You've probably seen the incessant
TV and Internet pitches -- "We can stop your foreclosure!" -- offering hope to millions
of homeowners who are behind on their mortgage payments or heading to foreclosure.
But a new settlement from the
Federal
Trade Commission
sends
a blunt warning to the fast-growing foreclosure fix-it industry: If you take consumers'
cash upfront and promise you'll save their homes, you'd better be able to deliver.
Otherwise you may be charged
with running a scam that violates federal law and accused of exploiting the country's
mortgage delinquency mess for your own private gain.
The FTC filed suit against Clearwater,
Fla.-based Mortgage Foreclosure Solutions last year, saying the company operated a
"scheme to sell purported mortgage foreclosure services to consumers" nationwide through
six Web sites but almost never prevented foreclosures.
The FTC said the company lured
homeowners with claims that "no matter how far you are behind in your payments, the
size of your mortgage debt or your credit history, we have mortgage foreclosure solutions."
According to the complaint, the company's marketing pitches said, "We are so confident
of our abilities to provide mortgage foreclosure solutions that we guarantee our services."
Consumers who signed up were
charged $1,200 -- $250 for "processing setup" expenses and $950 for negotiating with
lenders and resolving foreclosure issues. Yet the company, according to the FTC, did
"not stop mortgage foreclosures or save consumers' homes in all or virtually all instances."
Many clients ended up losing their homes to foreclosure despite the guarantees and
fees, the agency said. The ones who avoided foreclosure did so on their own, with
no help from the firm.
In a final settlement of the
case in
U.S.
District Court
in
Tampa on Jan. 5, the FTC obtained a $1.2 million judgment against the company, along
with prohibitions of future business activities promising foreclosure rescues. Because
of the firm's inability to pay, the FTC agreed to suspend all but $8,320.84, while
reserving the right to collect the rest if evidence emerges that the defendants had
not fully disclosed their financial and other assets. Mortgage Foreclosure Solutions
admitted no wrongdoing as part of the settlement agreement.
Cindy Liebes, assistant regional
director for the FTC, said foreclosure rescue schemes are proliferating across the
country as the result of the recession, job losses and the real estate bust. The firms
prey on homeowners who "are scared and really don't know what to do" to get off the
treadmill taking them to foreclosure, Liebes said.
Scam operators often have no
special ability to intervene on behalf of distressed borrowers or to work out loan
modifications, repayment plans or other alternatives with lenders. All they want is
to sign up clients and take their money -- essentially kicking homeowners when they're
most vulnerable.
Liebes said the FTC has compiled
a list of "red flag" signs to help homeowners determine whether promoters claiming
to be able to forestall or prevent foreclosures may not be legitimate. In general,
avoid doing business with any firm that:
· Guarantees to stop your foreclosure,
irrespective of how much you owe or how much income you have to resolve your unpaid
bills. Most major lenders and the servicing companies they employ are willing to negotiate
loan modifications to cut payments or reschedule debts, but if you don't have the
income to handle lower payments, foreclosure is hard to avoid. Any company that spins
you a different story is probably a scam.
· Requires you to pay money
before any services have been rendered. Liebes said some states specifically prohibit
foreclosure rescue firms from collecting any money in advance, but Internet-based
companies often ignore those rules.
· Tells you to avoid contacting
your lender or servicers directly, delegating all negotiating duties to the firm.
In fact, borrowers tend to be in the best position to speak with servicers about their
situations and possible alternatives to foreclosure, including short sales.
· Instructs you to send mortgage
payments to its office address instead of your lender or servicer. Such firms not
only take your money with little or no services rendered, but dig you into a deeper
financial hole with your lender.
· Asks you to turn over the
title or deed to the property so that the company can be in a stronger position to
deal with the lender. That's the equivalent of kissing your house -- and any remaining
equity -- goodbye.
If you spot any of these red
flags, take the FTC's advice: Walk away fast.
