FindLaw KnowledgeBasePublished: 2011-04-12
The upsurge in home loan modification scams has federal and state enforcement agencies concerned. The Federal Trade Commission (FTC) reported 16,584 loan modification fraud complaints in 2010, up from only six total complaints in 2008. The increase is likely due to scammers taking advantage of the large number of stressed homeowners. Lenders foreclosed on over one million homes last year, the largest one-year total ever recorded.
Homeowners are having difficulty negotiating their own loan modifications. Combined with the record number of foreclosures, deceitful companies are taking advantage by charging large up-front fees to negotiate on the homeowner’s behalf, only to leave the homeowner with no support whatsoever.
The rapid proliferation of fraudulent loan modification companies has captured attention of the FTC, which has issued the Mortgage Assistance Relief Services (MARS) Rule preventing certain common deceptive activities.
Some actions the FTC now forbids mortgage relief companies from include:
- Charging up-front fees
- Pretending affiliation with the government or government programs
- Telling homeowners to stop communicating with lenders
- Making false claims about successful modification rates
The FTC modeled the rules after many state laws. Over 30 states have enacted laws attempting to prevent fraudulent loan modification practices.
It can be difficult to track the total number of mortgage relief companies trying to scam homeowners, but the FTC estimates that at least 500 are currently operating. State governments alone have gone after 450 such companies since 2008.
In response, the companies will often change names, addresses and phone numbers, in order to prevent having to refund customers and to make them less visible to enforcement agencies.
What to Do When Facing Foreclosure
The first thing to remember when facing foreclosure is to not panic. There are several ways to save your home from foreclosure. Just don’t buy into big claims or guarantees from loan modification companies, as there are no magic solutions to home loan modifications or dealing with lenders.
You may wish to consult with an attorney who can help you with the loan modification. Attorneys are required by many state laws and the MARS rule to take any advanced fees in a client trust account, where state laws protect it.
An attorney can also inform you of other possible avenues you may wish to take to save your home, such as a Chapter 13 bankruptcy. Where saving the home is impossible or no longer desirable, a short sale or a deed in lieu of foreclosure can make the process better for your credit and your stress level.