FEATURE ARTICLE: Tips for Avoiding Loan Modification Scams
According to the Federal Trade Commission (FTC), these are the most prevalent scams;
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.
Refinance Scams – While there are legitimate refinancing programs available, look out for people posing as mortgage brokers or lenders 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.
If you think you may have fallen victim to any of these or another type of scam, contact the FTC at their toll-free helpline: 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. Or visit their website at www.ftc.gov.
MONEY SAVING TIP: Use less.
Purchasing appliances that are energy efficient to cut down on the utility bill is a wise idea. However, these appliances can be costly. Instead, have your power company do an “Energy Audit” on your home appliances. This audit is free for the consumer and it can teach you which of your appliances is braking the bank. If you live in a cooler climate, put a sweater on before turning on the heat/furnace. If your climate is more tropical, invest in fans. Fans can circulate air and are much less expensive than running the air conditioning unit. Check the air filters in the air conditioning/heating unit. Make sure they are clean and replace them regularly. This will allow your equipment to run more efficiently.
DID YOU KNOW that there are warning signs to look for to alert you that you may be dealing with a mortgage foreclosure scam operator?
If the company:
- Has no legitimate organization that works with borrowers to avoid foreclosure or negotiate a loan modification will ever ask for money up front.
- Makes unsolicited offers or “lofty” advertisements, claiming they can help save your home.
- 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 or tells you to send your mortgage payment to anyone other than your loan servicer.
- Instructs you to transfer ownership of your property.
- Asks you to sign a document that has blank lines or spaces
Know with whom you are dealing. Before you hand over any money or provide any personal information, check out the company or person. You can check your local Better Business Bureau or state consumer protection office to see if the company or organization is legitimate and if any complaints have been filed.
Contact reputable non-profit housing or financial counselors, such as those you can find by contacting the:
- U.S. Department of Housing and Urban Development (HUD)
at (800) 569-4287 or
Talk to a Housing Counselor
- Homeownership Preservation Foundation
at (888) 995-HOPE or
Report suspicious activity to the Federal Trade Commission, your State Attorney General’s Office or your state and local consumer protection agencies. Reporting con artists and suspicious schemes helps prevent others from becoming victims.