Foreclosure prevention, financial traps, scams

In this report: Overview; Foreclosure come-ons; Hard-sell reverse mortgages; High-fee debt settlement; A credit card for anyone; Uninsured savings accounts; Faces of foreclosure: Video report

This article was featured in the March 2009 issue of Consumer Reports Magazine.

Foreclosure fiasco

The Mizers' experience with a "rescuer" that charges an up-front fee for help that never comes is a common foreclosure-prevention trap. In fact the Mizers were among more than 200 Illinois consumers cited in a complaint against Augustus, Rae and Reed filed by Illinois Attorney General Lisa Madigan in September 2008.

The complaint contends that the firm violated state law by charging for services that it did not provide, in many cases failing to negotiate at all or simply submitting paperwork that consumers easily could have provided themselves. The state is seeking the return of fees and the imposition of penalties. Michael Reed, lawyer for Augustus, Rae and Reed, declined to comment, citing pending litigation.

In other cases, homeowners are pressed into signing documents that transfer the title of their home to the scammer.

Public notices of foreclosure proceedings usually trigger mail, phone, and even door-to-door solicitations. But consumers should steer clear of any company that initiates such contact, demands a fee before providing services, or advises cutting contact with the mortgage company. That can delay legitimate options for preventing foreclosure proceedings.

What to do instead

Anyone anticipating problems making mortgage payments should seek legitimate free or low-cost help as soon as possible. Contact a housing counseling agency certified by the Department of Housing and Urban Development (www.hud.gov/foreclosure or 800-569- 4287). Their agents can assess options and advise you in negotiating with the lender. Advice is also available at the Homeowner's Hope Hotline, at 888-995-4673 (see box below). Another good source of help is the Institute for Foreclosure Legal Assistance, www.foreclosurelegalassistance.org, which funds and trains groups nationwide that give subsidized legal representation to families facing foreclosure.

Peddling false hope

Some foreclosure-prevention services mimic or claim to be affiliated with services offered by the Homeownership Preservation Foundation, which promotes a cooperative effort between lenders and counselors approved by the Department of Housing and Urban Development.

The foundation's Homeowner's Hope hotline, 888-995-4673, is available 24 hours a day, seven days a week to provide free counseling for people trying to avoid foreclosure. The counselors work with callers to help them assess their options based on the details of their financial situation. They might refer consumers to other helpful nonprofit groups, but they will not promise to negotiate better terms with lenders.

Operators of the copycat 800 hotlines or Web sites charge up-front fees and claim to be able to help homeowners pay off their mortgages or negotiate with their lenders.