When you are worried about foreclosure, or you've actually gotten an acceleration letter from your lender or an attorney, the last thing you need is to be preyed upon by phony "loss-mitigation experts", who give you misleading information that may make your situation worse, while charging you as much as $1000.
But that is exactly what happens to many borrowers who are desperate for help in dealing with their mortgage lender.
Mortgage Fraud Blog is reporting the case of one such company, working in Ohio, called Diversified Real Estate Consultants LLC (DREC).
"DREC accepted fees ranging from $500 to $3495, while promising desperate borrowers reduced mortgage payments, lower interest rates or a "100% money back guarantee"."
Even though charging up-front fees for such services has been banned by the Federal Trade Commission, the large number of delinquent borrowers who are desperate for a solution has triggered a growing number of such scams. Some of the scammers are even legal firms, who, as attorneys, are the only group allowed to charge a fee up front to help with foreclosure avoidance.
The fact is, NO ONE can offer a guarantee that a foreclosure will be avoided. Every situation is different, and every borrower has different circumstances. Some situations are easy to work out, and some are very difficult. It's never a "cut and dried" process.
Sometimes a borrower gets a loan modification, a reduced interest rate, a reduced payment, or some other type of workout arrangement from their lender. Sometimes the only realistic option is a short sale. So, companies that offer up front guarantees are often scammers.
I recently got a call from a personal friend who owned a 2.2 million dollar home in north Georgia. Because of the recession he had lost most of his income, and found himself behind on his mortgage payments. He contacted a law firm that advertised help for homeowners in foreclosure. He paid this firm an up-front retainer of $3400 to negotiate with the foreclosure attorney on his behalf.
The law firm my friend had paid to negotiate his foreclosure advised him not to make up the $12,000 in back payments, as they were still negotiating with the foreclosing attorneys office. Several months later, the house went into foreclosure, and this gentleman lost his home and the $3400 retainer fee he had paid, and that firm was no longer returning his phone calls. This event was made even more painful by the fact that the home owner had the $12,000 to make up the back payments, and could have brought the loan current. But on the advice of his attorney, he did not do so. He lost his home after paying thousands of dollars for "loss-mitigation" from a law firm that clearly had no more expertise in foreclosure mitigation than most of the scammers out there preying on the public.
In another case, I was asked by a delinquent borrower to review the documents provided by a loss-mitigation firm that was attempting to collect a $1000 up front fee. The scammers were not only trying to charge an up-front fee for services they could not provide, in reality, had this borrower signed the documents, he would have transferred his deed to the scammers!
Many times these companies are actually trying to dupe a desperate borrower into assigning their property deed, which then gives the scammers the right to sell the property to someone else. This scammer had no intention of helping this borrower, they were trying to steal his property. Had they succeeded, I suspect they would have sold the property to another buyer for another up front fee, and left the original owner and the unsuspecting buyer with an empty wallet and a big problem.
Having stopped many foreclosures for dozens of homeowners, I can tell you that the best thing to do if you are behind on your mortgage payments is to contact the bank early, before you are more than two months behind, and find out what options are available. Usually, the first course of action is to file paperwork asking for a loan modification. If you still have enough income to afford a payment, but your current payment is simply too high, this is your best course of action and the earlier you start, the more likely it is that you can find a way to get something done.
If you've lost income and can't make a mortgage payment due to being unemployed, there may be state or federal programs available, depending on who owns your mortgage. It can get confusing because mortgages are owned by a variety of entities. Some, such as Fannie Mae and Freddie Mac, are controlled by the federal government, so they are subject to programs offered at the federal level.
Other lenders are independent, and the mortgages may be owned by private investors such as insurance companies or banks. These types of mortgages are not subject to federal programs, but may be subject to FHA guidelines if the loan is FHA insured. The first thing a delinquent borrower needs to know is "who owns my loan?" That helps determine what programs are available. You may also contact your lender to find out what programs you can apply for based on your situation. And keep applying...just because you've been turned down for one program does not mean you can't keep trying. Borrowers give up too quickly. Often just submitting these forms can help delay a foreclosure for months.
And finally, if you do rely on a third party to help you, monitor their progress very carefully. Don't assume that they will stay on top of your case. Be involved in this process. Get a referral to a local non-profit counseling service that is recommended by reputable sources. Stay in touch with them and monitor their progress. Do not pay any firm that wants to charge you an up-front fee to help you negotiate with your bank.
If you choose to do so, you may deal with your lender directly. Taking a pro-active approach will help you find out about all of the programs that may be available to help you modify your loan, obtain forbearance, or make other payment arrangements.
Beware of those who would have you believe that paying them will solve your mortgage problem.
Donna S. Robinson is a 16 year veteran of the real estate industry. She is an expert in residential real estate investing, and currently provides coaching and consulting services to real estate investors and investment companies. Her website is www.RealtyBizConsulting.com