Borrowers with FHA loans have the highest delinquency and default rates. Many analysts blame extremely liberal FHA underwriting policies, very low down payment requirements and seller concessions. Other factors that contribute to a default rate of almost 10% on FHA mortgages are slow income growth, high unemployment and declining home values.
Regardless of the causes for high default rates on FHA mortgages, delinquent borrowers wind up in a financial mess as they are forced to deal with eviction from their homes and destroyed credit ratings. Making matters ever worse, criminal con men are making a living preying off defaulted borrowers by making promises that cannot be kept.
Many homeowners in default are contacted by scammers and con men who promise that they can end the foreclosure and/or lower monthly mortgage payments. Homeowners are usually tricked into making an upfront payment to con men who claim that they have a special relationship with the borrower’s bank. Once the con men receive the upfront fee from the homeowners, they are never heard from again.
The Treasury Department and the Department of Housing and Urban Development are aware of the numerous schemes to defraud defaulted homeowners and have published four tips on how to avoid foreclosure scams.
Tips On Avoiding Foreclosure Rescue Scams
1. Be extremely skeptical of offers for mortgage modifications or mortgage counseling services predicated upon the receipt of an upfront fee. Many states, such as Connecticut have made it illegal for companies to accept upfront payments for foreclosure or loan modifications services, but not surprisingly, criminals ignore the law. It is up to the homeowner to intelligently evaluate any offers of assistance in exchange for upfront payments.
2. A classic sign of fraudulent schemes is a high pressure sales pitch in which the homeowner is bullied into acting immediately. This type of fraud typically occurs when a con man attempts to have a homeowner transfer over the deed to the house. The homeowner is told that transfer of ownership will allow the homeowner to remain in the house by making rent payments and that the defaulted mortgage will be refinanced followed by ownership reverting to the homeowner. This is a classic con game in which the rent payments are pocketed by the criminals operating this scheme and the homeowner eventually winds up being evicted from his home.
3. Never sign over the ownership of your home to anyone other than the lender holding your mortgage. Typically, a transfer of ownership to the bank involves settling the foreclosure in return for transfer of ownership.
4. A homeowner should never, under any circumstances, be tricked into making a mortgage payment to anyone other than the bank holding the mortgage without the express approval of the bank holding the mortgage.
Homeowners who think they may be potential fraud targets by criminals seeking to prey on their misfortune should contact the Federal Trade Commission (FTC) to file a complaint. The FCTC has an online Complaint Assistant or call 877-FTC-HELP (877-382-4357) for assistance in English or Spanish.
Other resources available to consumers to help them avoid being victims of fraud are listed below.
Federal Trade Commission — Watch the Foreclosure Rescue Scams Video on the FTC ‘s YouTube Channel.
The Loan Modification Scam Prevention Network – The Loan Modification Scam Prevention Network is a coalition of organizations created by Fannie Mae, Freddie Mac, NeighborWorks America™ and the Lawyers’ Committee for Civil Rights Under Law. The network can provide consumers with resources to avoid foreclosure and loan modification scams.