A fairly new and dangerous threat has arisen for homeowners who have fallen behind on their mortgage payments and may be at risk of foreclosure – opportunistic companies. They often refer to themselves as a “foreclosure consultant” or “mortgage consultant,” and market themselves as a "foreclosure service", "foreclosure rescue agency" or "loan modification company." They count on homeowners being vulnerable and desperate.
These companies claim they can assist homeowners facing foreclosure with options that allow them to keep their property, refinance or modify an existing mortgage, repair credit or help “buy more time.” In reality, these “options” are intended to convince you to take the wrong steps so they can take your money and possibly your home.
We will discuss these scams so that you know how to best protect yourself against these scams.
Common Foreclosure Rescue and Loan Modification Scams
In the contract you signed when your mortgage lender loaned you money to buy your house, you agreed that if you can’t repay the loan, the lender can foreclose to take ownership of the house.
If you do not pay your monthly mortgage payment, you are technically in default on your mortgage. State laws vary, but Federal law generally requires, a loan to be more than 120 days delinquent before a lender can start foreclosure.
Your lender may send you a notice indicating that they are starting foreclosure proceedings, but don’t wait; take steps to prevent a foreclosure as soon as you realize you are having trouble paying the mortgage. And, watch out for the common foreclosure rescue and loan modification scams listed below.
Lease-Back or Repurchase Scams
In this scenario, a promise is made to pay off your delinquent mortgage, repair your credit and possibly pay off credit cards and other debt. However, in order to do this, you must “temporarily” sign your deed over to a “third party” investor. You are allowed to stay in the home as a renter with the option to purchase the home back after a certain amount of time has passed or your financial situation improves. The trouble is once you have signed away your rights in your property, you may not be able to repurchase the property later, even if you can and want to. After the new owner takes ownership of your property, the new owner can evict you. Furthermore, the scammer is under no obligation to sell the house back to you. Typically, after the deed is signed away, the property changes hands numerous times. The scammer may have taken a new mortgage out on your home for hundreds of thousands of dollars more than your mortgage, making it impossible for you to buy back your home.
Partial Interest Bankruptcy Scams
The scam operator asks you to give a partial interest in your home to one or more persons. You then make mortgage payments to the scam operator in lieu of paying the delinquent mortgage. However, the scam operator does not pay the existing mortgage or seek new financing. Each holder of a partial interest then files bankruptcy, one after another, without your knowledge. The bankruptcy court will issue a “stay” order each time to stop foreclosure temporarily. However, the stay does not excuse you from making payments or from repaying the full amount of your loan. This complicates and delays foreclosure, while allowing the scam operator to maintain a stream of income by collecting payments from you, the victim. Bankruptcy laws provide important protections to consumers. This scam can only temporarily delay foreclosure, and may keep you from using bankruptcy laws legitimately to address your financial problems.
While there are legitimate refinancing programs available, look out for people posing as mortgage brokers or lenders and offering to refinance your loan so you can afford the payments. The scammer presents you with “foreclosure rescue” loan documents to sign. You are told that the documents are for a refinance loan that will bring the mortgage current. What you don’t realize is that you are surrendering ownership of your home. The “loan” documents are actually deed transfer documents, and the scammer counts on your not actually reading the paperwork. Once the deed transfer is executed, you believe your home has been rescued from foreclosure for months or even years until you receive an eviction notice and discover you no longer own your home. At that point, it is often too late to do anything about the deed transfer.
Internet and Phone Scams
Some scam lenders convince you to apply for a low-interest mortgage loan on the phone or Internet. They then extract vital information, such as your social security and bank account numbers. In this scam, the loan is immediately accepted, after which you start faxing the documents and sending wire transfer payments to the phony company without even meeting the lender. Unfortunately, this scam will put you in twice as much trouble--your personal details have been stolen or sold, putting you at risk of identity theft, and your home is still at risk of foreclosure.
Phantom Help Scams
The scam operator presents himself as someone who is able to help a homeowner out of foreclosure or qualify for a government loan modification or refinance program. In exchange for his or her “services,” outrageous fees are charged and grand promises are made for robust representation, which never occurs. The “services” performed entail light paperwork or occasional phone calls that you could easily have made yourself. In the end, you are worse off than before, because you have little or no time to save your home, or seek other assistance.
You may be dealing with a mortgage foreclosure and loan modification scam operator if the company:
- Demands a fee in advance. No legitimate organization that works with borrowers to avoid foreclosure will ever ask for money up front.
- Makes unsolicited offers or “lofty” advertisements, claiming they can help save your home.
- Offers to negotiate a loan modification for a fee.
- Recommends you break off contact with the lender and any counselor that you may have been working with.
- Advises you to stop making mortgage payments.
- Tells you to send your mortgage payment to anyone other than your loan servicer.
- Instructs you to transfer ownership of your property.
- Makes verbal promises that aren’t put in writing.
- Asks you to sign a document that has blank lines or spaces.
If You Need Help
If you are having difficulty making your mortgage payments, one of the most important things you can do is be proactive. Review the terms and conditions of your mortgage, learn about the foreclosure process for residents in your state and what may lead up to it, and find out more about the resources on a local, state and national level available to assist you in working with your lender and your finances.
Homeowners who currently have, or expect to have, difficulty making their payments should contact their loan servicer or reputable counseling agency as soon as possible to discuss options. Troubled borrowers should be careful in dealing with organizations that encourage borrowers to cease making payments or walk away from their home while also promising to repair their credit. If it sounds too good to be true, it may well be a scam that will damage the borrower’s credit and cost more in the long run. Working directly with the servicer or legitimate non-profit organizations is the best approach for troubled borrowers.
If you need help with your mortgage, contact reputable non-profit housing or financial counselors, such as:
- U.S. Department of Housing and Urban Development (hud.gov)
- Homeownership Preservation Foundation (995hope.org)
- Beware of Fake Checks
- Beware of Foreclosure Rescue and Loan Modification Scams
- FDICExplains Phishing (youtube.com)
- Money Smart for Older Adults Resource Guide
- Protecting Seniors from Financial Abuse
- Scammers Pretending to be the FDIC