Be Aware, Homeowners: How to Spot a Mortgage Relief Scam

Mar 31 2020

This is part of our ongoing series on mortgage relief options and how to handle your loan in a crisis.

Scam artists are predators — ready to pounce when we are the most vulnerable. They offer to help and then run off with your money. Rude!

Unfortunately, homeowners are a favorite target for scams. There’s a whole industry directed at those who fall behind on mortgage payments.

How do they do it? One method is by surfing public foreclosure notices and then sending personalized, but phony, letters to distressed homeowners. Others use bigger bait like TV and newspaper ads with taglines like, “Stop foreclosure now!”

Well, we’re going to help you learn to ward off these fraudsters now, and then you can head to our post on managing your mortgage in a crisis for real help to prevent a foreclosure.

Below are five telltale signs of a scam artist. Want to learn more about specific types of scams? The Federal Trade Commission offers a handy list.

1. Money is demanded or offered up front

Under federal law, it’s illegal for companies to collect any money until a homeowner actually receives and accepts a relief offer from their lender. Only lawyers are allowed to charge up-front fees and even that’s only in some cases. Lawyers can break these laws too, as the Consumer Financial Protection Bureau explains, and some scammers go so far as pretending to be attorneys.

Similarly, fraudsters will sometimes offer to buy your house for cash (and for much less than what it’s worth). They might claim that you can buy it back over time, a scam tactic commonly known as a rent-to-buy scheme.

Pro tips:

Before hiring an attorney, check with your state’s Bar Association to see if they’re licensed in your state and have gotten into any trouble in the past.

If a person or company only takes cashier’s checks or wire transfers, that’s another sign of a scammer.

2. A loan modification is guaranteed

Not so fast! Only your loan servicer can offer you a loan modification and even they can’t guarantee it until you go through the process. A loan modification is a change to the original terms of your mortgage and may involve extending the number of years you’ll pay the loan or reducing your interest rate.

Another warning sign of a scammer? They promise you won’t lose your home. Individual circumstances vary too much for anyone to provide that kind of assurance.

3. You’re singled out

If a company or a lawyer contacts you directly, it’s a red flag. Pressure to sign or agree to anything is another scam indicator. You should have plenty of time to review everything and ask questions.

4. You’re asked to transfer your deed or title

No one should ask for your deed or title to be transferred to them. These are critical legal documents that designate who owns your home. If you sign away that ownership, you can be evicted from your house and it can be sold on the open market. Yikes!

5. You feel isolated

How can scammers get away with all this? One way is by telling homeowners they’re preying on not to contact their lender or servicer. Someone who tells you not to consult anyone else about what they’re offering is up to no good.

illustration of desk with laptop

Things to avoid

Homeowners who are falling behind on their mortgage are vulnerable to scammers. To protect yourself from fraud, here are some things to be wary of:

  • Being pressured to sign anything or to transfer the deed or title to your house.
  • Sending mortgage payments to anyone except your lender.
  • Relying on verbal agreements – get everything in writing.
  • Signing anything with blank spaces that can be filled in later without your knowledge.
  • False promises, like that someone can increase your credit rating or stop a foreclosure.
  • Taking a cash buyout for your house or paying money upfront for services not yet rendered.
  • Being convinced not to consult your lender or anyone else.

Free, reliable assistance

Decent for-profit mortgage relief companies do exist – but why pay for expert help when you can get it for free? Contact both of these whenever you run into mortgage trouble.

Your loan servicer. They manage your mortgage payments, and they’re not the enemy. They’ll work with you to create a realistic catch-up plan. See your monthly statement for contact info.

A certified housing counselor. These experts work for nonprofit agencies that advise homeowners worried about foreclosure at no charge. Find one with the National Foundation for Credit Counseling.

Confused about your real mortgage relief options? Our post “Loss Mitigation Explained: How to Catch Up if Your Mortgage Falls Behind” gives you the tea.

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