Help for mortgage scam victims

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Government agencies have issued repeated loud warnings about a nationwide epidemic of loan modification and foreclosure-rescue scams. But some homeowners haven’t heard these warnings and others have fallen victim to especially clever scams despite their best efforts to avoid them.

The sad fact is that homeowners who have become caught up in a scam generally have little recourse to recoup any money they may have paid and may find themselves worse off than they were prior to their unhappy encounter with a loan modification or foreclosure-rescue company. Yet homeowners who have been victimized can still file formal complaints with government agencies and contact a housing counselor to obtain further assistance with their personal financial situation.

“We encourage victims of both kinds of scams to file complaints with the FTC (Federal Trade Commission), their state attorney general and the Better Business Bureau, but this typically does more for others who might become victims,” says Frank Dorman, FTC spokesman.

FTC targets deceptive loan modification offers

The FTC doesn’t resolve individual homeowners’ complaints, but such complaints help the agency to conduct investigations and prosecute perpetrators.

Homeowners can file a complaint with the FTC through a complaint form on the agency’s Web site. The step-by-step form is cumbersome to complete but will guide the homeowner to include as much information as possible, so that the agency can better catalog, process and investigate the complaint. Complaints also are added to a secure database that can be used by more than 1,500 law enforcement agencies throughout the U.S. and other countries.

The FTC has not tracked the volume of loan modification and foreclosure-rescue scams but certainly has taken notice of the problem. The FTC and 23 state attorneys general and other agencies have set up a national law enforcement effort, “Operation Loan Lies,” which targets companies that deceptively market loan modification and foreclosure-rescue services. So far, the FTC has brought 14 lawsuits against individuals and companies as part of this effort while federal and state agencies have taken action against 178 companies. Many states have also their own initiated enforcement actions.

This effort to shut down illegal operations may be but cold comfort to homeowners who already have been victimized because even a successful enforcement action is unlikely to recover much of the victims’ money or unwind the ill effects of the scam.

“Government agency lawsuits sometimes result in court orders returning money to victims but not always, and often the scammers have either spent or hidden their ill-gotten assets and victims recover less than they lost, if anything,” Dorman says.

Homeowners who have been the victim of a scam that was perpetrated by a bank or that involved a violation of federal banking law can also file a complaint with the Federal Reserve. The Fed cannot resolve contractual disputes, customer service problems or disputes that are the subject of a pending lawsuit; however, the Fed will investigate complaints within its jurisdiction and respond, usually within 30 to 60 days. The Fed also will refer complaints to other federal agencies, as appropriate.

Private lawsuit may be too costly to pursue

Homeowners should report any scam or fraud to state authorities as well as federal agencies, according to Scott Gerber, a spokesman at the California Office of the Attorney General.

“You can make a complaint with our office or the department of real estate or the State Bar, depending on whether a real estate lawyer or real estate agent was involved in the scam,” he says.

Homeowners can hire an attorney and bring a private civil lawsuit against the loan modification or foreclosure-rescue company, although legal fees may make that option cost prohibitive.

“Private lawsuits are a possible avenue to recoup losses, but legal fees obviously cut into anything you might get back,” says Dorman.

Small-claims court may also be an option, according to Gerber.

Homeowners who fear they may have signed a deed to their home should contact the attorney general’s office and county recorder’s office, which may be able to verify whether the ownership of the home was transferred.

Better Business Bureau can resolve disputes

Homeowners are well-advised to contact a local Better Business Bureau, or BBB, office for assistance as well, because these private organizations have a 70 percent success rate in business-to-consumer dispute resolution, according to the BBB’s Web site. The BBB doesn’t have legal enforcement authority, but will forward a complaint to the company and attempt to achieve a resolution, according to Alison Southwick, a spokeswoman at the Council of Better Business Bureaus in Arlington, Va.

“We are not a regulatory agency, so we can’t force the company to pay you back, but we have been successful in resolving complaints against these types of companies for people and getting at least some of their money back,” she says.

Unresolved complaints are reflected in the BBB’s “reliability” report about the company. That creates an incentive for companies to cooperate even if they aren’t BBB members because a poor grade can “serve as a warning to other consumers who are thinking about doing business with that company,” she says.

The easiest way to file a complaint is to locate the local BBB through the national council’s Web site and then use the online complaint form on the local BBB’s Web site. Complaints may also be filed by calling the local BBB office.

Housing counselor can still help

Perhaps the most important advice for homeowners who have been victimized by a loan modification or foreclosure-rescue scam is that they can still benefit from a consultation with a nonprofit housing counselor that has been approved by the U.S. Department of Housing and Urban Development, or HUD.

The sad truth is that many homeowners would not have been able to afford their mortgage payment or avoided foreclosure even if they had not been the victims of a scam. A housing counselor cannot undo that reality or resolve disputes that involve contractual issues; however, a housing counselor can help homeowners figure out how much they can afford to spend on housing, according to Catherine Williams, vice president of financial literacy at Money Management International in Chicago.

“We will also take a look at the other debt, credit card debt, medical debt: Is there enough leeway with those debts to get those monthly payments down to free up additional dollars for housing?” she says.

A housing counselor can assist the homeowner in preparing an effective complaint to file with the government agencies and BBB and refer the homeowner to other local resources in the community. A counselor can also help the homeowner make the painful decision to “move on, rent an apartment, rebuild and perhaps come back into the housing market at another time,” Williams says.