New rules from the Federal Trade Commission that ban collection of advance fees by companies that promise to rescue struggling homeowners from foreclosure may be too late to help homeowners victimized by a Maryland firm that federal authorities have shut down.

Better Business Bureau said court action against Residential Relief Foundation of Halethorpe, Md., serves as yet another warning to homeowners looking for outside help in reducing payments and avoiding foreclosure.

“Many families have been persuaded that debt settlement or mortgage modification is an easy fix that will make their debt melt away effortlessly,” said Kim States, BBB President. “The truth is that there is no magic formula for debt relief. In many cases, dealing with these firms is a recipe for personal financial disaster.”

The Federal Trade Commission said that Residential Relief Foundation representatives violated federal law by falsely claiming they could modify loans and significantly lower mortgage payments. The FTC also said the company improperly disposed of consumers’ information by placing them in unsecured dumpsters. In addition, the company wrongly implied it was affiliated with the federal government.

A federal court ordered Residential Relief shut down, appointed a receiver and froze the defendants’ assets, pending trial.

BBB has processed more than 60 complaints about the company this year, originating in 27 other states.

Among the victims is an unemployed laborer from Dittmer, Mo., in Jefferson County. He said he and his wife paid Residential Relief Foundation $2,190 after the company promised to lower their mortgage interest rate to nearly zero and cut their house payment to $588 a month from $986. The company only contacted the man’s bank after he filed a complaint with the BBB.

Such promises would be illegal under the new FTC rule, which also prohibits companies from collecting fees until homeowners have a written offer from their lender or servicer that they find acceptable.

BBB has received more than 3,500 complaints about misleading debt settlement offers in the last three years. Many consumers said the firms left them deeper in debt instead of providing help in paying off creditors.

In addition to the advance fee loan ban, the new FTC rules require companies to disclose key information to protect consumers from being misled. Companies must disclose that:

• They are not associated with the government, and their services have not been approved by the government or the homeowner’s lender.
• The lender may not agree to change the consumer’s loan.
• Borrowers could lose their home and their credit rating may be damaged if they stop making payments.

Companies cannot make false claims about the likelihood that consumers will get the results they seek or about their affiliation with a government or private firm.

The FTC also bars companies from telling consumers to stop communicating with their lenders or mortgage servicers. Companies also must be able to back up any claims they make about the benefits, (more…)

Better Business Bureau of Southern Arizona is warning consumers who are facing the threat of losing their homes to be wary of individuals and companies offering to “help” them out of their difficult financial situations.

Consumer advocates report an increase in complaints about foreclosure “rescue” scams. These scams specifically target homeowners who are in financial distress, and have flourished in the current economic climate.

Scam operators advertise over the Internet and in local publications, plaster posters on telephone poles and at bus stops, stick flyers in people’s front doors or contact people whose homes are listed in public foreclosure notices. Sometimes they direct their appeals to specific religious or ethnic groups.

In one scenario the scam operator offers to buy the homeowner’s property by paying off the amount that is overdue on the loan. He convinces the homeowner to move out and deed the property over to a third party. The homeowner is given the option of renting the property with the option to buy it back later.

After the homeowner moves out they typically find that the rent payment on the home is higher than they can afford. Often times, the original homeowner cannot make the rent payment and is evicted from their home.

The hapless homeowner can lose his equity and his home. Sometimes, the homeowner’s troubles go even deeper. In many cases the initial mortgage has not been paid off and the deed was never (more…)

The housing market in the United States may not be thriving, but business is booming for foreclosure rescue and loan modification scammers.

The US Government Accountability Office (GAO) released a report in July 2010 entitled “Home Ownership Preservation”.  It says that: “The current foreclosure crisis has provided persons who may perpetrate mortgage foreclosure rescue and loan modification schemes with unprecedented opportunities to profit from homeowners desperate to save their homes. In March 2010, we reported that national default and foreclosure rates rose sharply from 2005 through 2009, to the highest level in 29 years. The most recent data from the Mortgage Bankers Association, which are for the first quarter of 2010, show that the number of home loans with payments more than 60 days past due, and therefore potentially facing foreclosure, is 2.7 million.”

The GAO report says there are two main types of foreclosure rescue and loan modification scams: advance-fee loan modification schemes and sales-leaseback schemes, with advance-fee schemes being the most common.  In an advance-fee scheme, someone charges you a fee in advance to negotiate a deal with your mortgage lender.  They may even offer a money-back guarantee.  But the usual outcome is that they take your money (the average is about $3,000), provide little or no service, and then refuse to refund the fee.  In a sales-leaseback scheme, the scammer persuades you to transfer your deed to them by offering to assume your payments and let you pay rent while you get your affairs in order.  They promise to sell the (more…)