Mortgage modification scams trap desperate homeowners
— -- The foreclosure crisis that has spread across the country is producing another epidemic: mortgage modification scams that have cost desperate borrowers thousands of dollars — even their homes.
"There are devastating consequences to this fraud," said Christy Romero, deputy special inspector general who monitors potential fraud in the federal Troubled Asset Relief Program (TARP).
In early December, Romero's agency, SIGTARP, joined the U.S. Treasury Department and the federal Consumer Financial Protection Bureau to fight scams targeting homeowners seeking mortgage modifications under the U.S. Home Affordable Modification Program (HAMP).
A total of $29.9 billion in TARP funds has been set aside for the federal government's foreclosure prevention initiatives, including HAMP.
Applying for HAMP is free, as is the loan modification advice of housing counselors approved by the U.S. Department of Housing and Urban Development.
Yet scam artists have convinced struggling homeowners to pay a fee in return for false promises of lowering their debt or their mortgage payments.
Other swindlers have had homeowners turn over the deeds to their homes, told borrowers to stop making their payments, or insisted they stop dealing with their mortgage servicer.
These scam artists may advertise on Web search engines, television and radio; illustrate their materials with government logos; give their companies official-sounding names, or use scare tactics.
"The last thing a family facing foreclosure needs is a scam artist picking their pockets and making the situation worse, when all they're trying to do is dig out," said Oakland County (Mich.) Treasurer Andy Meisner.
Tens of thousands of borrowers across the country are at risk of losing their homes.
According to RealtyTrac, figures for the first 11 months of 2011, some 756,407 borrowers nationwide received default notices and 742,649 homes were repossessed, including 51,354 in Michigan.
Jamele Hage, an assistant Wayne County, Mich., corporation counsel who runs the county's Mortgage Foreclosure Prevention Program, said one scam artist used "Wayne County" in his company's name to make it sound official.
He convinced an elderly woman to pay him for help with a modification application, even driving her to the bank to get the cash. He visited another borrower at his hospital bed, where he tried to persuade the sick man to sign documents.
"We never go out to people," said Igor Ristov, a foreclosure prevention counselor for Wayne County. "That's not us. This is another company that's using Wayne County in their name. That's how slick they are."
Hage said another scam artist persuaded a woman in her 80s to turn over the deed to her home. The scammer stopped making mortgage payments, the home went into foreclosure and the woman "has nothing left," Hage said.
"The stories of the people who are victims of these scams are really heartbreaking and unfortunately, the HAMP mortgage modification scams have become a nationwide epidemic," SIGTARP's Romero said.
Romero said cons used to be local — with swindlers hitting one town before moving on to the next. The Internet has changed that, increasing the scope and scale of the fraud, she said.
In November, SIGTARP announced it had shut down 125 alleged schemes advertised on Yahoo, Bing and Google.
SIGTARP's investigation has led to criminal charges against 17 people, including three sentenced to prison; the other cases are pending.
In Michigan, the state Attorney General's Office said it has criminally charged 28 individuals and companies for modification scams since 2009. All were convicted, and this year, victims were awarded nearly $210,000 in restitution.
Romero said homeowners should educate themselves about the hallmarks of the scams.
"HAMP is a free program, so homeowners need to be wary of anyone who charges them for their work on a HAMP application," she said. "Homeowners also need to be wary of anyone who guarantees them they will get a successful modification through HAMP."
Hage of Wayne County said struggling borrowers should turn to free, HUD-approved counselors working for nonprofits or local governments. She said these counselors receive regular training and are up-to-date on foreclosure prevention programs, which have frequently changing rules.
"You should never have to pay for foreclosure counseling or foreclosure assistance — ever," Hage said. "Save your money to make your mortgage payments."
Meisner, the Oakland County treasurer, said he worries about the impact of scams on homeowners and neighborhoods.
"Every time a scam artist victimizes a family, there's a huge ripple effect," Meisner said. "When scam artists run away, they leave a worse situation than when they found the family — the family is more likely to lose their home. When a home is lost, the property is at risk for property crimes, theft of copper and piping and other materials from the house, and there is a destabilizing impact on the neighborhood. . . . The ripple effect of this unethical act is enormous."