March 23, 2011
In an age of uncertainty in both the job and the housing markets, there are plenty of scams targeting homeowners fearful of losing their homes to FHA loan default and foreclosure. Anyone worried about defaulting on an FHA mortgage can be more vulnerable to a scam targeted to prey specifically on such fears; the FHA, HUD and the Federal Trade Commission issue regular warnings about mortgage scams. The best defense against companies and individuals who claim to offer relief, bailout programs or counseling–but don’t deliver–is knowing how such scams work.
The FTC warns that con artists use a variety of tactics to find new victims. Some advertise on radio, television and websites; others conduct searches of public records to find names and addresses to send more personalized messages. Regardless of the avenue used to reach potential victims, the FTC says the language of the message is similar. You’ll find plenty of ads and messages urging you to “stop foreclosure now” or offering money-back guarantees to take advantage of “special relationships” with banks or loan officers.
One of the most common scams is the offer to work with your creditors or FHA loan officer to reduce payments–for a fee. One feature of these scams is that the borrower is told not to contact the loan officer or creditors. Others may try to get you to make mortgage payments to them instead of your lender. In both cases you should refuse to deal with such agencies—these are not legitimate ways of helping a consumer avoid FHA loan default or foreclosure.
Another common scam is something the FTC calls the “Forensic Audit” where a third-party company will charge a fee to have your mortgage reviewed for legal missteps or other problems in the loan agreement. The sales tactic here is that the audit is sold as a way to stop foreclosure or force loan modification. According to the FTC, “there’s no evidence that forensic loan audits will help you get a loan modification or any other mortgage relief.”
Homeowners with FHA loans should also beware of rent-to-buy plans where a con artist tries to get the home owner to surrender the title to the property for any reason.
A common scam is for the con artist to offer the homeowner a rental agreement in exchange for the title, promising to sell the property back to the homeowner later. In these scams no money is ever paid to the lender, and in the words of the FTC official site, “…you lose the house and the scam artist walks off with the money you put into it. Worse, when the new borrower defaults on the loan, you’re the one who’s evicted.”
The best way to protect yourself against a mortgage scam as an FHA borrower is to contact the FHA immediately when approached by a third party with an offer to help avoid default and foreclosure. Explain the terms and conditions you were offered and ask whether they are legitimate. The FHA can help you avoid paying for services you could get for free–or at reduced rates based on FHA referrals (where circumstances apply).
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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