Foreclosure prevention scams: some help from new regulations

The Federal Trade Commission (FTC) has released new rules for companies that offer to help homeowners get their mortgages modified, or promise to help them prevent foreclosure in some other way.   These “mortgage assistance relief companies” may no longer collect a fee upfront.  Not only that, but before they collect any money they must get you to sign a written agreement with the lender that includes a description of the relief that the lender is giving you (such as a reduction in your interest rate).

In addition, when the “relief” company presents the consumer with that description, it must inform the consumer, in writing, that the consumer can reject the offer without obligation and, if the consumer accepts, then (and only then) does the total fee become due and payable. Before the consumer agrees to accept the mortgage relief, the company must also provide a written notice from the lender or servicer showing how the relief will change the terms of the consumer’s loan (including any limitations on a trial loan modification).

There is one important loophole you should be aware of:  None of these new rules apply to lawyers.  The thought is that lawyers are regulated by state bar associations already and bound not to act unethically.  If only that were true for all lawyers.

My suggestion is that you never ever pay anyone for this service until they have delivered something to you that is worth more than they want to charge.  The fact is that there is no need to pay anyone in most cases.  There is a long list of non-profits ready, willing and able to provide foreclosure prevention services at no charge to you.

More details on the scam and a link to your nearest non-profit, free counseling service are in our previous blog entry Credit Repair or Foreclosure Prevention? Never Pay an Upfront Fee.

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