How's this for a business plan? A company buys or rents lists of recent default filings from across the country -- thousands of people who have been notified by lenders that if they don't get their mortgage payments back on track, the next step will be foreclosure.
Then they send each homeowner on the list a personalized letter with an urgent message: "We know you're having a tough time right now, but we can save your home! It's not too late! We know how to get through to your lender and work things out to save your house. Call this toll-free number immediately!"
The letters go to rich people, poor people, owners of big and small houses, and they generate hundreds of callbacks.
But in most cases, the panicked homeowners who agreed to pay a fee of $1,200 to $1,300 for the foreclosure prevention services in advance receive little or nothing in the way of help.
The homeowners lose their houses to foreclosure, and the rescue company keeps sending out letters and pocketing fees.
Late last month, the Federal Trade Commission settled with a Florida company -- United Home Savers -- that allegedly operated like this and victimized more than 3,100 homeowners nationwide. The company and its officers denied any legal wrongdoing as part of the settlement but have shut down the firm and agreed to a $4.1-million judgment and close monitoring by federal officials of their future business activities. However, most of the judgment was suspended because United Home Savers and its principals had only about $22,000 in their bank accounts when the FTC froze their assets under court order. United could not be reached for comment.
The 3,100 victims, in other words, probably won't see a dime in restitution.
"What really hurts," said Harold Kirtz, the FTC lawyer who led the government's case against United Home Savers, "is that a lot of these people not only lost money upfront, but they also fell further behind on their mortgages" during the weeks and months while they waited for United's staff counselors to work things out with their lenders.
United is just one of hundreds of alleged foreclosure rescue operations that have prospered in the mortgage market bust. Reilly Dolan is familiar with many of them. He is the FTC's assistant director for financial practices and the coordinator of Operation Loan Lies, a federal-state effort that has targeted 189 companies allegedly running mortgage modification or foreclosure prevention scams. The FTC alone has brought or settled 19 cases against firms of this type in the last 12 months, Dolan said. "And more are coming."
"This is now one of the top priorities" at the FTC, Dolan said, because the sheer breadth of mortgage foreclosure problems "has caused a lot of scams to come out of the woodwork."
Kirtz, who is based at the FTC's Atlanta office, said even well-educated, financially knowledgeable consumers can fall prey to loan modification and foreclosure prevention rip-offs because "they are in a very vulnerable state," threatened with the loss of the roof over their head. As a result, they don't ask the questions they should, and they don't look for the clear warning indicators of potential fraud. What telltale signs should tip off financially distressed homeowners?
* No. 1: If the company claims to be able to guarantee success in preventing foreclosure, no matter what your financial situation or mortgage details, don't listen further to the pitch. Nobody can guarantee you'll get a loan modification, and nobody can guarantee that your lender won't pull the plug and foreclose.
* No. 2: Although there is no federal law against collection of upfront fees for loan modification assistance -- unlike so-called credit repair operations, through which fees are prohibited until services are completed -- any company asking for $1,000 to $4,000 in advance should be checked out thoroughly by the homeowner before any payment.
"We can't say all advance fees are illegal," Kirtz said. But when the fees are for things like processing and administration costs, he said, "in most cases they're probably bogus."
* No. 3: Mortgage modification companies that claim to have special inside connections allowing them to make your payments directly to your lender -- provided you send your monthly checks to the modification company, not to your regular servicer -- are almost certainly intent on one thing: cashing as many of your checks as possible, pocketing the money and leaving you unprotected and heading for foreclosure.
Distributed by the Washington Post Writers Group.