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California ranks #16 in the US for ratio of houses in some stage of foreclosure. This equals out to roughly 1 in 1,600 homes or 13,781,929 families facing the nightmare of foreclosure. It would stand to reason that the recent upturn in the California housing market would signify a substantial drop in the number of foreclosures; however, the numbers indicate that the number of Californians seeking relief from foreclosure is growing.
There is an epidemic that has taken hold in California; one that is robbing unsuspecting victims of what little hope they have left of escaping financial ruin, and preying upon countless families desperately seeking some way to salvage their homes. The FBI has said that a “rampant mortgage fraud climate” currently exists, and that California is one of the top states for loan fraud.
These scammers and con artists are out in the open: advertising on TV and in radio ads syndicated across the state. Whether they call themselves foreclosure prevention or rescue consultants, forensic loan auditors, loan restructuring agents, debt settlement specialists, loss mitigation experts, loan modification specialists, mortgage modification consultants, or some other official or important sounding title(s), there are thousands of dishonest and rogue individuals and companies (most of whom are unlicensed and/or claim to be non-profits, to be attorney backed or affiliated, and/or to be affiliated with the federal and State governments–e.g., they suggest the backing of a government agency or department, such as HUD, FHA, the California Department of Real Estate, the California State Bar, etc.) that have popped up and appeared all over the State of California. Many of these individuals have criminal and/or disciplinary records, and most of these companies are just fraud factories that are in the “business” of offering non-existent loan services that sound too good to be true, so that they can steal money from victims.
How do they find their victims? They scour through foreclosure notices, get information on adjustable rate loan re-sets from title companies, and use other equally shady tools. The bottom line is they are seeking out the most vulnerable and financially distressed families they can and offering them a false hope which inevitably ends in even more financial devastation than otherwise would have been encountered with the foreclosure alone.
Knowledge is Key
These companies often appear completely legitimate – they have websites and fancy logos and many claim to be backed by government agencies. It can be extremely difficult to weed out the legitimate resources from the scams.
The best way a homeowner can protect themselves is through an understanding of the foreclosure process, and more importantly; of how these scams operate and what red flags to watch out for.
1. Foreclosure in California: What to do/How it Works
Many homeowners are unaware that the foreclosure process can start as soon as you miss ONE monthly mortgage payment. The good news is that the entire foreclosure process is designed to happen at a crawl – which allows you (the homeowner) to find some kind of solution before the foreclosure happens completely.
Here is a basic overview of the current foreclosure process in California with the general time of each phase of the process:
Effectively – homeowners facing foreclosure have a few options to save their home and their credit. These include:
- Modify or Restructure the Terms and Payment Schedule of an Existing Mortgage Loan
- Refinance (Pay Off a Loan with a New Loan on Better Terms)
- Sell the Home and Access the Available Equity
- Pursue a “Short Sale”
- Rent Out the Home
- Share the Cost with a Boarder
- Offer a “Deed-in-Lieu” of Foreclosure to the Lender
The US government has also stepped in and offers some great programs to help families in financial distress and prevent foreclosure. One great resource is www.makinghomeaffordable.gov (who can also be reached at 1-888-995-HOPE [4673]). You can call and speak with a HUD approved housing counselor for free. They can help you decide what option may be best for you – scam free.
2. Advance Fees for Loan Modification are ILLEGAL in California
Pursuant to Senate Bill 94, as of October 11, 2009 it is illegal in California for any person, including lawyers, real estate brokers, real estate salespersons, corporations, companies, partnerships, or any other licensed or unlicensed person or party, to demand, charge, or collect any advance, up-front, or retainer fees, or any other type of pre-payment compensation, for loan modification work or services, or any other form of mortgage loan forbearance.
So, if anyone or any agency tells you they can:
- Modify or regenerate your home loan
- Convince your lender to abstain from foreclosure
- Arrange for your lender refrain from collecting your mortgage payments
and they charge, or attempt to in any way collect fees up front… they are violating California Law.
4. Common Types of Scams
There are a few different mortgage loan scams out there, the most prevalent are:
- Foreclosure Rescue scams
- Forensic Loan Audit scams
- Loan Modification scams
Loan Modification Scams
These are the most common type of scam faced by citizens facing foreclosure. In these scams, a con artist(s) makes guarantees or promises that they can and will get you a loan modification so that you don’t have to refinance or face foreclosure. They almost always ask for some kind of fee up front, and often times take this fee and run. Its important to know that successful loan modification is not possible for the majority of homeowners. In fact, the success rate for loan modification is very low – and also comes with the burden on the borrower to prove “financial hardship”; and even then there is no guarantee that your loan will be modified.
