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Mortgage Relief & Loan Modification Scams You Should Watch Out For

The Johnsons were terrified of losing their home. Mrs. Johnson had recently lost her job, and they just couldn’t meet their mortgage payments on one income. When they saw the flier promising to save their home from foreclosure with “Guaranteed Results,” it seemed like a godsend. The company promised that, for a fee, it could get them a new mortgage at a lower, affordable rate.

The Johnsons eagerly handed over the fee, but the company never called them back. The business that said it would help them was nothing but a financial scam to get their money.

This story is fictional – but the problem it describes is very real. There are plenty of mortgage relief scams out there, extracting hundreds or even thousands of dollars from people struggling to save their homes. They promise to help homeowners refinance, negotiate with their lenders, or use some legal trick to get out of their existing mortgage. However, all they really do is take money from the pockets of those who can least afford it, leaving them in worse shape than ever.

In January 2018, the Federal Trade Commission (FTC) sent refund checks to 862 victims of a mortgage relief scheme that charged them $2,500 to $3,500 for “services” that did nothing to help them. This was just one of the hundreds of cases brought against phony mortgage relief providers in the past few years, and there are likely many more that have never been brought to trial.

How Scammers Find Victims

Mortgage relief scams prey on desperate people trying to save their homes from foreclosure. Scammers have several tricks for finding homeowners in trouble. These include:

1. Checking Foreclosure Notices

Scammers search public foreclosure notices in the newspapers and online or go through files at local government offices. They write down the homeowners’ names and contact them directly with an offer to “help.”

2. Targeting Specific Groups

Some scammers focus on members of specific religious or ethnic groups. In 2016, the FTC exposed a group of scammers in Southern California preying on Hispanic homeowners. The company even went as far as hiring Spanish-speaking salespeople to approach the homeowners and win their trust.

3. Canvassing Whole Neighborhoods

Scammers often focus their attention on a particular neighborhood – for instance, one where there are already lots of homes for sale or in foreclosure. They go around the neighborhood distributing leaflets or business cards offering their so-called services and may even go door-to-door to talk to homeowners in person.

4. Impersonating Others

Some scammers trick homeowners by claiming to be from their current bank or mortgage company. They offer to help them refinance or modify their mortgage but tell them they must start sending their mortgage payments to a different address. Needless to say, those payments aren’t really going to the bank.

5. Broad-Based Advertising

Sometimes, scammers don’t bother tracking down distressed homeowners to target. Instead, they take a broad-based approach, putting up ads where lots of people – including homeowners in need of help – will see them.

These advertisements could be in local papers, on TV and radio, or online. Scammers may also post fliers on telephone poles, at bus stops, and on highway median strips.

What Scammers Promise To Do for You

Scammers offer to help distressed homeowners in a variety of ways, all of them bogus. Here are some of the things they may promise to do:

1. Negotiate With Your Lender

Scammers offer to negotiate with the bank on your behalf to help you refinance or modify your home loan and lower your payments. Sometimes they claim to have “special relationships” with banks that help them get lower rates or faster approval. They may also advise you not to contact the lender yourself or talk to a lawyer or other credit counselor.

2. Perform a Forensic Loan Audit

Some scammers bill themselves as forensic loan, mortgage loan, or foreclosure prevention “auditors.” In exchange for a fee, they offer to have a lawyer or another expert go over your mortgage papers to see if your lender has broken any laws.

They claim this will help you avoid foreclosure, get approval for a loan modification, lower your loan principal, or maybe even get out of the loan entirely. Sometimes, they even carry out this “audit” as promised.

Unfortunately, there’s no evidence that having a forensic loan audit actually helps you get a loan modification or any other kind of deal from a lender.

3. Sue Your Lender

Some mortgage relief scammers, like the ones in California in 2016, claim to be lawyers or representatives of a law firm. They offer to help you sue your mortgage lender or join a class-action suit.

There are federal laws that allow you to sue a mortgage lender over mistakes in your loan documents, but there’s no guarantee you’ll win, even with a real lawyer. And even if you win a lawsuit, your lender still has no obligation to lower your payments to make them more affordable.

4. Connect You With Government Aid Programs

Mortgage relief scams sometimes offer to teach you about government programs that help homeowners refinance their homes or change the terms of their home loans.

These programs do exist, but you don’t need to hire someone to help you use them. You can get all the help you need for free at the government’s Making Home Affordable (MHA) site or by calling 888-995-HOPE (4673). The MHA program no longer offers help with refinancing or loan modifications, but it still provides free counseling and help for homeowners in dealing with mortgage lenders.

5. Help You File for Bankruptcy

Other scammers offer to help you file for bankruptcy to get out of paying off your mortgage. Filing for Chapter 7 bankruptcy will stop a home foreclosure temporarily, but it won’t save your home, which you’ll have to sell to pay off your debts. A Chapter 13 bankruptcy could allow you to keep your home, but it won’t cancel your debt to the bank; it will just restructure it.

