You've probably seen the incessant TV and Internet pitches - "we can stop your foreclosure!" - offering hope to homeowners who are either behind on their mortgage payments or heading to foreclosure.
But a new settlement from the Federal Trade Commission sends a warning to the fast-growing foreclosure fix-it industry: If you take consumers' cash upfront, and promise them you'll save their homes, you'd better be able to deliver.
Otherwise, you may be charged with running a scam operation that violates federal law and exploiting the country's mortgage-delinquency mess for private gain.
The FTC filed suit against Clearwater, Fla.-based Mortgage Foreclosure Solutions Inc., charging the company with operating a "scheme to sell purported mortgage foreclosure services to consumers" nationwide through six Web sites, but virtually never actually preventing foreclosures by lenders.
The FTC said the company lured homeowners with claims that "no matter how far you are behind in your payments, the size of your mortgage debt or your credit history, we have mortgage foreclosure solutions." According to the complaint, the company's marketing pitches said that "we are so confident of our abilities to provide mortgage foreclosure solutions that we guarantee our services."
Consumers who signed up were charged $1,200 - $250 for "processing setup" expenses, and $950 for negotiating with lenders and resolving foreclosure issues. Yet the company, according to the FTC, did "not stop mortgage foreclosures or save consumers' homes in all or virtually all instances."
In a final settlement of the case in U.S. District Court in Tampa, Fla., on Jan. 5, the FTC obtained a $1.2 million judgment against the company, along with a series of prohibitions of future business activities promising foreclosure rescues. Mortgage Foreclosure Solutions Inc. admitted no wrongdoing as part of the settlement.
Scam operators often have no special ability to intervene on behalf of distressed borrowers, or to work out loan modifications, repayment plans or other alternatives with lenders. All they want is to sign up clients and take their money.
In general, according to the FTC, you should avoid doing business with any firm that:
* Guarantees to stop your foreclosure, irrespective of how much you owe or how much income you have. Most lenders and the servicing companies they employ are willing to negotiate loan modifications to cut payments or reschedule debts, but if you don't have the income to handle lower payments, foreclosure is hard to avoid. Any company that spins you a different story is probably a scam.
* Requires you to pay money upfront before services are rendered. Cindy Liebes of the FTC said some states specifically prohibit foreclosure-rescue firms from collecting any money in advance, but Internet-based companies often ignore those rules.
* Tells you to avoid contacting your lender or servicers directly, delegating all negotiating duties to the firm. In fact, borrowers tend to be in the best position to speak with servicers about their situations and possible alternatives to foreclosure.
* Instructs you to send mortgage payments to its office address instead of to your lender or servicer.
* Asks you to turn over the title or deed to the property so that the company can be in a stronger position to deal with the lender. That's the equivalent of kissing your house - and any equity - goodbye.