Mortgage Concepts is a recurring video series covering best practices and compliance training for mortgage originators in California. This video discusses common mortgage relief scams that mortgage originators are likely to encounter in their business. To obtain course credits for your NMLS license renewal, visit firsttuesday.us.

Common Mortgage Relief Scams

Financially vulnerable homeowners, such as those seeking mortgage assistance services, are prime targets for fraudsters. As a mortgage originator, you are often a homeowner’s first line of defense and education against this type of fraud. Let’s take a look at today’s most common mortgage relief scams.

Scammers use a variety of tactics to locate distressed homeowners, such as sifting through public foreclosure notices or placing misleading advertisements online. They use simple – but potentially misleading – messages like:

“Stop the lockdown today!”

“We have privileged relationships with banks to speed up approval!”

“100% Money Back Guarantee!”

Sound familiar? Scammers lure victims with similar promises in mortgage-violating ads Mortgage Laws and Practices Advertising Rule.

The scammers tell consumers that, for a fee, they will negotiate a deal with the lender to reduce the consumer’s mortgage payment or save their home from foreclosure. They can claim to be lawyers or represent a law firm. They can also tell the consumer not to contact their lender, lawyer or credit counselor. Instead, the scammer will insist on accepting mortgage payments directly while they negotiate with the lender. But after a few months, the scammer will stop returning calls and disappear with the consumer’s money.

For example: the “forensic audit of loanswas the most popular mortgage modification scam of the 2008 subprime mortgage crisis.

For an upfront fee, so-called forensic “auditors” offer to review a consumer’s mortgage to verify lender compliance. The “auditors” say consumers can use their report to avoid foreclosure, speed up the mortgage modification process, reduce what’s owed, or even cancel the mortgage.

According to the Federal Trade Commission and its law enforcement partners, there is no evidence that forensic audits of loans help consumers obtain a loan modification or any other foreclosure relief, even s are carried out by a licensed professional.

In rmoney purchase schemes, fraudsters ask consumers to surrender title to their home as part of an agreement that allows them to rent the property and buy it back later. They claim that surrendering title will allow a borrower with a better credit score to obtain new financing and avoid foreclosure.

But the terms of these agreements are so unfavorable that a takeover becomes impossible. The consumer loses the house and the scammer walks away with the money. Worse still, when the new borrower defaults on the loan, the original owner is the one who gets evicted.

In one variation, the scammer raises the rent to evict the consumer, leaving the “rescuer” free to sell the house.

In a similar scam known as equity skimmingthe scammers offer to find a buyer for the house, but only if the consumer signs the deed and moves out.

They promise to pay the consumer a portion of the proceeds from the sale of the home, but once the consumer transfers the deed, the scammer simply rents the home and pockets the proceeds while the lender seizes.

The consumer ends up with the bag for the unpaid mortgage, because the transfer of the deed does not transfer the balance of the mortgage.

In a bait and switch scammers, scammers give consumers papers they claim the consumer must sign to get another loan to update their mortgage. But buried in the pile is a document that cedes title to the consumer’s home to the crooks in exchange for a “bailout” loan.

Scam artists beware: The Consumer Financial Protection Bureau, or CFPB, can seek civil penalties and monetary relief for violations of Regulation O. State attorneys general also enforce this section. [12 CFR §1015.10]