Foreclosures and mortgage delinquencies in Washington State are increasing as borrowers with adjustable- rate mortgage loans see significant increases in their loan payments amid declining property values. The Attorney General’s Office is working to help Washington residents by cracking down on mortgage fraud and deceptive offers to help those in need. We are strengthening Washington's laws and reaching out to the public to warn them about equity skimmers, bogus “foreclosure rescue” scammers and deceptive loan modification programs before they end up in a worse situation.
What to do if you are facing foreclosure or can't pay your mortgage
Warning about scams: loan modifications and foreclosure rescue services
Reverse mortgages
How the Attorney General's Office is addressing the foreclosure problem
Resources
IF YOU ARE FACING FORECLOSURE OR CAN'T PAY YOUR MORTGAGE:
- Contact your lender. Your lender may be able to temporarily reduce or suspend your payments or help you refinance with a new loan and better terms. Print and complete this checklist of information you will need to have available. Contact information for lenders, loan servicers and Washington state banks and credit unions is available here. Write down who you spoke to, the date and what was said. Use registered or certified mail in any correspondence on legal matters.
- Talk to a housing counselor. They are trained to help you explore your options. View a list of free, state-sponsored counselors.
- Don't walk away. Even if you lose your home, you may receive money. The market value of your home have increased since you purchased it. Any unpaid loans or taxes will be withdrawn from the sale price of the house, as well as fees related to the foreclosure process. Whatever money is left after those debts are cleared up is rightfully yours. If you have abandoned the home, you may not receive this money.
- Consideralternatives to foreclosure.
- The Washington State Department of Financial institutions requires that any provider offering loan modifications be licensed as a loan originator, mortgage broker or consumer loan company. If you choose to go with a loan modification business, verify they have a license by checking the DFI Web site at www.dfi.wa.gov or by calling 1-877-RING-DFI.
- Scroll down for more resources, including free legal help.
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BEWARE OF SCAMS!
In this time of rising mortgage rates, desperate homeowners have been lured by offers of assistance – only to be cheated out of equity they’ve built up, tricked into transferring ownership of their home or stuck paying expensive fees for little or no help.
Loan Modification Scams
A loan modification is a written agreement with your lender or loan servicer that changes the original terms such as the interest rate, payment amount, principal or maturity date. You may see advertisements offering you loan modification assistance or be solicited by phone or mail from someone offering such services. Some of these companies have Web sites that look official or make it appear that are a government agency. Be cautious before hiring anyone to help you obtain a loan modification.
A number of businesses that claim to offer loan modifications are really looking to make a buck. Scammers ask homeowners for an upfront fee then provide services that the homeowner could have received for free through a nonprofit organization or from their lender. Sometimes, they provide no help at all. It is illegal for an unlicensed provider of loan modification services to collect a fee in advance for such assistance. In addition, there are limits on the fees that licensed providers can charge.
Be especially wary of anyone who asks for your bank account information in order to withdraw funds before they provide service.
Many loan modification companies are guaranteeing success rates of 90 percent in higher in negotiating loan modifications. We think promises like this are probably too good to be true. The reality is that lenders will not agree to a loan modification in every situation.
The
Washington State Department of Financial institutions requires that any provider offering loan modifications be licensed as loan originators, mortgage brokers, or consumer loan companies. If you choose to go with a loan modification business, verify they have a license by checking the DFI Web site at
www.dfi.wa.gov or by calling 1-877-RING-DFI.
Scroll down for
resources, including free help.
Foreclosure Rescue Scams (¡Sea consciente de Estafas de Rescate de Ejecución de Hipoteca!)
Scammers approach homeowners promising to help them keep their homes but instead take the owner's money, home or equity. Homeowners frequently do not understand the transaction. These scams can take several forms:
Phantom help: In this scam, the supposed rescuer charges very high fees and claims he can negotiate a deal with your lender. You may be told not to contact your lender, lawyer or a credit counselor and to let the scam artist handle all the details. You receive no real help or too little, too late.
Rent-to-buy schemes: Scammers lead homeowners to sign over the deed to their property by promising to sell the home back once the homeowners get back on their feet and allowing them to remain in the home as tenants in the meantime. In the end, of course, the homeowner can't buy the house back and the supposed rescuers get most, if not all, of the equity. Sometimes the rent is set so high that the homeowner can't afford the new payments and is evicted.
Bait-and-switch: Swindlers tell the victim that they are signing documents for a new loan that will solve their problems. In reality, they are signing documents that will give the crooks ownership of the home. To make matters worse, the victim still owes the mortgage.
- Check out this video, Foreclosure Scams 101, produced by Freddie Mac for further explanation:
http://www.youtube.com/AvoidFraud
REVERSE MORTGAGES - PROS & CONS
Reverse mortgages are becoming increasingly popular. The Attorney General advises you to evaluate all your available options carefully before choosing any mortgage product.
A reverse mortgage is a type of loan that allows homeowners aged 62 years and older to tap into their home equity for cash. It differs from a traditional mortgage or home equity loan in that no repayment is required until the last surviving borrower dies, sells the home or no longer occupies the home as a principal residence.
Pros:
- May allow a homeowner to stay in a home that they otherwise would have to sell or vacate.
- Generally, reverse mortgage loan advances are not taxable.
- Typically don’t affect Social Security or Medicare benefits.
