Fraud continues to plague the distressed home market. Here's the right way for owners to approach a workout.
The prospect of losing a property to foreclosure is beyond frightening. So when you put yourself in the shoes of home owners in that situation, it's easy to see how they would jump at any help offered to keep their prized possession.
Over the past year I've appeared on numerous radio talk shows across the country to discuss the state of the real estate business. The most frequently asked questions relate to how to choose the right professional to help with mortgage loan modifications and how to avoid foreclosure-rescue scams. The calls and e-mails I've gotten have increased dramatically since President Barack Obama's introduction of the Making Home Affordable refinance and modification program, which is showing more success in recent months as eligibility has widened.
The expansion of government efforts, however, inevitably encourages the rise of shadowy private sector initiatives promising to protect distressed borrowers. As we all know, many former mortgage brokers, title agents, and related professionals now specialize in foreclosure rescue. While most are honest, some are the same people who not long ago were promoting fraudulent and inappropriate subprime mortgages. Instead of advertising cheap mortgage money, today they're hawking loan modifications.
But foreclosure rescue companies charging borrowers thousands of dollars while adding little or no value are coming under scrutiny by the Federal Trade Commission and the FBI. Several state bar associations have issued warnings to their members about questionable foreclosure rescue business practices. It seems that some of these companies have been trying to get lawyers to team up with them to appear more legitimate and to justify charging higher foreclosure rescue-related fees.
If clients-past or present-ask you for guidance, tell them to beware of any company that
- Offers to pay a referral fee or give anything of value to a real estate practitioner for referring distressed home owners to the company
- Offers to pay a real estate practitioner to perform services on behalf of a distressed home owner
- Directly contacts distressed home owners to offer services
- Offers to place a lien on a home owner's distressed property to secure payment of fees if the home owner indicates that he or she cannot afford to pay the company now
- Guarantees a certain outcome
How else can you help? Advise distressed home owners to contact their state bar association or local legal aid organization for assistance. Even those not facing an immediate risk of losing their homes should consider reaching out to a HUD office for counseling services. Their assistance, particularly budget preparation and management, is terrific.
While I advocate that distressed home owners retain appropriate legal representation to assist with a foreclosure workout, they should also try contacting their lender or servicer on their own, even if only to identify what the right out of the box workout offer is for comparative purposes.
For home owners who prefer the do it yourself approach, it's rarely sufficient to contact a lender just once. Government initiatives, regulatory requirements, lender balance sheets, and REO inventory are changing constantly, which means foreclosure alternatives offered by lenders are similarly changing. A distressed home owner who may have been disappointed by options offered by a lender or servicer a few short weeks ago may be pleasantly surprised by what's available today. It certainly doesn't hurt to ask. And then ask again.
Note: Opinions expressed in Commentary do not necessarily reflect the position of the NATIONAL ASSOCIATION OF REALTORS® or REALTOR® Magazine.