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Mortgage Problems? Facing Foreclosure? Prepare to be Scammed.

The millions of desperate homeowners who have found themselves upside down and at risk of losing their homes have created a fertile environment for scamsters. The scams on homeowners are varied and include audits and NPV tests, modification services, foreclosure rescue services, sell and lease-back schemes, and my personal favorite, mass joinder suits.

Let’s start with NPV tests and mortgage audits.

NPV stands for Net Present Value. A NPV test determines the present and future value of a mortgage if the loan is modified vs. not modified and is required for most modifications including the HAMP program. Although companies are actively selling consumers NPV reports for hundreds of dollars, such as the REST Report, homeowners can obtain a free NPV test at the Treasury Department’s website.

This is a guest post by Krista Railey who is a real estate professional and mortgage expert who has witnessed a number of mortgage related scams she would like to warn consumers about.

Before a consumer considers paying hundreds for an NPV test, I recommend visiting the Treasury’s site to run their NPV test first. In testing the Treasury’s NPV test, it is interesting to note that most of the scenarios I submitted returned principal forbearance in the results. Why this is important to note is that principal forbearance is an amount that is deferred for payment until a later date. While the amount is deferred, interest is not charged and/or does not accrue. However, the principal that is in forbearance is still owed and has to be paid to satisfy the mortgage or will result in a balloon payment at a later date. Therefore, homeowners are advised to seriously consider the pitfalls of a modification given that it will not usually resolve the issue of being underwater on the home. That is, if a modification can even be obtained.

I also caution homeowners to seriously consider that The Mortgage Forgiveness Debt Relief Act will expire after 2012. Therefore, homeowners should talk to a tax professional regarding the potential tax consequences before making such a major financial decision. The important thing to remember about NPV tests is that regardless of what those selling them represent, the tests that are being sold to the masses are not a silver bullet, magic wand, or Holy Grail that will force a servicer to provide a satisfactory homeowner solution, and that homeowners can obtain a free NPV test at the Treasury’s website.

As to mortgage and compliance audits, these items can be quite costly and often times the claims made by the company or individual are overstated. While many audits might reveal minor violations, the recourse for said violations may be limited and/or insufficient to compel the servicer to magically forgive principal or write down the interest rate. Homeowners should be especially careful when dealing with companies that charge hundreds of dollars upfront, and should consider speaking to a local attorney in their area first. Most attorneys offer free consultations, and can provide insights as to whether a compliance report is needed.

Next on the list: loan modification and/or foreclosure rescue schemes.

These schemes are too plentiful to mention. Modification/rescue scams involve attorneys and non-attorneys alike. While there are legitimate companies and individuals that can help, the thing to be leery of is any request for advance fees. In many states, advance fees to anyone other than an attorney licensed in the state the property is located in are illegal. The reason why so many states have outlawed the collection of advance fees was because of the large numbers volume of scammers that that were collecting advance fees but not delivering on the service. As an alternative, a homeowner might consider seeking the help of a real estate or finance professional they trust for help in completing their modification application. Most of the professionals I know, including myself, are willing to offer free help. That is not to say that we wouldn’t appreciate a “thank you” in the form of a nice meal or referral.

As a hobby, I have investigated several companies and individuals engaged in the modification or foreclosure delay business, and have to give California Bar Association, Wayne Bell and the California Department of Real Estate, and California Attorney General kudos for their work in shutting down scams and issuing warnings. Based on my experience, Caveat Emptor- BIG TIME!

Next: Sale-Lease Backs and Other Short Sale Scams.

If there is any time that a consumer has to be on high alert, it is when someone encourages them to transfer the title on their home. There is no greater hallmark of a scam than being asked to sign over property rights.

Sale-lease backs come with the particular hazard of relinquishing ownership of the home to another individual which puts the homeowner at substantial risk. Even more disconcerting is that some of companies actually encourage the homeowner to commit fraud in the marketing of the home by disregarding all offers but the low ball offer from their designated buyer. This is both fraudulent and illegal. As with drugs, one should just say “NO”! Fraudulent short sales are not the answer nor are title transfers to third parties. The likely outcome is that an investor will acquire a home under market and the homeowner will end up on the streets.

As to those seeking short sale, best advice is talk to several reputable agents in your area and to select an agent that is experienced in short sales. Most legitimate agents will not charge an advance fee for negotiating a short sale, and most agents will assist sellers in finding a replacement home.

Last but not least: Mass Joinder Suits and Litigation.

