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Mortgage Relief Scams: Enticing Vulnerable Homeowners?

SS4-11-13King Solomon’s proverbs encourage the wise and prudent to avoid the machinations of the wicked. “My son, if sinners shall entice thee, consent not to them,” the monarch says in Proverbs 1:10. For desperate homeowners threatened with foreclosure, the enticements of scammers to help with mortgage relief can seem appealing. And with a variety of fraudulent claims and promises, these companies bilk vulnerable mortgage holders of fees – or even mortgage payments

After the housing crash of a few years ago, a variety of mortgage relief programs, or mortgage bailouts, appeared. Legitimately offered by government housing agencies and federally subsidized entities like Freddie Mac and Fannie Mae, as well as private lenders such as credit unions and banks, these programs offered struggling property owners a chance to refinance a mortgage in danger of default, or to work out payment arrangements if the mortgage wasn’t too far into default.

These programs, available to home owners and investors alike, save homes from foreclosure and short sales by giving a struggling owner time to regroup and manage the mortgage better – at least in the short term. But because of the demand for this kind of help, a number of housing industry scams have stepped in to defraud homeowners in trouble with mortgage payments.

Mortgage relief scams top the list of the Federal Trade Commission’s most common complaints year after year and continue to flourish because of the housing collapse and its aftermath. Targeting those in foreclosure or on the brink, these scams turn up in the form of companies that promise to help struggling homeowners avoid foreclosure.

Many scam companies claim that they represent the lender who holds the mortgage, or a government entity sponsoring the mortgage relief program. They might call themselves a law firm or credit-counseling bureau. Their pitch to homeowners claims that for a fee, they’ll take care of all the details involved in getting mortgages refinanced, payments reduced, or even a payment holiday granted. They may also tell homeowners to make mortgage payments directly to them, or that they’re collecting them on behalf of the lender.

One major red flag in schemes like this involves secrecy: scammers tell victims not to contact their lenders, or a lawyer, claiming that they’ll handle all aspects of the satiation themselves. They might also guarantee to get a loan modification for everyone, no questions asked. Then, they take the money from fees and mortgage payments and disappear.

The Federal Trade Commission (FTC) compiles consumer information on avoiding scams, particularly real estate schemes. The FTC lists a number of warning signs for consumers to watch for, such as high pressure sales tactics that warn of dire consequences, extravagant guarantees to help every case, no matter the circumstances, and demands for upfront fees before any services are provided.

For investors and residential homeowners alike, there are legitimate avenues for modifying troubled mortgages. And to protect consumers against mortgage relief fraud, the FTC has implemented the Mortgage Assistance Relief Services (MARS) Rule, which makes it illegal for companies to collect fees until the homeowner has actually accepted an offer of help directly from the mortgage lender. And, as the FTC recommends, any fraudulent practices should always be reported to the FTC itself, or the state attorney general’s office.

Register now for Jason Hartman’s spring Memphis Wealth Building Bus Tour and Real Estate Education Event at the Memphis Hilton this April 26-28, 2013. Tour income-ready turnkey properties in the Memphis area, meet real estate professionals and learn all the basics of building wealth through income property investing.  (Top image: Fliekr/modery)

The Solomon Success Team

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