Consumer Alert

Fraud Warnings for California Homeowners





As homeowners continue to feel the pinch from the recession, and as home loan worries, delinquencies, defaults, and foreclosures continue to occur in California, loan modification and foreclosure rescue scams are growing and soaring. The FBI has said that a “rampant mortgage fraud climate” currently exists, and that California is one of the top states for loan fraud.

Whether they call themselves foreclosure prevention or rescue consultants, forensic loan auditors, loan restructuring agents, debt settlement specialists, loss mitigation experts, loan modification specialists, mortgage modification consultants, or some other official or important sounding title(s), there are thousands of dishonest and rogue individuals and companies (most of whom are unlicensed, many of whom use lofty sounding names, and some of whom falsely claim to be non-profits, to be attorney backed or affiliated, and/or to be affiliated with the federal and State governments–e.g., they suggest the backing of the Obama Administration, a Member of Congress or some other elected official, or of a government agency or department, such as HUD, FHA, the California Department of Real Estate, the California State Bar, etc.) that have popped up and appeared all over the State of California. Many of the individuals have criminal and/or disciplinary records, and many of the companies are just fraud factories and high-pressure sales mills operating out of telephone boiler rooms that are in the “business” of offering impressive sounding but non-existent loan services so that they can steal your money. Some are operating nationally, and some are even operating outside of the country.

To find their homeowner victims, they scour foreclosure notices, they get information on adjustable rate loan re-sets from title companies, and they use other tools. Quite simply, the bad players look for homeowners who are in foreclosure, who are struggling to make home loan payments, or those who need to modify their mortgages to find relief from financial distress. Once they find their victim targets, they market hope – and all too often, it is false hope.

The scammers advertise on the radio, in newspapers, through the Internet, via email and the U.S. Mail, and on television. Some even go door-to-door.

While there are people and entities in the business of modifying loans that are licensed, legitimate and qualified, you must be cautious and BEWARE.



While there are “foreclosure rescue” scammers who promise to save homeowners from foreclosure – or to delay a foreclosure via litigation and/or bankruptcy filings — after a notice (First Issued 3/2009) 2

of default is recorded, the most common type of fraud (the “fraud of the moment”) relating to home loans is Loan Modification fraud.

Because of the current economic situation, you may not be able to afford your mortgage payment, or you may be in foreclosure. If you are not able to negotiate a deed transfer to your lender in lieu of foreclosure, to sell you home through a “short sale”, or to refinance your home loan, an option that may be available to you is a Loan Modification.

What is a Loan Modification? That is where you and your lender (or the loan “servicer” on behalf of the lender or loan “investor”) (both the loan servicer and lender will be referred to below as “lender”) agree to modify one or more of the terms of your home loan. The terms could be a lower interest rate, an extension of the length of the loan (like making a 30 year loan into a 40 year loan), a conversion of an adjustable rate loan (called an ARM) to a fixed rate, a rate freeze, the deferring of some of your payments, or any other modification of loan terms.

The goal of a successful Loan Modification is to help you keep your home and to give you a real, meaningful, sustainable, and long-term adjustment to your current home loan that works for your financial situation.

But loan modifications are not possible for every homeowner, and the loan modification “success rate” is currently very low in California. The available data suggests that loan modifications vary from lender to lender. Many lenders have guidelines for loan modifications. If your financial situation meets the guidelines, a loan modification is possible with the necessary showing of financial “hardship” on your part. If you do not meet the guidelines, a loan modification may not be possible. It really depends on your lender and your hardship.

This is where the scammers come in. They often falsely claim that they can guarantee to “negotiate” you into a loan modification, make huge and hollow promises, exaggerate or make bold statements regarding their modification successes, publicize their supposed expertise, ask for money up front, and then take your money and leave you in worse shape than before. They may simply take your money and run. Please see and review the section captioned “Signals of Fraud/Red Flags to Watch Out For” below.


A. Do It Yourself (and Do It As Soon As Possible) — You can contact your mortgage lender directly and request a Loan Modification that works for you and your lender. Don’t wait to call if you cannot make or believe you will not be able to make your mortgage payments. Be persistent! – call back many times. Make detailed notes about your attempts to call, when you have left messages, who you speak with, what was said, and what offers are discussed and/or made. (First Issued 3/2009) 3

The Department of Real Estate has some practical tips for you for working directly with your lender on a loan modification. Those consumer tips can be accessed at

B. Other Free and Safe Options — If you don’t believe you can negotiate a Loan Modification yourself, or if you do not want to, there are free and safe options available to you.

