Foreclosure rescue and loan modification scams

Where fear and opportunity coincide, you’ll find scam artists – in abundance. Don’t fall prey to these scoundrels. If you’re having difficulty paying your mortgage, here’s what you need to know to avoid foreclosure rescue and loan modification scams.

There are many legitimate loan and foreclosure consultants out there, but there are also many opportunistic individuals who call themselves foreclosure or mortgage consultants but are really scam artists. They’ll work for a “foreclosure service”, “foreclosure rescue agency” or a “loan modification company”, and will tell you they can help you save your property, modify or refinance your mortgage, or buy time to work out your loan; but BEWARE: the only thing these rascals want to work out is a way to separate you from your money – or worse – your home.

Five common scams

The lease-back or repurchase scam – The counselor tells you they can pay off your mortgage, repair your credit, or pay off your credit card debt – but first you have to “temporarily” sign over the deed to your home. You may be permitted to live in the house as a renter and may have the option to buy your home back when your financial situation improves.  The problem is, once you’ve signed over the deed to your property, you have no legal right to reclaim it.  The new “owner” can evict you at any time, and they can refuse to sell the house back to you when you are on your feet again.  Typically, the scam artist will have taken out a much larger mortgage on your home or will have already sold the property to another investor. Either way, it may now be impossible for you to buy back your house.

Partial interest bankruptcy scam – The counselor asks you to give partial interest (partial ownership) in your home to one or more other people. You then start making mortgage payments to your counselor rather than to your mortgage company.  Your counselor never passes the payments along to your mortgage company.  You fall further and further behind on your mortgage – but you don’t know it. Your mortgage company begins the foreclosure process.  Meanwhile, the nice people to whom you gave partial interest begin one by one to declare bankruptcy. With each bankruptcy declaration, the bankruptcy court issues a “stay” order that temporarily prevents the bank from foreclosing on your home.  Again, none of this is done with your knowledge, so you continue to make monthly payments to your counselor. These payments provide your scam artist with a steady flow of income while you fall further behind on your mortgage. When the temporary stay orders are finally exhausted, the bank forecloses on your house. 

Refinance scams – Beware of “mortgage counselors” who promise to refinance your loan to bring you current and dramatically lower your monthly payments. The scam artist will gain your trust and present you with “foreclosure rescue” documents to sign. Not surprisingly, you feel tremendously relieved and sign quickly without reading the fine print – the documents are hard to understand anyway and the counselor seems like a good guy. What you don’t realize is that rather than refinance documents, you have signed deed transfer documents. Your “counselor” or his firm now owns your house. Your first indication that you have been scammed may come in the form of an eviction notice.   

Internet and phone scams – A “lender” contacts you by phone or email and convinces you to apply for a low interest rate mortgage loan that will dramatically lower your monthly payment.  In the process of completing the loan application, they collect confidential information from you such as your social security number and bank account information. No surprise, your loan is quickly approved and you begin making payments to your “new lender.”  You are now in double trouble.  Your new lender is taking your money but your real mortgage company is not getting paid, so your original loan goes into default.  To make the situation worse, the scammers have likely already sold your personal information to identity thieves who will steal your money and ruin what’s left of your credit.

Phantom help scams – Firms contact homeowners in trouble with promises they can refinance your loan, bring your loan current, repair your credit, or get you a low interest rate government loan. The homeowner is charged outrageous fees for these services, which never materialize, or materialize in the form of a few phone calls you could have made yourself. The counselor “keeps the homeowner warm” by checking in with an occasional phone call. By the time you figure out you haven’t been helped, you’re in worse shape financially and now have less time to save your home. 

• Watch for red flags

  The counselor asks for payment in advance. 

•      Few legitimate firms ask for money up front without

•      providing a money back guarantee.

• The counselor offers to negotiate a loan modification for you
       but requires a fee.
  The counselor makes unsolicited contact with you or makes
       promises that sound too good to be true.  
  The counselor recommends you cut off contact with your
       lender or any other counselors you may already have been
       working with.
  The counselor advises you to stop making payments to your

       mortgage loan company or advises you to send your