Watch Out for Mortgage Reconstruction and Foreclosure Scams

As real estate starts to recover, here are 9 things you can do to avoid a new spate of foreclosure scams and help fees: Internet Scambusters #342

Hopefully, the worst of the real estate market slump is behind us, but the same can’t be said for mortgage reconstruction and foreclosure scams.

These tricks, which often involve payment of upfront fees, masquerade as part of the recent US federal Making Home Affordable program that aims to reduce mortgage repayments.

The service is actually free but, hoping you won’t know that, scammers charge their victims for participation — and then usually do nothing at all.

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Time to get going…


Watch Out for Mortgage Reconstruction and Foreclosure Scams


This issue focuses on avoiding foreclosure scams — and helping others do so as well. Although this issue is targeted to the US program, similar scams likely exist in other countries as well.

Mortgage reconstruction — on the face of it — sounds like a good step towards reversing the real estate market collapse: a government program to help up to 7 million Americans save their foreclosure-threatened homes by significantly lowering their repayments.

But the Making Home Affordable (MHA) program, announced in April, has also opened the floodgates to scammers, most of them offering dubious help in return for an upfront fee of between $1,000 and $3,000.

With fraud complaints running at 400% above where they were just a year ago, the Federal Trade Commission (FTC) says it has sent more than 70 warning letters to firms supposedly offering mortgage reconstruction assistance.

In addition to charging a fee — no fees are actually required to participate in the MHA program — the scammers aim to convince victims of their credibility by untruthfully claiming high success rates, offering worthless guarantees and using official sounding company names that make it seem like they’re part of the program.

The scam artists may use such terms as “federal,” “TARP” (the Government’s Troubled Asset Relief Program), or other words or abbreviations related to official U.S. government programs.

It’s bad enough that they take victims’ money — but then they often don’t even provide any help at all.

It’s fair to point out that there are many legitimate mortgage brokers and consultants who might be able to help with refinancing but they should never seek an upfront fee or offer guarantees.

As part of a broader crackdown, the FTC also has filed specific complaints against five firms with official-sounding names, and several states have launched campaigns to highlight the mortgage reconstruction and foreclosure rescue scams and to prosecute the crooks — something that hasn’t been done too often in the past.

The FTC warns homeowners to avoid businesses that:

  • Guarantee to stop the foreclosure process — no matter what your circumstances.
  • Advise you not to contact your lender, lawyer, or credit or housing counselor.
  • Collect a fee before providing any services.
  • Accept payment only by cashier’s check or wire transfer.
  • Encourage you to lease your home so you can buy it back over time.
  • Tell you to make your mortgage payments directly to their business, rather than to your lender.
  • Advise you to transfer your property deed or title.
  • Offer to buy your house for cash at a fixed price that is not set by the housing market at the time of sale.
  • Offer to fill out paperwork for you.
  • Pressure you to sign papers you haven’t had a chance to read thoroughly or that you don’t understand.

For more about mortgage scams, check out these Scambusters articles.

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The Office of the Comptroller of the Currency (OCC) has also now issued a Consumer Advisory with the following guidance:

“If someone offers to negotiate a loan modification for you or to stop or delay foreclosure for a fee, carefully check his or her credentials, reputation, and experience, watch out for warning signs of a scam, and always maintain personal contact with your lender and mortgage servicer.

“Your mortgage lender can help you find real options to avoid foreclosure. It is important to contact your mortgage lender early to preserve all your options. There are legitimate consumer financial counseling agencies that can help you work with your lender.”

Always proceed with caution when dealing with anyone offering to help you modify your mortgage, the OCC adds. Remember that you do not need a third party to work with your lender — but if you choose to do so, any such firm should make the process easier, not harder and more expensive.

Read the OCC advisory.

You can also check out Get Answers About National Banks at Helpwithmybank.gov.

Here are 9 steps you can take to protect yourself from mortgage reconstruction and foreclosure scams:

  1. Contact your lender or mortgage servicer first. Speak with someone in the loss mitigation department for mortgage modification options and other alternatives to foreclosure.
  2. Make all mortgage payments directly to your lender or to the mortgage servicer. Do not trust anyone to make mortgage payments for you, and do not stop making your payments.
  3. Avoid paying up-front fees. While some legitimate housing counselors will charge small fees for their services, do not pay fees to anyone before receiving any services. Make sure you are dealing with a legitimate organization.
  4. Read and understand every document you sign. A document may obligate you to terms you don’t want or may even convey ownership of your home to someone else.
  5. Never sign documents with blank spaces that can be filled in later. Never sign a document that contains errors or false statements, even if someone promises to correct them.
  6. Do not sign over your deed without consulting a lawyer you select. It is common that a foreclosure scam will involve transfer of ownership of your home to a con artist or another third party. By signing over your deed, you lose the rights to your home and any equity built up in the home — and you are still obligated to pay the mortgage.
  7. Get promises in writing. Oral promises and agreements relating to your home are usually not legally binding. Keep copies of all contracts that you sign. Again, never sign anything you don’t understand.
  8. Contact a legitimate housing or financial counselor to help you work through your problems.
  9. If you want to know more specifically about the MHA mortgage reconstruction program (as against just doing a regular refinancing), visit the official MHA site.

The OCC urges you to report suspicious activity to relevant federal agencies, such as the Federal Trade Commission, and to your state and local consumer protection agencies.

Reporting con artists and suspicious schemes helps prevent others from becoming victims. And we’re all for that.

That’s a wrap for this issue. Wishing you a great week!