1. The U.S. Department of Housing and Urban Development (“HUD”) offers Foreclosure Avoidance Counseling through non-profit agencies in California. Go to HUD’s web site at, or call 800-569-4287, to find counselors. HUD also offers information to homeowners facing the loss of their home.

2. HOPE NOW Alliance – this is a cooperative effort of home loan counselors and lenders, and it consists of HUD intermediaries. Go to the HOPE NOW web site at or call 888-995-HOPE.

C. Locate and Work with a LEGITIMATE, LICENSED, and QUALIFIED person or company (“Log on, Look em up, and Check em out”) –

If you don’t want to negotiate a loan modification by yourself (or believe you are unable), and if you also decide not to use the free counselors provided through HUD or the Hope Now Alliance, you can hire a representative to negotiate for you. But BEWARE – YOU NEED TO FIND SOMEONE WHO IS LEGITIMATE, LICENSED AND QUALIFIED BY EXPERIENCE AND TRAINING. And remember that you do NOT have to pay anything up front!!!

1. California licensed real estate brokers can perform loan modification work, and licensed real estate salespersons can do such work under the supervision of their employing broker.

While it is currently legal for a real estate broker to charge you in advance of performing the loan modification services before a Notice of Default is recorded, you do not have to pay anything in advance of a successful loan modification, and all broker fees are negotiable. If a real estate broker wishes to charge an advance fee, he or she must submit an Advance Fee Agreement and all supporting materials to the Department of Real Estate (“DRE”). If the agreement and materials meet the requirements under the law, DRE issues a no-objection letter. This simply means that the department does not object to the use of the agreement form and related materials. And please understand that a no-objection letter does not mean that DRE recommends, approves or endorses the agreement or the services of the real estate licensee. All fees collected in advance must be properly handled as trust funds, which require special handling and must be deposited into the broker’s trust account. A licensee must refund to you any unearned portion of the advance fee(s) collected if any of the promised services are not completed. (First Issued 3/2009) 4

You should go to DRE’s web site at, review and check the information on advance fees and loan modification services, carefully review the public license information on the real estate broker (that information will include any disciplinary history), and look for any Desist and Refrain Orders (D&Rs) that have been issued against companies and individuals. If a D&R has been issued, that means that DRE has determined the individual and/or company is unlicensed and/or has operated unlawfully.

2. California licensed lawyers can also perform loan modification work, but only when such lawyers render those loan modification services in the course and scope of their practice as an attorney at law.

Lawyers can also currently charge fees in advance (typically called a retainer), and even after a Notice of Default has been recorded. But lawyers must have a written fee agreement with you. And as is the case with real estate licensees, you do not have to pay anything in advance of a successful loan modification, and all legal fees are negotiable. Any fees that you pay to the lawyer(s) in advance do not have to be placed in their trust accounts.

Just as you should do with real estate licensees, check out lawyers by going to the website of the California State Bar, Check the lawyer’s bar membership records and look for any discipline. Also, demand to meet and speak in person with the lawyer whom you are paying to represent you.

Unfortunately, some loan modification business models have claimed lawyer involvement but they are just unlawful schemes to avoid the prohibition against the collection of advance fees by a real estate licensee after a Notice of Default is recorded. In others, lawyers are just a “front” or non-participating “magnet” for business from desperate homeowners.

****Be on Guard and Check Them Out (Know Who You Are Dealing With)- Do Your Own Homework (Avoid The Traps Set by the Scammers)**** In addition to looking at the license records, contact the Better Business Bureau to see if they have received any complaints about the person or company. But please understand that this is just another resource for you to check, and the loan modification provider might be so new that the Better Business Bureau may have little or nothing on them (or something positive because of insufficient public input).

Also, and very importantly, ask the loan modification “specialists” (whether they are real estate licensees or lawyers) about their financial, mortgage and real estate experience, the options and methods they use to renegotiate home loans, when they were first licensed, whether their license is still active, whether they have ever been disciplined, where, when and how they got their experience, what data they have to prove their past successes, what evidence they have of prior successful dealings with your lender, and also ask them to define a loan modification and the process that they will undertake and the time that they will spend to successfully negotiate a long-term, affordable and sustainable modification for you. (First Issued 3/2009) 5