Kamala Harris, California Attorney General, recently filed suit against a number of attorneys and non-attorneys for what has been deemed a Mass Joinder fraud ring. The California Attorney General purports the “ring leader” behind the scam to be California attorney, Philip A. Kramer of the Kramer & Kaslow law firm. Also mentioned are Christopher Van Son, Paul W. Peterson, Anthony J. Kassas, and Mitchell J. Stein amongst others.

Here is how the scam works: the attorneys contract with non-attorneys to sell desperate homeowners entry to the suits. Those selling entry to the Mass Joinder suits promise homeowners:

  • Joining the lawsuit will stop foreclosure.
  • They can obtain a low 2% fixed interest rate.
  • Debt forgiveness of up to 50% of the loan amount.
  • Receiving monetary damages up to $75,000.
  • Wiping out the mortgage entirely and receiving a free and clear home.

The non-refundable fees ranged from $3,500 to $7,000 to as much as tens of thousands of dollars. According to the report of the Receiver, most of the fees collected were paid out in fees and commissions to non-attorneys. During my research, I’ve encountered programs where the non-attorney affiliates could charge whatever they wanted and keep the difference.

While there are actual lawsuits filed, this is no reason to hand over hard earned dollars to a non-attorney salesman that is more interested in collecting fees than the best interest of the homeowner. Even as so many of the scammed homeowners are in limbo and have no idea of whether they will receive a refund, many more mass joinder scams continue to pop up on the internet. Before the raid on Kramer & Kaslow et al, consumer warnings were released by the California Department of Real Estate, California Bar Association, Better Business Bureau, and Washington State Attorney General. Since the California Attorney General’s action, the Attorney Generals for Idaho and Arizona have also issued warnings and the Florida Attorney General has launched an investigation.

Though Mitchell J. Stein who is named in the California Attorney General’s suit has responded by filing an action against the California Attorney General to incite outrage, the reality is that the main firms named in the California Attorney General’s suit were engaged in splitting fees with non-attorneys, and the marketers engaged in deceptive practices.

Why desperate homeowners are such easy targets.

It is a very natural tendency for people to respond to adversity with anger. Scamsters know this, and are quick to manipulate these emotions. Whenever people are faced with the probability of any major loss, they have to go through a process to come to terms with the loss. Many of the homeowners I have worked with have gone through the stages of grief which are very similar to that of those who have had to deal with divorce or the death of a loved one. The 5 stages of grief are:

  • Denial
  • Anger
  • Bargaining
  • Depression
  • Acceptance

Those that are in the first 4 stages of grief are extremely susceptible and least likely to make rational decisions. This is what makes the foreclosure crisis an especially fertile market for scammers. These scammers do not want homeowners to graduate to a state of acceptance and prefer to sell false hope to make big profits.

The reality is that a house is a physical object that in most cases can not only be replaced, but can actually be substituted with something similar if not better. It certainly isn’t on the same level as say, the death of a child. In many cases, homeowners who cannot obtain principal reduction are better off strategically defaulting and moving on with their lives rather than live under the torment of uncertainty and stress. Others are better off waiting it out or taking action with an attorney in their own private action. Still others might attempt a short refinance, temporary forbearance, repayment agreement, or other action. With that said, borrowers should seek the advice of many professionals including, but not limited to, attorneys (real estate and bankruptcy), real estate brokers, mortgage professionals, non-profit agencies, and tax professionals before deciding on a course of action.

But be advised that there is no silver bullet, magic wand or Holy Grail. In most instances, servicers cannot be forced to do something they don’t want to do. Additionally, without substantial debt forgiveness and reduction of principal balances, most modification programs are simply a mechanism for kicking the can down the road.

My main concern is that homeowners make rational decision based on the reality of their situation- and achieve a mindset that is emotionally healthy. The most destructive thing that a consumer can do is to act out of desperation and pay thousands of dollars to scammers that are only looking out for their best interests.

Although Latin is a dead, Caveat Emptor is still alive and well today. Please take heed.

Mortgage Problems? Facing Foreclosure? Prepare to be Scammed. by

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About Krista Railey

Krista Railey
  • Dani

    While it is true that scams are everywhere, you fail to mention what all homeowners know very well by first hand experience. The first scammers are their so-called lenders. I have been fighting with Wells Fargo, who has literally lied to us to put us in foreclosure, and has continued to lie blatantly, not only very obvious (to us who have been accused of saying things no sane person would ever say) but also in deceptive practices such as telling us they owned the loan, then upon producing a securitization report switching to a different lie, sending us an unendorsed photocopy of the original note saying it was the original (couldn’t be since the note has to be hand delivered to the trust) etc. etc.

