Efforts to Stop Loan Modification Scams Both in Illinois and Nationally

The American economy still hasn't rebounded. Unemployment levels are hovering around ten percent, and the housing market is still slowly recovering from the housing crash of several years ago. Many homeowners are left looking for ways to make their mortgage payments and stay in their homes, including through loan modification.

While there are many reputable companies that help people seek loan modifications, there are many more who are little more than "snake oil" salesman just trying to scam people out of their money and possibly their home. AOL Real Estate reports that incidents of mortgage fraud have risen in the past year; with mortgage fraud rising in the first quarter of 2011 by an astonishing 31 percent.

In November 2011, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), in cooperation with Google, Yahoo! and Bing, put a stop to 125 online-advertising scams offering fraudulent loan modifications, according to Mortgage loan.

In a SIGTARP press release, Christy Romero, Deputy Special Inspector General for SIGTARP, stated, "Many homeowners who have fallen prey to these scams were enticed by web banner ads and online search advertisements that promised, for a fee, to help lower mortgage payments."

The businesses targeted by SIGTARP falsely advertised that they would be able to help distressed homeowners receive loan modifications and cut monthly mortgage payments through the Home Affordable Modification Program (HAMP), which is part of the Troubled Asset Relief Program (TARP).

The Scams

Many of these scams, according to SIGTARP, offered to help homeowners obtain HAMP loans for an upfront fee. As AOL Real Estate notes, Federal Trade Commission (FTC) rules make it illegal for companies to charge an upfront fee for help in obtaining a loan modification. Many of the scammers told homeowners to either stop making their monthly mortgage payments to their lenders, or send the mortgage payments directly to the scammers, while the scammers were "working" to have the loan modified.

In some instances, according to AOL Real Estate, homeowners were convinced to transfer the deed to the home to the scammers.

Lawsuits in Illinois

Efforts to stop companies from taking advantage of distressed homeowners aren't limited to just the federal level. In Illinois, Attorney General Lisa Madigan has begun filing lawsuits against companies falsely promising to assist homeowners in obtaining loan modifications.

According to a press release from the Attorney General, several Illinois companies offering loan modifications are taking advantage of a provision of the 2006 Mortgage Rescue Fraud Act in order to charge upfront fees. The Act allows attorneys to charge upfront fees for their work in helping homeowners obtain loan modifications. The press release states that many scammers "use attorneys as the face of their operations," collect an upfront fee, and then never perform the promised legal services offered by the attorneys.

Through September, 46 lawsuits have been filed by Attorney General Madigan against companies fraudulently charging upfront fees.

Tips to Avoid Scams

To help people who are struggling with their mortgages steer clear of loan modification scams, AOL Real Estate offers the following tips:

  • Understand the documents that are being signed - take the time to read any and all documents that you are asked to sign. A common scheme involves a scammer asking you to sign a document, which the scammer will tell you means one thing, when in reality it means or does something different, like transfer the title to your home to the scammer.
  • Stay away from businesses that aggressively advertise - be wary of businesses that aggressively seek you out for a loan modification, many scammers use this technique.
  • Be suspicious of rent-to-buy programs - do not transfer the title to your house to a loan modification company, even if they tell you that you can remain in the home as a renter and have the option to buy back your home.

It also valuable to do some research on the agency or attorney you are seeking assistance from. You can check the reputation of a business or law firm through the Better Business Bureau. Additionally, you can find out further information about attorneys through the Attorney Registration and Disciplinary Commission of Illinois (ARDC). On the ARDC's website you can check to make sure an attorney is authorized to practice law in the state, as well as see records of public disciplinary proceedings against a lawyer.

Another resource for Illinois homeowners is Attorney General Madigan's Help for Homeowners webpage which provides information about homeowners' rights and options regarding mortgages.

Homeowners Have Options

Homeowners who are struggling to make mortgage payments or facing foreclosure have options, including bankruptcy, loan modification and shorts sales. Filing for bankruptcy protection can stop the foreclosure process and allow you time to develop a financial plan to stay in your home.

What option is best for you will depend on the specifics of your financial situation. Speak with an Illinois bankruptcy attorney to discuss your options and learn of your legal rights.