National Campaign Launched to Combat Loan Mod Scams

Dennis Norman

I don’t think I need to tell real estate investors about the record foreclosure rates we have seen as well as the unprecedented number of people that are struggling to make their house payments.  As a result, there are many good opportunities out there for real estate investors to acquire property at good prices.  Many times this is a “win-win” situation for the investor as well as the struggling homeowner, or lender that is selling the property.

Unfortunately, this large pool of struggling homeowners has also attracted the attention of scam artists looking to cash in on the unsuspecting homeowners plight.  In addition,  I think there are legitimate investors out there that mean well, and are truly trying to “help” the homeowner while getting a deal for themselves, but may be doing business in such a manner that makes them appear to be in the same league as the scammers, which, obviously, the legit investor does not want.

Therefore I think it is important that investors familiarize themselves with what the scammers are doing, then make sure that the investors business model does not incorporate any of these things.  In addition, the investor can use this information to help educate the homeowners they come in contact with, and truly become a resource for struggling homeowners.

One of the best sources of information in this area is in the “Loan Modification Scam Alert” campaign recently launched by NeighborWorks America. Their website is full of information on various scams as well as legitimate resources for homeowners who are in financial trouble.

The scam alert identifies the following as the most common loan modification scams :

• 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 save your house—if you pay him a fee first. 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 Web site may sound like a real government agency. You may also see terms like “federal,” “TARP” or other words related to official U.S. government programs.
  • Your lender will be able to tell you if you qualify for any government programs to prevent foreclosure. And you do not have to pay to benefit from these programs.
• Bait-and-Switch
  • 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 of your house to the scam artist in exchange for a “rescue” loan.
• Rent-to-Own or Leaseback Scheme
  • A scammer urges you to surrender the title 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.
  • Variations:
    • The scammer raises your rent over time to the point that you can’t afford it. After missing several rent payments, you are evicted, leaving the “rescuer” free to sell your house.
    • The scammer offers to find a buyer for your home, but only if you sign over the deed and move out. The scammer promises to pay you some of the profit when the home sells. But the scammer simply rents out your home and keeps the profits while your lender proceeds with the foreclosure. You lose your home and are still responsible for the unpaid mortgage, because transferring the deed does not affect your mortgage obligation.
• 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.

If you are a real estate investor and are working with sellers on short-sales, or sellers facing foreclosure or other issues, I think you owe it to yourself as well as those homeowners you are working with, to be informed and up to date on the various programs out there today to help homeowners in these areas including the HAMP and HAFA programs.  I’ve written many articles on both programs with complete information on the programs as well as links to information on the programs. To access these articles easily, simply click on the links below:

HAMP Articles (Home Affordable Modiciation Program)

HAFA (Home Affordable Foreclosure Alternatives Program)

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