California Attorney General Edmund G. Brown Jr. joined with the Department of Real Estate (DRE) to warn California homeowners about the latest scam plaguing distressed homeowners: forensic loan audits.
These so-called “loan audits” encourage homeowners to pay an advanced fee for a report on their lender’s loan modification practices. The reports are claimed to help the homeowner determine their lender’s compliance with state and federal mortgage lending laws. Loan audit scammers claim homeowners can use this report as a tool to gain leverage with lenders and speed up the loan modification process.
But there is no proof that such an audit of a lender’s modification practices helps a homeowner obtain a loan modification or avoid foreclosure, even if produced by a legitimate auditor, real estate broker or lawyer.
Brown has sought to shut down more than 30 fraudulent foreclosure relief companies for misrepresenting and selling these audits.
first tuesday take: In October 2009, the California Senate outlawed the collection of up-front fees for loan modification assistance by anyone (this prohibition had little effect on real estate brokers since they nearly always operate as contingency fee advisors and negotiators, paid a fee when they get results). Additionally, any business that offers foreclosure consulting or loan modification advice for a fee is required to post a $100,000 bond and register with the attorney general.
As for the scammers among us, they skirt these restrictions by merely re-branding what is essentially the same practice — charging advance fees in the pursuit of a loan modification that is unlikely to be granted, and if granted, is financially meaningless beyond a very few months in more than 60% of cases.
These scams feed on homeowner desperation, and homeowners are desperate because of massively excessive mortgage balances and monthly payments in relation to the fair market value of their homes and 31% of their gross income. The underlying problem here is the failure of governments, past and present, state and federal, to force mortgage lenders to correct the insolvency of roughly 2,500,000 negative-equity California homeowners. Recent legislation is a short-term remedy of political importance, but not a cure for negative equity, which is the infection. Virulent ripple effects are beginning to surface, revealing strategic defaults as the moral risks created by delaying a durable long-term fix. (In this context, moral risk is used to mean conduct generated by the existence of insurance coverage, which has nothing to do with one’s morals and everything to do with rational decisions.)
Since homeowners are receiving no government support to remedy their insolvency, they must seek loan modifications by talking to their lenders directly. Those who are considering seeking third-party advice should keep in mind that services similar to those being promised by loan modification scammers are actually offered free of charge by government-approved non-profit housing counselors. [For a list of nonprofit housing counseling agencies approved by the United States Department of Housing and Urban Development (HUD), visit www.hud.gov. For more information and additional requirements regarding advance fees, see the January 2010 first tuesday Legislative Watch]
Re: “Brown Warns Homeowners to Avoid Forensic Loan Audits” from the office of the California Attorney General
Well that is sad indeed. What are consumers to do. Apparently there is NO relief, none at all, because HAMP – the Governments plan to save “underwater” home owners is a SCAM as well. All that money to the banks, but no regs or enforcement of regs and less than 5% of the 2 1/2 million estimated troubled homes have found permanent modifications through their lenders. There is no real incentive for the lenders to help.
This is a good article from MarketWatch giving stats on the program: http://www.marketwatch.com/story/mortgage-modification-program-has-major-flaws-2010-03-18?reflink=MW_news_stmp
This is a very tragic development. Most of these forensic audits raise issues that have been completely eliminated by various statute of limitations. For example, RESPA, the SOL is one year. These reports are 40-60 pages long, make inflammatory claims to justify their creation and are not worth the paper they are written on. Legitimately, TILA rescission claims may have some validity, which may allow a 3 year SOL but these are very technical and the courts do not like them. I got an email soliciting me on these programs and it promoted the following: “Become an affiliate of our company be able to perform Loan Modifications, Mortgage Net Branching, Bankruptcies, and Debt Settlement” and “This is Mortgage Litigation – Not Loan Modifications – All Attorney Performed”
Consumers do not stand a chance. They need real legal help and these guys are scamming all over the place. Don’t they realize they are taking the last dollars from consumers who are crashing and burning? Its disgusting.
This is old news, Mortgage Fraud Examiners exposed this problem a year ago in a press release: “Beware Of The Latest Foreclosure Rescue Scam–Loan Audits”