Posted on April 17, 2014
Evidence suggests that individuals who are less financially savvy are more likely to fall victim to financial scams, hold high cost mortgages, and engage in costly credit card behavior. As a result, the cost of limited financial literacy can be extremely high. Throughout Financial Literacy Month, we are highlighting key GAO reports that provide useful financial information for consumers. Foreclosure rescue schemes Some of the most tragic fraud stories involve homeowners who have lost their homes in foreclosure rescue schemes. Since GAO first studied this issue in 2010, foreclosure rescue schemes—which promise but do not deliver foreclosure prevention assistance—remain numerous and have become more complex in recent years. Unfortunately, these schemes distract homeowners from pursuing legitimate opportunities to save their properties. What you don’t know can hurt you Many homeowners are unaware that
- It is illegal in most cases to charge an up-front fee for foreclosure relief services or mortgage modifications.
- Nonprofit housing counseling agencies provide free foreclosure prevention counseling services. These agencies are funded, in part, by the Department of Housing and Urban Development (HUD) and NeighborWorks.
- You can confirm that a company is a HUD-approved housing counseling agency by going to HUD’s website.
- Forensic audits. Scammer offers to review a homeowner’s mortgage loan documents to determine whether the lender complied with state and federal mortgage lending laws.
- Bankruptcy to avoid foreclosure. Scammer promises to negotiate a loan modification with the lender for a fee, but files a bankruptcy case in the homeowner’s name. The bankruptcy process temporarily halts all debt collection efforts, including foreclosure proceedings, making it appear as if the scammer has done something to help.
- Mass joinder lawsuits. Scammer, usually an attorney or law firm, will promise the homeowner that the lender can be forced to modify the loan through this type of legal action.
- Short sale schemes. Scammers, sometimes called "short sale negotiators" or "short sale processors," promise to expedite a short sale and usually require the homeowner to pay a fee for these services.
Image excerpted from GAO-14-17Watch our AskGAOLive web chat on Foreclosure Rescue Schemes from November 2013: https://www.youtube.com/watch?v=PV1PG1391KY