How to Identify and Protect Yourself From Mortgage Modification and Foreclosure Scams

by
Richard Fonfrias, J.D.
Chicago’s Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC

If you’re behind on your mortgage, con artists may find out because mortgage lenders publish notices in the newspaper before foreclosing on homes. In addition, companies often compile and sell lists of foreclosed properties and distressed borrowers. Then con artists approach homeowners, calling themselves “foreclosure consultants” offering “loan modification” services. In addition, they often advertise their services on radio and TV, and in newspapers.

If someone offers to negotiate a loan modification for you — or to stop or delay foreclosure for a fee — watch out for warning signs of a scam and always maintain personal contact with your lender and mortgage servicer. Common types of scams include:

– Foreclosure and refinance fraud: The scam artist offers to negotiate a repayment plan or loan modification with your lender. He may even “guarantee” to save your home from foreclosure. The scammer may tell you to make your mortgage payments directly to him, along with a large, up-front fee — promising to forward your payments to your lender.

– Fake “government” modification programs: The scam artist may claim to be affiliated with, or approved by, the government. He may ask you to pay high up-front fees to qualify for the government mortgage modification program. Beware of claims offering “government-approved” or “official government” loan modifications. You do not have to pay to benefit from legitimate government programs.

– Leaseback/rent-to-buy schemes: The scam artist asks you to transfer title to your home to the scammer, who says he will get new or better financing. Also, he promises to let you stay in the home as a renter and eventually buy it back. The problem is: The agreement is so hard for you to keep — requiring high up-front and monthly payments you can’t afford — that you eventually lose your money and face eviction. And, in truth, some scammers have no intention of ever selling the home back to you.

– Bankruptcy scams: You may have heard that filing bankruptcy will stop a foreclosure, and this is true. Filing bankruptcy puts an automatic stay into effect and stops collection and foreclosure actions while the bankruptcy court administers your case. Eventually, you’ll have to start paying your mortgage lender again or the lender can foreclose. When you’re the victim of this scam, you may discover that your mortgage has not been modified and your payments are just as high as they were before you filed bankruptcy.

– Debt-elimination schemes. Scammers may claim they can “eliminate” your debt by making illegitimate legal arguments that you are not obligated to pay back your mortgage. These scammers will make inaccurate claims about applicable laws and finance, such as that “secret laws” can be used to eliminate debt or that banks do not have the authority to lend money. Do not stop making payments on your mortgage based on their claims.

In addition, bankruptcy is an effective way to remove liens from your assets.How to Protect Yourself from Mortgage Modification and Foreclosure Avoidance Scams

Always proceed with caution when dealing with anyone offering to help you modify your mortgage or avoid foreclosure. Remember: You do not need a third party to work with your lender. Anyone helping you should make the process easier, not harder and more expensive.

– Contact your lender or mortgage servicer first. Talk with someone in the loss mitigation department to learn about your loan modification options and other alternatives to foreclosure.

– Make all mortgage payments directly to your lender or to the mortgage servicer. Do not trust anyone to make mortgage payments for you, and do not stop making your payments.

– Do not pay up-front fees. While some legitimate housing counselors will charge small fees for their services, do not pay fees to anyone before receiving any services. Make sure you are dealing with a legitimate organization.

– Know what you are signing. Make sure you read and understand every document you sign. Do not rely on an oral explanation of a document you are signing. Make sure that you read and understand what the document actually says. Otherwise, a document may bind you to terms you don’t want — or may even transfer ownership of your home to someone else. Never sign documents with blank spaces that can be filled in later. Never sign a document that contains errors or false statements, even if someone promises to correct them. If a document is too complex to understand, seek advice from a lawyer you trust.

– Do not sign over the deed to your home until you talk with a qualified lawyer. Foreclosure scams often involve transferring ownership of your home to a con artist or another third party. Never agree to this without getting advice from a qualified lawyer. By signing over your deed, you lose the rights to your home and any equity built up in the home — and you are still obligated to pay the mortgage.

– Get promises in writing. Oral promises and agreements relating to your home are usually not legally binding. Protect your rights with a written document or contract signed by the person making the promise. Keep copies of all contracts you sign. And never sign anything you don’t understand.

– Report suspicious activity to relevant federal agencies, such as the Federal Trade Commission, and to your state and local consumer protection agencies. Reporting con artists and suspicious schemes helps prevent others from becoming victims of loan modification fraud and foreclosure scams.

My Recommendation: Contact a qualified bankruptcy lawyer who will explain the law and your options. You and your family may benefit from Chapter 13 (Reorganization) Bankruptcy. Bankruptcy courts now have the legal authority to modify your mortgage loan as part of your bankruptcy. When this is handled by the court, with help from an experienced bankruptcy lawyer, you can emerge from bankruptcy with a modified financial plan that you can afford. The purpose of Chapter 13 bankruptcy is to restructure your financial affairs so your creditors get paid and you keep your home and other assets.

For those in the Chicago area looking for qualified legal advice, bankruptcy lawyer Richard Fonfrias offers a complimentary initial consultation. Serving Illinois and the greater Chicago area, Richard Fonfrias is Chicago’s financial rescue and bankruptcy lawyer who will work with you to solve your financial problems. Rich is a bankruptcy lawyer with a proven track record. He will advise you of the best course of action for your individual situation and lead you through the process, whether it is loan modification or bankruptcy.