You've probably seen the pitches on TV, radio and the net or found them stuffed in your mail: official-looking communications complete with logos & letterheads that look vaguely like those used by the Treasury, IRS & other federal agencies.
Bogus firms always insist on getting your funds upfront with often thousands of dollars; then do little or nothing. But now the Federal Trade Commission (FTC) is cutting off the main fuel supply for mortgage-modification scammers: Under new rules outlined Nov. 19, the agency designs to ban virtually all upfront payments, institute mandatory disclosure rules; clamp down with new federal restrictions on lawyers who participate in mortgage-modification schemes.
They are in lieu criminal enterprises posing as do-gooders who promise to get you out of the mortgage jam you're in, whether you're severely delinquent or deeply underwater. they claim they can persuade your lender to cut your every month payments, forgive all penalties, slash your rate of interest & even get your loan balance reduced. If your lender won't cooperate, they say they'll perform "forensic audits" on your mortgage; persuade a court to cancel your whole loan transaction because of technical mistakes in the paperwork.
Under these rules, companies offering mortgage relief will must contact your lender or servicer; present you a written proposal describing the key changes to your mortgage terms that the note holder is willing to make before any funds can be collected in advance.
Modification companies also will be required to make clear that they have no connection with any government agencies or program that you're free to reject any offer from the lender, with no requirement to pay a fee. The rule also prohibits modification firms from using one of their most commonplace destructive ploys: they can no longer instruct clients to stop communicating with their lender or servicer. Many scammers not only urge unwary consumers to let them handle all negotiations but also direct them to stop sending in payments — or worse, to send all payments to the manipulation company. usually, that has the effect of rendering any final manipulation with the lender or servicer even less likely.
The FTC estimates that bogus modification companies have stolen millions from unwary homeowners historically in the past few years; ironically, there's been an immense increase in the number of abusive schemes in the wake of the federal government's efforts to develop legitimate foreclosure-relief programs. The FTC has brought over 30 cases against these operations, but until now the agency has had no way to control the pervasive advance-fee requirements that are so pricey to consumers.
Now, when that portion of the new rule takes effect Jan. 31, the FTC will be able to proceed against any firm that collects upfront fees without obtaining the required written proposals at no charge from lenders. It will be a litmus test: If a firm seeks to charge you anything or collects funds upfront, it will be in violation of federal law & subject to harsh civil penalties.
Joel Winston, the FTC's associate director of financial practices, a lawyer himself, said in an interview that "a disappointingly high percentage of fraudsters (in FTC loan-modification cases) have been lawyers — they're fraudsters with law degrees." Nonetheless, Winston said, the agency recognizes that "legitimate practitioners" can play a valuable role in negotiating modifications for consumers, & the FTC doesn't need to cut this off by banning upfront retainer payments outright.
The only exception will be for lawyers, who usually need retainers before they start negotiating on a client's behalf. they are going to be allowed to collect retainer fees for manipulation efforts but only if they deposit the funds in to "client trust accounts" under state bar regulations. Lawyers who charge advance fees also must be licensed by state authorities be in compliance with state laws & regulations governing professional conduct.
Some states, such as indiana, have aggressively moved against lawyers running loan-mod scams, they said, but once the new FTC rule takes effect nationwide every state will get "federal teeth" behind their own efforts to crack down on law firms who abuse homeowners in mortgage trouble.
