Foreclosure Rescue Scams to Avoid

If you're facing a foreclosure, be on the lookout for scammer rescue companies that claim they can help you save your home.

By , Attorney University of Denver Sturm College of Law
Updated 3/22/2024

If you're a homeowner behind in your mortgage payments, a scammer might contact you, promising to save you lots of money and stop a foreclosure. Scammer companies claim that their services can prevent the loss of your home, usually through a mortgage modification, but these companies often leave homeowners in worse shape than before.

In this article, you'll learn about different mortgage relief and foreclosure rescue scams you're likely to encounter and what you can do to avoid them.

Mortgage Modification Scams

Borrowers struggling to make their mortgage payments might have several options to get caught up on the payments, including a modification, forbearance agreement, or repayment plan. You can apply for any of these options, including a modification, on your own without paying for assistance. But scammers might send you mailings trying to convince you that you're better off hiring their company to help you with the process.

Solicitations and mailings from a modification company tend to look official, even though they aren't. The company's name might sound like the government has endorsed the program, or the mailing might refer to official U.S. government programs.

Typically, scammer mailings claim you can "Stop foreclosure now!" or "Over 90% of our customers get a loan modification." These statements are ploys to get you to call the company. Once you do, the main goal of a scammer modification company is to separate you from your money by getting you to pay for the company to, supposedly, help you get a modification.

Many times, though, scammer companies either don't complete the modification process or never contact the lender or loan servicer at all.

Modification Companies: High Fees for Few or No Services

Modification companies promise they'll save you tons of money, and you'll be able to keep the house by getting a loan modification. But these (and other) foreclosure rescue scammers exploit a homeowner's trust and desperate situation by:

  • charging very high fees for services the homeowner could easily do, like sending in documentation to the servicer
  • charging money for specific services and then not doing anything to earn the fees, or
  • taking steps that hurt the homeowner, like missing deadlines, sending the wrong documentation to the servicer, failing to return the servicer's calls, or allowing a foreclosure sale to happen.

By the time you realize the company is just running a scam, you might not have enough time to reinstate the loan, work out an alternative to foreclosure, sell the home, or find effective assistance.

In almost all cases, you're better off applying for a modification directly with the servicer yourself or with the help of a HUD-approved housing counselor. A modification company can't do anything that you can't do yourself. And, if you find the servicer is unhelpful or is dual tracking your application, hiring a reputable attorney might also be a good idea.

Forensic Loan Audits and Securitization Audits

A modification company might try to convince you to pay for a "forensic loan audit" or a "securitization audit" to improve your chances of getting a modification. Don't bother.

What Is a Forensic Loan Audit?

In a forensic loan audit, a loan auditor supposedly reviews the paperwork from when you took out your mortgage to see if the lender complied with the law. If the audit reveals legal violations, you can theoretically then use the results to strong-arm the lender into giving you a modification.

But most companies conduct this kind of audit by having a low-level processor enter your information into a compliance software program, and the program then spits out a very basic report. In most cases, no errors or only minor errors are found.

The salesperson might say that the results of such an audit will force the servicer into giving you a modification, which is rarely true. You'd have to raise the legal violations in an answer to a foreclosure lawsuit or file your own suit to have any effect.

What Is a Securitization Audit?

In a process called "securitization," multiple loans with similar characteristics are pooled and then sold in the secondary market, often to a trust. A securitization audit will supposedly reveal whether your loan was securitized and, if so, whether the securitization was done correctly.

But securitization audit reports usually just give you publicly available information and make unsupported conclusions of law that aren't useful when trying to get your loan modified.

The Housing Counseling Scam

Foreclosure rescue scammers sometimes try to get you to pay for foreclosure information or housing counseling that you can find online for free or from a HUD-approved housing counselor at no cost.

Some States Have Laws to Prevent Foreclosure Rescue Scams

Some states have passed laws to protect people from foreclosure rescue scams.

  • For instance, the Florida legislature has enacted the Foreclosure Rescue Fraud Prevention Act. This law imposes tight restrictions on anyone offering services purporting to help save a residential property from foreclosure.
  • New Jersey has a law designed to prevent foreclosure consultants from taking advantage of distressed homeowners.

Also, Congress passed the federal Mortgage Assistance Relief Services (MARS) rule, also known as Regulation O, to protect homeowners from foreclosure consultant scams.

The fact that legislators have put foreclosure rescuers on such a short leash should give you an idea of just how untrustworthy these scammer companies are, so it's best to avoid them altogether. If you need help getting a loan modification or assistance in avoiding a foreclosure, contact a free HUD-approved housing counselor or pay an experienced foreclosure attorney to assist you.

Be aware that some companies advertising modification services claim to use lawyers. Usually, this claim is outright false, the attorney is a bad foreclosure lawyer, or the attorney has little or nothing to do with your file.

Tips to Help You Avoid Becoming the Victim of a Scam

Here's how to avoid becoming a victim of a modification scam or foreclosure rescue scam.

  • Don't pay upfront fees. If a modification company demands a hefty upfront fee from you, beware. Federal law and many states prohibit modification companies from collecting money before performing services and place other restrictions on foreclosure rescue activities.
  • Don't pay a modification company rather than your servicer. Sometimes, modification companies advise people to pay the company's fee instead of making their mortgage payments; this is a major red flag. The company might take your money, fail to get you a modification (or not even try), and then you'll be even further behind on your payments.
  • Don't ignore your servicer or lender. Foreclosure rescue companies often tell people to stop communicating with their servicer and let the company do all negotiating. But that's not a good idea. You should continue to talk—and listen—to your loan servicer. No magic trick or secret skills are involved in "negotiating" a modification. You apply, and the servicer will let you know if you qualify. Plus, if you keep the lines of communication open, you might learn about a workout option you hadn't previously considered.
  • Beware of sketchy emails from foreclosure rescue companies. Scammers might send you messages advertising assistance with your mortgage that have malicious attachments or links to fraudulent websites designed to trick you into revealing sensitive information. Avoid clicking on links in unsolicited emails, and don't open email attachments. Any email from a sender you don't know or any message that looks odd (even from someone you know) should be deleted without opening.
  • Do work with a HUD-approved housing counselor. If you need help with a modification, you can get free assistance from a HUD-approved housing counseling agency.

Reporting Scams?

If you suspect you're a victim of a modification scam, contact:

  • the Federal Trade Commission (877-FTC-HELP)
  • your state Attorney General's Office, and
  • your local Better Business Bureau.

By reporting a modification or other foreclosure rescue scheme, you might be able to help someone else avoid becoming a victim.

Where to Get Legitimate Help

If you need help getting a loan modification or another option to avoid foreclosure, talk to a HUD-approved housing counselor and consider hiring a lawyer to help you.

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