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The Mortgage Meltdown

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Some Foreclosure Rescue Scams Involve Lawyers, Mortgage Pros

August 23rd 2010

Economy - Foreclosure

Desperate U.S. homeowners facing foreclosure are being duped by con artists. The scammers employ a variety of schemes such as a “forensic mortgage loan audit” that promises to find errors in loan origination terms that will help the homeowner negotiate a loan modification or even cancel the loan, according to the Government Accountability Office. Many of the rescue schemes use telemarketing techniques and operate across state lines, making it difficult for local or state officials to prosecute. Some schemes were organized by former mortgage industry professionals or use the names of attorneys to add credibility or help them skirt state laws. California, for example, prohibits companies from charging advance fees but exempts licensed attorneys.

Other mortgage rescue schemes highlighted by the GAO:

  • Offers to negotiate new mortgage terms on behalf of a distressed homeowner for an up-front fee averaging around $3,000, then providing little or no help.
  • Convincing homeowners to transfer the deed of their home to save it from foreclosure. The scam artist, who promises to sell it back to the homeowner in the future, then has control of the property and can make money by either taking out a second loan on the home or selling it to someone else.

While there is no federal data on how many homeowners have been taken in by unscrupulous schemes, the Federal Trade Commission, FBI, and U.S. Attorneys’ offices—which belong to a new Financial Fraud Enforcement Task Force—told the GAO that anecdotal evidence indicates it is a serious consumer problem. “The distinctive nature of these schemes suggests that they warrant a specific approach, particularly in identifying ways for supporting state-level law enforcement efforts,” the GAO said.

The Homeownership Preservation Foundation, a consumer group which sponsors the HOPE hotline, told the GAO it answered about 10,500 callers during the past year who claimed to have been scam victims. That number didn’t include callers who may have been duped but didn’t realize it, the group said.

Julie Vorman writes for the Center for Public Integrity, from which this article is adapted.

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