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Tips to avoid mortgage fraud and loan scams (1 of 2)
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The ongoing recession, coupled with rising unemployment, has put enormous pressure on American homeowners. Many have watched their equity dissipate for two years, often owing more on the mortgage than the property is worth. Many cannot obtain financing under the stricter credit guidelines. Many are unemployed, looking for work in a bleak job market and struggling to pay bills. Many are self-employed and can no longer access financing in the absence of ‘stated’ programs. May, 2009 posted the fourth highest foreclosure rate on record.
Unfortunately there are numerous unscrupulous individuals eager to take advantage of consumers in vulnerable or desperate circumstances. The mortgage meltdown spawned a cottage industry of ‘foreclosure rescue’ companies and ‘loan modification’ specialists. Government officials and consumer advocacy groups warn that a significant number of these companies specialize in nothing more than separating you from your money or your house.
Obama signed legislation on May 20th giving the FBI, Justice Department, Secret Service and U.S. Postal Service a half a billion dollars to investigate and prosecute individuals and companies suspected of mortgage fraud. The targets range from people who lie on home mortgage applications to foreclosure and loan modification scammers who bilk money out of homeowners seeking mortgage modifications.
On June 17th, 2009 Eric Holder made a statement before the U.S. Senate Committee on the Judiciary regarding mortgage fraud, saying “As many Americans face the adverse effects of a devastating economy and an unstable housing market, the Administration announced a new coordinated effort across federal and state government and the private sector to target mortgage loan modification fraud and foreclosure rescue scams. These fraudulent activities threaten to hurt American homeowners and prevent them from getting the help they need during these challenging times. The new effort aligns responses from federal law enforcement agencies, state investigators and prosecutors, civil enforcement authorities, and the private sector to protect homeowners seeking assistance under the Administration’s Making Home Affordable Program from criminals looking to perpetrate predatory schemes.
The Department, in partnership with the U.S. Department of Treasury, the Department of Housing and Urban Development (HUD), the Federal Trade Commission (FTC) and the Attorney General of Illinois, will coordinate information and resources across agencies to maximize targeting and efficiency in fraud investigations, alert financial institutions to emerging schemes, and step up enforcement actions. As part of this multi-agency effort, the Department has outlined ways to crack down on mortgage fraud schemes. The FBI is investigating more than 2,500 mortgage fraud cases as of May 31, 2009. This number is up almost 400 percent from five years ago. The Bureau has more than doubled the number of agents investigating mortgage scams, created a National Mortgage Fraud Team at Headquarters, and is working hand-in-hand with other partnering agencies.”
Fraudulent schemes evolve over time. There are endless variations of the familiar scams as well as new scams emerging in response to market changes. With the incidence of fraud increasing, consumers need to be increasingly vigilent.
Be careful what you sign
There are numerous scams involving deed transfer or questionable loan paperwork. The strategy varies, but the goal is always the same; separate you from your money and, possibly, your property.
Never sign over your deed. Scenario: transferring the deed is presented as a necessity to negotiate on your behalf. Whereas it is true that the lender will only negotiate with the owner, you can authorize an attorney or qualified third party individual to represent your interests. There is no need to alter your deed.
The deed transfer may be buried in bogus refinance paperwork. If you are behind on your mortgage, teetering on the edge of foreclosure and/or your credit scores are very low, be careful about calls regarding miraculous mortgage refinancing options. Scenario: you get a call from someone offering to refinance your property. When you ‘close’ on the loan, a deed is buried in the stack of loan paperwork that you sign. It’s common for people to race through the pages without reading a thing. I can sympathize. It is 100+ pages of endless disclosures and gibberish. This trait can be exploited. Carefully review all loan documents before signing them with a keen eye for any document with the word “deed.” I would suggest having an attorney review any documents that seem questionable.
Another common scam is to ask the homeowner to sign documents with blank lines or spaces. Once your signature is on the document, the terms of the agreement can be altered or new terms can be added. Make a copy of all financial documents pertaining to your home and never sign a blank document.
Another ploy involves convincing the homeowner to stay in the property as a tenant. Scenario: a company/individual offers to ‘assume’ the mortgage. They promise to let you buy the property back at a later date if you agree to pay rent and sign over the deed. It is presented as a viable option to foreclosure. The homeowner is led to believe that the company/individual will pay the existing mortgage or refinance it into their name. Instead, they take the rent money and vanish. The home goes into foreclosure and the homeowner is obligated to pay the debt.
Be wary of direct solicitation
When you receive unsolicited email, phone or mail regarding mortgage assistance, it may be an identity theft scam. It is a ploy to obtain your Social Security number, credit-card numbers and other confidential information in order to run a credit report. Once the information is obtained, your identity can be used for various forms of financial fraud.
Get professional advice when considering options
Unless your agent is a licensed attorney, it is illegal in most states for an agent to negotiate a loan modification with your lender. Negotiating the terms of a mortgage workout may be viewed as practicing law. The agent could lose his or her real estate license if deemed to be practicing law without a license.
When evaluating alternatives, a 'loan audit' is performed. This can be done via software or by a human. A “loan audit” examines homeowners' appraisal, mortgage and supporting documents, in the context of the dealings surrounding the creation of those documents. The advantage to having an experienced attorney vs. any human with access to software is that an attorney, with a background in real estate law, can discover legal defenses a homeowner can use to avoid foreclosure or find ways to use the law offensively to obtain favorable refinancing on the borrower's terms, rescind the mortgage and get all of the money refunded, prove punitive damages or, in some cases, get the property declared free and clear.
Many loan modification companies, and some attorneys, are charging consumers for seminars and promised future services. Read the FTC guidelines to avoid commons scams involving up-front fees. Check the FTC's Scam Watch for information about different scams and how to report potential problems
Go to MakingHomeAffordable.gov to see if you are eligible for any of the government’s new refinancing and loan-modification programs. HopeNow.com (888-995-HOPE), preservehomeownership.org and Housing Options and Planning Enterprises can provide you with counseling in terms of your specific situation. There is no fee.
Loan counseling is available free of charge from HUD. Find a HUD-approved housing counselor near you or call (800) 569-4287 or TTY (800) 877-8339. See my article Foreclosure | Tips and resources for more information on loan modification and foreclosure resources. Click here for part two.
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