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:
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.