Foreclosure Rescue Scams
These scammers promise homeowners they can prevent or indefinitely delay the foreclosure proceedings via litigation and/or bankruptcy filings. These scam companies profit on taking fees up front and continuing to steal money by asking for monthly fees as they “fix” your problem. Inevitably- they do nothing and often leave homeowners in much worse financial positions than when they started.
Forensic Loan Audit Scams
These companies charge a hefty fee and promise to audit your original home loan and find mistakes by the lender. These companies claim that their audits will identify problems with your home loan that support a lawsuit against your lender, give you leverage to prevent eviction/foreclosure, or give you the right to rescind your home loan/reduce your principle, or force your lender to modify your loan.
Keep in mind that even if you do have a forensic audit done by a legitimate, licensed professional – you’d likely have to file an extremely costly lawsuit which could take years to complete and has no guarantee of outcome. Additionally, if an audit identifies legal violations by your lender in the loan origination process, your loan may be owned by an investor – that is, someone other than your lender. In these cases, the investor will argue that your claims against your originating lender don’t apply against the investor (the purchaser of your loan). And even if your lender still owns the loan, they are not legally required to modify your loan or to halt the foreclosure process if you are behind in your payments.
5. Red Flags
1. Demand for payment up front. (Remember, asking for payment up front is illegal in connection with laon modification services.)
2. Too good to be true testimonials (such as a loan modified from 8% to 1.5%)
3. Promises or guarantees of success (The honest truth is the success rate for getting a loan modification is abysmally low. ANY promises or guarantees of success are a big sign of fraudulent activity, because NO SUCH GUARANTEES ARE POSSIBLE.
4. Claims that the loan modifier is operating under a California Finance Lender’s license. According to the Commissioner of Corporations (who issues CFLs) the claims are unlawful.
5. Anyone asking you to grant “power of attorney” to a loan modifier. This gives the scammer the ability to sell the house right out from under you.
6. Claims to be attorney, or government backed/based.
7. Requests to transfer your home’s title to the loan modifier/3rd party (in these cases the scam artists often strip all the remaining equity from a home)
8. If you’re told to pay anyone other than your home loan lender. (victims are asked to pay the modifier their monthly mortgage payment which is stolen)
9. Lease/Rent-back scams. In these cases the homeowner is asked to transfer the home title to a third party, then rent the home from that person, and buy it back later. If you transfer your deed to someone, it gives them the ability to evict you and sell your home.
10. Instructions to not contact your home lender, a lawyer, an accountant or a non-profit housing counselor. (No legitimate loan modifier would prevent you from seeking help outside of them)
11. Instructions to stop paying your mortgage payments in order to increase your chances of loan modification. This one is tough, because there are lenders who will not modify loans for borrowers that are current on their monthly payments. However, more likely than not, not paying your mortgage payment will create negative consequences.
12. Claims that a loan modification company will file a bankruptcy or other lawsuit in order to “force” a lender to negotiate a loan. (Often seen in “forensic loan review” cases)
Your Best Defense is to Do Your Research
The best way to prevent yourself from falling victim to these scams is to really do your research. Verify any and all licenses claimed to be held by loan modifiers or auditors. Contact the Better Business Bureau to see if they have received any complaints about the person or company. If the company claims to be backed by an attorney or official, check with that person or their website to verify.
Grill the loan modification “specialist” about their credentials – a legitimate real estate agent, or attorney won’t mind. Ask the following:
- What’s their real estate, mortgage, and financial experience
- What options/methods they use to renegotiate home loans
- When they were first licensed
- If they are licensed
- What data they have to back up their past successes
- Have they ever been disciplined
- Evidence of previous success in negotiating with lenders
- Ask them to define the loan modification and process they will undertake
- How much time they intend to spend on negotiation
- References (contact information) for previous clients or employers
Reach out to the various government agencies who will offer their services FREE. The information is out there, and although it may seem like a daunting and time consuming process; failure to do so could result in years of financial uncertainty, ruined credit, and the loss of your home.
Resources:
- HOPE NOW Alliance
http://www.hopenow.com
1-888-995-HOPE - Homeownership Preservation Foundation
http://www.995hope.org
(612) 230-4020 - National Foundation for Credit Counseling
http://www.nfcc.org
1-866-845-2227 - U.S. Department of Housing and Urban Development (HUD)
http://www.hud.gov/offices/hsg
1-800-569-4287
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