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Beware of Fraud

Mortgage fraud has become increasingly common across the country, particularly as it relates to foreclosure rescue and loan modification scams and short sale scams.

There are many organizations that can help you when facing financial problems or foreclosure, but it is more important than ever to make sure you are dealing with a reputable organization before getting involved. Any unsolicited help should be fully researched before accepting any help.

How to Report Scams

If you've been approached by a company or individual promising to save your home from foreclosure for a fee or believe you've been the victim of a scam, report it immediately !

  • Go to and fill out the Loan Modification Scam Prevention Network's (LMSPN) complaint form online and get more information on how to fight back. Note: you can also fill out this form and send to the fax number/e-mail/address (your choice!) on the back of the form.
  • Call 1-888-995‐HOPE (4673) and tell the counselor about your situation and that you believe you got scammed or know of a scam.

How to Identify Mortgage Fraud

Following are six red flags identified by Loan Modification Scam AlertTM , a national public education campaign that Freddie Mac co-chairs, to indicate that you may be dealing with fraud:

  • A company/person asks for a fee in advance to work with your lender to modify, refinance or reinstate your mortgage.
  • A company/person guarantees they can stop a foreclosure or get your loan modified.
  • A company/person advises you to stop paying your mortgage company and pay them instead.
  • A company pressures you to sign over the deed to your home or sign any paperwork that you haven't had a chance to read, and you don't fully understand.
  • A company other than your lender claims to offer "government-approved" or "official government" loan modifications.
  • A company/person you don't know asks you to release personal financial information online or over the phone.

Freddie Mac is the co-chair of the Loan Modification Scam Prevention Network that is working with the new Financial Fraud Enforcement Task Force and others to track and prosecute mortgage fraud.

Types of Fraud

Foreclosure Rescue and Loan Modification Fraud

In these scams, mortgage fraud artists target homeowners who are delinquent on their mortgage, on the brink of foreclosure, or in foreclosure with false promises of being able to save their home from foreclosure or guaranteeing a loan modification with a reduced mortgage payment.

Many of these companies seek out distressed homeowners by searching public records to identify properties where a Notice of Default has been filed. Typically, these people – or companies – charge excessive upfront fees for their "work," fail to execute any of their promises, and put you and your family at a much greater risk of losing your home.

In exchange for their assistance, they may:

  • Require you to sign the title to your home to them.
  • Ask you to sign a stack of unfamiliar documents, which may include a deed to transfer your title to them.
  • Charge you rent to stay in your home, and may promise that you can purchase your home back when your financial situation improves.

Typically, an unreasonable repurchase price is set, or they fail to make the mortgage payments on your behalf. The result is most often a foreclosure action, loss of your equity and eviction from your home.

Loan modification scams may operate similarly, providing false hope and empty promises. In most instances, the company collects an upfront fee and promises to work with your lender to obtain a modification with a reduced payment, but they fail to deliver on their promises.

Short Sale Fraud

The number of short sale transactions has grown significantly since the housing crisis began and, unfortunately, so has the number of scams involving short sales.

There are multiple schemes associated with short sales. For example, an unscrupulous short sale negotiator may attempt to facilitate the sale of your home to an affiliated party at below market value, with plans to resell it immediately to a third party for an immediate profit. Although this may achieve your goal of avoiding foreclosure, it may be considered fraud if your servicer was misled regarding the value of your property. In addition, an artificially low short sale price can also leave you with additional tax liabilities or a larger amount remaining on your loan balance, if applicable.

If you are selling your home through a short sale, following are some important points to keep in mind:

  • Beware of agents or companies that charge upfront fees or ask you to transfer title to your home to a third party or into a trust. The transfer of title should be completed by your closing agent, and should be done at the conclusion of the short sale process.
  • Seek the assistance of a licensed real estate professional to represent you.
  • If you engage the services of a short sale negotiator, remember that some states require negotiators to have a real estate license.
  • Seek the advice of an accountant and an attorney to discuss potential tax implications and the possibility of a deficiency judgment for the amount of debt that is forgiven or if there are subordinate liens on your property.
  • Beware of purchase offers that are well below market value, as well as any payments, transfers of funds or payoffs that are not included in the sales contract and approved by your servicer.
  • Make sure that your servicer is aware of all aspects of your transaction and that all activities are documented. Side agreements, undisclosed payoffs or hidden addenda should alert you to possible fraud.



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