Democract real estate columnist
The record number of financially stressed homeowners is keeping the Department of Real Estate busy. Currently the DRE has 2,000 open investigations involving real estate agents and mortgage modification fraud. But wait, thereÕs more. For the first time the California State Bar has formed its own Loan Modification Task Force, investigating 250 lawyers and 1,250 complaints against their members and the Consumer Protection Division of the Attorney GeneralÕs Office is buried with complaints regarding foreclosure avoidance schemes and rescues. Real Estate Commissioner Jeff Davi estimated that this type of consumer fraud would go on for another 24 months as Notice of Delinquency filings are up 50 percent from December 2008 to December 2009.
During the height of the real estate market when properties were appreciating 2 percent a month, lenders didnÕt pay all that much attention to the minor details of a loan. As long as homes were gaining in value, why should they be concerned with trifling details like credit, employment and downpayment? With lenders focusing on generating loan volume rather than the security for a loan, itÕs not surprising most fraudulent real estate scams were against financial institutions. The most common involved a straw buyer, an inflated appraisal and a phony escrow.
Today, with lenders placing borrowers and their purchases under a microscope, people and not institutions are the most likely victims of real estate fraud. ThatÕs understandable. When people are having financial problems, they are more vulnerable to false hope and promises, desperately looking for a way out of their problems. Scam artist are taking advantage of their plight and picking the pockets of those who can least afford it by promising loan modification or saving a delinquent borrowers house from foreclosure.
The foreclosure rescue is one con that promises to save the defaulting borrowerÕs home from foreclosure by deeding it over to a third party. The con promises to cure the foreclosure and allow the owners to stay in the home. Another is for the delinquent borrower to make upfront cash payment to the ÒrescuerÓ who will stop the foreclosure action and modify the loan. The foreclosure is never cured and all the rent monies collected goes to the con.
There has been a great deal of misrepresentation concerning loan modifications and subsequently, frustration and disappointment with the program. Talk to anyone who has attempted to obtain a loan modification from their lender. The process is time-consuming and bureaucratic. Borrowers often feel lost in a maze and when denied for a modified loan they donÕt get a clear definition as to why. It is in this environment that advance loan modification companies flourish.
Imagine youÕre a desperate homeowner struggling to make your mortgage payment and avoid foreclosure. You have been unsuccessful in obtaining a loan modification from your lender. Then you read or hear this advertisement. ÒWe can save your home. We have saved thousands. We cut through the Red Tape. We have experts, skilled negotiators and specialists on our staff that has worked with lenders. We have the inside track and can get to your lender when you cannot. Free consultation. Money back guarantee! WouldnÕt it be worth risking a few thousand to drop your payment down to 2 percent and save your home and credit?
President Obama was the first Loan Modifier. In March of last year during a speech in Phoenix, he introduced the great federal loan modification program as being the solution to solving the foreclosure problem. To a cheering audience of high school students, he said he was going to keep as many as 9 million people in their homes by lowering their monthly mortgage payment. He would channel $75 billion to banks and prod them into modifying terms of the mortgage for up to 4 million borrowers by the end of 2012. Then relax financing rules, allowing another 5 million to refinance to an interest rate as low as 2 percent for five years and have the term of the loan extended for 40 years. This national loan modification pitch by our chief executive was the hope and change we all wanted to believe in. So howÕs that all working out?
The Treasury Department announced last month that while 1 million people have entered the governmentÕs modification program, only about 116,000 have been successful. And what about all that money promised to prod lenders into making modifications? Only $15 million in incentive money has been paid to more than 100 participating mortgage companies. ThatÕs about 0.02 percent of the $75 billion promised.
The advance fee scams for foreclosures and loan modifications would all be eliminated if more people understood the law. Since October of last year, it has been illegal in California for any person, including lawyers, real estate agents, corporations, companies partnerships or any other licensed or unlicensed person or party to demand, change or collect any advance, up front or retainer fees or any other type of pre-payment compensation, for loan modification work or services, or any other form of mortgage loan forbearance.
It isnÕt surprising that thousands of homeowners have been duped out of millions of dollars for loan modifications that never happened, when you consider that millions of Americans have been duped into believing that the government is going to solve the housing problem.
Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his web site at www.kencalhoon.com.