Mortgage-relief fraud crackdown: Feds

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The Obama administration warned Monday that scams targeting distressed homeowners struggling to modify their mortgages or avoid foreclosure are on the rise across the United States.

In a news conference led by Treasury Secretary Timothy Geithner, officials warned that cases of fraud against people struggling to stay in their homes have skyrocketed as the financial crisis has unfolded.

According to Attorney General Eric Holder, the Federal Bureau of Investigation has targeted 2,100 companies suspected of defrauding troubled homeowners with “rescue scams,” up 400 percent from the case-load five years ago.

Illinois Attorney General Lisa Madigan, credited with leading efforts to target mortgage fraud at the state level, said Monday that she has initiated more than 20 cases, including a case against one company that has targeted Chicago’s Hispanic community with radio ads.

“They will promise to stop your foreclosure. They will promise to save your home. … They will promise to get a loan modification for you. They will promise to represent you in court,” Madigan said of the growing number of companies preying on homeowners. “They don’t. All they do is take your money.”

Joining in the Cabinet announcement of a crackdown today: Shaun Donovan, secretary of the Department of Housing and Urban Development, and Jon Leibowitz, chairman of the Federal Trade Commission.

The point of the joint effort, Donovan said, is to warn homeowners to keep an eye out for potential trouble and to signal to scam artists that “we are united in rooting out foreclosure fraud.”

The officials pointed out that all aid programs under President Obama’s Making Home Affordable Plan are free and several thousand mortgage counseling companies are approved to help homeowners navigate the program run by Housing and Urban Development.

But that hasn’t stopped rogue companies from taking advantage of those in danger of losing their homes, especially the poor and minority groups.

Holder gave two recent examples of companies that typify the types of scam artists that have proliferated nationwide recently. One, a company in Kansas, collected a fee up front from homeowners after promising it could keep homes out of foreclosure. It also filed fraudulent Chapter 11 cases on the homeowners’ behalf.

Another company in Brooklyn, N.Y., set up straw buyers to acquire people’s homes with a promise that they would eventually get them back when the mortgages were restructured. That never happened. Instead, Holder said, “The distressed homeowners lost the title to their homes, faced eviction, and the lenders suffered losses from the defaulted loans.”

Leibowitz said the FTC has initiated five new cases, four of which involved companies that used copy-cat names and logos to trick homeowners into believing that they were working with the government or with the HOPE NOW alliance, a nonprofit group that actually does offer free assistance. One group called itself the Federal Loan Modification, but has no affiliation with the federal government, Leibowitz said.

Illinois’ Madigan said the surest way to indentify a potential scam artist is if the company asks for a fee up front after making big promises about being able to get a homeowner out of trouble. Such fraud has gone on for years, Madigan said, and Illinois, along with Maryland and Minnesota, are on the forefront of prosecuting cases and enacting laws that prevent mortgage assistance companies from collecting fees up front.

Homeowners looking for help should visit a new Web site called MakingHomeAffordable.gov, which has information on the administration’s $75 billion effort to help homeowners out of mortgage trouble, the officials said. It includes a listing of HUD-approved mortgage counselors.

People can also call 1-888-995-HOPE. Homeowners are encouraged to call if they suspect a company is perpetrating a scam.

© 2009, Chicago Tribune. Source: McClatchy-Tribune Information Services.