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NeighborWorks® America recognizes National Consumer Protection Week by warning homeowners against loan modification scams

April 5, 2010

Advertorial by NeighborWorks

Washington, D.C. – In the wake of National Consumer Protection Week (NCPW), March 7-13, NeighborWorks® America and its growing coalition of national government agencies, nonprofit organizations and financial institutions are empowering homeowners to combat loan modification scams. The effort is an extension of the organization’s national Loan Modification Scam Alert campaign, designed to help homeowners protect themselves against loan modification scams, find trusted help and report illegal activity to authorities. NeighborWorks America is an official partner of NCPW, a coordinated consumer education campaign that encourages individuals across the country to take full advantage of their consumer rights.

An estimated 4.5 million Americans are at risk of losing their homes to foreclosure. While many will seek relief in the form of loan modification services, too many will instead become victims of scams. “Foreclosure rates in America are now at an all-time high and so is the need for help,” said Kenneth D. Wade, chief executive officer of NeighborWorks America. “This National Consumer Protection Week, NeighborWorks is urging community groups and businesses across the nation to join in the effort to educate homeowners about how they can guard against loan modification scams – a fast-spreading epidemic in need of immediate attention.”

Scams aren’t always easy to spot – but it helps if you know the warning signs to look for. Here are six red flags to indicate that you may be dealing with a loan modification scammer:

1. A company or person asks for a fee in advance to work with your lender to modify, refinance or reinstate your mortgage. They may pocket your money and do little or nothing to help you save your home from foreclosure.

2. A company or person guarantees they can stop a foreclosure or get your loan modified. Nobody can make this guarantee to stop foreclosure or modify your loan. Legitimate, trustworthy HUD-approved counseling agencies will only promise they will try their very best to help you.

3. A company or person advises you to stop paying your mortgage company and pay them instead. Despite what a scammer will tell you, you should never send a mortgage payment to anyone other than your mortgage lender. The minute you have trouble making your monthly payment, contact your mortgage lender.

4. A company pressures you to sign over the deed to your home or sign any paperwork that you haven’t had a chance to read, and you don’t fully understand. A legitimate housing counselor would never pressure you to sign a document before you had a chance to read and understand it.

5. A company claims to offer “government-approved” or “official government” loan modifications. They may be scam artists posing as legitimate organizations approved by, or affiliated with, the government. Contact your mortgage lender first. Your lender can tell you whether you qualify for any government programs to prevent foreclosure. And, remember, you do not have to pay to benefit from government-backed loan modification programs.

6. A company or person you don’t know asks you to release personal financial information online or over the phone. You should only give this type of information to companies that you know and trust, like your mortgage lender or a HUD-approved counseling agency.

Loan modification scams are proliferating at a rapid pace. Every day, scam artists prey on unsuspecting homeowners who are facing foreclosure. These homeowners are losing thousands of dollars and their homes – lured by the promise of loan modification help.

“Our campaign is based on the belief that knowledge is the best defense, which is why we’re equipping homeowners with the tools they need to minimize their risk and stop scammers in their tracks,” Wade said.

For more information, visit www.LoanScamAlert.org.

Tips to watch for in a scam artist

Loan modifications are changing every day. Here are some of the most common loan modification scams out there today.

Phony counseling or foreclosure rescue scams The scam artist poses as a counselor and tells you he can negotiate a deal with your lender to save your house – if you pay him a fee first. He may even tell you not to contact your lender, lawyer or housing counselor – that he’ll handle all details. He may even insist that you make all mortgage payments directly to him while he negotiates with the lender. Once you pay the fee, or a few mortgage payments, the scammer disappears with your money.

Fake “government” modification programs Some scammers may claim to be affiliated with, or approved by, the government, or they may ask you to pay high, up-front fees to qualify for government mortgage modification programs. The scammer’s company name and Web site may sound like a real government agency. You may also see terms like “federal,” “TARP” or other words related to official U.S. government programs.

Your lender will be able to tell you if you qualify for any government programs to prevent foreclosure. And you do not have to pay to benefit from these programs.

Bait-and-switch The scam artist convinces you to sign documents for a “new loan modification” that will make your existing mortgage current. This is a trick. You actually just signed documents that surrender the title of your house to the scam artist in exchange for a “rescue” loan.

Rent-to-own or leaseback scheme A scammer urges you to surrender the title of your home as part of a deal that will let you stay in your home as a renter and then buy it back in a few years. He may tell you that surrendering the title will permit a borrower with a better credit rating to get new financing – and keep you from losing your home. However, the scammer may have no intention of ever selling the home back to you. But the terms of these deals usually make buying back your home impossible. Worse yet, when the new borrower defaults on the loan, you’re evicted.

Variations:

1) The scammer raises your rent over time to the point that you can’t afford it. After missing several rent payments, you are evicted, leaving the “rescuer” free to sell your house.

2) The scammer offers to find a buyer for your home, but only if you sign over the deed and move out. The scammer promises to pay you some of the profit when the home sells. But the scammer simply rents out your home and keeps the profits while your lender proceeds with the foreclosure. You lose your home and are still responsible for the unpaid mortgage, because transferring the deed does not affect your mortgage obligation.

Bankruptcy to avoid foreclosure
The scammer may promise to negotiate with your lender or get refinancing on your behalf if you pay a fee up front. Instead of contacting your lender or refinancing your loan, he pockets the fee and files a bankruptcy case in your name – sometimes without your knowledge.

A bankruptcy filing often stops a home foreclosure, but only temporarily. Filing bankruptcy stops any collection and foreclosure while the bankruptcy court administers the case. But, eventually you must start paying your mortgage, or the lender will be able to foreclose.

You could lose the money you paid to the scammer and your home. Worse yet, a bankruptcy stays on your credit report for 10 years, which makes it difficult to obtain credit, buy a home, get life insurance or even get a job.

This story is an advertorial by NeighborWorks, on the web at www.nw.org/network/home.asp.

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