by Dan Krell © 2009.
Foreclosure relief is big business; so are foreclosure relief scams. Foreclosure relief scams have been a long standing national problem. In fact, in their 2005 report titled, “Dreams Foreclosed: The Rampant Theft of Americans’ Homes Through Equity-Stripping Foreclosure Rescue Scams,” the National Consumer Law Center described foreclosure relief scams as fitting into three categories: phantom help, bailout, and bait and switch (consumerlaw.org).
Phantom help is described as the charging of fees (usually excessive), by a “consultant,” to make phone calls and complete paperwork that the home owner can typically complete on their own. In this type of scam, the home owner does not know that the “consultant” provided little (if any) assistance until it’s too late. The “consultant” usually disappears and the home owner is not only facing foreclosure, but has been scammed out of their hard earned money.
The bailout scam was popular among schemers in the earlier part of this decade when many home owners had equity in their homes. Although there are variations on this type of scam, typically the homeowner would arrange to buy their home back after the title of the home was conveyed to the “consultant.” Usually, the home equity is unknowingly stripped by the “consultant” and the home owner loses the home.
The bait and switch scam is what it is exactly what it sounds like. The home owner unknowingly conveys the title of their home to the “consultant,” while believing they are signing loan documents.
In response to the growing number of consumer complaints (as well as legitimate business inquiries), the Maryland Commissioner of Financial Regulation posted an advisory late last year to consumers as well as those in the business of loss mitigation, foreclosure prevention, and similar services (www.dllr.state.md.us/finance). The advisory is a reminder that the Protection of Homeowners in Foreclosure Act (PHIFA) is in force to protect home owners as well as pursuing predators. PHIFA describes who is protected, prohibited practices (including foreclosure rescue transactions), foreclosure consulting contract terms, mandatory disclosures, and the home owner’s right of rescission.
Under PHIFA, a “foreclosure consultant” is described as anyone who systematically solicits home owners to offer foreclosure consulting services, which includes (among other services) loan modifications, forbearance services or loan reinstatement services. To add credence to their services, some foreclosure consultants are or work with real estate agents, loan officers, or title companies.
PHIFA prohibits upfront fees of any kind to be collected by foreclosure consultants. A foreclosure consultant cannot receive any compensation until they have performed every service described in their contract. Additionally, foreclosure consultants cannot receive payment from third parties (real estate agents, loan officers, title companies, etc.) connected to the services provided to the home owner unless the payments are fully disclosed to the home owner, listed on the settlement sheet, and does not violate (other) law.
If you are in default or in foreclosure and have been contacted by someone promising foreclosure relief (by negotiating a loan forbearance, modifying the terms of your mortgage, or even facilitating a short sale) do your homework and make sure the consultant is legitimate. You can get more information about PHIFA by contacting the Commissioner of Financial Regulation; and of course, consult with an attorney.
This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of January 19, 2009. Copyright © 2009 Dan Krell.