Avoiding mortgage modification scams

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Homeowners facing foreclosure have one more thing to worry about: loan modification scams. 

Normally, homeowners seek loan modifications in hopes of forestalling foreclosure. However, scam artists have seized the opportunity to use phony loan modification schemes to prey on vulnerable borrowers. 

“The real unfortunate aspect of the foreclosure rescue scams is that it makes an already stressful and tough situation more stressful and more difficult,” says Josh Fuhrman, director of counseling for the Homeownership Preservation Foundation, which works with credit counseling agencies to educate and counsel at-risk homeowners.

Unscrupulous individuals are targeting at-risk homeowners by combing foreclosure notices in newspapers, the Internet and public files to identify potential victims, according to the Federal Trade Commission.

These con artists advertise through TV and newspaper ads or on posters with attention-grabbing phrases, such as “Stop foreclosure now!” or “We guarantee to stop your foreclosure!”

Following are four ways to avoid being scammed:

4 ways to avoid loan scams
  1. Be skeptical.
  2. Don’t pay for help.
  3. Don’t transfer the property deed.
  4. Ignore promises of shortcuts.

Be skeptical

Scammers often work hard to present themselves as legitimate. For this reason, it’s important to be extremely wary, even when a solicitation or correspondence looks official, says Kimberly Allman, housing counselor at the New York Mortgage Coalition.

“Homeowners should be cautious of Web sites or companies with names similar to legitimate government programs,” she says. “Many scammers are presenting themselves as affiliated or associated with the government when that is not the case.”

In one typical example, scammers use a letterhead that supposedly indicates the correspondence is from the Obama administration’s Making Home Affordable plan, says Dianne Reichel, group manager and a Certified Credit Counselor at GreenPath Debt Solutions Inc.

“Scammers will use deceptive marketing practices that convince consumers (into) believing they are contacting reputable organizations,” Fuhrman says.

Allman says such tactics are widespread.

“Almost every homeowner who calls me and is behind on his mortgage tells me that he has been approached by someone offering loan modifications for upfront payments of around $2,500 and $3,000,” she says.

So how can homeowners ensure they are talking to a legitimate source of help?

Douglas Robinson, spokesman for NeighborWorks America, a national nonprofit organization created by Congress to provide support to community revitalization efforts,  suggests the following tips:

  • On the Internet, stick with Web sites officially associated with the government. Most of these sites have URLs that end with the “gov” domain name. Examples include the Making Home Affordable official Web site and the Web sites of federal agencies such as Housing and Urban Development.
  • When talking to someone on the phone, you should feel comfortable asking for and receiving the main number of the agency that the caller represents. That way, you can call back to make sure the number is legitimate.
  • Government agencies will never ask for personal financial information upfront, or request fees at any time. Borrowers should be suspicious of anyone who makes such demands.
  • If you’re seeking extra reassurance, visit the local office of the government agency in question. Scammers don’t set up shop in federal office buildings.

Don’t pay for help

HUD-approved counseling agencies offer free foreclosure prevention counseling. In contrast, scammers request fees to help desperate homeowners.

Typically, scammers charge a homeowner exorbitant fees while promising assistance that will supposedly save the owner’s home. Instead, these crooks take the money and run.

“This scam is the most prevalent within the industry,” Fuhrman says.

Typically, people who pay for loan modification help receive very little in return, says  Robinson.

“What happens for that fee is that the scam company does little more than call the phone number on the homeowner’s mortgage statement and ask that the homeowner’s loan be modified,” Robinson says. “Or the company writes a letter asking for the same thing, and that’s all.”

Don’t transfer the property deed

Scammers sometimes try to encourage homeowners to turn over the ownership reins. In one popular scheme, an organization promises to buy an at-risk homeowner’s home and agrees to let the former homeowner rent it out.

Scammers sell these programs by suggesting that giving the title to a new borrower with a better credit rating will help secure financing thus preventing loss of the home.

Supposedly, the homeowner is allowed to live at the residence as a renter with the option of buying it back later.

“Ultimately the organization has no intentions of selling the home back to the consumer,” Fuhrman says.

In some cases, the scammer sells the home to someone else. Or the crook takes the homeowner’s title, any equity in the home and additional processing fees before disappearing and leaving the home to default, Fuhrman says.

In short, run away from people who ask you to transfer your property deed or title to their name. Then, report them to the FTC.

Ignore promises of shortcuts

Scammers often promise to make foreclosure problems go away overnight. Be skeptical of such claims.

“The foreclosure process is a lengthy and difficult process,” Fuhrman says.

Any potential solution to foreclosure takes time. An at-risk homeowner may be asked to negotiate a workout package with the loan servicer. In addition, the homeowner may need to seek financial assistance from other organizations and craft an individual plan to reduce monthly expenses. 

Also, say, “No thanks,” to third parties who guarantee to single-handedly stop the foreclosure process, or who promise to deliver a loan modification.

“Only the mortgage servicer can stop a foreclosure process, and no one but your lender can guarantee a modification,” Reichel says.

“Many scammers are presenting themselves as affiliated or associated with the government when that is not the case.”

Avoid any company that offers to collect your mortgage payment while negotiating with the lender. Such companies often collect several months’ worth of payments before disappearing.

“Don’t send your mortgage payments to anyone other than your mortgage company,” Reichel says.

Finally, stay away from businesses or counselors who tell you not to contact your lender, lawyer, or credit or housing counselor.

Avoiding scams

The Obama administration has announced plans to crack down on loan modification fraud or foreclosure rescue scams.

In the meantime, homeowners are encouraged to visit the Web site of the Treasury Department’s Office of the Comptroller of the Currency to learn more about avoiding mortgage modification scams.

The federal government has made available more than $400 million for foreclosure counselors to help homeowners avoid foreclosure. The Office of Housing and Urban Development offers a list of HUD-approved counseling agencies that offer free help. NeighborWorks America also offers a list of legitimate housing counseling agencies.

Finally, if you’ve been a victim of a foreclosure fraud, contact the FTC, your state attorney general or your local Better Business Bureau.