In either case, you don’t need a lawyer or anyone else to help you file for bankruptcy. You can do it yourself using forms available on the U.S. Courts website. And it’s not a quick or easy fix; it’s a long, complicated process that takes several months and has its own negative repercussions. Having a bankruptcy on your record shatters your credit score, which will make it harder to buy a home or a car in future and can even hurt your chances of getting a job.

6. Become Your New Landlord

One of the most dangerous mortgage relief scams is the “rent to buy” scam. The scammers tell you that if you turn over your house to them, they can use their good credit rating to refinance it at a lower interest rate. You can continue to live there as a renter while the refinance goes through, then buy it back afterward.

In reality, the scammer either runs off with the money and then defaults on the new loan or, worse, jacks up the rent until you can’t afford it anymore, at which point he evicts you. Either way, you’ve lost your home, and you still owe just as much to your real mortgage lender as you did before.

7. Sell Your House for You

Other scammers may tell you they can find a buyer for your house if you hand over the deed to them and move out. They promise to pay you a portion of the profit once the house sells. Of course, what they really do is keep the house and rent it out, leaving you without a home – and still on the hook for the mortgage loan.

8. Buy Your House

Some scammers are after your house, not your money. They’ll offer to buy it from you, but for a much lower price than it’s worth.

It might seem like it’s worth it to get rid of your mortgage problems, but selling the house doesn’t free you from your mortgage debt. You’ll still have to pay back what you owe to the bank, and you’ll no longer have a chance to sell the house for its real value.

How Scammers Get Money from Victims

Once scammers have their victims on the hook, they get money from them in a variety of ways. The most common is to charge an upfront fee for a forensic loan audit or some other bogus legal service. These fees can run hundreds or even thousands of dollars. Once the scammers have their money, they simply stop returning the victim’s calls.

Scammers also make money by collecting rent or mortgage payments from their victims. Some of them persuade their victims to start making mortgage payments to them directly, rather than to the bank, while they “negotiate” with the lender. After a few months, they disappear with the money, leaving the victims further behind on their real mortgages than before.

In some cases, scammers don’t just take money from their victims; they actually steal their houses. They get the owner to sign over the deed, promising to either renegotiate the loan and sell it back to the owners, or sell it to someone else and share the money. Instead, they keep the house, kick out the original owners, and sell or rent it to someone else.

Con artists have even been known to trick people into signing over their houses without knowing it. In a “bait and switch” scam, you’re given a stack of papers to sign as part of the refinancing process. However, hidden in the stack is a form that hands over the title to your house to the scammers. If you don’t read every one of the papers carefully before signing it, you could lose your home before a foreclosure is even started.

Protecting Yourself from Mortgage Relief Scams

If you’re in trouble with your mortgage, you can get a bit desperate. When mortgage relief scammers come along with their phony promises, it’s all too easy to grasp at this “lifeline” without really looking to see what it’s attached to. By the time you realize it’s more of an anchor than a life preserver, the scammers are long gone with your money.

The key to avoiding mortgage relief scams is to be informed and on the lookout. Know your rights when dealing with a law firm or any other company, and be alert for warning signs of a scam. And even if an offer looks legitimate, take some basic precautions to protect yourself and your home in case it turns out to be a fraud.

Know Your Rights as a Homeowner

In 2010, the FTC published its Mortgage Assistance Relief Services Rule (or MARS Rule) to protect homeowners from mortgage relief scams. Under this rule, a company promising loan assistance cannot collect any fees from you until after it has gotten you the results it promised. Even if you agree to accept a company’s help, you don’t have to pay a penny until you’ve received, and accepted, a written offer of mortgage relief from your bank.

The MARS Rule also requires companies to provide some basic facts in their ads and telemarketing calls. They must disclose that they don’t work for the government or your mortgage lender and that neither the government nor your lender has in any way approved their services. They must also warn you that your lender might not agree to modify your home loan.

In addition, the company cannot legally tell you to stop talking to your mortgage lender. You should always feel free to deal directly with your bank and see what options it has to offer. The company can advise you to stop making mortgage payments, but it must also warn you that doing so could damage your credit and possibly cause you to lose your home.

The MARS Rule also sets some requirements for lawyers who offer mortgage relief service. They can charge an upfront fee but only if they’re providing a real service in a way that complies with all state ethics rules. Any money you give them must go into a client trust account, and they can only withdraw it when they’ve completed a service. They must also notify you whenever they make a withdrawal.

How to Spot a Scam

In general, any company that tries to charge you a fee for mortgage counseling, a loan modification, or other kinds of mortgage relief is most likely a scam. The few programs that can truly help distressed homeowners, like the MHA programs, are free.

Be especially wary of any company that not only insists on an upfront fee, but will only accept a cashier’s check or wire transfer – two forms of payment that are very hard to trace.

Other warning signs of a mortgage relief scam include:

1. Guaranteed Results

Beware of any company that “guarantees” it can modify your home loan or stop a foreclosure. Only your mortgage lender can approve a loan modification, and no third party can guarantee that result.

Even a claim that “nearly all” of the company’s clients get mortgage relief is suspicious. Don’t trust a “money-back guarantee,” either; it’s worthless if the scammers disappear and you can’t find them.

