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Consumer Advisory 2011-1
February 24, 2011
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Homeowners struggling to make payments on their mortgages and other debts should beware of con artists and scams that promise to save their homes and eliminate their debts.
These so-called foreclosure or mortgage consultants often use public notices or lists of distressed borrowers purchased from private companies to find their targets. They may offer to "prevent" foreclosures or "rescue" desperate homeowners from foreclosure through advertising, email, phone calls, or in person.
Financially troubled homeowners can avoid foreclosure prevention scams by working with housing counselors approved by the U.S. Department of Housing and Urban Development (HUD). Assistance from HUD-approved housing counselors is free, and homeowners can reach them by calling 1-888-995-HOPE (4673) or visiting makinghomeaffordable.gov.
This consumer advisory describes common foreclosure scams, suggests ways homeowners can avoid those scams, and outlines new federal rules to protect homeowners from such schemes. This advisory also lists 10 warning signs homeowners can use to identify foreclosure scams.
Examples of scams related to mortgage modification and foreclosure prevention include:
Debt-elimination schemes. Scam artists use illegitimate legal arguments to persuade you that they can "eliminate" your debt and that you are not obligated to pay back your mortgage. They make inaccurate claims about applicable laws and finance, such as "secret laws" that allow you to erase your debts or that imply that banks do not have the authority to lend money.
You must proceed with caution when dealing with anyone offering to help you modify your mortgage or rescue you from foreclosure. Remember, you can seek assistance from a HUD-approved housing counselor at no cost, and you can work with your lender directly.
The following tips can help you avoid scams involving mortgage modification and foreclosure.
Homeowners should seek assistance from HUD-approved counselors or work directly with their mortgage lenders. However, new rules issued by the FTC in 2010 protect homeowners seeking assistance from a company or person providing mortgage modification assistance and foreclosure relief. These new rules ban advance fees, require clear disclosures, and prohibit false or misleading claims.
Advance fee ban. Providers are generally banned from collecting fees until the provider gives consumers two documents: (1) a written loan modification offer from a lender or servicer that is acceptable to the consumer and (2) a written document from the lender or servicer that describes the key changes to the mortgage that would result if the consumer accepts the offer. If the loan modification is a trial modification, the provider may not collect a fee if it does not disclose that the modification is temporary and the consumer may not qualify for permanent relief. The provider must also remind the consumer of the option to reject the offer without any charge.
Disclosures. Any provider offering foreclosure rescue assistance must disclose the following:
Prohibited claims. New rules prohibit foreclosure rescue providers from making false or misleading claims about their services, including:
The new rules require foreclosure rescue providers to have reliable evidence for any claims they make about the benefits, performance, or effectiveness of their services. Additionally, the rules bar anyone from instructing homeowners to stop communicating with the homeowner's lender or servicer.
For more information about the new rules, visit ftc.gov/opa/2010/11/mars.shtm.