LOAN MODIFICATION SCAMS
You don't need to read this Newsletter to learn that, over the last two years, many California homeowners have fallen victim to loan modification scams and foreclosure rescue scams. Predators see opportunity in desperation, and our economy has created many desperate people.
While most real estate professionals are noble and take pride in helping people with the biggest investment they will ever make, there is that bottom few who give a bad name to the whole industry. Some of these con artists honed their skills during the real estate bubble when they peddled the toxic loans. When the mortgage industry imploded, these and unscrupulous brokers and loan officers found themselves unable to find new jobs at which they could continue to earn tens of thousands of dollars each month. Experienced at high pressure boiler room sales techniques, accustomed to reaping huge commissions, and feeling no remorse for having put people at risk of losing their homes, they turned to the field of mortgage modifications.
These swindlers advertised themselves as foreclosure prevention experts who use insider knowledge of the mortgage business to reduce loan balances, fix rates, and stop foreclosures. Lured by such false promises, borrowers paid thousands of dollars for help that would never arrive. When a borrower balked at paying thousands of dollars, he or she is told to stop making mortgage payments to free up money to pay the company's fee.
Many victims tell us the same story. They are told to stop making mortgage payments and not to contact the lender. Meanwhile, the scam company sends the lender letter demanding that the lender no longer contact the borrower but instead direct all future communication to the company.
Once the lender-borrower connection is severed, the company ceases all contact with the lender. Of course, the customer has no idea that the lender continues to demand payments until the a Notice of Default ("NOD") arrives in the mail. When, the anxious customer then calls the company for status, he or she is told not to worry, because the NOD is just part of the game that lenders play.
The homeowner finally realizes he or she has been scammed when the Notice of Trustee's Sale ("NTS") arrives. At this point he or she calls the company only to be told that the lender denied the loan modification. The company keeps the money, and the customer loses his or her home.
In an effort to protect borrowers from the illegal tactics of "loan mod shops," California enacted many draconian prohibitions that chased reputable attorneys and real estate professionals out of the loan modification business. However, the borrower seeking legal advice on loan modification, short sale, or foreclosure should still be able to find many attorneys who will meet for an hour with them. The borrower should be willing to pay for this hour meeting with the attorney, because he or she will get personal legal advice. Not only will the borrower get to meet the attorney face to face, but he or she will be able to determine what additional services, if any, are needed.
In some cases, the borrower may only need that hour of the attorney's time. In other cases, the borrower may need help drafting letters or further understanding his or her rights as the process of foreclosure or short sale proceeds. The client should not expect the lawyer to tell him or her what to do, but instead present options, walk the client through each option (likely ones that the client did not know existed), and provide enough education for the client to make an informed decision about what to do.
As for recovery for victims of loan modification scams, the chances are often bleak as the culprits frequently change corporate identities and hide their assets. Consulting an attorney who handles consumer litigation is one place to start. If formal litigation proves to be too costly, then small claims court may a better alternative.