Be Wary of These Homeowner Frauds and Scams

We need to face it, being a homeowner is what many people strive for but along with that piece of the American dream can come a variety of problems.  There are many trials and tribulations facing homeowners today and in this article I will touch on some.

Loan Modification Fraud

Many homeowners are looking for a way out from their “upside down” mortgage loans or they have fallen on hard times due to job cut-backs or layoffs.  These unsuspecting homeowners are sitting ducks for loan modification scams. The homeowners facing financial challenges are desperate for help and look to loan modification companies to help them resolve their mortgage problems.  Many of these “less than scrupulous” loan modification companies have advised these trusting homeowners to stop making their mortgage payments while the loan modification company supposedly “negotiates” with the lender on the homeowner’s behalf.  Most loan modification fraud involves the payment of upfront consulting fees and then once the money is collected no service is provided.  Unfortunately, in many of these situations because the company ends up doing nothing to help the homeowner, the property ends up going into foreclosure.

Loan Modification Fraud Prevention in Various States

Loan modification fraud is occurring all over the country but here are a few of the specific state examples of which to be wary.

California

In California home modification loan complaints increased from 27 in 2007 to 2000 as of October 2009.  Loan Modification complaints have been filed against real estate agents, loan brokers, attorneys, foreclosure consultants, and loan modification firms.  To help reduce these complaints all foreclosure consultants must now register with the state’s Attorney General’s office and post a $100,000 bond to be able to conduct business legally. As of October 11, 2009 a law was enacted to help prevent further loan modification fraud.  The law states in part that it is illegal for any person or party to charge or collect any up-front or any other type of pre-payment compensation for loan modification or any other mortgage loan forbearance services.   To read the law in its entirety, “California Depart. of Real Estate Consumer Alert Advance Fees for Loan Modifications Are Now Illegal in CA” visit: http://www.dre.ca.gov/pdf_docs/FraudWarningsCaDRE03_2009.pdf

Nevada

John Kelleher, who is the head of a Nevada mortgage fraud task force, said in a recent interview that the Attorney General of Nevada, Catherine Cortez Masto, says that Nevada leads the nation in mortgage fraud.    Some of the mortgage fraud examples that they have seen companies use are:
•    fraudulent appraisals that inflate home values
•    inflation of buyer’s incomes
•    falsifying loan records
•    forgery of checks and loan documents

According to Nevada law, home loan modification and foreclosure consultants must be licensed by the mortgage division and must post a $75,000 surety bond.

Maryland

Due to numerous fraudulent practices, the state of Maryland enacted the “Protection of Homeowners in Foreclosure Act” to save homeowners facing foreclosure from harm.  It requires that foreclosure consultants must be licensed, must provide specific research to homeowners, and prohibits them from the collection of upfront fees.  One type of fraud perpetrated on these unfortunate homeowners is to take title of the property in distress and then drain the equity from it.

Michigan

There is new legislation in the Michigan Senate to fight foreclosure consultant loan modification scams.  Their plan is to require basic qualifications and regulations, require lenders to post their foreclosure and loan modification criteria online, and require companies to alert homeowners if the lender sells their mortgage to another party.

Obama Administration’s Making Home Affordable Program

Foreclosure, loan modification, and mortgage reconstruction scams are likely to require up-front payments and often pretend to be part of the legitimate government program to help homeowners keep their homes.   These scam artists charge fees for their service and then after they collect the money, they do nothing for the homeowner.

The Making Home Affordable Program is part of the Obama Administration’s plan to boost the economy and help get the housing market back on track.  It offers two solutions; one of which is refinancing and the other is modification of the existing home mortgage loan.  The counseling service is provided by the government for free and they can help you with determining what options are available to you.  To contact them call 1-888-995-HOPE (4673) or go online to http://makinghomeaffordable.gov/index.html.

Real Estate Fraud

An example of real estate fraud is when a loan broker-type of individual uses a “straw buyer” to sign loan closing documents.  A straw buyer is person who allows their credit and other personal details to be used to secure a mortgage loan on a property that they never intended to inhabit or control.  The broker representing the straw buyer may provide a fraudulent mortgage application on the behalf of the purchaser/straw buyer.  The purchaser’s application may contain false information such as inflated income statements and/or employment records.  When the proceeds of the sale are disbursed at closing, the broker collects his share of the money. The property usually ends up in foreclosure because there wasn’t a real buyer; therefore no sale actually took place.

Mortgage Fraud

Mortgage fraud is usually not discovered until the property goes into foreclosure.  At that time it comes to light that the collateral, otherwise the borrower’s pledge to the lender of the mortgage of a specific property to support the repayment of the loan, is not sufficient enough to maintain the mortgage loan.  In most cases the loan applications contained false statements related to income or other assets.

First Time Home Buyer Tax Break Fraud

In February 2009, as part of the economic stimulus bill, the “First Time Home Buyer Tax Break” measure was adopted.  Its desired result was to increase home sales and help the plummeting housing industry.  The measure is scheduled to conclude at the end of November but there is some talk of extending it.  The measure gives an $8000 tax credit to first time home buyers.  Claims for the tax credit have reached over one million as of October and has increased home sales to around 350,000 homes that most likely would have not sold if it weren’t for the incentive.
There have reportedly been 100,000 claims that are currently being investigated by the IRS for people trying to collect fraudulently on the first time home buyer tax break. Some are attributing the reason that there are so many unjustified claims because the tax credit is not finalized at the time of the sale but later when income tax documents are filed or amended.  It is believed that some home purchasers who are not entitled to the tax break are filing for it falsely.

Conclusion

Homeowners need to be alert to a variety of fraud and scams which they may come in contact with.  With the achievement of the dream of owning your own home, comes some trials and tribulations you must be aware of and ready to deal with.

Tagged with: financial challenges • foreclosure loan • fraud prevention • loan modification • mortgage loans • scams

Filed under: Finances

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