Justice for Mortgage-Relief Scams

Borrowing, Loan Modification, Mortgage Refinance

“Operation Mis-Modification” may sound like a bad TV sitcom or a strange new form of pageant, but it is actually a joint effort from the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC) and officials from fifteen states, designed to crack down on mortgage-relief scammers.

During the mortgage crisis, desperate homeowners sought help from third-party firms promising assistance in modifying mortgages to get more favorable terms and allow them to stay in their homes. Unfortunately, scam artists preyed on some of these vulnerable people – taking their money while delivering poor or no services and leaving them worse off than before.

The FTC and the CFPB have filed lawsuits against nine of these firms, and the state attorneys general are filing 32 similar suits against other alleged scammers. It is not yet clear how much of the proceeds of any successful lawsuits or settlements will go toward the harmed parties, or how those proceeds can be claimed by those affected. The FTC has been pursuing cases of this nature since 2008, with 48 lawsuits filed since then, including six in this recent round.

The suits cover a variety of violations, with a common complaint of advance fees charged to homeowners for modification services. This is illegal under the Mortgage Assistance Relief Services Rule (MARS for short), which prohibits mortgage modification service providers from accepting payments until the homeowner has an acceptable written offer in hand (acceptable by the homeowner’s definition).

Other allegations made against various firms named in the suits include advising clients to stop making any mortgage payments, causing clients to lose their homes outright; bogus guarantees that mortgage modification would be successful or rebates would be provided; claims of special relationships with specific lenders or the ability to run “forensics” on loans to find errors that could be used to force loans to be modified; and false affiliations with government programs.

Some of the firms made half-hearted, shoddy attempts to submit loan modifications on behalf of their clients, and those attempts were subsequently denied. Others did not even bother to make any effort at all and simply pocketed the money.

It is important to point out that there are honest and useful third-party mortgage assistance firms that do their best to assist their clients. How do you identify and avoid the scammers?

Your mortgage company needs authorization to work with any third party in order to protect your private information. The CFPB has a model authorization form that is similar to the one most lenders will require; it can be found at http://files.consumerfinance.gov/f/201407_cfpb_handout_allowing-a-third-party-to-work-with-your-mortgage-company.pdf. This page spells out important ways to structure this form and questions to ask to make third-party fraud less likely.

The CFPB also suggests a few other red flags to watch out for:

  • Guarantees – Nobody can make a valid guarantee that your loan can be successfully modified. That is in the lender’s hands.
  • Payment Up Front – Only a lawyer licensed in the state where you live or where your house is located can ask for upfront money for foreclosure relief and loan modification services – all others would be breaking the law. Even if they are properly licensed, requests for upfront money or periodic payments prior to any loan modification are sketchy at best..
  • Unsolicited Assistance Calls – How did they get your information? Challenge them on that point and ask where they are licensed to practice – or simply hang up and do your homework, then call a firm on your own..
  • Lack of Legal Support – If you speak to other representatives but never to a lawyer, that is a bad sign.

Operation Mis-Modification is sure to put a dent in mortgage relief scammers, but sadly, there are likely plenty more waiting in the wings. Avoid falling victim to scam artists and potentially losing your home by doing research before signing with any third-party mortgage assistance firm.

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