Federal Reserve Educates Consumers About Foreclosure Rescue Scams

Feds warn against paying high fees for loan modification assistance.

The Federal Reserve is trying to educate consumers on the various types of foreclosure rescue scams so they won’t continue to get caught in the trap of these scam artists. Often these messages are delivered in the form of “hand written” letters to the homeowner and yellow “bandit” signs along the roadways that look “hand written” as well (hint: there are companies that specialize in mass-producing these signs!). Common wording on these foreclosure rescue scams include:

• “Stop Foreclosure Now!”
• “We guarantee to stop your foreclosure.”
• “Keep Your Home. We know your home is scheduled to be sold. No Problem!”
• “We have special relationships within many banks that can speed up case approvals.”
• “We Can Save Your Home. Guaranteed. Free Consultation”
• “We stop foreclosures everyday. Our team of professionals can stop yours this week!”

Tacky as these signs are, they can be effective. Most people don’t realize that they are mass-produced and assume that some local guy is really there to help, which of course is why they’re printed this way. Don’t believe me? Here are some quotes from a company that promotes the use of these so-called handwritten signs: “…you should use handwritten signs to communicate that you’re not a corporation (people like dealing with other people instead of faceless corporations).” “We have seen handwritten signs generate more than double the number of incoming calls compared to printed signs.” “…we are not advocating that you handwrite each and every sign. Instead, make one handwritten sign and then ask your printer to copy the sign. This allows you to have the benefit of a handwritten sign with the benefits of mass production.” 

California is jumping on the bandwagon as well to crack down on these foreclosure scams. “We have lawyers, we have investigators, and we will go after those who break the law by falsely representing what they can do,” says State Atty. Gen. Jerry Brown.

Where to get free foreclosure help from the government:

• Foreclosure Resource Centers: The Federal Reserve has set up regional centers to help consumers facing foreclosure. The Santa Clarita area is covered by the San Francisco regional center.
• Foreclosure Resources for Consumers: Links to a variety of resources for people who are having troubles making their mortgage payments.
• Putting Your Home on the Line is Risky Business: Advises against using home equity for extra cash, debt consolidation, home repairs and “too good to be true” refinances. Includes a list of questions you should answer before you tap into your home equity.
• 5 Tips for Avoiding Foreclosure Scams: Tips on avoiding scams and where to find HUD-sponsored no-cost counselling services.

The bottom line is that homeowners facing foreclosure have a variety of options, including loan modifications, short sales and deed in lieu of foreclosure, that can help them when they get behind on their mortgage payments. The only option that will allow homeowners to stay in their homes is a loan modification, but this option isn’t available to everyone. In order to qualify for a loan modification, you must be able to show that you can pay the modified loan payment and meet certain other requirements.  Typically a loan modificatoin will not be available for an owner of a home that is not their principal residence.

Beware of scams where someone says they will “buy” your home and then allow you to remain in it. This is fraud, and can result in jail time for you since this scam involves negotiating a short sale with your bank(s). There’s also a new MLM-like entity that is paying $2,500 finder’s fees and $100 referral fees to those who help them find distressed homeowners for them to target. Their representative, who is a member of the MLM program and may even be one of your co-workers, will approach a homeowner offering this company’s services as well as $100 if they get others to “join” their program. They will then charge the homeowner thousands of dollars for their “services”, which are available for free anyways by contacting a foreclosure resource center.

There’s been a lot of press lately regarding the new programs like Hope for Homeowners that claim to reduce a borrower’s mortgage balance to an amount below current market value, but the banks are not obligated to participate in these programs. If you find that your bank will not grant you a loan modification program that you can live with, then the next step would be a short sale. With a short sale, you’ll list your home for sale at or near the current market value, and then your Realtor will negotiate with the bank once an offer is received to get the bank to agree to accept less than the balance that is owed on your mortgage as a full payoff. Yes, this will affect your credit score, but the impact will not be nearly as bad as a foreclosure would. Those who are in the military or other occupations that require security clearances should avoid foreclosure, since it is said to be almost as bad as a felony when it comes to security clearance evaluations.

Santa Clarita Realtor Linda Slocum is a Certified Distressed Property Expert (CDPE) specializing in short sales and distressed properties in the Santa Clarita Valley. She can be reached at 661.670.0349 or by email at Linda@SantaClaritaRealEstateBlog.com.