Pay Now, Get Nothing

A recent report from the U.S. Government Accountability Office (GAO) indicates there has been an increase in the number of complaints about foreclosure rescue schemes. The report, ‘Foreclosure Rescue Schemes Have Become More Complex, and Efforts to Combat Them Continue, GAO-14-17,’ notes that the schemers have created new ways to exploit delinquent mortgage borrowers who hope to remain in their homes. Some of these new scams take advantage of new rules, and others prey on consumers who are not communicating with their loan servicers.

GAO gathered information from various government agencies, as well as nonprofit housing groups nationwide. Among the findings were that complaints about foreclosure rescue schemes rose from around 9,000 in 2009 to more than 18,000 each year in 2010, 2011 and 2012. The report noted that one reason for the increase is that more banks are reporting the schemes. Financial institutions are filing more Suspicious Activity Reports (SAR) about suspected violations of financial laws and regulations, many of which are related to these schemes.

Those bank reports have been helpful not only for gathering information, but they also might help shut down some perpetrators, says Lawrance L. Evans Jr., GAO's director of financial markets and community investment. ‘The information from the SAR helps in the sense that these folks have a higher likelihood of being prosecuted,’ he says.
Evans says financial institutions can use the GAO report's findings to help prevent more of these schemes. ‘What the lenders can do is provide information about the schemes to stressed homeowners,’ he says. ‘They can say, 'We see you are two months behind, and we have not heard from you. We want you to know only your lender can modify your loan.'’

Many of the schemes inform distressed borrowers that if they pay an upfront fee, the rescue company will prevent an impending foreclosure. ‘They tell the person, 'I can do this because there are errors on your file, so don't talk to your lender,'’ Evans explains.

GAO notes that two major enforcement actions, the Independent Foreclosure Review and the National Foreclosure Settlement, required servicers to conduct reviews to see whether borrowers were harmed by errors or misrepresentations. Schemers misled borrowers about that action and used phrases such as, ‘Ninety-five percent of mortgages may be legally unenforceable due to defects like lost documents,’ and offered to conduct a ‘forensic audit’ for a fee. Instead, Evans says, borrowers should call the free Homeowners Hope Hotline.

That line has been busy, says Josh Fuhrman, senior vice president of business development and community relations for the Homeownership Preservation Foundation, which owns and operates the hotline. ‘We have a team of agents that handles only homeowners who feel they've been victims of a mortgage rescue scam,’ he says. ‘Every time a new government program is announced, it creates a kind of fertile ground for scam organizations because they have one more way to scam people.’

Some of the scammers, Fuhrman says, have recently turned to falsely claiming they are affiliated with Making Home Affordable, the U.S. Department of the Treasury and U.S. Housing and Urban Development program. The groups claim they can guarantee the borrower a loan modification for a fee. ‘They use government symbols to make them look official,’ Fuhrman says.

He adds that servicers have been supportive of the Homeownership Preservation Foundation's anti-scam program and have included the nonprofit's information on their websites.

That type of communication can help, but servicers can do more, says Doug Robinson, a spokesperson for NeighborWorks America. ‘The first thing a servicer or lender should do to help combat this is be sure its communication to consumers is clear and understandable in that only the servicer can stop a foreclosure,’ he says.

Also, Robinson says, servicers should train their own staff to be sensitive to the distressed borrower. If the servicer's customer service representative seems empathetic, the borrower might be less likely to be taken by a smooth-talking scammer. According to NeighborWorks America's report on the National Foreclosure Mitigation Counseling (NFMC) program, which is administered by the nonprofit, 41% of housing counselors indicated the biggest challenge to success is lack of responsiveness by servicers.

This lack of success is expensive for borrowers. According to the GAO report, consumers spent an average of $2,500 on these foreclosure rescue schemes, up from the 2009 average of $2,400. Schemes involving attorneys had greater losses, with people losing an average of $3,449.

‘What hasn't been explored is what pushes people to the point they would put a check in the mail to somebody who they never meet in person,’ says Diane Cipollone, director of training for the National Fair Housing Alliance.
Cipollone, who is also an attorney, says these borrowers might have thought, incorrectly, that they now had a lawyer on their side. According to the GAO report, in December 2010, the Federal Trade Commission issued (and in 2011, the Consumer Financial Protection Bureau reissued) the Mortgage Assistance Relief Services (MARS) rule. The rule, among other provisions, bans advance fees for foreclosure rescue services. Lawyers are generally exempt from this rule because they can charge a retainer, an advance fee that is supposed to be deposited into a trust to pay for the legal services.

She agrees that it would help if servicers would respond to borrowers' requests for modifications, forbearance or other services. ‘I'm not disputing the premise that there are some homeowners who absolutely do not respond,’ Cipollone says. ‘But there is an enormous number of homeowners who, in fact, had many months of attempts to try to work with their servicers.’

Nora Caley is a Denver-based freelance writer.


Please enter your comment!
Please enter your name here