By Charlene Crowell
Earlier this month, Michigan Attorney General Bill Schuette charged an organization known as Freedom by Faith Ministries with defrauding more than 100 consumers in Southeast Michigan. The alleged crime: foreclosure rescue scams.
Unfortunately, the circumstances that led to the Michigan lawsuit represent a continuation of a disturbing trend of profiteers seeking to financially exploit the misfortunes of troubled homeowners. The U.S. Government Accountability Office (GAO) in 2013 found more than 40,000 complaints of foreclosure fraud occurred nationwide and together totaled losses to homeowners of more than $90 million.
Each year from 2010 through 2012, more than 18,000 foreclosure fraud complaints were filed beyond the 9,000 complaints received in 2009.
Foreclosure scammers typically demand large, upfront cash payments from troubled homeowners and advise homeowners to stop making mortgage payments. They also dupe their victims into sharing important personal information such as Social Security and bank account numbers. After payment is received, the scammers do little or no work to obtain a loan modification for the homeowners. In the process, homeowners fall deeper into delinquency and also lose valuable time that could have yielded better results.
Free services of a HUD-certified housing counselor are available nationwide to help negotiate with mortgage servicers. Many times these housing counselors facilitate securing options to avoid foreclosure such as home modifications, refinance, forbearance, short sales and more.
A new research report, Foreclosure Rescue Inc. by the Lawyers’ Committee for Civil Rights Under the Law finds that foreclosure scams are beginning to take new forms while still fraudulently taking money from distressed homeowners. Some scammers falsely claim government affiliation while others include improper involvement of legal and real estate professionals
For example, in West Palm Beach, Fla., foreclosure rescue “consultants” held seminars to teach people how to make money off of distressed homeowners. In Atlanta, attorneys were reported to have been randomly solicited to sign up as “partners” or “affiliates” of foreclosure rescue operations. And in Long Island, N.Y., legitimate housing counselors unknowingly gave fraud actors powers of attorney to presumably talk to banks on behalf of homeowners.
“African American and Latino homeowners, already victimized by targeted predatory lending, have been victimized by scams at disproportionate rates compared to their percentage of the population,” said Yolanda McGill, manager of the Loan Modification Scam Prevention Network for the Lawyers’ Committee.
When a troubled homeowner’s race is taken into account, stark racial differences emerge. White homeowners represent 78 percent of the nation’s homeowners and together account for less than half–47 percent–of complaints filed. By contrast, Both black and Latino homeowners combined represent 16 percent of the nation’s homeowners, their combined fraud complaints are nearly the same number as those filed by whites: 44 percent.
“Senior homeowners also are victimized at high rates and their average loss is higher than other groups,” explained McGill. “The Lawyers’ Committee and our federal state and community partners continue to fight back and put these scammers out of business, including through litigation.”
The Lawyers’ Committee litigation includes 14 lawsuits against loan scam operators whose collective efforts affected more than 400 troubled homeowners. The lawsuits sought both monetary and injunctive relief. So far, 50 scam operations have been shut down and more than $500,000 has been recovered on behalf of homeowners. Additionally, those found guilty have been banned from future participation in mortgage assistance relief servicers.
As the Consumer Financial Protection Bureau continues its complaint resolution and the Lawyers’ Committee continues its litigation, Foreclosure Rescue Inc. recommendations call for more policy reforms, including:
● Allowing homeowners to pursue private rights of actions;
● Enacting state laws that broaden fraud definitions to include any stage of the scam process; and
● Incorporating explicit government warnings to consumers regarding potential scammers and how to avoid fraud.
Created in the summer of 1963 by President John F. Kennedy at an initial meeting of 244 lawyers, the Lawyers’ Committee for Civil Rights Under Law is a nonpartisan, nonprofit providing legal services to address racial discrimination. Anyone desiring more information on state and national resources for foreclosure fraud should visit www.preventloanscams.org.
To file an online mortgage complaint with CFPB, visit www.consumerfinance.gov.
Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.firstname.lastname@example.org.