Cons:
- The biggest disadvantage can be the cost. Lenders generally charge various fees for both originating and servicing the reverse mortgage. The amount you owe on a reverse mortgage grows over time as interest is charged on the outstanding balance and added to the amount you owe each month. Reverse morgtgages often have adjustable interest rates that will fluctuate with the market making financial planning more difficult. As your debt increases on any loan funds advanced to you through a reverse mortgage, your equity in your home will decrease and may leave you and any heirs with fewer assets. You should also be aware that with a reverse mortgage you continue to be responsible for any property taxes, hazard insurance and maintenance expenses.
You can find more information at the following websites:
ATTORNEY GENERAL'S OFFICE EFFORTS:
Partnerships:
In June 2007, the Attorney General’s Office convened a Foreclosure Think Tank with the
Washington Bar Association and the
Northwest Justice Project to look at issues surrounding foreclosure. The think tank brought together representatives from government agencies and nonprofit organizations, private attorneys and industry professionals.
We’ve met with foreclosure and homeownership counselors certified by U.S. Department of Housing and Urban Development (HUD) across the state to learn firsthand what kind of experiences they are seeing and to ask for their ideas on ways to help borrowers in trouble.
The Attorney General's Office provided $5,000 to fund an event at Gonzaga University to train lawyers how to provide pro bono services to clients facing foreclosure. Money for the training came from cy pres restitution paid by defendants in consumer protection enforcement actions. Assistant Attorney General David Huey presented at the event and similar trainings at Seattle University and the Washington State Association for Justice, formerly known as the state Trial Lawyers Association.
Legislation:
During the 2007-2008 legislative session, the Attorney General’s Office requested a law (
RCW 61.34.020) to reduce foreclosure rescue schemes that include an option to buy or lease back the property. This new law requires a written contract with clearly disclosed terms to be completed by the homeowner and the purchaser prior to the property’s transfer. It also requires that the homeowner must receive at least 82 percent of the difference between the property’s fair market value and the underlying mortgage in the event of a sale to a third party.
New legislation, approved by the Legislature in 2009 and jointly requested by our office and the state departments of Licensing and Financial Institutions, exempts real estate brokers from the law and allows those simply offering to buy the home within 20 days of foreclosure to make the purchase. The change ensures that any homeowner who wants to sell their home rather than face foreclosure is able to find a real estate agent.
Enforcement:
Federal Work:
McKenna is co-chair of the new State-Federal Task Force on Mortgage Enforcement. Additional members include representatives of the U.S. Department of Justice, Department of Treasury, Department of Housing and Urban Development and the Federal Trade Commission and the attorneys general of Arizona, Colorado, Illinois, Nevada, North Carolina, Massachusetts, Missouri and Ohio. They are working to crack down on unethical lenders, equity skimmers, foreclosure rescuer schemers and straw purchasers.
McKenna joined 22 other attorney generals in an effort to convince Congress to loosen bankruptcy rules so judges can modify home loans to help reduce foreclosures. They
sent a letter in January 2009 asking Congress to allow the bankruptcy courts to order loan modifications.
The Washington State Attorney General’s office plays a leading role in the State Foreclosure Prevention Working Group, a coalition of state attorneys general and state banking regulators, formed to identify strategies to prevent unnecessary foreclosures. The working group has approached every major loan servicer on behalf of struggling borrowers. The group also
sent a letter in February 2009 urging federal officials to encourage national banks and federal thrift-servicing operations to modify mortgage loans that are becoming unaffordable for consumers.
A smaller number of attorneys general, including Rob McKenna, are part of a new group called the Attorneys General and State Banking Regulators’ Federal Preemption Working Group. They are working with the U.S. Comptroller of the Currency to get more authority for the states.
On a related note, Washington State Attorney General Rob McKenna
moderated the panel, “The credit card crisis: the next shoe to drop?” at spring 2009 meeting of the National Association of Attorneys General.
Prevention:
In conjunction with a nationwide sweep on deceptive practices, the Washington Attorney General’s Office sent
letters in July to 138 businesses that market foreclosure assistance, loan modification services or other mortgage-related services to inform them about state laws.
The Attorney General's Consumer Protection Division sent
letters in fall 2008 to more than 14,000 properties that may be facing foreclosure because of missed mortgage payments. The letters warn homeowners about foreclosure rescue scams. County treasurers include a warning from the attorney general along with the certified foreclosure notices mailed to those who have neglected to pay property taxes. If you have additional questions regarding the letter, please contact the Consumer Protection Division at 1-800-551-4636 between 10 a.m. and 3 p.m. weekdays. (
Spanish translation.)
RESOURCES
For a referral to a free, state-approved housing counselor, visit
www.homeownership.wa.gov or contact the Washington State Homeownership Information Hotline at 1-877-894-HOME (1-877-894-4663). Provided by the state Department of Financial Instituations and the Washington State Housing Finance Commission.
- Homeowners in need of legal help who are unable to afford a lawyer should contact the Home Foreclosure Legal Aid Project. Call 1-877-894-HOME (4663).
- Homeownership Preservation Foundation's national hotline: 1-888-995-HOPE. Provides free, bilingual, personalized assistance to help homeowners avoid foreclosure.
Federal government
Making Home Affordable program: Determine if you're eligible for refinancing or a loan modification through these federal programs.
Federal Reserve Board - Foreclosure Resources - Information and links to agencies that might be able to help you avoid foreclosure.
- Avoiding Foreclosure - Information from Freddie Mac on how to avoid foreclosure.
Get Above Water - Information from AARP on what to do if you are struggling to make mortgage payments
Countrywide settlement information - If you hold a Countrywide mortgage, you can find more information about whether or not you might be eligible for relief by
clicking here.
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