While it's certainly sad and frustrating news, it turns out that during a time when people are struggling with the threat of foreclosure, multiple companies have sprung up that feed off people's fears and end up scamming them out of money by providing false hope that their company can help them keep their home. And, what's especially scary is that many of these loan modification scams look legitimate.
Recently the Federal Trade Commission filed court documents against one man who founded such companies as U.S. Debt Care and The Department of Consumer Services Protection. And while many who went through his company heard that these businesses could offer debt relief and help them avoid foreclosure, the allegations are that instead their information was just sold to other companies that are known to scam homeowners who are in financial trouble.
And while many are rightfully outraged at this man for running these companies and supposedly selling their information, according to the federal government this is just one example of a growing network of shady debt settlement and foreclosure relief companies that are marketing toward homeowners who are already strapped for money.
In fact, in the past three years the FTC has brought allegations against close to 40 other company owners with similar practices intended to deceive homeowners. Additionally, some of the people who are involved with these scams are often times the very same people who years ago were selling predatory and risky loans. Once those operations were stopped, many chose to move over to for-profit loan modifications.
The current practice the FTC is seeing is where a business claims to be able to look at irregularities in a loan agreement, or find proof of predatory lending, and then use that information to renegotiate with a lender for new loan terms, like lower monthly payments of better interest rates. However, in most of these cases these companies don't have the legal knowledge -- or even staff -- to be able to even identify problems in a mortgage, and the homeowner ends up wasting their money and not receiving a loan modification.
That is why due to the shady nature of these mortgage relief scam companies, it is important to make sure that if you are facing foreclosure and looking for a loan modification that you are working directly with a legitimate qualified bankruptcy attorney, a nonprofit debt counseling agency or a HUD-certified counselor.
Source: Huffington Post, "Mortgage Relief Scams Proliferate After Recession," Janell Ross, Sept. 25, 2011