[Updated 5 p.m. 10/13, to add the company’s response]
Falling behind on your mortgage is bad. Falling in with companies that claim to offer “mortgage relief” services can be even worse, leaving cash-strapped homeowners like Paul of South Carolina in even worse shape than before they signed up.
Paul, who asked that his last name not be used, had fallen behind on his mortgage payments after losing his job during the pandemic. He signed up with a California company that said it could help and wound up spending $8,000 while falling even farther behind on his mortgage.
Such cases are far from rare. In California, nine defendants recently pleaded guilty to charges growing out of mortgage assistance programs. The lead defendant was sentenced to more than seven years in prison.
As part of the scheme, prosecutors said the nine targeted distressed homeowners claiming they could stop foreclosures if the home owners made monthly payments to the group. Many of the homeowners lost their homes to foreclosure despite paying the group hundreds of dollars a month over the course of many years.
“It is a terrible crime to prey on individuals and families who are feeling vulnerable and distressed as they face losing their homes,” said California Attorney General Rob Bonta. “We’re getting justice for the victims in this case, and I hope this serves as a warning that perpetrators of these scams will be held accountable.”
TD Bank was no help
That sounds familiar to Paul, who provided written documentation of his experience to the Consumer Education Council. He had fallen behind on his mortgage after losing his job early in the COVID-19 pandemic and soon found himself $70,000 in arrears including interest and fees. When his income began to recover earlier this year, he called his mortgage servicer, TD Bank, hoping to set up a payment plan that would bring his status current.
“The answer I got was that I could ONLY pay the balance due in its entirety and there was no alternative. The associate I spoke to was even pretty rude about it,” Paul said.
He then began searching for mortgage assistance and filling out information request forms on the web. He soon received a flood of phone calls from companies saying they could help.
“One of the calls was from a company called First Choice Gateway. The associate I spoke to seemed very sharp and knowledgeable and spoke like someone who wasn’t selling anything,” Paul said. “She explained that with their help, I could permanently restructure my loan and because of the ambiguous COVID assistance programs available be refinanced at 2.5%.”
A D+ from the BBB
First Choice Gateway has a D+ rating from the Better Business Bureau. The BBB said its mailed inquiries to the firm’s listed address were returned by the Post Office as undeliverable.
In her pitch to Paul, the First Choice Gateway rep said that the loan restructuring could bring Paul’s monthly payments into the $1,300-$1,400 per month range. “It was exactly what I wanted to hear,” he said.
The proposed arrangement was fairly typical of such schemes. Paul would have to make trial payments of $1,600 to First Choice for several months while the company supposedly worked out a repayment plan with TD Bank, with the payments serving to help reestablish his credit.
No payments went to the bank
In August, Paul had found a new job and things were looking up, he thought. He had made six $1,600 payments and was hoping that TD Bank would soon approve the arrangement. But when he checked with the bank, he learned that none of the money had been forwarded to the bank.
A First Choice executive conceded in an email to Paul that the company had kept his payments, saying they were for the “service” the company had rendered. The company produced what it said was a contract authorizing it to keep Paul’s money but upon reading the contract, Paul noticed that his name was misspelled, something he is certain he would have noticed had he actually signed the contract.
Paul has retained an attorney and is trying to get his money back. He is also submitting complaints to various state and federal agencies.
“I’m trying to forget about the $8,000 I’d like to get back and focus on how I can avoid losing my house and/or bankruptcy. This week I’m writing another check for $3,000 to retain legal representation without any promises of what’s going to happen in the future,” Paul said. “It makes me wonder if there is anywhere to turn for homeowners in distressed positions without coughing up a few thousand dollars for results/services tbd.”
The company responds
First Choice said in an email after this story appeared that it “has helped and will continue to help consumers with significant savings on their mortgage and finances.”
In its unsigned email, the company said, “[Paul] has chosen to not continue with the services and we have tried numerous times to reach out to him and his father without any returned calls. We would be happy to offer a refund or partial refund however the client has not called or emailed us back.”
“We would never take advantage of anyone in a hardship and our goal is to assist and consult consumers with favorable outcomes,” the email concluded.
