By Ana Gonzalez Ribeiro, bankrate.com | Published: 6/26/2009
Normally, homeowners seek loan modifications in hopes of forestalling foreclosure. However, scam artists have seized the opportunity to use phony loan modification schemes to prey on vulnerable borrowers.
"The real unfortunate aspect of the foreclosure rescue scams is that it makes an already stressful and tough situation more stressful and more difficult," says Josh Fuhrman, director of counseling for the Homeownership Preservation Foundation.
Unscrupulous individuals are targeting at-risk homeowners by combing foreclosure notices in newspapers and public files to identify potential victims, according to the Federal Trade Commission.
These con artists advertise through TV and newspaper ads with attention-grabbing phrases, such as "Stop foreclosure now!" or "We guarantee to stop your foreclosure!"
Following are four ways to avoid being scammed:
1. Be skeptical. Scammers often work hard to present themselves as legitimate. For this reason, it's important to be extremely wary, even when a solicitation looks official, says Kimberly Allman, housing counselor at the New York Mortgage Coalition.
"Homeowners should be cautious of Web sites or companies with names similar to legitimate government programs," she says.
In one typical example, scammers use a letterhead that supposedly indicates the correspondence is from the Obama administration's Making Home Affordable plan, says Dianne Reichel, a Certified Credit Counselor at GreenPath Debt Solutions Inc.
"Scammers will use deceptive marketing practices that convince consumers (into) believing they are contacting reputable organizations," Fuhrman says.
Allman says such tactics are widespread.
"Almost every homeowner who calls me and is behind on his mortgage tells me that he has been approached by someone offering loan modifications for upfront payments of around $2,500 and $3,000," she says.
So how can homeowners ensure they are talking to a legitimate source of help?
Douglas Robinson, spokesman for NeighborWorks America, a national nonprofit organization that provides support to community revitalization efforts, suggests the following tips:
On the Internet, stick with Web sites officially associated with the government. Most of these sites have URLs that end with the "gov" domain name.
When talking to someone on the phone, you should feel comfortable asking for and receiving the main number of the agency that the caller represents. That way, you can call back to make sure the number is legitimate.
Government agencies will never ask for personal financial information upfront, or request fees at any time. Borrowers should be suspicious of anyone who makes such demands.
If you're seeking extra reassurance, visit the local office of the government agency in question. Scammers don't set up shop in federal office buildings.
2. Don't pay for help. HUD-approved counseling agencies offer free foreclosure prevention counseling. In contrast, scammers request fees to help desperate homeowners.
Typically, scammers charge a homeowner exorbitant fees while promising assistance that will supposedly save the owner's home. Instead, these crooks take the money and run.
Typically, people who pay for loan modification help receive very little in return, says Robinson.
"What happens for that fee is that the scam company does little more than call the phone number on the homeowner's mortgage statement and ask that the homeowner's loan be modified," Robinson says.
3. Don't transfer the property deed. Scammers sometimes try to encourage homeowners to turn over the ownership reins. In one popular scheme, an organization promises to buy an at-risk homeowner's home and agrees to let the former homeowner rent it out.
Scammers sell these programs by suggesting that giving the title to a new borrower with a better credit rating will help secure financing thus preventing loss of the home.
"Ultimately the organization has no intentions of selling the home back to the consumer," Fuhrman says.
In some cases, the scammer sells the home to someone else. Or the crook takes the homeowner's title, any equity in the home and additional processing fees before disappearing and leaving the home to default, Fuhrman says.
4. Ignore promises of shortcuts. Scammers often promise to make foreclosure problems go away overnight. Be skeptical of such claims.
"The foreclosure process is a lengthy and difficult process," Fuhrman says.
Any potential solution to foreclosure takes time. An at-risk homeowner may be asked to negotiate a workout package with the loan servicer. In addition, the homeowner may need to seek financial assistance from other organizations.
Also, say, "No thanks," to third parties who guarantee to single-handedly stop the foreclosure process, or who promise to deliver a loan modification.
Avoid any company that offers to collect your mortgage payment while negotiating with the lender. Such companies often collect several months' worth of payments before disappearing.
"Don't send your mortgage payments to anyone other than your mortgage company," Reichel says.
Finally, stay away from businesses or counselors who tell you not to contact your lender, lawyer, or credit or housing counselor.
The federal government has made available more than $400 million for foreclosure counselors to help homeowners avoid foreclosure. The Office of Housing and Urban Development offers a list of HUD-approved counseling agencies that offer free help.
Distributed by Scripps Howard News Service. Reach Ana Gonzalez Ribeiro at editors@bankrate.com
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