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As foreclosures rise, states struggle to combat mortgage scams

Mortgage scams proliferate as desperate homeowners try to avert foreclosures, pushing state lawmakers into action.

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Mortgage brokers, real estate agents, and telemarketers formerly pushing credit cards are some of the players exploiting market conditions, says Ms. Halferty. “In 2007, we started seeing an enormous volume of fraud reports in this area,” she adds.

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• In Nevada, whose foreclosure rate is the country’s highest, home-owners are now bombarded with advertisements that guarantee loan modifications. In reality, people who fall prey end up in worse financial shape because they pay fees and get no help at all, says John Kelleher, chief deputy state attorney general.

This is where homeowner Davis finds himself. He did research online and found that various lawyers gave United Law Group high marks, which gave him peace of mind. He signed a contract with the firm in March. Soon after, Davis got a call from what he believes was an affiliated group, which persuaded him to enroll in a debt-relief program for a better chance of getting his mortgage loan modified. That cost another $1,000.

“They told me my case would be resolved in three months,” he says.

At the company’s suggestion, he stopped paying his mortgage and talking to his lender. By July, he started questioning the lack of progress on his case, and the firm became unresponsive, he says. In August, a foreclosure sale notice left on his front door left him panicked.

Davis says someone at United Law Group called the notice a scare tactic and told him not to worry, but Davis adds that his subsequent calls and e-mails were mostly ignored. In the end, Davis rejected the firm’s final recommendation to file for bankruptcy and instead filed a complaint against the company with the Arizona Attorney General’s Office.

Then he borrowed $14,000 from a relative, got caught up on his mortgage, and stopped the sale of his house two days before it was to happen on Nov. 12.

The State Bar of California recently placed attorney Sean Rutledge, who started United Law Group in August 2008, on “inactive enrollment,” for alleged misconduct related to loan modifications.

A law firm spokeswoman declined to address Davis’s case specifically but blamed banks for being unresponsive to the needs of homeowners. “I can tell you that we are actively working to help all of our clients to resolve their issues,” Nina Vultaggio says.

Arizona is trying to help homeowners like Davis. A state law will require Arizona’s loan officers to be licensed as of next year.

“Anybody’s who’s running a loan modification company should get themselves licensed as a mortgage broker or a mortgage banker or a consumer lender and do it quickly,” says Jack Huddock, a spokesman for the Arizona Department of Financial Institutions.

But that might not be the end of it.

In Nevada, companies that can’t get licensed either because they can’t pass the background check or they can’t come up with a $75,000 bond are just reorganizing themselves as a nonprofit so they can be exempt.

“But they’re still doing the exact same thing,” says Mr. Kelleher. “They’re still scamming people.”

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See also:

Record 9.6 percent of homeowners are behind on their mortgages

Foreclosure surprise: 10 fastest-growing problem cities are newcomers

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