2. A False Address

If you get a letter or phone call saying it’s from your mortgage company, but it wants you to start sending payments to an address that doesn’t match the one in your mortgage statement, it’s a fake.

A real bank won’t change its address without notifying its customers first. If you have any doubts,  contact your mortgage lender at its old phone number and ask if the address change is real.

3. Pressure to Sign Now

Mortgage relief scams, like other scams, try to slip past your defenses by pressuring you to act quickly, rather than taking time to think. Anyone who pressures you to sign a document you don’t understand – or haven’t even had a chance to read thoroughly – doesn’t have your best interests at heart.

4. Cutting You Off From Real Help

Mortgage relief scammers often tell you not to contact your actual mortgage lender, your lawyer, or a housing counselor. There’s a good reason for that: any of these knowledgeable people would quickly spot the scam and warn you about it.

Any company that has nothing to hide won’t mind if you consult with others about its services.

5. Trying to Take Over Your Deed

If a company tries to get you to sign over the deed to your house for any reason, that’s a huge red flag. The same goes for any company that tells you to stop making mortgage payments or to make payments to it instead of to your regular mortgage company.

Precautions to Take

If you’re a homeowner looking for help with your mortgage, be very careful about any company you do business with. Here are some precautions to take to protect yourself from scams.

1. Check Out the Company

Before doing business with any company, do some research to make sure it’s legitimate. Check out its website and make sure it has contact information listed, including a real business address (not just a post office box).

Look the company up on the Better Business Bureau’s website, and search the company’s name with the word “scam” to see what comes up. Don’t hand over any personal information, including your bank account number or Social Security number, to any company you haven’t researched.

2. Run a Background Check on Lawyers

Do your homework on any lawyers you intend to do business with. Ask for their names, the state or states where they’re licensed, and their license number in your state. Then contact your state’s bar association to make sure the lawyers are legit and aren’t currently in any trouble for violating ethics rules. (To find your state’s bar association, just do a quick web search on “bar association” and the name of the state.)

3. Watch What You Sign

Don’t sign any document without reading it and understanding exactly what you’re agreeing to. If you have any trouble at all understanding the language, ask a lawyer or another independent expert to review the form and explain it to you before you sign.

4. Keep Making Mortgage Payments

Some scammers will advise you to stop making mortgage payments while they “negotiate” with your bank. Don’t do this! Falling behind on your mortgage payments only increases your risk of foreclosure, as well as damaging your credit.

In addition, don’t start sending your monthly mortgage payments to anyone other than your mortgage lender unless your lender has specifically authorized you, in writing, to do so.

5. Don’t Undersell Your House

If a company comes along with an offer to buy your house, check to see if the price is reasonable. Look up the “comps,” or the prices of similar houses in your neighborhood, on a site like Zillow or Trulia. If the amount a company offers is much less than your home’s comps, you can almost certainly do better selling the home to someone else.

6. Don’t Sign Over Your Deed

Whatever you do, never sign the deed to your home over to a third party in the hope this will somehow “save” your home. The only time it makes sense to sign over the deed is when you sell the home or when you surrender it to your mortgage company as part of a deal to forgive your debt.

What to Do If You’ve Been a Victim

If you’ve been a victim of a mortgage relief scam, there are several ways to report it:

  • The FTC Complaint Assistant allows you to report scams of all types.
  • The National Association of Attorneys General can put you in touch with your state’s Attorney General’s office.
  • The Better Business Bureau accepts complaints about businesses’ products and services. To file a complaint with them, you must know the business’s name and location.
  • The Consumer Finance Protection Bureau handles complaints about financial products and services. You can file a complaint online or by calling 855-411-CFPB (2372).
  • If the scam involves bankruptcy, you can report it to your local U.S Trustee’s office. You can find your local office through the Department of Justice website.
  • Finally, you can report suspected scams through the MHA hotline at 888-995-HOPE (4673). This line can also connect you with legitimate sources of mortgage help.

Reporting a scam is your best chance of recovering some of your money. However, you probably won’t get all of it back, and the process could take years. The refund checks the FTC sent out to victims in January 2018, for instance, were the settlement for a complaint originally filed in 2013. The average amount paid to each victim was $619.24 – about 26% of what they’d lost.

Final Word

Unfortunately, there’s no quick and easy fix for an unaffordable home loan. If you’re in trouble with your mortgage, your best move is to contact your lender, explain the situation, and ask it to work with you to create a plan to pay what you owe.

Going to the lender can be scary and embarrassing, but it’s your best chance of saving your home. Foreclosure is time-consuming and expensive for banks, so they have every incentive to help you find another solution if possible.

There are also legitimate government programs that can help. The best way to find them is through the MHA website or hotline. You can also contact your state’s housing agency through the National Council of State Housing Agencies to see if it has a foreclosure avoidance program.

Have you ever encountered a mortgage relief scam? What happened?

Amy Livingston is a freelance writer who can actually answer yes to the question, "And from that you make a living?" She has written about personal finance and shopping strategies for a variety of publications, including,, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.