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6 “DO NOTs” of Mortgage-Reduction Scams

I received a call from a person who was solicited by a company offering to reduce her mortgage. She was told that she would retain 20 percent equity in the home. The company offered her a legal plan that required her to deed her home to a trust and pay a $2,500 fee.

This is an illegal scam.

Here is how it works: The land trust sues the lender with a type of lawsuit that is typically used to clear up legitimate ownership or title issues. The scam artists hope that the lender will not notice that it is being sued, allowing the land trust to get a court order saying that the mortgage lien is gone. If this happens, the owner (the woman I received the call from, for example) will be asked to buy her property back from the land trust.

What the scammer does not tell the owner is that he or she still owes all of the money to the bank. As soon as the bank catches wind of what transpired, it will go to court and correct the issue.

Closing companies and attorneys are aware of such scams. Title companies will not be able to issue a title insurance policy for the sale or refinance of the home. In the end, the owner gives money to the scammer that the owner cannot afford to give and still loses his or her home.

Continue to stay vigilant as such scams are becoming increasingly prevalent.

DO NOT

  1. DO NOT sign anything that you don’t fully understand.
  2. DO NOT deed property to anyone unless in the course of an arms length transaction involving the actual sale of the property where the mortgage is being paid off and the transaction is taking place as a legal closing (in Georgia closings must be handled by attorneys).
  3. DO NOT make mortgage payments to anyone but the lender, unless your lender instructs you to in writing.
  4. DO NOT pay anyone up front for a loan modification or to “qualify” for some government or lender program.
  5. DO NOT pay for a forensic audit. A forensic audit is a report that details any problems with a mortgage. It will not make the lender modify the loan. If, in some way, the result is cancellation of the mortgage, the owner will be required to return the money that the lender released.
  6. DO NOT SELL property to someone because he or she is going to lease it back to the owner and/or let the owner buy it back in a few years. The scammer will not let the owner stay in the home once it is signed over. Shortly after the owner signs the paperwork, the scammer will find a way to get the owner out and will typically leave the owner owing the mortgage lender but no longer owning the house!

Beware of any tricks with a short sale that allow the owner or a relative to keep the home or buy it back later. Lenders will typically prohibit such actions.

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