Protecting Consumers from Loan Modification Scams

As scammers continue to prey on vulnerable, financially stressed homeowners, the California State Department of Real Estate is warning consumers to be wary of promises for loan modification and mortgage relief.

The typical scam involves the assurance of a loan modification in exchange for an upfront fee from a consumer. But once the fee is paid, little or nothing is done to obtain a loan modification.

“With so many homeowners facing financial hardship, foreclosure rescue and loan modification scams are very prevalent and consumers need to be on guard,” said Jeff Davi, commissioner of the Department of Real Estate.

“We have seen many variations of scams, but most all involve the collection of illegal advance fees. If someone asks for money upfront, that is a huge red flag.”

Since 2008, the DRE has set up over 4,500 cases that involved loan modification complaints. Out of these cases, there have been 244 desist and refrain orders to halt illegal operations that 785 separate respondents participated in.

The majority of all the desist and refrain orders, which makes the recipients of the scam immediately stop the illegal activity, involve people who are not licensed to provide loan modification or mortgage-related services.

In addition, the DRE has filed 88 accusations accusing 159 different real estate licensees of violating the real estate law in connection with offering loan modification services.

All of the recipients of these desist and refrain orders and who are accused of disobeying the law are listed on the DRE website.

To not be a victim against this type of scam, the DRE said individuals should never pay an upfront fee for loan modification services because they are illegal. The DRE recommends consumers should use a HUD-approved counseling agency that can provide loan modification services for free or do it themselves because there is no need for an agency to represent a consumer to obtain a loan modification.

The DRE, whose mission is to protect the public interests in real estate matters, also has warned consumers to watch out for promises of guaranteed success pertaining to a loan modification, ask questions and get referrals from people “you know and trust,” and to “always remember that if it seems to good to be true, it probably is not true.”

Besides its own cases, the DRE has also made over 100 referrals to the California State Bar identifying attorneys who were involved in the illegal loan modification activities. The referrals resulted in 40 lawyers being filed against or losing their license. The DRE wants law enforcement agencies to impose criminal prosecution against these attorneys.