Loan Modification Scams

The scammers, an individual, company and sometimes even a law firm makes exaggerated claims that they can get the homeowner a loan modification with guaranteed lower interest rates. Typically, the scammer will demand a substantial upfront fee or, worse set up an automatic withdrawal
from the homeowner’s bank account. Scammers often collect loan documents from the homeowner and may even promise to appear in court on behalf of the homeowner. However, in most cases the scammer will do neither. These scams not only cost homeowners thousands of dollars, but actually harm the homeowner

Short Sale Scams

A legitimate short sale is an option for homeowners to avoid any further liability for their mortgage debt. It requires the home owner with the assistance of a reputable and licensed real estate broker and an attorney to negotiate with the bank to get approval to sell the property below what is owed on the mortgage. By contrast, scammers will induce or trick a homeowner to sign over the deed to their home by falsely claiming to resolve their foreclosure action or mortgage debt. Unfortunately, homeowners learn subsequently that the scammer did neither assume or satisfied the mortgage, leaving the homeowner responsible for the unpaid mortgage debt. Homeowners are strongly advised to never sign any documents without reading them and, preferably consulting with an attorney.

Forensic Audits

In a Forensic Loan Audit, the scammer in exchange for a substantial fee claims to have an “auditor” review loan documents for violations of federal and state laws, falsely claiming that the homeowner’s mortgage can be eliminated.

Deed Theft and Equity Skimming Scams

The scammer promises the homeowner that they can avoid foreclosure by signing over the deed (transferring ownership) temporarily to a third party, a “straw buyer” with better credit, claiming that within a year they can buy back the home. Often the scammer uses the straw buyer to take out a new mortgage far in excess of what is owed and pockets the equity. In some cases homeowner’s are led to believe they are refinancing and are tricked into signing the deed over to a third party.

Scammers target homeowners who are in foreclosure by searching public records for foreclosure filings. They also tend to target neighborhoods that are known for their increasing foreclosure activity, and/or communities occupied by limited or non-English speaking homeowners.

Scammers target homeowners by mail, through radio stations and television advertisements, the internet as well as door-to-door solicitation. The “rescuer” makes promises to the homeowner depending on the services they provide, such as legal representation or submission of a loan modification application.

There are many red flags to look out for when trying to identify a rescue scam:

“Making Guarantees”

You should be suspicious of anyone whether it is a company, broker or individual who claims they can guarantee to save your home. No legitimate organization can guarantee results.

“Requesting Payment Upfront”

It is almost always illegal to charge upfront fees for foreclosure prevention services. Many scammers request payment or begin taking money out of a homeowner’s bank account as soon as they begin “service.” Never allow anyone—even a law firm—to withdraw funds from your bank account.

“Making You Sign Confusing Documents”

Many scammers encourage or force homeowners to sign complicated documents. You should never sign documents that you do not fully understand.

“Advising you to Stop Making Payments”

Scammers will often encourage homeowners to stop making mortgage payments or to cease contact with the servicer. Homeowners should never make mortgage payments to anyone other than the servicer.

File a Complaint

If you believe that you are a victim or a potential victim of a scam, consider filing a complaint with the following agencies/organizations:

Preventloanscams.org

You can fill out a complaint form online.

New York State Attorney General’s Office

You can either call the hotline at 800-771-7755 or download the complaint form online and send it to: 120 Broadway, New York, NY 10271.

Consumer Financial Protection Bureau

You can fill out an online complaint.

Federal Trade Commission

File a complaint online.

If you’re a victim of a foreclosure scam you may have rights under the Home Equity Theft Protection Act (HETPA) to cancel a fraudulent sale of your home. You also may be able to sue for damages. If you’re a victim of a loan modification rescue scam you may have rights under New York Real Property Law (NYRPL) 265-B and you may be able to sue for damages and attorney’s fees. Free help is available:

Call the Foreclosure Prevention Project at 718-298-8979 for Queens and 646-340-1908 for the Bronx. Please leave a message with your name and phone number and we will return your call within 24 hours. Due to COVID-19 our offices and court walk-in clinics are currently closed.

You can also call 311 or 646-786-0888 and reach the Center for New York City Neighborhoods; their network includes over fifty housing counseling agencies.

To find a local HUD-approved Housing Counseling Agency, visit them online.

The information in this document has been prepared by The Legal Aid Society for informational purposes only and is not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. You should not act upon any information without retaining professional legal counsel.