How To Spot Mortgage Assistance Scams That Prey on Homeowners

Nearly 2,000 homeowners are set to receive refunds after the Federal Trade Commission announced it would return nearly $3 million to those who were defrauded by a widespread mortgage relief scheme.

The refunds are tied to a February 2024 federal court ruling that found mortgage relief company Home Matters USA guilty of defrauding thousands of distressed homeowners out of millions of dollars. Vulnerable populations, including veterans and older adults, were targeted, according ot the suit.

Home Matters USA, which operated under several aliases, including Golden Home Services and Home Relief Service of America, promised homeowners facing foreclosure that they could reduce their mortgage payments and prevent foreclosure.

Foreclosure relief scams are unfortunately all too common, says Ashley F. Morgan, a debt and bankruptcy lawyer in Chantilly, VA.

“One thing I regularly see is that people become vulnerable to mortgage relief scams when they are scared and running out of options,” she says. “They are often stressed and trying to find anything that can help. Scammers know that people in financial distress are often willing to listen to anyone who promises a quick fix.”

Confusion is often the name of the game

Scammy mortgage relief companies will also create a false narrative to separate a distressed buyer from their legitimate mortgage company, says Cody Schuiteboer of Best Interest Financial, a mortgage lender in West Bloomfield, MI.

“Many of these fraud operators tell distressed homeowners to stop paying the mortgage and to instead pay the fraud relief company directly, holding the payment in a trust to be used for negotiations later. Trust? What negotiations? The homeowner just gets deeper into the mortgage mess as the fraud operator gets richer,” he says.

They’ll also use names and aliases intended to trick distressed homeowners into thinking they’re government-backed, he adds.

“Combined with claims of being ‘government guaranteed,’ ‘HUD approved,’ and ‘“’HAMP certified,’ name layering is designed to mislead. When companies use government programs, ask for the exact name, and verify it on your own by going to hud.gov or consumerfinance.gov,” Schuiteboer recommends.

Spotting debt relief red flags

As hard as it is to be diligent when you’re under financial stress, it could be the difference between digging yourself out of a hole or burying yourself even further.

“The biggest red flag in any mortgage relief or foreclosure assistance program is when a company asks for large upfront fees before providing any actual service,” says TJ Tassone, owner and mortgage broker at Tayton Capital in Telluride, CO. “Homeowners should be extremely cautious of anyone who guarantees they’ll stop a foreclosure, promises a specific loan modification outcome, or instructs them to stop communicating with their lender. Legitimate mortgage assistance providers can’t guarantee results because every lender and borrower situation is different.”

Tassone says that if a lender is exerting pressure or creating a false sense of urgency, homeowners should slow down and do their due diligence.

“One of the most important questions homeowners should ask is, ‘Are you licensed, and can you provide your license number?’ They should also ask for all fees in writing, request a clear explanation of services being provided, and understand exactly how those services will help their situation. If the company refuses to provide written disclosures or avoids answering direct questions, that’s a major red flag.”

Morgan says to watch out for anyone demanding an upfront fee for mortgage relief.

“People need to be extremely cautious anytime someone asks for substantial money in advance in exchange for a promised mortgage modification, foreclosure rescue, or debt relief solution. Too often, the consumer pays thousands of dollars and receives little or no actual help.”

And if they’re promising specific results regardless of your situation, that’s also a red flag, because “no legitimate company can guarantee a loan modification, stop a foreclosure permanently, or promise that a lender will accept certain terms.”

“The best way to protect yourself is slowing down, verifying who you are dealing with, understanding exactly how they get paid, and making sure you understand all of your available options before signing anything or handing over money,” she says.