What Should I Know About Foreclosure Frauds?

Mortgage loan modification frauds are on the rise across the country. Foreclosure scammers use phone calls, direct mail, the Internet, e-mail, and even door-to-door solicitations to attract potential victims. If you’re struggling to remain in your home, you’re a prime target for these scams.

What they offer sounds unbelievably good: help reducing your interest rate, erasing debt, or forgiving missed mortgage payments.

But be careful. Fraudulent companies often ask for huge upfront fees in return for arranging a loan modification or mortgage refinance. Frequently, they do nothing except skip out with the money. Or, they waste time in fruitless negotiations with the lender.

If you’ve fallen behind on your mortgage payments, legitimate housing counselors and other resources are available at no or low cost to help you. You should not have to pay hundreds or thousands of dollars for assistance.

It’s important to work only with a nonprofit counselor that’s approved by the U.S. Department of Housing and Urban Development (HUD). For a list of certified counselors, visit HUD or call 877-HUD-1515 (877-483-1515). If the name of the organization with which you are considering working is not on the list, switch to one that is.

In addition, read about legitimate public- and private sector help that’s available to homeowners.

Be aware of these common ploys:

• Stay away from financial solutions that sound too good to be true. Scam artists will offer quick-fix foreclosure advice for a price.
• Be wary of any company that contacts you. They read foreclosure listings and then contact desperate homeowners with shady deals.
• Know what you are signing. Don't let a counselor pressure you into signing paperwork you haven't had a chance to read thoroughly or don't understand.
• Beware of individuals or companies that want to buy your home and let you rent it back. The rent will be excessive, and the buy-back price could be 50% higher than the sale price. They also can evict you whenever they want.
• Another scam involves changing your loan terms if you agree to a big payment in advance and stop paying your lender. Often, they don’t follow through on payments, causing you to be in default.
• Don't believe the scammers. Scammers tell homeowners that free foreclosure-prevention services don’t have the staffing or financial leverage to get quick relief on the loan. That’s not true.
• Never use a loan modification service that asks you to pay them in advance.
• Don’t use services with names or symbols that resemble reputable federal or state foreclosure-prevention programs.

If you believe you are a victim of foreclosure fraud, trust your instincts and ask for help. Report suspicious schemes to your state and local consumer protection agencies, which are listed on the Consumer Action Web site.

The Federal Reserve Board offers more information to avoid foreclosure scams.

Read The Mortgage Fraud Reporter for more tips on how to avoid these scams.