Rescuing Homeowners From Mortgage “Rescue” Scams

With foreclosure rates remaining high over the past few years, homeowners across the country are increasingly desperate to save their homes from bank repossession – and scammers are ready to come to the “rescue.”  Some companies claim they can fight off foreclosure by negotiating new terms with lenders or servicers, but these various schemes ultimately end with  homeowners being forced out of their homes and losing even more money.

Foreclosure rescue and mortgage modification scams are a growing problem.  In April, nearly 1 in every 700 housing units in the country received a foreclosure filing, giving scammers over 1.3 million chances to strip homeowners of their last assets.

The federal government has launched a coordinated effort to target mortgage and foreclosure fraud, educate homeowners on how to protect themselves, and assist victims of fraud.  The Federal Trade Commission issued the Mortgage Assistance Relief Services (MARS) Rule in 2010 to curb unfair and deceptive practices associated with these scams.  Various “compliance highlights” for businesses in the mortgage industry include:

It’s illegal to charge upfront fees.

Many companies ask for “simple” fees of thousands of dollars in exchange for handling your mortgage modification, and countless victims never see that money – or receive any help – again.

You must clearly and prominently disclose certain information before you sign people up for services.

Rescue scammers usually neglect to tell homeowners the total cost of their services, that they can stop using their services at any time, and that the lender may not actually agree to change the terms of their mortgage.  Some companies even pose as being associated with the government or the homeowner’s lender in an effort to seem more trustworthy.

If you advise someone not to pay his mortgage, you must clearly and prominently disclose the negative consequences that could result, such as the loss of their home or damage to their credit rating.  Don’t advise customers to stop communicating with their lender or servicer.

A common tactic is to tell the homeowner to pay the “simple” upfront fee, after which the modification company will “take care of” the mortgage payments.  Some companies simply run off with the money, leaving the homeowner unaware of the mortgage payment defaults and pending foreclosure.

You must disclose key information to your customer if you forward an offer of mortgage relief from a lender or servicer.

Companies may try to pressure homeowners into accepting offers of mortgage relief from their lenders that they either do not understand or are not acceptable to them, and then force the homeowners to pay a large fee for their “services.”

Don’t misrepresent your services.

For a homeowner facing the frightening threat of foreclosure, the offers of these companies seem too good to be true, and they usually are.

You are your first line of defense against the tactics of scammers.  Watch for these red flags when you are considering a mortgage modification:

  • A company guarantees to stop your foreclosure or secure a loan modification.
  • A company requires an advance fee before providing any services.
  • You are pressured to make decisions and payments very quickly
  • You receive advice to stop making payments to your lender
  • An agent suggests that you transfer your title to the company so they can make payments for you
  • You receive advise to submit fraudulent information to your lender.

This is a guest post by Brianne Mullen.  Brianne is a law and policy intern at HOME’s Center for Housing Advocacy for the summer of 2012.  She is a dual degree candidate working on a law degree at University of Richmond and a Master of Urban and Regional Planning at VCU.

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