Foreclosure Rescue Scams Growing Threat To Consumers

Tough economic times bring out criminals seeking to take advantage of the desperate or unwary. The current financial environment, especially woes within the housing industry, has spurred a rise in the numbers of foreclosures – and the number of bad actors looking to illegally profit from struggling homeowners.

With this week’s announcement of a new federal plan to help homeowners avoid foreclosure, Texans should especially be alert to foreclosure rescue scams, and should keep in mind that there is no charge to participate in the federal program.

Both legitimate and illegitimate foreclosure rescue companies offer to help homeowners avoid foreclosure. But some fail to provide the services promised – and worse, they take homeowners’ money, ruin victims’ credit records and wipe out the hard-earned equity that owners built up in their homes.

Unfortunately, as the mortgage crisis unfolds and more Texans default on their loans, foreclosure rescue fraud scams have become more common. Foreclosure rescue scams prey upon homeowners who have fallen behind on their mortgages and face foreclosure. Using the notices that mortgage lenders publish before foreclosing on homes, the scams identify potential victims and promise to help them keep their homes. These fraudulent businesses often market themselves as “foreclosure consultants” or “mortgage consultants,” and their businesses as a “foreclosure service” or “foreclosure rescue agency.”

Typically “foreclosure rescue agencies” attempt to convince homeowners to pay large fees. Then, they encourage customers to cease all communication with their mortgage lenders. They make their victims believe that the companies’ relationships with mortgage lenders can save homes from foreclosure. Instead the most unscrupulous operators simply take their clients’ money and do nothing while the homeowners’ lack of communication and inaction gets them further behind on their loans.

In some cases homeowners have entered into complex written agreements with these companies only to discover that they unknowingly sold their home for a fraction of its value. Homeowners should NOT sign any paperwork they don’t thoroughly understand. They should be wary of outrageous or unreasonable promises and should learn more about the company before signing anything. Sometimes it can be helpful to conduct a search for them on the Internet and read reviews by other customers. Potential customers should check with their local Better Business Bureau as well as the BBB in the company’s location.

Texans should communicate openly with their lenders and should never withhold a mortgage payment if they can pay on time. By communicating with their lenders early in the process, homeowners can discuss various options that may be available, including fee waivers, temporary deferred payments, delayed interest rate resets, refinancing or conversion of an adjustable-rate mortgage (ARM) into a fixed-interest loan.

If homeowners have problems that could result in mortgage default or foreclosure, they should consider contacting a counseling agency approved by the U.S. Department of Housing and Urban Development by calling (800) 569-4287 or visiting HUD’s Web site at www.hud.gov for more information about how to avoid foreclosure.

Another resource is the Homeowner’s HOPE Hotline at (888) 995-HOPE (4673) or its sister Web site at www.995hope.org. This toll-free number is operated by the Homeowners Preservation Foundation and Neighborworks America, two national nonprofit organizations that specialize in mortgage issues.

In December, Texas Attorney General Greg Abbott and state Sen. Craig Estes (Wichita Falls) announced a legislative initiative that will help protect Texas homeowners from foreclosure rescue scams. If enacted, the proposal would enhance the Attorney General’s enforcement authority, provide new protections for homeowners and place new restrictions on foreclosure prevention consultants.

The Foreclosure Rescue Fraud Prevention Act would require foreclosure prevention consultants to be very clear about their services and clients’ rights in a written, plain-language contract. In addition to new disclosure requirements, the proposal would place new limits on equity purchase agreements. To protect Texans’ interest in their homes, the law would require equity purchase agreement buyers to pay at least 82 percent of the property’s fair market value.

Consumers who believe they have been contacted or victimized by a foreclosure rescue service can file a complaint with the OAG at (800) 252-8011 or online at www.texasattorneygeneral.gov.

Other Resources:

Federal Trade Commission
(877) FTC-HELP
www.ftc.gov

Better Business Bureau
www.bbb.org

General Abbott's signature
Greg Abbott
Attorney General of Texas

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ABOUT CONSUMER ALERTS - The Office of the Attorney General accepts consumer complaints about businesses. When a pattern of complaints warrants intervention, the Attorney General can file a civil lawsuit under consumer protection statutes, sometimes with the result that a company is required to pay restitution to consumers -- see our Major Lawsuits page. However, when a consumer is swindled by a con artist, filing a complaint cannot help. Civil litigation can sometimes put a very unscrupulous business out of action, but often cannot produce restitution.

Individual con artists generally fall under the jurisdiction of a criminal prosecutor -- in Texas, this is the district or county attorney. But even when they are charged and convicted, these individuals usually have spent the money as fast as they have stolen it. A person who is the victim of fraud should report the incident to the police or sheriff. But by far the best thing is for consumers to be aware of fraud, so they are not swindled in the first place. For this reason, the Office of the Attorney General posts these Consumer Alerts about possible scams and schemes that come to our attention through citizen contacts to our office or other sources.

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