Prevent Loan Scams
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For Homeowners

What are Loan Modification Scams?

Loan modification scams are schemes in which unscrupulous people take financial advantage of homeowners facing foreclosure. Scammers target homeowners in distress guaranteeing help with saving their homes.  In reality, the scammers may hasten foreclosure by charging expensive upfront fees, doing little to no work, taking title or redirecting mortgage payments.   If a homeowner has been victimized by a scammer or has information about suspected scamming operations, they can and should report their experiences to the Loan Modification Scam Prevention Network (Network or LMSPN) by filling out the online complaint form or by calling 1-888-995-HOPE.

It is very important for homeowners to understand that loan modification counseling should be FREE and that by seeking help from a HUD-certified housing counseling agency or through the Homeowners’ HOPE Hotline (1-888-995-HOPE), homeowners can avoid scammers.

Click on the links below to learn more about loan modification scams and the Network’s scam complaint process.

What are the most common types of scams?

Different types of loan modification scams are discussed below.  Please follow the links for more detailed information about each type of scam.  If you believe you have been a victim of a scam, report it immediately by using our online complaint form or by calling 1-888-995-HOPE.

Most Common Types of Loan Modification Scams

Phantom Foreclosure Counseling

This is the most common type of loan modification scam.  The homeowner is asked to pay a high fee for help with modifying his or her mortgage or with delaying foreclosure.  Once the fee has been paid, the alleged rescuer does nothing or next to nothing to provide the help offered or advertised.  By the time the homeowner realizes that no help is forthcoming, he or she is left without assistance and with little or no time to save the home.

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Sale/Lease-Back or Repurchase Scams

There are various types of sale/lease-back schemes under which homeowners surrender title to their houses in the belief they will be able to remain as renters and buy their homes back over the next few years. These schemes typically consist of the homeowner surrendering his or her title to the property to the rescuer.  In exchange, the rescuer (who sometimes refers to himself as an “equity purchaser”) often promises to pay the mortgage, allow the homeowner to rent the property, and give the homeowner an opportunity to repurchase the property after a period of time.  However, the contract terms for the buy-back are usually so onerous that actual buy-back is impossible.  The transfer of the deed also allows the rescuer to evict the former homeowner, raise the rent, sell the property, or drain the equity value from the property. 

Scammers often perpetrate this fraud by use of a land trust, which is an agreement where one party (the trustee) agrees to hold ownership of the property for the benefit of another party.  With a land trust, the homeowner is still liable for the mortgage and the scammer’s name does not become public record.  A land trust also does not trigger the “lender due on sale” clause of the mortgage, which would require payment of the mortgage at the time the property is sold to the scammer.  The homeowner thus loses possession of his or her property, is stripped of the property’s equity, and remains liable for the balance of the mortgage.

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“Bait and Switch” Scams

A bait-and-switch scam is where the homeowners do not realize they are surrendering ownership of their houses in exchange for a “rescue.” Either the sale documents are forged or the homeowners are led to believe they are only signing documents for a new loan to make the mortgage current.  This happens despite the homeowners being clear they had no intention of selling or giving up their home. This scam is often identified by the extremely low amount (compared to actual value) given to the homeowner in exchange for the transfer.

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Fraudulent Loan Modification

This scheme, which is becoming increasingly common, involves a scammer who pretends to help a distressed borrower renegotiate their mortgage with their lender, only to redirect the payments to the “rescuer” without the lender’s knowledge.

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Bankruptcy Foreclosure

In this scheme, the scam artist purports to negotiate a refinancing with the homeowner’s lender after collecting an upfront fee from the homeowner.  Instead of contacting the lender, however, the scammer pockets the fee and files a bankruptcy case in the homeowner’s name and without the homeowner’s knowledge.  The bankruptcy filing will stop a home foreclosure, but only temporarily.  What is more, the bankruptcy process is complicated, expensive, and unforgiving.  A bankruptcy will stay on the homeowner’s credit report for 10 years, and can make it difficult to obtain credit, buy a home, obtain life insurance, or even get a job.