    So, while I am aware that there are scammers everywhere, I KNOW banks are acting criminally, and you are doing no one any favour by omitting the well known fact that there is an original fraud, an original scammer. It makes you sound like homeowners should just live with the crimes that are being perpetrated against them – which makes you look very suspicions to homeowners like me.

    Homeowners are looking for someone who has the courage to stand up for the rule of law. THAT is the principal motive why people get scammed again and again. Most lawyers refuse to do that. I KNOW crimes are being committed against us, and I am looking for a lawyer who has the guts and courage and – frankly – honesty to live by his duty.

  • Mandelman

    Now, you see… this is what I’m talking about.  You write a very good piece warning consumers about the many and varied scams that are lurking around every corner for homeowners at risk of foreclosure, and then you imply that the REST Report is somehow in that category.  It is not, and making that baseless association only harms consumers, only confuses people further.  Why not ask me for my thoughts on the Treasury’s free NPV calculator v. the REST Report?  You know that I have experience with both.  Every other program, product or service you reference is to be avoided, and you would place the REST Report on such a list?

    First, let’s just make sure that someone reading this understands that the Treasury’s NPV calculator is in no way a substitute for the REST Report.  In fact, the two have very little in common.  That is not to say that one shouldn’t use the Treasury’s calculator, just that you should know its limitations and its purpose.

    The Treasury’s NPV calculator does one thing… gives you a rough idea as to whether you will pass or fail the basic HAMP NPV test.  I say “rough idea” because for whatever reason, Treasury chose to omit several fields that are part of their test.  LTV at Origination, for example, is not asked for, and is a component of the actual NPV test.  It is used to calculate the probability of re-default, the thinking being that if you put more money down, you are less likely to walk away.

    As a result, if you read the disclaimers on the free calculator site, you will see that Treasury says very clearly that passing the NPV on the site does not mean that you will pass the servicers NPV test… it is a rough idea only.

    Also, the free calculator site is only designed to provide a pass/fail outcome.  It will not calculate you with the detailed calculations behind the result.  So, if you fail, you will not know the details as to why you failed.  And lastly, homeowners should understand that the Treasury’s free NPV calculator, like any such calculator, is very sensitive, so even the smallest of numbers entered incorrectly will skew the result, sometimes dramatically.

    All of that being said, I see nothing wrong with homeowners using the free calculator to get a rough idea of where they stand relative to the HAMP NPV, and if you’re just beginning the process, or have been turned down due to failing the NPV test by your servicer, it couldn’t hurt to check your result there.

    The REST Report is an entirely different animal.  But you are quite correct when you say that there are no “magic bullets,” and that there is nothing that can compel a servicer to modify a loan… period.

    But, the REST Report is a loan disposition analysis system, and it is used by financial services organizations, hedge funds, bond holders, in addition to lawyers to determine whether a borrower passes the HAMP NPV test, and a whole lot more.

    The REST Report offers a section of the report called the “Affordable Payment Calculator,” that will show the homeowner to the penny what their income needs to be to qualify for the modification.  This is important because should you need a few hundred dollars a month more than you are reporting now, you may be able to rent out a room, or even get a part-time job to make up the difference.  The Affordable Payment Calculator provides you with a detailed breakdown of all of the figures involved.

    The REST Report also offers the EPV/NPV section of the report, which runs roughly a dozen AVMs, which are provided by the same companies used by servicers and the others in the financial services industry.  It then weighs their relative confidence factors and produces a three page document that uses a high, middle or low end appraisal to show at what dollar amount the investor who owns the loan would break-even.  You can also enter your own BPO or appraisal.  For example, it might show you that if they were to sell the property for $300,000 they would break-even, while anything below $300k, means they should modify the loan, other things being equal.

    The core REST Report does tell you if you qualify for HAMP, and whether you pass the base HAMO NPV, but that’s only the tip of the iceberg.  I believe you will also find that it is the only system available to homeowners that runs Treasury’s new HAMP/PRA (Principle Reduction Alternative), which not only requires a new waterfall calculation, but also has its own separate NPV test.  If you get to the bottom of the base waterfall and still don’t qualify the system will kick you over to the PRA, which may help.  Of course, you wouldn’t know that on Treasury’s free calculator.

    And overall, the REST Report shows you, not merely a pass/fail overview, but it breaks down everything so you can see what the picture really looks like to a servicer.  HAMP, I’m sure you realize, is just one methodology for modifying a loan, while the REST Report will run several different loan work out alternatives.  

