The Federal Trade Commission brought lawsuits last year against five companies representing 20,000 customers, and state and local prosecutors have brought dozens more who are victimizing homeowners in distressed situations by taking upfront fees and offering to help them with pre-foreclosures, mortgage modifications and other foreclosure defense options. What happens is the homeowner loses their valuable opportunity to defend themselves and save their home, and they lose their money at the same time.
In Florida, Attorney General Bill McCollum recently sued a company that had more than 600 victims. Mr. McCollum said: “There’s no way for the consumer to sort out the legitimate companies,…” California authorities have had more than 300 complaints made last year against fraudulent companies. The problem is nationwide so consumers who are especially in financial distressed situations need to be very careful who they choose to help them and how they spend their money. According to authorities many of these companies either do nothing but take the consumer’s money or they negotiate a modification or repayment plan that is unsuited to the borrower’s ability to pay.
Red Flag
Watch out for companies that charge an upfront fee of up to $3,000 [excluding law firms which are legitimate foreclosure defense attorneys that can help the consumer defend a court action and help with other foreclosure defenses to save the consumer’s home.] stating they can help you save your home with a foreclosure modification or other options. They do nothing but take your money. Prosecutors warn that many of these are local companies in your area are run by former mortgage brokers or even real estate agents so they may be knowledgeable, but they are not doing what they say they are going to do or there are others that are just plain crooks. Some have official looking websites that give consumers the impression that they are endorsed or approved by the government.
How to Recognize a Reputable Company
There are many legitimate modification companies and mortgage brokers that can help consumers as well as real estate agents who can help you sell your home in a short sale transaction. It’s just a matter of taking some extra time and checking them out and checking the laws in your area. Keep in mind though that legally real estate agents cannot charge a fee for doing mortgage modifications in the capacity as a real estate agent. Only attorneys can defend borrowers in foreclosure litigation actions. You can use a non-profit foreclosure counselor certified by HUD whose services are free to the consumer.
State Laws that Protect Consumers
Laws in California and 20 other states, including New York, have been enacted to protect consumers from these fraudulent practices. Illinois is also one of the states that prohibit upfront payments to foreclosure rescue companies. Companies in those states are prohibited from collecting payment until they have completed their services. However, many consumers are not familiar or aware of the laws in their state. So my suggestion is to check the laws in your state first before you hand over any money to anyone claiming to be able to help you prevent your home from going to foreclosure.
Desperate Borrowers Seeking a Resolution
A consensus among consumer advocates is the reason distressed homeowners fall prey to these unscrupulous businesses is that most of these borrowers are desperate to seek a quick resolution to their financial problems. They are anxious to obtain loan modifications or get their short sales approved and become frustrated with the process of reaching the lender or the right person at the lender’s offices. Borrowers are even more frustrated after the long process that the lender then insists on a repayment plan that they cannot afford. This leaves borrowers vulnerable because they are feeling so desperate that the crooks who come out of the woodworks can take advantage of them more easily. Borrowers feeling they have no other options suddenly turn to these phony ads or letters and contact these “swindlers”.
Even smart people know deep down they may be getting ripped off, just like most borrowers knew they were getting in too deep with bad mortgages, but experts or people that appear to be experts tell them it’s okay so they go along with the ideas. A lot of people even after they are told they were swindled don’t want to believe it’s true. It’s a shame because distressed homeowners cannot afford to lose any more money and some of those funds could have legitimately gone towards saving their home had they hired a reputable company in the first place.
The government can only put so many limits and restrictions in a free enterprise society so it is up to the consumer to also watch out and protect themselves. If you are in a distressed situation, talk to a trusted professional whose credentials you can verify, check your state laws, and watch out for any red flags such as large upfront fees.