How to avoid mortgage relief scams
Probably the best way to stay out of trouble with lenders is to stay in touch with them. Communicate with your lender or loan servicer. Let them know you’re making an honest effort.
If you feel you’re losing control and need outside help, ask your lender to recommend a mortgage rescue organization.
Meanwhile, here are ten tips from Attorney General Bonta to help you avoid mortgage rescue scammers.
- Don’t pay up-front fees. Foreclosure consultants and other companies offering loan modification services are prohibited by law from collecting money before services are performed.
- Don’t ignore letters from your lender or loan servicer. Responding to those letters is your best bet for saving your house.
- Don’t transfer title or sell your house to a "foreclosure rescuer." Beware! This is a scam to convince homeowners they can stay in the home as renters and buy their home back later. It might also be part of a fraudulent bankruptcy filing. Either way, a scammer can then evict the victim and take the home.
- Don’t pay your mortgage payments to anyone other than your lender or loan servicer. Mortgage consultants often keep the money for themselves.
- Never sign any documents without reading them first. Many homeowners think that they are signing documents for a loan modification or for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership of their home to someone who is now trying to evict them.
- Be suspicious of any guarantees made to stop the foreclosure process—no matter what your circumstances are. Only your mortgage lender or servicer has the discretion to stop foreclosure and grant a loan modification. No third party can guarantee or pre-approve your mortgage modification application.
- Be suspicious of any letters or postcards you receive that use language such as “Lender Investigation Notification,” or say that your bank or lender “is currently under investigation for predatory lending.”
- Avoid dealing with “attorney-backed” businesses or law offices that refuse to provide an attorney’s name or State Bar number.
- Avoid companies offering “forensic loan audits” or “predatory lending investigations.”
- Verify the license of someone servicing or negotiating the terms of your mortgage loan.
Help for distressed homeowners
There are numerous programs available for homeowners who need help with their mortgage. As with so many government programs, they are complex and confusing and can be hard for consumers to understand. Sometimes knowledgeable friends or neighbors can help.
Here are a few of the top recommendations from the Federal Trade Commission:
- Go to the Department of Housing and Urban Development’s (HUD) list of approved housing counseling agencies to find a counselor in your state who can explain your options.
- Visit makinghomeaffordable.gov, a website from the Department of the Treasury and HUD, or call their help line at 1-888-995-HOPE (4673).
- Visit the Homeowner Preservation Foundation.
- Visit the websites for the Consumer Financial Protection Bureau (CFPB), Federal Housing Finance Agency (FHFA), and Department of Housing and Urban Development (HUD). These agencies are working together to help homeowners and renters during the coronavirus pandemic.
Check with these agencies before hiring a private attorney. Lawyers are helpful but they are also expensive and legal costs can quickly eat up any funds you manage to recover.
How to get your money back
There is, unfortunately, no easy answer to this. Many mortgage rescue scammers try to get you to pay in ways that make it difficult to reclaim your funds – money orders, bank wires and money transfer apps, just to name a few.
Paying with a credit card – not a debit card – offers the best protection, since you can file a chargeback request with the card company. This isn’t always successful but if you maintain good records and can support your claim, your chances of success are better.
The first step in any dispute is the simplest: ask for a refund. Too many people skip this step. When challenged, companies will often agree to a full or partial refund just to avoid possible legal problems.
Just write a simple, straightforward letter that spells out what the company agreed to do, how much you have paid and what services have actually been rendered, if any. Don’t use accusatory language or threaten legal action. Never use obscenities.
Send the letter via registered mail/return receipt requested and keep the receipt. This proves that the company received the letter. Don’t send emails or other electronic messages. They’re easily ignored. And don’t trash the company on social media. They might reply publicly with a sympathetic message while doing nothing to return your money.
You can also go to the media. Sometimes a newspaper, TV station or website will run a story (like this one) about your experience. It may not work but it won’t cost you anything.
Of course, the only foolproof solution to recovering from a scam is to avoid it in the first place. Before giving your hard-earned money to anyone, it’s wise to assume you will never see it again so you need to be sure the service or product you’re buying is legit.