State declares war on mortgage con artists

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Capital News Service
LANSING – State officials have ramped up efforts to stop scam artists who falsely promise to help homeowners escape foreclosure.
In Michigan and in other states, scammers pledge to help homeowners modify their loans to avoid foreclosure. Modifying a homeowner’s loan typically involves changing the rate, the terms or the principal of the loan. The scammer will often take an up-front fee of up to $2,000 and pocket it without helping the homeowner, said Jodi Mercer, the program manager for the Michigan State Housing Development Authority.
Since 2009, Michigan’s attorney general has received 811 complaints of loan modification scams and charged 28 individuals or companies for the crime, said Joy Yearout, the deputy director of communications for the attorney general. Of those cases, 26 have resulted in convictions and two await trial. The cases have won back $200,000 for victims of loan scams, Yearout said. Cases often involve multiple victims of loan scams.
“Frankly, we have a nearly 100 percent conviction rate, and that’s a strong message,” she said. “Word is spreading, and people are going to realize that Michigan is not the place to come to commit these types of crimes because we’re watching.”
Scammers could face 90 days in jail if convicted for a misdemeanor. Felony convictions could result in up to 20 years in prison. Misdemeanors are typically charged for violations of the Credit Services Protection Act, which outlaws charging up-front fees for loan modification. Felonies could include charges of racketeering or fraud.
Most of Michigan’s loan modification scam cases with the attorney general’s office originate in southeastern Michigan, Yearout said. Prosecutors for Mackinac and Marquette County said they have not had any loan modification scam cases recently. Yearout said she’s not aware of any cases in northern Michigan right now.
In addition to the attorney general’s crackdown, Michigan’s Office of Financial and Insurance Regulation now requires individuals who offer loan modification services to be licensed with the state, said Jason Moon, the public information officer for the agency. The office put the regulation in place in July to protect homeowners and can help in identifying scammers.
“In the type of scams consumers may come across, you’re more than likely dealing with a company or individual who isn’t licensed,” he said.
Homeowners can check with the Office of Financial and Insurance Regulation to see who is licensed with the state to modify loans.
State officials say the most obvious sign of a loan scam is the illegal up-front fee that scammers request.
Besides, services to modify loans are offered for free through the State Housing Development Authority, Mercer said.
Scammers quickly reach out to homeowners in trouble by looking through newspaper advertisements for foreclosure notices, said Lorray Brown, the director of the Michigan Foreclosure Prevention Project. She said many scammers guarantee their victims they can modify their loans, when in reality loan modification isn’t guaranteed. Securing it depends on several factors, including homeowners’ incomes.
Scammers tell desperate homeowners what they want to hear, Yearout said.
“For some people that are struggling to save their home, it can give them false hope,” she said. “That’s why a $500 payment today to save their home tomorrow seemed like a good investment to them. But when the scammer doesn’t deliver, they’re left without a home and without their money.”
State officials say spreading the word of free help for homeowners facing foreclosure is the best way to prevent scams. The Housing Development Authority provides a search by county for free licensed housing counselors at Office of Financial and Insurance Regulation can work for free with homeowners’ lenders to modify loans. The hotline for help is 877-999-6442.
SIDEBAR: Types of Loan Scams
The Lawyers’ Committee For Civil Rights Under Law lists different types of loan scams homeowners fall prey to. This list and other information can be found at
Phantom Foreclosure Counseling
The most common scam, the homeowner pays an up-front fee to a scammer promising to modify the homeowner’s mortgage. The scammer then does nothing or next to nothing after the fee is collected.
Sale/Lease-Back or Repurchase Scams
In this scheme, homeowners will surrender the title to their house to a scammer, who then promises to pay the mortgage and allow the homeowner to rent the property with the hopes of repurchasing it in the future. However, the title transfer contract can often make repurchasing the home difficult, and scammers can also evict the former owner, raise the rent and sell the property.
Bait and Switch Scams
This type of scam happens when a homeowner signs a document for a new loan but actually gives up ownership of the home unwittingly. It can be identified when the contract calls for a low amount of money to be transferred to the homeowner.
Fraudulent Loan Modification
This increasingly common scheme has a scammer who promises to renegotiate a homeowner’s mortgage with the lender. However the scammers will redirect the mortgage payments made by the homeowners to themselves without the lender’s knowledge.
Bankruptcy Foreclosure
After collecting an up-front fee and pledging to help a homeowner, a scammer keeps the fee and instead files a bankruptcy case in the homeowner’s name without their knowledge. While a bankruptcy filing does delay a foreclosure, the process is a complicated one and will affect a homeowner’s credit report for 10 years.
© 2011, Capital News Service, Michigan State University School of Journalism. Nonmembers cannot reproduce CNS articles without written permission.

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