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Facing foreclosure is a terrifying time for any homeowner. With the foreclosure rate at an all-time high and the nation in economic crisis, as many as 8 million American homeowners are expected to face foreclosure through 2012, according to industry studies.
Scam artists see this crisis as a prime opportunity to make money off of homeowners in danger of losing their homes. The so-called mortgage “rescue” companies use simple messages in print, broadcast, and online ads to hook in homeowners facing foreclosure or other financial difficulty.
ConnectLA Housing wants you help you in weathering the storm of the current economic crisis and to give you information to help to save your home!
What happens if I miss my mortgage payments?
Foreclosure may occur. This is the legal means that your lender can use to repossess (take over) your home. When this happens, you must move out of your house. If your property is worth less than the total amount you owe on your mortgage loan, a deficiency judgment could be pursued. If that happens, you not only lose your home, you also would owe your lender an additional amount.
Both foreclosures and deficiency judgments could seriously affect your ability to qualify for credit in the future. So you should avoid foreclosure if possible.
What should I do?
- DO NOT IGNORE THE LETTERS FROM YOUR LENDER. If you are having problems making your payments, call or write to your lender's Loss Mitigation Department without delay. Explain your situation. Be prepared to provide them with financial information, such as your monthly income and expenses. Without this information, they may not be able to help.
- Stay in your home for now. You may not qualify for assistance if you abandon your property.
- Contact a HUD-approved housing counseling agency. Visit www.findaforeclosurecounselor.org or call the Homeowner’s HOPE Hotline at (888) 995-HOPE for free foreclosure prevention counseling by expert counselors at HUD-approved nonprofit counseling center These agencies are valuable resources. They frequently have information on services and programs offered by Government agencies as well as private and community organizations that could help you. The housing counseling agency may also offer credit counseling. These services are usually free of charge.
What are my alternatives?
You may be considered for the following:
Special Forbearance. Your lender may be able to arrange a repayment plan based on your financial situation and may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you have recently experienced a reduction in income or an increase in living expenses. You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan.
Mortgage Modification. You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem and can afford the new payment amount. But beware of beware of loan modification scams (see below).
Partial Claim. Your lender may be able to work with you to obtain a one-time payment from the FHA-Insurance fund to bring your mortgage current.
You may qualify if:
- your loan is at least 4 months delinquent but no more than 12 months delinquent;
- you are able to begin making full mortgage payments.
When your lender files a Partial Claim, the U.S. Department of Housing and Urban Development will pay your lender the amount necessary to bring your mortgage current. You must execute a Promissory Note, and a Lien will be placed on your property until the Promissory Note is paid in full. The Promissory Note is interest-free and is due when you pay off the first mortgage or when you sell the property.
Pre-foreclosure sale. This will allow you to avoid foreclosure by selling your property for an amount less than the amount necessary to pay off your mortgage loan. This is sometimes called a short sale. A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold.
In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank's loss mitigation or workout department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale. Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market and the borrower's financial situation.
Given the unprecedented and overwhelming number of losses that mortgage lenders have suffered from the 2009 foreclosure crisis, they are now more willing to accept short sales more than ever before. This is great news for borrowers who are "under-water"—in other words, those who owe more on their mortgage than their property is worth and are having trouble selling to avoid foreclosure as a result.
Deed-in-lieu-of foreclosure. As a last resort, you may be able to voluntarily "give back" your property to the lender. This won't save your house, but it is not as damaging to your credit rating as a foreclosure.
You can qualify if:
- you are in default and don't qualify for any of the other options;
- your attempts at selling the house before foreclosure were unsuccessful; and
- you don't have another FHA mortgage in default (if FHA insured).
How do I know if I qualify for any of these alternatives?
Your lender will determine if you qualify for any of the alternatives. A housing counseling agency can also help you determine which, if any, of these options may meet your needs and also assist you in interacting with your lender. Call (800) 569-4287 or TDD (800) 877-8339.
Beware of Mortgage Rescue and Loan Modification Scams
A fairly new and dangerous threat has arisen for homeowners who have fallen behind on their mortgage payments and may be at risk of foreclosure—opportunistic companies. They often refer to themselves as a “foreclosure consultant”, “mortgage consultant”, and market themselves as a “foreclosure service”, “foreclosure rescue agency” or “loan modification company”. They count on homeowners being vulnerable and desperate.
