California Mortgage Modification Fraud on the Rise

Underwater homeowners buoyed by the recent announcement of the National Mortgage Settlement are encouraged to be vigilant against loan modification predators.

An urgent letter dated July 8 from California Association of Realtors president LeFrancis Arnold emphasized the gravity of getting consumers educated about these possible scams.

Mortgage fraud reports have increased nationwide from more than 6,900 in 2003 to more than 93,500 in 2011, according to the Federal Bureau of Investigation.  And the nonprofit Homeownership Preservation Foundation reported the number of mortgage foreclosure scams has shot up 60 percent so far in 2012.

The predators usually look up the county's Notice of Default list, which is public information, to contact the unsuspected homeowners. It is expected these scammers will step up their efforts with the new settlement as distressed homeowners hanging onto this new ray of hope.

As incomprehensive as it is to learn of the greedy businesses/individuals taking advantage of desperate homeowners who are on the brink of losing their homes, I have, unfortunately, personally witnessed this.

The first time I heard of such scam was when the first wave of short sales/foreclosures hit six years ago. A buyer of my listing contacted me for advice. By that time, he had already paid $4,000 to a Southern California company that made zero progress on his behalf. The company was then sold to a South Bay company.

With $4,000 in jeopardy and renewed hope that the new company would help him, the man waited for resolutions to be negotiated by this company. The house was eventually foreclosed by the lender.

Consumer protection regulations and education have subsequently been put in place to prevent this from happening during the past few years. However, the saga continues and I suspect it will not stop until there are no more distressed homes.

By all account, the problem is much more extensive than reported because some predators could be people the homeowners know, such as friends, neighbors, church members or seemly legitimate businesses.  Often the victims are too distraught, too embarrassed or just give up instead of reporting the fraud.

This is not to say that there are no legitimate, reputable companies that help consumers with their loan modifications. I have also heard of successful stories to that effect.

Some Fraud Scam Warning Signs:

• Up-front payments are required
• Requests not to contact the lender or your lawyer
• Blanket promise to stop foreclosure process
• Request to sign document without adequate review
• Ask for signatures on a grant deed or deed of trust

Here is basic advice:

• Never pay cash
• Never submit an up-front fee
• Never give in under pressure
• Check with the Better Business Bureau
• Check on References
• Make sure to get everything in writing

When in doubt, discuss this in confidential with your trusted advisors. And remember, “If it sounds too good to be true, it probably is.”

References:

• Click for CAR Rising Loan Fraud video
• CAR joined with local district attorneys in Sacramento, San Diego and Bakersfield and held news conferences to get the word out more widely.  View some TV coverage.
• Click for CAR’s Stop Mortgage Fraud page to learn how to protect yourself from loan fraud, learn who to contact if in danger of foreclosure, get information about the national settlement, and find out where to turn if you have been a scam victim.