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Swindlers Find Growing Market in Foreclosures
As home values across the country continue to plummet, the authorities say a new
breed of swindler is preying on the tens of thousands of homeowners desperate to
Until recently, defrauders tried to bilk homeowners out of the equity in their
homes. Now, with that equity often dried up, they are presenting themselves as
“foreclosure rescue companies” that charge upfront fees to modify loans but
often do nothing to stave off foreclosure.
The Federal Trade Commission brought lawsuits last year against five companies
representing 20,000 customers, and state and local prosecutors have brought
dozens more. In Florida, Attorney General Bill McCollum recently sued a company
that he said had more than 600 victims.
“There’s no way for the consumer to sort out the legitimate companies,” said Mr.
McCollum, who added that he had limited resources to fight what he called “a
sheer volume question.”
The companies under suspicion typically charge an upfront fee of up to $3,000 to
help borrowers get lower rates on their mortgages from their lenders. But
borrowers often cannot afford the fees, the service can be bogus and, in the
worst cases, the homeowners lose their chance to renegotiate with their bank or
to file for bankruptcy protection because of the time wasted.
There are companies that provide legitimate foreclosure services, but the
industry is largely unregulated, making it difficult for homeowners to separate
the good from the bad. Some of the fraudulent companies — often run by former
real estate agents or mortgage brokers — are local; others are national. Many
have official-looking Web sites that suggest that the companies have government
affiliations and give homeowners a false sense of security.
“That’s all I’ve been doing for the last year,” said Angela Rosenau, a deputy
attorney general in California, citing more than 300 complaints about fraudulent
companies last year, not counting those made to local prosecutors.
Experiences like those of Maria Martinez, of Stockton, Calif., are playing out
with greater frequency across the country, the authorities say. Ms. Martinez
struggled to pay her mortgage last summer. She had no shortage of people
offering to help. Fliers for rescue companies filled her mailbox.
At a seminar for troubled borrowers near her home, one company offered a service
that promised just what Ms. Martinez needed: for $1,000, the company said it
would negotiate with her mortgage company to lower her interest rate.
“I was desperate,” said Ms. Martinez, 57, a clerk at the San Joaquin County
Jail. She made an initial payment of $500 and paid another $500 a few weeks
Now the house is in foreclosure, and Ms. Martinez is waiting for the sheriff to
evict her. She cannot reach the man she paid to modify her loan.
In California and 20 other states, including New York, companies are prohibited
from collecting payment until they have completed their services, something Ms.
Martinez did not know. In Colorado, the attorney general’s office has closed 15
mortgage rescue companies that charged fees up front.
Carol McClelland, 46, fell into foreclosure on her Chicago home when she lost
her job as a waitress in two restaurants. She received a call from a company
called Foreclosure Solutions Experts, promising to stop the foreclosure and
lower her mortgage payments to around $550 a month, from $1,056, Miss McClelland
“She showed me other clients’ files, and they were paying $650 a month,” she
said. The charge for the service was $1,300, which Miss McClelland paid in
installments, borrowing the money from friends and relatives.
When the loan servicer notified her that the house was still in foreclosure,
Miss McClelland said, the representative from Foreclosure Solutions Experts told
her that the matter had been taken care of.
“She told me everything was all settled; I don’t have to worry about anything,”
Miss McClelland said. “All I had to worry about was getting the rest of the
money to her.”
According to a suit brought by the Illinois attorney general in November,
Foreclosure Solutions Experts does little or nothing to help consumers, and when
it does take action, the result is often a repayment plan unsuited to the
borrower’s ability to pay. The suit alleges that the company never contacted
Miss McClelland’s lender, HSBC.
Illinois is one of the states that bans upfront payments to foreclosure rescue
companies. The attorney general’s office has received “thousands” of complaints
about such companies, said Michelle Garcia, an assistant attorney general, and
the suit against Foreclosure Solutions Experts is one of 22 filed by the state.
Stacy Strong, who runs Foreclosure Solutions Experts, did not return calls for
Advocates say foreclosure rescue scams are particularly insidious because they
prey on people’s desperation and because they victimize those who can least
Borrowers seeking loan modification are often frustrated that they cannot reach
the right people at their lender or that the lender insists on a repayment plan
they cannot keep, said Ira Rheingold, executive director of the National
Association of Consumer Advocates.
“When you’re desperate, that’s when the crooks come out,” Mr. Rheingold said.
“You’ve tried everything, and a guy calls you up on the phone or there’s an ad
on TV, and you have no other options, what do you do? You go to those guys.
“People probably know in their heart of hearts that they may be getting ripped
off, just like most people understood on their mortgages that they were getting
in too deep, but bankers said yes, so it must be O.K. It’s the same thing. The
real problem is that we continue to fail to have systems in place that help
Ms. Rosenau, the California prosecutor, said that even when she told people that
they had been swindled, “they don’t believe it, because they want it not to be
“And any money they had to possibly work with the lender is now gone to the
scam,” she said.
In Baltimore, where neighborhoods have been buffeted by successive waves of
mortgage scams, Ann Norton, director of foreclosure prevention at the nonprofit
St. Ambrose Housing Aid Center, said companies promising loan modifications
started to multiply last summer.
“It’s the same people that joined the industry during the refinance boom, and
now they’re making fees for submitting loan remediation forms,” said Ms. Norton,
whose agency provides free help to borrowers.
Although Maryland was among the first states to enact legislation defining
mortgage rescue fraud, Ms. Norton said, “it’s a growing industry, and it’s under
Often the scammers represent themselves as having connections to government
groups, or copy the name and typography of the Hope Now program, an alliance of
nonprofit, government and lending agencies, said Marietta Rodriguez, director of
national homeownership programs at NeighborWorks America, a nonprofit group that
provides free government-certified foreclosure counseling through 235 local
“Several took the Hope Now Web site and just reskinned it with their own
information, or they use government seals,” Ms. Rodriguez said. “They’re very
crafty, and their marketing strategies are aggressive.”
Peggy L. Twohig, associate director of the financial practices division at the
Federal Trade Commission, said consumers should be wary of companies that
promise results, charge upfront fees or tell them not to contact their lender on
their own. Ms. Twohig said consumers could get the same help free from nonprofit
“Our advice to consumers is to contact their loan servicers directly or to call
Hope Now or HUD-approved housing counselors,” she said.
Last year, Congress approved $180 million in grants to nonprofit housing
As Ms. Martinez awaits eviction, the temptation to try another foreclosure
rescue specialist remains. “There’s other agencies that say they can help,” she
said, “but I’m scared that I can’t trust them.
“One man said, ‘You have to be persistent,’ ” she said. “But I’m scared to get
someone else, because they probably won’t help me, or can’t.”
Copyright 2009 The New York Times Company. Reprinted from The New York Times,
National, of Thursday, January 15, 2009.
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