    The Flex Mod, for example, removes HAMP’s restrictions on home value, so it can be used when homes are lets say $1 million, and as a result don’t qualify for HAMP.  And the REST Report also provides calculations about a short sale, including the high medium and low sales price your bank should accept.  In fact, two homeowners recently wrote to me saying that their reports helped get short sales approved by their servicers.

    The overriding purpose of a loan disposition system is to determine the optimal NPV outcome for investors who own pools of loans, so it is a very powerful system that can batch process a million loans in an hour.  Hedge funds use it for decisioning on the sale of various pools and tranches they own or want to buy or sell.  It is not a toy, or something that was programmed by someone for whom programming is a hobby or part-time job.

    I presented the REST Report to Hawaii’s legislature and am hopeful that it will be pilot program tested beginning in January, as a component of their mediation program.  It was used seven times in Florida mediations and in all cases it was effective.  And simply put, while again it is by no means a silver bullet… nothing is… it is the only thing I have ever seen that makes a significant positive difference when dealing with a servicer trying to get a loan modified.  With the REST Report, when a servicer denies a modification, you are armed with the details you need to push back, check their work and do so with confidence.

    The cost of the REST Report is the only thing I don’t like any more than you do, and I’ve tried to convince the firms offering it to do so at the lowest possible cost.  The issue isn’t the cost of the report, it’s the time it takes to run the report, review it with homeowners so they know how to use it and what it shows, and I’m told that it takes 3-4 hours and sometimes even longer.  As a result, its price of $795 is what it is.  As you know, I don’t sell it, I only license it to law firms, and I do so at no cost.  My hope is that as various state mediation programs begin to use the report as a part of their programs, and therefore as the volume of reports increases, the cost to homeowners is reduced.

    I really do like your efforts to warn homeowners about scammers, and in fact left you a message this morning to call me to help me do just that with a couple of new scams that have recently popped up online… and I think need to be smacked back down.  Talk soon… 

    • Krista Railey

      Martin, thank you for your response.  I have considered deleting reference to the REST Report from the article, but I don’t want to delete your comment as it is important for consumers to know that the maximum they should be charged for a REST Report is $795 and that it doesn’t guaranty a satisfactory modification.  

      While I still contend that those seeking modification should try out the Treasury’s free NPV test first, I will acknowledge that the REST Report has features that the Treasury’s NPV test does not.  Furthermore, your comment addresses the reason why the REST Report made it onto my radar which is because I have received reports that sales people have misrepresented the benefits of the report and have been overcharging.  However, those reports have not been confirmed and I have asked for evidence of the allegations.  

      With that said, I would love the opportunity to run free REST Reports for a small handful of people to test the report myself.  That is, if you are willing, and I can get some distressed homeowners to volunteer to be guinea pigs with their mods.  

    • amicusman

      Mandelman, your comment: “it is the only thing I have ever seen that makes a significant positive difference when dealing with a servicer trying to get a loan modified.”

      Sorry, to be so blunt, but that’s about as a naive statement as I’ve ever heard coming from someone who supposedly knows something about foreclosures.

  • Susan

    When we called this number it goes no where. Operator could not assist us. They state it is Form 1012R Litigation Settlement Notification, Mass Joinder Litigation Lawsuit, you are a potential plantiff in a national Mass Joinder Suit, the 5 buollets with other information; then your loan with GMAC mortgage may be elibigle for a national litigation aimed at fraudulent deceptive business practices. The goal is to make your illegal and Fraudulent Mortgage go away, seek monetary relief, stop foreclosures, and/or see compensation for damages. You will become a joined named plaintiff in a national litigation aimed at fraudulent Mortgage go away, seek monetary damages. . . . Call 1-877-266-0100. We called it once and spoke to someone. Now a couple of months later that number is not a working number. They give a file number.
    So we wonder if they are crooks. NLN Irvine, CA

    • Krista Railey

      Susan, though there was no answer at the number you provided, what you describe has all the hallmarks of a scam- especially the part about making your mortgage go away.  As to the 1012R mailer, Steve Rhode has been tracking these for quite some time, and I highly encourage you to read some of his articles.  I submitted my article here because I consider this blog to be the most reliable source available on the internet for all things consumer related.  

      Thank goodness that you did not bite.  But if you have questions in regard to your situation, please feel free to post your problem.  I might not be able to give you advice on how to resolve your problem, but I am willing to share what I know with you which might help point you in the right direction.

      Best wishes to you, and thank you for speaking up.

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