With the national foreclosure rate persistently high, many homeowners have turned to loan modification or foreclosure “rescue” companies for help – only to realize they’ve been scammed. Anyone can become a victim of a loan modification scam. Every day, scam artists prey on unsuspecting homeowners who are facing foreclosure. These homeowners are losing thousands of dollars and their homes—lured by the promise of loan modification help.
“The best way to prevent yourself from falling victim to a scam is to be educated about the scammers’ tactics and be ready to say ‘No’ to any deal you’re unsure about,” says Arkansas Attorney General Dustin McDaniel. “We encourage consumers to ask questions, go online to check the legitimacy of the party you’re dealing with, or contact our Consumer Protection Division if they are concerned.”
Common Loan Modification Scams
According to the National Association of REALTORS® and its partner NeighborWorks America, a national, nonprofit organization created by Congress to provide financial support, technical assistance and training for community-based revitalization efforts, the following are some of the most common loan modification scams out there today.
Phony Counseling or Foreclosure Rescue Scams
The scam artist poses as a counselor and tells you he can negotiate a deal with your lender to modify your loan or save your house—if you pay him a fee first. The fee may be called a processing fee or administrative fee. He may even tell you not to contact your lender, lawyer or housing counselor—that he’ll handle all details. He may even insist that you make all mortgage payments directly to him while he negotiates with the lender. Once you pay the fee, or a few mortgage payments, the scammer disappears with your money.
Fake “Government” Modification Programs
Some scammers may claim to be affiliated with, or approved by, the government, or they may ask you to pay high, up-front fees to “qualify” for government mortgage modification programs. The scammer’s company name and Website may sound like a real government agency, but the Website may end with .com or .net instead of .gov. You may also see terms like “federal,” “HAMP,” “MHA,” “HARP” or other words related to official U.S. government programs.
Contact your lender first. Your lender will be able to tell you if you qualify for any government programs to prevent foreclosure or modify your loans. And you do not have to pay to benefit from these programs.
Forensic Loan Audit
The scammer who may be called a forensic or mortgage loan “auditor” offers to review your mortgage loan documents to determine whether your lender complied with state and federal mortgage lending laws. The scammer will usually require that you pay a fee to start the process. The scammer may say you can use the audit report to avoid foreclosure, accelerate the loan modification process, reduce your loan principal, or even cancel your loan.
There is no proof that a forensic loan audit can save your home from foreclosure although it’s conducted by a licensed, legitimate and trained auditor, mortgage professional or lawyer. Even if you sue your lender and win, your lender is not required to modify your loan to make it more affordable. If you cancel your loan, you will have to return the borrowed money, which may result in you losing your home.
The scam artist convinces you to sign documents for a “new loan modification” that will make your existing mortgage current. This is a trick. You actually just signed documents that surrender the title or deed of your house to the scam artist in exchange for a “rescue” loan. Thoroughly read any document before you sign it.
Rent-to-Own or Leaseback Scheme
A scammer urges you to surrender the title or deed of your home as part of a deal that will let you stay in your home as a renter and then buy it back in a few years. He may tell you that surrendering the title will permit a borrower with a better credit rating to get new financing—and keep you from losing your home. However, the scammer may have no intention of ever selling the home back to you.
But the terms of these deals usually make buying back your home impossible. Worse yet, when the new borrower defaults on the loan, you’re evicted.
Short Sale Scam
Scammers, sometimes called “short sale negotiators” or “short sale processors,” may promise to expedite a short sale and usually require you to pay a fee, which is illegal in many states. Some scammers may even include surcharges or hidden fees before the transaction closes, which are also illegal in many states. The scammer may also misrepresent the value of the home to the lender.
A short sale may be a legitimate option for a homeowner in default or homeowner who is current yet the value of the home has fallen — if the lender agrees to the short sale. Homeowners should work with a REALTOR® since the law requires that the person be properly licensed to negotiate the short sale with your lender. Arkansas homeowners can verify licenses with the Arkansas Real Estate Commission by visiting their website at www.arec.arkansas.gov.
Bankruptcy to Avoid Foreclosure
The scammer may promise to negotiate with your lender or get refinancing on your behalf if you pay a fee up front. Instead of contacting your lender or refinancing your loan, he pockets the fee and files a bankruptcy case in your name—sometimes without your knowledge.
A bankruptcy filing often stops a home foreclosure, but only temporarily. Filing bankruptcy stops any collection and foreclosure while the bankruptcy court administers the case. But, eventually you must start paying your mortgage, or the lender will be able to foreclose.
You could lose the money you paid to the scammer and your home. Worse yet, a bankruptcy stays on your credit report for 10 years, which makes it difficult to obtain credit, buy a home, get life insurance or even get a job.
Next week, I’ll focus on 6 signs you can look for to indicate you may be dealing with a loan modification scammer.
House to House is written by Amy Glover Bryant and distributed weekly by the Arkansas Realtors® Association.