These companies claim they can assist homeowners facing foreclosure with options tha allow them to keep their property, refinance or modify an exisiting mortgage, repair credit or help “buy more time”. In reality, these “options” are intended to convince you to take the wrong steps so they can take your money and possibly your home.
Remember the old saying, “if it’s too good to be true, it probably is.”
Be safe. It is important that you take action by contacting your mortgage lender—or any legitimate financial counselor—to find real options to avoid foreclosure. A number of agencies provide free counseling services to homeowners who are having trouble making ends meet (click here to see list of HUD-Approved housing counselors). These agencies can help you explore your options, which may range from modifying your loan to refinancing you loan to selling your home and using any equity to start over.
Watch Out for the Common Foreclosure Rescue and Loan Modification Scams
Lease-Back or Repurchase Scams—In this scenario, a promis is made to pay off your delinquent mortgage, repair your credit and possibly pay off credit cards and other debt. However, in order to do this, you must “temporarily” sign your deed over to a “third party” investor. You are allowed to stay in the home as a renter with the option to purchase the home back after a certain amoung of time has passed or your financial situation improves. The trouble is once you have signed away your rights in your property, you may not be able to repurchase the property later, even if you can and want to. After the new owner takes ownership of your property, the new owner can evict you. Furthermore, the scammer is uner no obligation to sell the house back to you. Typically, after the deed is signed away, the property changes hands numerous times. The scammer may have taken a new mortgage out on your home for hundreds of thousands of dollars more than your mortgage, making it impossible for you to buy back your home.
Partial Interest Bankruptcy Scams—The scam operator asks you to give a partial interest in yoru home to one or more persons. You then make mortgage payments to the scam operator in lieu of paying the delinquent mortgage. However, the scam operator does not pay the existing mortgage or seek new financing. Each holder of a partial interest then files bankruptcy, one after another, without your knowledge. The bankruptcy court will issue a “stay” order each time to stop foreclosure temporarily. However, the stay does not excure you from making payments or from repaying the full amounty of your loan. This complicates and delays foreclosure, while allowing the scam operator to maintain a stream of income by collecting payments from you, the victim. Bankruptcy laws provide important protections to consumers. This scam can only temporarily delay foreclosure, and may keep you from using bankruptcy laws legitimately to address your financial problems.
Refinance Scams—While there are legitimate refinancing programs available, look out for people posing as mortgage brokers or lenders offering to refinanice your loan so you can afford the payments. The scammer presents you with “foreclosure rescue” loan documents to sign. You are told that the documents are for a refinance loan that will bring the mortgage current. What you don’t realize is that you are surrendering ownership of your home. The “loan” documents are actually deed transfer documents, and the scammer counts on your not actually reading the paperwork. Once the deed transfer is executed, you believe your home has been rescured from foreclosure for months or even years until you receive an eviction notice and discover you now longer own your home. At that point, it is often too late to do anything about the deed transfer.
Internet and Phone Scams—Some scam lenders convince you to apply for a low-interest mortgage on the phone or Internet. They then extract vital information, such as your social security and bank account numbers. In this scam, the loan is immediately accepted, after which you start faxing the documents and sending wire transfer payments to the phony company without even meeting the lender. Unfortunately, this scam will put you in twice as much trouble—your personal details have been stolen or sold, putting you at risk of identify theft, and your home is stall at risk of foreclosure.
Phantom Help Scams—The scam operator presents himself as someone who is able to help a homeowner out of foreclosure or qualify for a government loan modification or refinance program. In exchange for his or her “services”, outrageous fees are charged and grand promises are made for robust representation, which never occurs. The “services” performed entail light paperwork or occasional phone calls that you could easily have made yourself. In the end, you are worse off than before, because you have little or no time to save your home, or seek other assistance.
Caught in a Foreclosure or Loan Modification Scam?
If you get caught in one of these scams, it is imperative that you contact a lawyer right away. An attorney can assist you as you navigate your way through the process. Lower income individuals may be able to find free legal services at www.findlegalhelp.org.
How to Report Foreclosure Scams
Federal Trade Commission
http://www.ftccomplaintassistant.gov/ or
www.ftc.gov/bcp/menus/consumer/credit/mortgage.shtm
State Attorney General
www.naag.org/attorneys_general.php
State, County and City Consumer Protection Offices
www.consumeraction.gov/state.shtml
Sources:
Federal Deposit Insurance Corporation, http://www.fdic.gov/foreclosureprevention
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Homeowners 
