Avoid home loan and foreclosure scams

Thursday, May 31, 2007

As the housing market softens and fewer people are buying homes or refinancing their mortgages, unscrupulous lenders are using mass mailing mortgage offers to prey on older adults, limited-English-proficient consumers and those with poor credit, warns an alert from the Fairfax County Consumer Affairs office.

Home loan scams

According to the alert, homeowners in Virginia recently received letters claiming that they were entitled to “cash back” of up to $46,000 under the Community Reinvestment Act, a federal government program. What many people discovered once they read the fine print was that the letter was really a devious solicitation for a home equity loan.

Home loan scam letters typically have these characteristics:

• The letter is mailed in an envelope that appears to be from from a trusted entity such as a government agency.
• The letter tells homeowners that they are entitled to cash because they meet the requirements of a federal government program and may provide a link to a government web site.
• The letter provides a number to call to claim the cash. It may indicate that the program is available for a limited time and will expire soon.
• Typically, there is an asterisk at the bottom of the page that indicates the terms and conditions are on the other side.
• On the back page, there will be a lengthy list of fine-print terms and conditions containing disclosures that this is a home loan offer.

The Fairfax County Consumer Affairs branch suggests that residents who receive such letters contact the Federal Trade Commission (FTC), which has regulatory oversight concerning consumer credit laws. The FTC can be contacted at 877-FTC-Help or www.ftc.gov.

To stop prescreened credit solicitations for mortgages, homeowners can opt out to stop consumer credit reporting companies from providing personal information to lenders for use in marketing. To opt out, call 888-567-8688 or visit www.optoutprescreen.com.

Foreclosure scams

The New Jersey Division of Consumer Affairs has alerted homeowners to a scam in which they are urged to transfer their property deed for a minimal payment in order to avoid an imminent foreclosure. The con artists may promise to transfer the deed back after certain conditions are met. A homeowner may receive a few thousand dollars in return for signing away his or her ownership of the home but ends up losing the home, along with any equity they have built up from homeownership.

After obtaining the deed, the con artist allows the home to go through foreclosure. At the Sheriff’s Sale, the home often sells for more than what is owed to the mortgage company and the taxing authorities. The difference between the sales price and amount owed is called Surplus Funds. The deed holder is entitled to the Surplus Funds. The con artist who bought the deed, sometimes for a small amount, is entitled to apply for the Surplus Funds. The original homeowner would have been entitled to those funds that now go to a scammer.

If contacted about foreclosure opinions, the New Jersey Division of Consumer Affairs recommends homeowners:

• Contact their lenders. They may be able to work a re-payment plan (forbearance agreement) that is within a homeowner’s budget;
• Seek legal advice through a trusted attorney, not one appointed by the company or individual soliciting them. To find an attorney, go to the National Association of Consumer Advocates (www.naca.net);
• Never sign away ownership of the home via a quitclaim deed without consulting a trusted attorney;
• Be especially suspicious of offers to “lease back” the home, in order to buy it back over time. These offers may sound good, but often end in eviction and loss of any rent that’s been paid;
• Never make your mortgage payments to anyone other than your lender of record;
• Never listen to anyone other than the lender (or the lender’s official servicing firm) regarding the mortgage payments or due dates;
• Beware of any home-sale contract in which the homeowner is not formally released from liability for their mortgage;
• Not sign any document with blank lines or spaces; information could be added later without your knowledge and consent;
• Consider selling your home through a licensed real estate agency; and
• Be wary of so-called attorneys who offer to take title to your home. Seek independent legal advcie from your own lawyer.