Avoiding Scams Disguised As Mortgage Help

With millions of mortgage holders in trouble, scam artists are preying on desperate Americans, often using ads targeting them.

Now, top federal and state officials have announced a major crackdown on mortgage modification and foreclosure rescue fraud.

On The Early Show Tuesday, financial contributor Vera Gibbons warned viewers about three prevalent kinds of scams and highlighted the "red flags" consumers should be aware of.

The three are dubbed "Phantom Help," "Rent-to-Buy" and "Bait-and-Switch." Each has characteristics that could give them away: official-sounding names, upfront fees, title transfers, and pressure to sign paperwork.

Scams are hardly new, Gibbons points out, but they are on the rise, roughly quadrupling recently as predators try to capitalize on homeowners in trouble -- some seven-to-nine million in all who are behind on their payments or in foreclosure at this point, officials estimate. There's a glut of vulnerable, desperate people -- perfect victims -- and pretty easy to find, through local public foreclosure listings.

The fraud is most common, as you might expect, in states with the highest foreclosure rates, such as California, Nevada, Arizona and Florida, Gibbons adds Complaints have been pouring in to attorneys generals' offices, Better Business Bureau chapters and consumer protection offices. Nevada's Bureau of Consumer Protection alone is getting 100 complaints a month from homeowners who suspect foul play.

As for the types of scams and potential red flags, Gibbons points to:

PHANTOM HELP

This is the most common these days. Red flags on phantom helpers include official-sounding names. This is when the "rescuer" comes to you saying they'll take care of the negotiations with your lender. Many call themselves "foreclosure prevention specialists," "mortgage consultants," "loan modification specialists," etc. Many are from companies with the word "hope" in their names.

Another red flag warning is an upfront fee -- anywhere from $500-$5000! You may also be told not to contact your lender, lawyer or credit counselor and to make all mortgage payments to the "rescuer" while he or she "negotiates." Bottom line: They take your money, there are no services rendered, and they put you in a deeper financial hole, and even closer to foreclosure.

There are legitimate businesses that can help you modify your mortgage and get out of foreclosure. The key is they won't ask for money up front, and will render services before you pay them a dime. The federal government also offers free housing counselors at MakingHomeAffordable.gov.

RENT-TO-BUY

The red flag warning for rent-to-buy schemes is a title transfer. The scammers tell you that you need to surrender the title so someone with a better credit rating can get new financing and prevent the loss of your home. They say you can stay in the house and rent it while they fix your credit. Eventually, they say, you'll be able to buy the house back.

But buyback becomes impossible -- the terms are just too onerous -- you get evicted, and the "rescuer" walks off with most or all of the equity.

BAIT-AND-SWITCH

The red flag warning for bait-and-switch is pressure to sign paperwork. You think you're signing documents for a new loan to make the mortgage current, but you're actually giving up ownership of the property! The sad part: You don't even know you've been scammed until you get eviction notice.

THE BOTTOM LINE

There are foreclosure prevention services for free from the government at MakingHomeAffordable.gov. If you're in trouble, you need to contact your lender immediately to discuss a loan modification.

If someone comes to you offering to help, and the offer sounds too good to be true, it probably is!

If you've been victim of fraud, you want to report it to the Federal Trade Commission Web site, your state attorney general, and your local Better Business Bureau.