In this time of rising mortgage rates, desperate homeowners have been lured by offers of assistance – only to be cheated out of equity they’ve built up, tricked into transferring ownership of their home or stuck paying expensive fees for little or no help.
The Federal Trade Commission banned
mortgage relief companies from collecting fees until homeowners have received an acceptable written offer from a lender or servicer. Attorneys are generally exempted from the rule but are required to place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts.
"Mass Joinder" Suits
The lawyers and marketers pushing these suits charge upfront fees and frequently promise results. In reality, litigation is time-consuming and even a qualified attorney can’t guarantee the outcome of a case. Moreover, representatives of a legitimate class-action suit would not ask for money to join. Homeowners should be especially skeptical of solicitations from out-of-state firms, which may not be familiar with Washington law or licensed to provide legal services in this state.
Forensic Mortgage Loan Audits
So-called loan auditors, often backed by attorneys, offer to review your loan documents to determine whether your lender complied with state and federal laws. They claim they can use the audit report to avoid foreclosure, accelerate the loan modification process or reduce your loan principal. The Federal Trade Commission warns that there is no evidence that forensics loan audits will help a homeowner obtain a loan modification or other foreclosure relief, even if the audit is conducted by a licensed, legitimate and trained auditor, mortgage professional or lawyer. The FTC also notes that some federal laws allow you to sue your lender based on errors in your loan documents. But even if you sue and win, your lender is not required to modify your loan simply to make your payments more affordable.
Loan Modification Scams
A loan modification is a written agreement with your lender or loan servicer that changes the original terms such as the interest rate, payment amount, principal or maturity date. You may see advertisements offering you loan modification assistance or be solicited by phone or mail from someone offering such services. Some of these companies have Web sites that look official or make it appear that are a government agency. Be cautious before hiring anyone to help you obtain a loan modification.
- A number of businesses that claim to offer loan modifications are really looking to make a buck. Scammers ask homeowners for an upfront fee then provide services that the homeowner could have received for free through a nonprofit organization or from their lender. Sometimes, they provide no help at all.
- It is illegal for an unlicensed provider of loan modification services to collect a fee in advance for such assistance. In addition, there are limits on the fees that licensed providers can charge. The Federal Trade Commission recently banned mortgage relief companies from collecting fees until homeowners have received an acceptable written offer from a lender or servicer. Attorneys are generally exempted from the rule but are required to place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts.
- Be especially wary of anyone who asks for your bank account information in order to withdraw funds before they provide service.
- Many loan modification companies are guaranteeing success rates of 90 percent in higher in negotiating loan modifications. We think promises like this are probably too good to be true. The reality is that lenders will not agree to a loan modification in every situation.
- The Washington State Department of Financial institutions requires that any provider offering loan modifications be licensed as loan originators, mortgage brokers, or consumer loan companies. If you choose to go with a loan modification business, verify they have a license by checking the DFI Web site at www.dfi.wa.gov or by calling 1-877-RING-DFI. You can also check the Nationwide Mortgage Licensing System and Registry database to verify that a mortgage company, branch or individual is licensed.
Foreclosure Rescue Scams (¡Sea consciente de Estafas de Rescate de Ejecución de Hipoteca!)
Scammers approach homeowners promising to help them keep their homes but instead take the owner's money, home or equity. Homeowners frequently do not understand the transaction. These scams can take several forms:
- Rent-to-buy schemes: Scammers lead homeowners to sign over the deed to their property by promising to sell the home back once the homeowners get back on their feet and allowing them to remain in the home as tenants in the meantime. In the end, of course, the homeowner can't buy the house back and the supposed rescuers get most, if not all, of the equity. Sometimes the rent is set so high that the homeowner can't afford the new payments and is evicted. For legitimate transactions, a Washington state law requires a written contract with clearly disclosed terms to be completed by the homeowner and the purchaser prior to the property’s transfer. It also requires that the homeowner must receive at least 82 percent of the difference between the property’s fair market value and the underlying mortgage in the event of a sale to a third party.
- Phantom help: In this scam, the supposed rescuer charges very high fees and claims he can negotiate a deal with your lender. You may be told not to contact your lender, lawyer or a credit counselor and to let the scam artist handle all the details. You receive no real help or too little, too late.
- Bait-and-switch: Swindlers tell the victim that they are signing documents for a new loan that will solve their problems. In reality, they are signing documents that will give the crooks ownership of the home. To make matters worse, the victim still owes the mortgage.
"Found Money" Offers
If you have lost your home to foreclosure due to an inability to pay your property taxes, you may be approached by someone who offers to obtain money remaining after the auction on your behalf -- in return for cut. You should know that it's easy and free for former property owners to receive surplus funds. You just need to fill out a form available from your county treasurer and have it notarized. A Washington state law requested by the Attorney General's Office places a 5 percent cap on such finder's fees.
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