record.

Know Your Rights

The FTC has created rules that protect homeowners from foreclosure scams. One of these is known as MARS, or Mortgage Assistance Relief Services, a program that makes it illegal for any company to collect up-front fees. Consumers no longer have to pay these companies until the lender accepts whatever offers the company presents.

Mortgage relief companies, organizations and individuals must also clearly state the following:

  • They must explain their association with the government, if any.
  • They must disclose that their services are not approved by the government.
  • They must tell you that your lender may not approve the changes to your loan that the company promises.
  • It is against the law for them to tell you to cease communications with your lender.

If you’re facing foreclosure, both the Department of Veterans Affairs and HUD offer free assistance to help you determine your best course of action.

If you’ve been scammed, file a complaint with the FTC by calling 877-FTC-HELP or by visiting the FTC’s Complaint Assistant website.

{ 2 comments… read them below or add one }

Marianasliving May 26, 2012 at 6:12 am

I am happy that I stopped by here. This is very helpful tips. The comment of Mr. Stopa is helpful as well. We should get a good lawyer to help us. But still I am a little bit confused of retainer fee and up front fee.

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Mark Stopa May 12, 2012 at 10:31 pm

Just so your readers are aware. Hiring a lawyer to negotiate with your lender is not illegal and probably the best idea since NACA, Hope Now, and HUD counselors cannot file counterclaims against the lender. Remember readers that if you’re in forclosure, the lender is the Plaintiff which means you are the “Defendant”. You will need a licensed bar attorney to represent you. I appriciate the author’s concern to warn people of scams, but hiring a lawyer by paying a retainer fee is not the same as paying an “up front” fee to a company for modification. Its important to undersatnd the difference.

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