Mortgage Fraud's New Target: Loan Modifications

Foreclosure prevention has become the new calling card for con artists. Reports say perpetrators are collecting large fees upfront in return for loan modifications and mortgage refinances that may never materialize.

Famous con men like Charles Ponzi and Frank Abagnale probably wouldn't have wasted their time with loan modification scams-but apparently, there are quite a few criminals out there who aren't so particular.

State agencies around the country are warning homeowners about a sharp rise in mortgage loan modification scams. Maryland's Department of Labor, Licensing and Regulation, the New Jersey Department of Banking and Insurance, the Nevada Division of Mortgage Lending, and others, are spreading the word to distressed homeowners: Don't pay upfront fees for a mortgage loan modification.

Mortgage fraud 101

The scammers are collecting several hundred or several thousand dollars from distressed homeowners on the promise of a quick and easy foreclosure prevention solution. They'll usually tell the homeowner not to bother with free foreclosure prevention services offered by non-profits; they argue that the non-profits don't have the staffing or leverage to act quickly on the homeowner's behalf.

Sometimes, the scammers stick around and attempt to negotiate with the lender. Unfortunately, the for-profit company has no greater chance of negotiating a workout than a non-profit agency or the homeowner himself. The problem with this scenario is that the scammer consumes the homeowner's time and money, but offers no greater chance of resolution in return. Worse yet, if the homeowner waits too long for the scammer to solve the problem, the foreclosure could become unpreventable.

Prosecuting these individuals can be problematic; they usually call themselves for-profit loan counselors, which is a line of business that's not prohibited by law.    

In some situations, however, the scammers might collect the money and then vanish, without even attempting to negotiate the promised loan modification or mortgage refinance. This practice is illegal, but the authorities can only prosecute the scammers they can find.

Spotting mortgage fraud

Homeowners can avoid becoming victims of mortgage fraud by declining any loan modification service that requires an upfront fee. Distressed homeowners should also be suspicious about anyone who promises a quick and painless mortgage resolution for one simple reason: there's just no such thing.

Steps for foreclosure prevention

State agencies and authorities are advising distressed homeowners to contact their loan servicers as soon as problems arise. From there, the homeowner should also:

• Review the U.S. Department of Housing and Urban Development's guide to avoiding foreclosure (www.hud.gov/foreclosure)

• Check with the state's finance, banking, or lending agency to locate state-funded programs or state-run agencies that can assist with loan modifications and mortgage refinances

• Contact an experienced non-profit agency such as HOPE NOW (www.hopenow.com)

Charles Ponzi swindled investors, and Frank Abagnale scammed money from banks and bank depositors. Now, a new class of con artist is going after desperate homeowners. If you or someone you know is facing foreclosure, help spread the message that no one should be paying upfront fees for loan modifications.