Homeowners: Beware of Savvy Mortgage Scams

Monday, 26 Sep 2011 02:13 PM

By Michelle Smith

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Mortgage scams are more prevalent than one may assume and they can also be much more difficult to identify that one may suspect.

The Huffington Post says there is a rapidly growing network of customer-lead generation, foreclosure-rescue and debt-settlement companies aggressively marketing their services to a crop of cash-strapped consumers.

Earlier this month, ABC 15 in Arizona broadcast Arizona Attorney General Tom Horne's warning to consumers to be wary of any notices or advertisements that claim to offer homeowners facing foreclosure complete forgiveness of the loan. He said ploys like this are a way to collect illegal up-front fees for foreclosure assistance.

This is one of many scams that are popping up across the nation. That homeowners are asked to pay fees should raise an immediate red flag. Under what is known as the MARS rule, the FTC bans up-front fees for mortgage and foreclosure assistance.

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(Getty Images photo)
Yet, scams remain effective in their goal of wringing cash from the wallets of distressed homeowners. This is partly because individual consumers are not prepared for what they are up against.

“We’ve seen ads with U.S. flags, ads with President Obama’s picture and ads with language that says things like ‘This is the President’s plan to help you avoid foreclosure,’” Anne Balcer Norton, the Maryland Department of Labor Licensing and Regulation’s Deputy Commissioner of Financial Regulation, told the Huffington Post.

Many people mistakenly believe that they are dealing with government entities or those associated with the government. For example, the Huffington Post reveals that the Department of Consumer Services Protection, U.S. Debt Care, the U.S. Mortgage Relief Council and several other operations with similarly authoritative if not auspicious-sounding names are actually companies founded by a San Antonio businessman against whom the FTC is now aiming to take action.

“A lot of the people running these scams are incredibly smart," said Andrew Pizor, a staff attorney with the National Consumer Law Center. “The scams are often sophisticated. It is not like an armed robbery where you know immediately what’s happened. I mean, one of these companies is run by a group of Ivy League graduates,” he told the Huffington Post.

Noting that the state was one of the hardest hit by the housing crisis, California Attorney General Kamala D. Harris announced the creation of a mortgage fraud strike force staffed by Department of Justice attorneys and investigators earlier this year. In the press release announcing the move, it was noted that the California Department of Justice has received thousands of complaints related to foreclosure scams, mortgage fraud, and mortgage servicing practices.

In the same press release, Paul Leonard, director of the California Office, Center for Responsible Lending, said, “the fingerprints of illegal activity are all over the foreclosure crisis. The attorney general's effort marries the need to punish bad actors for the practices that brought our economy to the brink with the need to eliminate the scam artists who have since attempted to profit from it.

It appears that sometimes these two groups are the same. According to the Huffington Post, state and federal regulators say that some of the same people who sold risky, even predatory, loans to consumers have moved on to the business of for-profit loan modifications.

A rogue sector has emerged from the housing crisis and regulators are trying to warn and protect consumers. But “really, it’s almost impossible to know just how many people have been sucked in and victimized by any one of these schemes,” said Pizor.

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