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Reverse Mortgage Fraud

In this scam, Home Equity Conversion Mortgages (HECMs) —or reverse mortgages— are exploited to defraud senior citizens of the equity in their homes.  Perpetrators typically identify foreclosed, distressed, or abandoned properties using information contained within county deed records.  Perpetrators purchase the properties using straw buyers who fraudulently claim to be using them as their primary residences.  The perpetrators then recruit a senior to “purchase” the property from the straw buyer, typically through a deed transfer and no exchange of money.  After the senior has lived in the home for at least 60 days, the perpetrators, with the aid of an inflated appraisal of the property, arrange for the senior to obtain a reverse mortgage and encourage the senior to request a lump sum disbursement of the property’s equity.  The perpetrators then arrange for fictitious loans and liens that allow them to distribute the loan proceeds to themselves, the straw buyer, or others at closing.

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Who do scammers generally target?

By scouring public records that document foreclosure filings and by distributing materials outside of legitimate foreclosure prevention events, scammers are able to focus their advertising on homeowners in distress.  Some also target geographic areas that are known to be centers of foreclosure activity, often concentrating on communities populated by limited English-speaking homeowners.  Scammers may solicit door-to-door, post flyers on telephone poles, or erect roadside signs.  To reach a broader audience, some often make use of conventional web, radio, and television advertising.

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How can I avoid being scammed?

Homeowners who are at risk of foreclosure can avoid being scammed by securing FREE foreclosure prevention counseling from a HUD-certified housing counseling agency or by calling the Homeowners’ HOPE Hotline (1-888-995-HOPE).  The Homeowners’ HOPE Hotline and other HUD-certified housing counseling agencies provide homeowners with assistance regarding the often confusing and difficult loan modification process at no cost. They are almost invariably more effective in obtaining loan modifications for their clients than for-profit loan modification consultants.  Homeowners should be especially wary of firms that ask for upfront fees.  They should never transfer title of their homes to someone claiming to help prevent foreclosure.  Homeowners in need of legal representation with regard to foreclosure issues may be able to find reputable assistance through a nonprofit legal aid organization funded by the Legal Services Corporation or their state bar association’s lawyer referral service.

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How does the law protect me from being scammed?

States and localities have been taking steps to protect homeowners from being scammed.  Please click here to learn about how laws in your state protect you from scams.

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What do I do if I think I have been scammed?

If you think you have been scammed, you should report the scam to the Network on this website by using the online simple complaint form.  There may also be additional ways to report scams in your state or locality.

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Why should I submit a loan scam complaint to the Network?

By submitting a complaint to the Loan Modification Scam Prevention Network and our national Database, you will be helping to put these scammers out of business once and for all.  Because scammers are highly mobile and easily able to move from one community to another it is vital that law enforcement as well as housing, legal aid, consumer protection, and civil rights groups have access to a national database of loan modification scam reports.  This critical resource will allow the Network and law enforcement to build the evidence needed to locate these scammers and bring effective actions against them that not only shut them down in one area of the country, but shut them down for good. 

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What happens after I submit the Network’s complaint form?

After submitting the form, your complaint will go into our national complaint Database.  With your permission, your complaint will be sent to the Federal Trade Commission (FTC) and to state and local law enforcement authorities who are prosecuting scammers, as well as to other appropriate federal and state authorities who are fighting scamming. If you indicate that you are willing to be contacted by the Network, a trained volunteer may call to ask for more detailed information about your situation that will better aid our work to put these scammers out of business.  If you choose to do so, you may also receive e-support e-mails that will provide you with helpful information about foreclosure prevention and loan modification scams and will keep you up-to-date on the activities of the Network.

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Will a Network volunteer help me with my foreclosure issue?

If you agree, a trained volunteer may contact you to gather additional information in the fight against scammers.  Network volunteers cannot help you with your foreclosure or scam issue personally.  The volunteer should be able to refer you to organizations in your community that will be able to help you with your foreclosure issue.

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What kind of relief can I expect if I report a scam?

By reporting your complaint, you are contributing valuable information that will educate the public and lead to the prosecution of loan modification scammers.  While actions taken by regulatory and law enforcement agencies against scammers may not result in individuals recovering the money they lost due to scams, these actions do help to prevent homeowners from becoming scam victims in the future.

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