Los Angeles Scam Artists Prey on Homeowners

California foreclosures are up, and desperate homeowners call entities that advertise with brightly colored placards on light poles at freeway off-ramps. Is it a recipe for disaster in the making?

California Foreclosure Numbers are Up

DQ News minces no word when it lays out the figures: California foreclosures are up by 80% from the last quarter, and 19% from the first quarter of 2009. 135,431 foreclosure notices were sent to 130,718 homeowners between January and March of 2009, alerting them that their mortgage lender had initiated foreclosure proceedings against them.

The average amount of arrears that foreclosure prone homeowners face is about five months worth of mortgage payments; this figure is so humongous - think about five payments of $2,000 each totaling $10,000 that must be made up - that curing the default is virtually out of reach for the majority of affected borrowers. The lion's share of Southern California defaults takes place in Imperial County, which is followed by Los Angeles County.

Fertile Ground for Scam Artists?

Not surprisingly, homeowners are desperate. Weighed down by credit card and medical debts, affected by California job losses that make it necessary to choose between keeping on utilities and making a mortgage payment, it is also skyrocketing state taxes and fees that are taking their tolls on families. With the recent sales tax hike just taking place on July 1^st in L.A., consumer goods now carry close to 10% in mandatory sales tax payments, making it harder than before to keep kids clothed and basic necessities stocked.

President Obama's mortgage plan raised a lot of hopes in February when it was unveiled. After Hope for Homeowners by the Bush Administration turned out to be a washout, Making Home Affordable seemed to be a panacea for the foreclosure bound. While these programs offer homeowners the tools to negotiate with their lenders, the process is not without its problems. Negotiating with a mortgage bank is an uphill battle that requires copious phone calls, speaking with unsympathetic customer service agents, and frequently does not yield the results desired.

Not surprisingly, homeowners are turning to the mushrooming crop of professional negotiators that - for a fee - offer to do the negotiating for them. While a wide variety of these negotiators are legitimate businesses, a number of them are opportunists. The Los Angeles Times details some accounts of the questionable and illegal practices these scammers use to prey on homeowners.

Some promise a loan modification - under President Obama's recent plan - but require good faith payments that will be forwarded to the bank. Not surprisingly, these payments never make it to the mortgage lender but only into the accounts of scammers. Others claim that they need to take ownership of the home to properly negotiate with the bank, and the homeowner signs over the deed to the house, practically giving away the home but still being on the hook for the loan.

Still other scam artists require copious fees to be paid up front - sometimes to the tune of $900 to $5,000 - before they act for the homeowner. These scammers may send one or two letters to the mortgage lender on behalf of the customer but do little more. Having placed a clause in the contract that there is no guarantee of results, the homeowner threw away money that might have been used to cure the home loan default.

It is hard to tell which outfit provides help for homeowners with the bank negotiations and which do not. The Better Business Bureau is the first place to stop and research an outfit whose advertisement you ran across a freeway off-ramp, HUD counselors are another place to ask for names and phone numbers in the first place.

Sources

http://www.dqnews.com/Articles/2009/News/California/CA-Foreclosures/RRFor090422.aspx; http://www.associatedcontent.com/article/1489662/will_the_obama_housing_plan_be_as_problematic.html?cat=62; http://www.latimes.com/business/la-me-mortgage-fraud6-2009jul06,0,1643135.story; http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm