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California issues consumer alerts for mortgage fraud

by Broderick Perkins

(3/28/2011) California is warning housing consumers that mortgage fraud hasn't been curtailed, can morph into a variety of come-ons and homeowners everywhere are advised to remain vigilant throughout the housing downturn and beyond.

Mortgage fraud in its many incarnations has increased exponentially since the housing boom when bust, preying on vulnerable homeowners and reaching levels associated with organized crime according to the Federal Bureau of Investigations (FBI).

The latest consumer alert from the California Department of Real Estate (DRE) addresses something called "mass joinder" or class action litigation posturing scammers are using to separate homeowners from their money and homes.

A previous alert focused on more conventional mortgage scams.

"Mass joinder" fraud

Under the mass joiner scams, marketing companies, unlicensed entities, lawyers, and so-called attorney-backed, attorney-affiliated, and lawyer referral entities offer and sell false hope with the request of payment of upfront fees for legal actions that will supposedly result in extraordinary home mortgage relief.

Bogus claims, among others, include:

• You can join in a mass joinder or class action lawsuit already filed against your lender and stay in your home. You can stop paying your lender.

• The mortgage loans can be stripped entirely from your home.

• Your payment obligation and foreclosure against your home can be stopped when the lawsuit is filed.

• The lawsuit may give you the right to rescind your home loan, or to reduce your principal.

"Conventional" mortgage fraud

With conventional mortgage fraud comes, among others:

• Advice that you can "walk away" from your home loan and repair your credit by "quit claiming" your property to some third party.

• Assertions that you can "delete" or fully satisfy your mortgage by assigning it to some third party.

• Claims that you can get your home "free and clear" by suing your lender for something like failing to get your approval to assign the loan to some other party.

• Requests that you pay only in cash, or by wire transfer or a cashier's check.

• "Attorney-backed" or "attorney affiliated" entities that do not disclose the name or names of California licensed lawyers who are responsible for those entities.

• Unsolicited help, such as people showing up at your home, or cold-calling you and professing their expert services.

• Requests for personal financial information over the phone or over the Internet; upfront payment before any services have been provided and giving the service provider a power of attorney.

• Statements that you must act immediately, or without any delay.

"With so many people struggling to stay in their homes, foreclosure rescue and mortgage relief scams have risen dramatically," said DRE Commissioner Jeff Davi.

"Consumer Alerts will educate consumers and help homeowners avoid becoming victims of schemes intended to rip them off," he added.

DRE has set up over 4,500 cases that involved loan modification complaints resulting in 244 Desist and Refrain orders to halt illegal operations that name 785 separate respondents. In addition, the DRE has filed 88 Accusations against 159 different real estate licensees for violating the real estate law in connection with offering loan modification services.

How do you avoid these scams?

• Never pay an upfront fee for loan modification services. Such fees are illegal in California and should be in other states. Advance fees for short sale, deed-in-lieu of foreclosure and other residential mortgage foreclosure rescue services are also illegal under a new federal rule, with a very limited exception for fees paid to lawyers.

• Watch out for promises of guaranteed success. No one can promise that a loan modification or other relief plan will be successful.

• Poo poo too good to be true testimonials. False claims of successes are often the hook to get consumers to pay upfront fees.

• Ask questions. Check with the Better Business Bureau, check with local licensing agencies and regulators, verify licenses and disciplinary records (if any) of those offering their services.

• Surf for truth. Often consumers will post information online about unscrupulous operators well before regulators can act.

• Contact a U.S. Department of Housing and Urban Development-approved counseling agency that can provide loan modification or other mortgage negotiation services for free.

• Do it yourself. You do not need anyone to represent you to obtain a loan modification or other mortgage relief. See DRE's Frequently Asked Questions , the federal Making Home Affordable web site or the government-private HopeNow programs.

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