Telltale signs of a mortgage modification scam

This week, I have been looking into the problem of homeowners trying to modify their mortgages, after monthly payments become unaffordable.

These are people who are in danger of falling behind on their mortgage payments, are defaulting or at risk of defaulting, and who are desperate to avoid foreclosure.

At a news conference on Wednesday, Calif. Attorney General Gerry Brown, Federal Trade Commission Chairman on Leibowitz, and Douglas Axel, Assistant U.S. Attorney in Los Angeles, said that federal and state authorities are increasing their oversight of mortgage modification consulting firms. Law enforcement has handed out legal actions – everything from lawsuits, to criminal charges, to cease-and-desist orders – against firms, lawyers, and individual actors who have taken desperate homeowners’ money but not helped them as promised.

FTC Chairman Leibowitz said the number of scammers in Southern California (especially Orange County) is far higher (even as a ratio of the total population) than in other places around the country. The only other part of the country where it’s as bad is Southern Florida.

Both Southern California and Southern Florida are facing the most foreclosures and defaults. Douglas Axel said the Southern California region he represents has the worst housing market in the country. With that kind of misery and the state budget cuts leaving law enforcement with fewer staff, it’s been an open invitation for unscrupulous people to take advantage of families and homeowners needing help.

Here’s how the scammers operate:

  • They check public records for information about those defaulting on their loans (they can get your name, loan info, and what bank you’re with).
  • They call you or knock on your door. They might say they represent that bank, even though they don’t. Or they might just sound really sympathetic, and say that they can solve all your problems for a small upfront fee.
  • You pay them a fee, and then wait. You might hear lots of different excuses, delays, lost paperwork, etc. But the bottom line is, nothing gets done with your lender.
  • Some companies are asking people to turn over their monthly mortgage payments to them, instead of paying their mortgage. This is a huge red flag!

Not all firms who ask for upfront fees are out to scam homeowners. But even lawyers have been caught participating in loan-modification scams. So, going to a law firm doesn’t guarantee you’re safe.

The bottom-line message from state and federal law enforcement officials is: if someone asks you for an upfront fee to help you with your mortgage problems, tell them “no” and look for free, non-profit, and government-sponsored alternatives through HUD (Department of Housing and Urban Development).

You can listen to my interviews after the Wednesday press conference here:

  • Interview with California Attorney General Gerry Brown
    Brown says that even though the California budget crisis and federal cutbacks have left law enforcement understaffed and scammers flourishing, state and federal offices are trying to ramp up enforcement and oversight. Brown says budget cuts has made law enforcement less effective at keeping track of scams and stopping them. Also, when asked by another reporter when he’s going to announce a run for governor, Brown seems to suggest that he will indeed run, and he will announce sometime in the fall.
  • Interview with Douglas Axel, Assistant U.S. Attorney
    Axel says Southern California is a hotbed for mortgage modification scams and a national leader in foreclosures. He says if someone is charging you upfront fees, look for help somewhere else. Axel also says that Spanish-speakers are the most victimized.
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