Loan mods and the cottage industry of “foreclosure rescue” are ripe with fraudsters seeking to scam those desperate home owners facing foreclosure. Loan mods are issued by the lender to either permanently or temporarily change the terms of the mortgage to remove the default and make it easier to pay.

It is this “negotiation” with the lender to issue the loan mod staving off foreclosure that many consumer feel they need help from a “professional”. There is no evidence using a paid service is any more effective (actually may be less effective) than home owners requesting loan mods on their own. But home owners don’t know this and easily fall for the slick sales pitches used by the con artists.

The Typical Loan Mod Scam

This is not a very creative scam and it doesn’t have to be to steal millions from American foreclosure victims. It simply involves the foreclosure victims seeing a TV Ad or receiving a mailer, phone call, or email touting the firms track record getting “instantly approved loan modifications” if the home owner will send them a payment up front.

The fee is usually between $600-$5,000 depending on how bold the scammer is. Of course, once the payment is received, the scammer is no where to be found or keeps stringing the foreclosure victim along with promises of a pending loan mod which never comes.

The fraudsters know that a foreclosure will happen in about 90 days, so the borrower will quickly become distracted with bigger issues than chasing him allowing him to repeat the process unmolested for months.

This is a particularly egregious fraud since it re-victimizes a group that where originally targeted by subprime lenders for their lack of financial sophistication making it easy to sell them a “ticking time bomb” of a mortgage that virtually guaranteed foreclosure.

The Feds Crack Down

Today the Treasury Department announced a multi-agency effort to cut fraud in the housing market. The press release stated,

“Treasury, FinCEN, and DOJ, HUD, and FTC have committed to taking proactive measures to curb abuse by coordinating information and resources across agencies to maximize targeting and efficiency in fraud investigations. This includes alerting financial institutions to emerging schemes, stepping up enforcement actions and educating consumers to help those in financial trouble avoid becoming the victims of a loan modification or foreclosure rescue scam.”

FTC officials specifically address foreclosure rescue scams said,

“The FTC today announced two new law enforcement actions in a continuing crackdown on mortgage foreclosure rescue and loan modification scams, bringing to 22 the number of these cases the Commission has filed since the housing crisis began. The FTC also announced developments in similar pending mortgage-related actions, several of which have involved coordinated case work from FinCEN.

Today’s challenging economy presents an opportunity for con artists who prey upon financially distressed consumers. The Federal Trade Commission and our state and federal partners will continue to bring law enforcement actions to stop this insidious fraud,” FTC Chairman Leibowitz said. “If you’re worried about keeping your home, avoid any company that asks for a large fee in advance, guarantees that they’ll stop a foreclosure or modify a loan, or tells you to stop paying your mortgage company and to pay them instead.”

The AP is reporting the FTC is considering a ban on loan modification scams by restricting how they advertise.

A few State Attorneys General said this about loan mod scams,

“”Mortgage rescue schemes are becoming an epidemic — preying on families facing foreclosure in exploding numbers. These mortgage rescue scams raise false hopes and then cruelly exploit them, which is why my office is fighting them and welcomes the federal government as a strong ally. Connecticut has adopted a landmark ban on upfront fees for mortgage repair schemes — a model for national action in the battle against exploitation of consumers seeking to save their homes. I proposed and fought for it, and will enforce it vigorously. Today’s meeting is an historic step toward a powerful alliance of state and federal law enforcers battling scammers who profit on homeowners facing foreclosure.” - Connecticut Attorney General Richard Blumenthal

and…

“Homeowners should never pay an upfront fee for help with negotiating a loan modification. If you’re asked to pay an upfront fee, that’s a sure sign you’re dealing with a scavenger whose only goal is to con you out of money you can’t afford to lose, and who will ultimately rob you of any opportunity to save your home with the help of legitimate organizations.” - Illinois Attorney General Lisa Madigan

and lastly…

“Foreclosure scams cost homeowners time and money, two things you can’t afford to lose when you’re fighting to save your home. We’re cracking down on foreclosure scammers who take homeowners’ money but do little or nothing to help them.” – North Carolina Attorney General Roy Cooper

To read all the statements made on this loan mod fraud effort click the link to read the press release in total.

I will give this piece of advice on loan mods: Never pay up front!

My last piece of advice is: Do it yourself!

It is clear now that we have the new Obama Plan paying the servicing company to execute more loan mods and recently Barney Frank intimated to those servicing companies if they told start help home owners, he’ll pass laws they won’t like…now and in the future, servicing companies will become more helpful with loan mod requests.

(Note: If certainly helps if you know who to talk to and what to say when negotiating your loan mod. Our ebook can help there. Click the link to learn how to save your home all by yourself.)

One thing is for sure, attempting to get assistance can lead to getting ripped off and there is no guarantee you’ll get a loan mod. Handling loan mods is tricky for everyone and nobody can credibly claim they have an advantage over the home owners themselves.

I would also suggest you reading our post on hardship letters to get you started.

Good Luck!

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