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Homeowner beware

Re-financing scams on the rise as opportunists take advantage of county's ailing housing market

Posted: March 22, 2009 1:33 a.m.
Updated: March 22, 2009 4:55 a.m.

Richard Szerman is sick and tired of loan-modification companies that ask for up-front fees from distressed homeowners in need of help.

They can call themselves "loan-modification consultants," "negotiators" or "specialists." Some are legitimate, but others are simply con artists looking for desperate homeowners facing foreclosure amid the nation's troubled housing market.

A recent study by the Mortgage Asset Research Institute stated fraud reports on home loans rose 26 percent nationally last year over the previous one.

While the report said a large percentage of the fraud is homeowners falsifying loan-application information, there is also a growing number of "foreclosure prevention specialists," who are deceiving homeowners out of thousands of dollars and, in rare cases, even their homes - all under the guise of saving the owner's house from foreclosure.

"There's a lot of what I call ‘bottom-feeders' out there right now ... wanting to take advantage of different circumstances to line their pockets," said Bob Kellar, Santa Clarita City Council member and Realtor for Kellar-Davis.

Kellar said the up-front fees often charged by these third parties are "crooked."

Szerman, who works with Silver Creek Realty in Santa Clarita, wanted to know how any company could ask someone who is already in financial hardship to shell out thousands more with a straight face, adding his company makes the commitment for free.

"If (a homeowner) is having trouble paying (his or her) mortgage and needs help ... then we'll (help them) work with their lender for free."

The California Attorney General's office busted a fraud ring last November that collected up-front fees ranging from $1,500 to $5,000, stealing more than $700,000 from homeowners in all.

Three people pleaded guilty to grand theft charges and received sentences ranging from probation to six years in prison.

Phil Nordella of the Foreclosure Center in Newhall said homeowners shouldn't let the prospects of foreclosure intimidate them into using a third party - government programs are simple enough to use and by working directly with a lender, one cuts out the middleman and therefore often unnecessary fees.

Government programs aren't so convoluted that "they'd have to call a third party," Nordella said.

His take is that banks aren't too keen on working with third parties, either.

Andy L., a Santa Clarita resident who was struggling to keep his home, said his bank wasn't very helpful. Andy asked that his last name not be used for this article.

"The bank said there's nothing we can really do for you because you're not delinquent," said Andy, who had to take a pay cut at work, which caused him to fall behind in his home payments.

"I was trying to tell them there are problems foreseen coming."

Andy took advantage of the free third-party help offered by Silver Creek.

"I understand where the bank is coming from," he said. "But there's a lot of people out here that can still afford their homes - just not on the interest (rate) they're in."

Andy said he's glad the help was provided to him free.

"It's not an easy process to be going through, but it sometimes puts your mind at ease when you have confidence in the people helping you out," he said. "There's all kinds of sharks out there trying to scam." Attorney Carl Kanowsky of Kanowsky and Associates in Santa Clarita said he would generally discourage people from using companies that charge up-front fees.

"There (are) other resources out there that don't charge a fee. It's not necessary to pay a bunch of money to get these kinds of services," he said.

Rick Simon, a spokesman for Calabasas, Calif.-based Countrywide Financial Corp., said there are many nonprofits, approved through the U.S. Department of Housing and Urban Development, who will do the work for free. He recommends such an avenue for renegotiating a mortgage.

Silver Creek Realty is in the process of applying for nonprofit status through HUD.

The State Bar of California released an "ethics alert" warning lawyers to be wary if they consider participating with foreclosure consultants in assisting distressed homeowners. The alert laid out stipulations of Civil Code 2945, which puts restrictions on foreclosure consultants.

One real-estate attorney, Alfred J. Verde, said he requires an up-front retainer fee but does so rightfully under Civil Code 2945.

Verde, who uses The Accelerated Group Inc. as his loan mod processer, said an up-front fee is required because he must pay a full-time staff.

"We do have a refund policy - if we somehow misread the case, if we don't have a remedy for their situation, we will give a refund except for a small processing fee," Verde said.

He said he has yet to receive any complaints about the retainer fee and hasn't had to give any refunds either.

"(Scammers) don't have the ability to analyze the person's total legal and financial situation with the lenders," he said. "They end up trying ... and when the going gets tough they're not answering the phone anymore."

The Associated Press contributed to this report.


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