If you live in California and find yourself facing foreclosure, chances are greater than in any other state, you’ll be the victim of foreclosure rescue fraud.
Nearly one-in-four complaints from foreclosure scam victims come from Californians, according to the Homeownership Preservation Foundation (HPF).
HPF is a U.S. Department of Housing and Urban Development (HUD)-certified, independent, national non-profit dedicated to helping distressed homeowners avoid mortgage foreclosure.
Since February of last year, HPF found that 22 percent of complaints about foreclosure fraud came from California, followed by Florida, with 7 percent of the calls, Texas and New York, both with 5 percent, and Georgia with 4 percent.
While California’s reported fraudulent activity was significantly higher than other states, only one city from the Golden State, Los Angeles, ranked in the top five, indicating foreclosure scams can hit anywhere and aren’t concentrated in any one area.
“Although California was among the states most hard hit by the housing crisis, the reported foreclosure rescue scam activity seems disproportionately higher than we would have expected,” said Colleen Hernandez, HPF’s CEO.
Hernandez said other than Los Angeles, there isn’t a concentrated scam area in California, but virtually half of the complaints were from homeowners who voluntarily identified themselves as African-American, Hispanic, or Asian.
“Repeated studies have shown that minorities were disproportionately targeted for predatory lending during the housing boom, and we have compelling evidence indicating that minorities are bearing the brunt of an unusually high percentage of mortgage scams,” said Hernandez said.
Effective Jan. 31, 2011 the Federal Trade Commission’s (FTC) “Mortgage Assistance Relief Services (MARS) Rule,” went into effect to protect consumers from being taken by all kinds of foreclosure rescue services, including negotiating a mortgage modification, short sale or deed-in-lieu of foreclosure and intervening in a foreclosure or repossession; a forbearance or repayment plan; an extension of time to cure default, reinstate a loan, or redeem a property; a waiver of an acceleration clause or balloon payment and other related services.
HPF says consumers facing foreclosure and looking for help should know the law bans service providers, including real estate agents offering the services, from collecting fees until a home owner agrees with a finalized, written foreclosure or modification plan approved by their lender or loan servicer.
MARS allows licensed attorneys to charge advance fees, provided the fees are held in an escrow (trust) account and provided the attorney complies with state laws and regulations related to the federal rule.
In addition to not paying money up front, consumers should expect a host of disclosures required by the law, including disclosures:
• Of the proposed cost of the service.
• Telling consumers they have a right to reject any offer from the service or the lender without charge and can stop doing business with the service company at any time.
• Stating the service is not affiliated or associated with nor approved by any government entity.
• Revealing the lender can reject any change to the home owner’s loan.
• Explaining the home owner could lose their home and damage their credit rating if they follow a service’s advice to stop paying their mortgage.
Despite the new rule, HPF said numerous companies and individuals flagrantly violate the rule, asking for an average upfront fee of more than $2,500 to modify a mortgage. In virtually all instances, either no mortgage reduction was achieved or no work was actually performed, according to HPF.
Hernandez says companies illegally demanding upfront fees to renegotiate mortgages are often run by individuals who were responsible for facilitating highly dubious mortgage loans during the housing bubble.
“They profited on the front end and now they are seeking to cash in on the back end,” she said.
Also exacerbating the problem, reductions in federal housing counseling funds have reduced the availability of previously limited free counseling services. That’s likely to lead to a surge in mortgage scams as consumers scramble for help.
“Being scammed out of thousands of dollars is often a knockout punch for already distressed homeowners. Reducing funding for counseling would be tantamount to giving foreclosure rescue scam artists a major subsidy as they will be able to operate virtually unfettered,” Hernandez.