Recently, several banks have confessed that they submitted thousands of falsely sworn documents to courts as part of their efforts to foreclose on people's homes. Bank employees, nicknamed "robo-signers," signed document after document, swearing that they checked their contents and that the documents were true. Sadly, many of the employees did not check much of anything, and the documents frequently contain substantial errors.
Some homeowners in danger of losing their houses are hoping that the exposure of the deeply flawed foreclosure process could help them keep their homes. But even though these documents amount to committing fraud upon the court, and even though some banks have suspended foreclosures in the 23 states where judges have to sign off on foreclosures, homeowners should know that the fraudulent documents won't likely save them.
No one's going to get a free house just because the bank's papers are bad. The homeowner still owes someone a lot of money, and eventually the paperwork will get sorted out. But that doesn't mean that scam artists won't try to take advantage of the situation. It's only a matter of time before someone starts telling delinquent borrowers: "Hey, I can check your papers for you and if I can find a bogus bank doc, I can get the judge to invalidate your mortgage and get you your house free -- all you have to do is pay my fee right now so I can get started."
Foreclosure Frauds Are Already Rampant
There's already a scam that comes close, called the "forensic mortgage loan audit scam," which the Federal Trade Commission warned about back in March. In that scam, auditors and the attorneys who back them up demand at least several hundred dollars up front, and then comb through the mortgage documents looking for any violations of state or federal fair lending law. If any are found, these professionals say, the homeowner can sue and -- here's where the fraud kicks in -- through the suit, cancel the foreclosure, speed loan modification, reduce the loan principal or even cancel the loan.
However, unless the loan is very new, many of the lending law claims will be blocked by the statute of limitations. The remedy with the longest timeframe to sue is "recission", which would allow the homeowner can cancel the loan. But canceling the loan only helps if the homeowner can repay the money; he doesn't get to cancel and keep the cash. And if he could repay the money, he wouldn't be facing foreclosure. In most instances, these lending claims are only good against the original lender, and in the post-bubble real estate era, many of those lenders have gone out of business.
While some types of legitimate fraud claims may exist and may provide help if used, these audit firms aren't looking for them, says Florida consumer attorney Robert W. Murphy. Indeed, Washington consumer attorney Melissa Huelsman argues that audits, even if they did identify a valid claim, are unnecessary, because any good attorney can do the analysis quickly without charging an added fee. So how do you find a good attorney? Huelsman suggests looking for a consumer attorney with a lot of experience; Murphy notes that the National Association of Consumer Advocates has a good referral service.
As with most scams, the foreclosure audit one is based on half-truths -- just enough truth to be convincing. Perhaps the worst frauds are ones in which the homeowner loses her house to the scammer, becoming a tenant in her own home. This is called "the bailout" or "equity-stripping" or "rent to own." Two other common types are the "Phantom Help" and "Bait and Switch" scams. Phantom Help is exactly what it sounds like: promised help that never comes. Bait and Switch involves telling people the documents they're signing say one thing, when they really say another. Remember, aways read the fine print before signing. That will help with Bait and Switch and also block a different sort of scam reported on the Today Show recently: Apparently some lenders are advertising "fixed" rate mortgages that after two years reset to a higher "fixed rate."
What to Watch Out For
If you're a homeowner in trouble -- particularly if you live in one of the high foreclosure fraud states like Florida, New York, California, Michigan, Arizona, New Jersey, Maryland, Georgia, Illinois and Virginia -- you will be approached by fraudsters. In the south Florida context, Murphy warned, within a few short days of the foreclosure's filing, before the homeowner is even served notice of it, the typical
homeowner will get 20 to 40 letter solicitations -- of which 10-15 will be from scammers, and the rest from attorneys, including bankruptcy attorneys, seeking clients. Additionally, the homeowner will receive a dozen or more phone calls from persons offering "services." All, or almost all, of the calls will be from scammers. In certain instances, birddogs -- persons who are paid a fee for "referral" -- appear at the home offering the owner these services. Again, most or all of these people represent scammers.
Good advice abounds to help homeowners avoid these scams. For example WalletPop's Stella Chavez recently reported on 5 Tips to Avoid Foreclosure Rescue Scams. Chavez noted the Department of Housing and Urban Development has a prescreened list of agencies that can help, and those agencies, unlike the fraudsters, don't cost much. In addition, reputable agencies won't ask for cashier's checks or wire transfers only, and won't ask you to sign a document with blanks in it, or rush you to sign anything.
Murphy counsels that as a general matter, if you are being approached by a non-lawyer firm offering to stop your foreclosure, modify your loan, or otherwise save the day and asks for up to $8000 up front, watch out.