To people on the brink of losing their home, the flier on the front door or the sign on the telephone pole can seem like salvation.
“Learn the ‘Do-It-Yourself' way of avoiding foreclosure,” they promise. Or, “We can help you … We are the foreclosure consultants that really care!”
As home foreclosures continue to rise across the country, so do the number of people promising to fix troubled loans and keep people in their homes. Also on the rise: the chances of being scammed.
“When the foreclosures started picking up, people started crawling out from under rocks to make a quick buck,” N.C. Attorney General Roy Cooper told the Observer.
To be sure, some companies peddling “mortgage rescue” or “foreclosure assistance” are legitimate businesses. But in the past two years, mortgage rescue fraud has caught the attention of the FBI, state authorities, legislators and housing counselors. Cooper's office has shut down four such companies and is investigating three others.
Tom Bartholomy, president of the Better Business Bureau in Charlotte, said his office has fielded about 1,600 calls on the topic so far this year, compared with about 900 in the same period two years ago. He counts 31 foreclosure assistance companies in the area, up from seven in 2006.
Some promise to fix loans with lenders and charge hundreds of dollars up front, then do nothing in return except maybe recommend a bankruptcy attorney. Others trick clients into signing over the deeds for their homes. All depend on finding homeowners who are too panicked or too naïve to carefully vet the foreclosure assistance proposals.
Mal Maynard, director of the nonprofit Financial Protection Law Center in Wilmington, says that one crop of scams has birthed another: Some people who brokered scurrilous mortgages have migrated to hawking fraudulent foreclosure rescue.
“They know where the bodies are buried,” he said, meaning they know where to find borrowers who have loans they can't afford.
Mortgage assistance companies find clients often by checking the local courthouse for foreclosure filings.
In North Carolina, it is illegal to charge up-front fees for any kind of credit repair or debt adjustment, which includes foreclosure assistance. Companies often charge the equivalent of a month's mortgage in up-front fees. In May, attorney general Cooper shut down a foreclosure assistance company in Lenoir County called the Alphin Group after five consumers filed complaints against it. Cooper's office says the company charged clients up front, then did little or nothing to help.
Russell Alphin, the owner, says those allegations are false, and that he didn't know about the N.C. law forbidding up-front charges. He says he's the victim of some vengeful customers who didn't get the kind of new loan terms they thought they deserved because they lied in their applications to his company.
“I can't tell you the amount of times a person would (falsely) tell me, ‘We're making this amount of money,' or ‘We've not filed bankruptcy before,' or ‘We've not been in foreclosure before,'” Alphin said.
The Alphin Group has been ordered to close while the case remains in litigation. “I was in there for the right reasons,” Alphin said. “I was trying to help people.”
Is outside help needed?
In one type of deed scheme, scammers trick a client into signing over the ownership of his home by telling him he's signing a stack of refinance papers. In another, a company takes over mortgage payments for a client who signs over the deed but stays in the home by paying “rent” to the outfit. The company promises to sell the house back to the client when he can afford it. But instead, it collects his rent without paying the mortgage, or it simply reneges on its promise.
Al Ripley, at the nonprofit N.C. Justice Center, says swindlers often insert a sense of urgency, with messages saying “This may be your final notice.” They often tell clients not to contact their lender – alienating the homeowner from the entity that's most likely to be able to help.
But Jeff Majka, who founded Metrolina Mortgage Relief in Charlotte 17 years ago, says that legitimate businesses like his get lumped in with the con artists. “We've got a black eye, there's no question about that,” said Majka, who also goes by Mika. “The assumption is, if you're not a nonprofit, you're not any good.”
Some consumer advocates doubt the need for even the legitimate mortgage assistance companies, saying that homeowners should be able to work out new terms with lenders on their own.
The help offered by a trained counselor “isn't going to be something that you couldn't have done yourself,” Ripley said. “Now, a lot of (lenders) bounce you all over the telephone and don't return your calls and all that kind of stuff, but that doesn't mean that they won't eventually help you.”
For homeowners who want assistance, many federal, state and local agencies recommend the nonprofit Homeownership Preservation Foundation, which runs a free national hot line for homeowners facing foreclosure. N.C. residents can also ask the hot line to arrange for them to meet a local counselor in person, paid for by the attorney general and commissioner of banks.
Fleeing to S.C.
Bartholomy, at the Better Business Bureau, said he's troubled to see fraudulent mortgage rescue companies popping up just over the state line in South Carolina, where they are allowed to charge some up-front fees.
Alan Steve Seabolt opened Nationwide Mortgage Assistance in Fort Mill, after North Carolina in 2006 shut down his two N.C. agencies, Mortgage Assistance of the Carolinas and Carolina Mortgage Relief, and ordered them to pay $65,000 in restitution.
The state says Seabolt's N.C. companies charged homeowners up front but didn't follow through with any meaningful assistance. The phone number listed for Nationwide has been disconnected. Seabolt declined to comment, except to say: “All that's done. That's history.”
Julia Robinson, a Shelby resident, says she scraped together $942 – one month's mortgage – to pay Nationwide last year, when the company told her it could stop her impending foreclosure. Robinson, who is not working because she's on permanent disability, said she fell behind on payments after her son, the home's owner, was imprisoned.
She says Nationwide didn't do anything except recommend that she file for bankruptcy. She ended up losing the home, where she'd lived for about 12 years, and also most of her furniture because she didn't get it out before the house was repossessed.
She moved to a one-bedroom apartment down the road with the teenage grandson she's raising. He sleeps on an air mattress in the sun room.
“I lost everything, 12 years' worth of everything,” said Robinson, 57. “If I hadn't been so stressed out, and maybe knew more about real estate, I don't think I would have called them.”