Ineffective "Whac-A-Mole" Approach To Battling Loan Modification Scams Leads Housing Non-Profit To Launch National Consumer Education Campaign

The Columbus Dispatch reports:

• Preventing people from getting ripped off by mortgage loan modification scams is like playing Whac-A-Mole. "You knock them down in one place, and they pop up in another," said Ohio Attorney General Richard Cordray of the illegal operations. "They're a nimble and savvy group, and they target vulnerable, desperate people." The best way to put these scammers out of business is to educate homeowners, said Cordray and other local, state and federal officials who gathered [last week] at the Statehouse to roll out the Loan Modification Scam Alert campaign.

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• "We can't afford to wait any longer," said Kenneth Wade, executive director of NeighborWorks America, a national nonprofit organization created by Congress, and the sponsor of the scam-alert campaign. "Loan-modification scams have reached epidemic proportions. There are thousands of fraudulent companies out there making a mint," he said. Homeowners in distress should avoid every company that asks for a fee in advance, guarantees it can stop a foreclosure or modify a loan, or says to stop paying the mortgage company and start paying it instead, Wade said. "The best defense is information, education," he said. "That stops these scammers in their tracks."(1)

For more, see Scammers prey on at-risk homeowners.

See also, The Waco Tribune Herald: New program shines light on shady mortgage scams:

• Congress asked NeighborWorks America to develop a public education campaign, which was unveiled locally Wednesday with the help of NeighborWorks Waco, the local branch of the national community development organization. The focal point of the campaign is a new Web site, www.LoanScamAlert.com. It contains information about what loan modification scams are, how to spot them and stories from victims. The site also has information about how homeowners can get free assistance if they are facing foreclosure or other mortgage pressures. “We know that knowledge is the best defense,” said Celine Thomasson, a public affairs employee for NeighborWorks America.

See also, NeighborWorks America press release: NeighborWorks Fight Against Loan Modification Scams Kicks Off in Ohio.

For customizable materials to fight loan modification scams in your community (available in 5 languages), see Scam Alert Partner Toolkit.

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(1) It wouldn't hurt if law enforcement starting bringing criminal prosecutions against these rackets (ie. theft by deception, theft by failing to make required disposition of funds, deceptive business practices, obtaining money/property by false pretenses, securing writings by deception, conspiracy, engaging in a pattern of corrupt activity, organized scheme to defraud, exploitation of the elderly/vulnerable adult, theft from an at-risk adult, mail fraud, wire fraud, etc.).

There appears to be a reluctance to criminally prosecute these loan modification rackets (the preference appears to be to go after them with civil lawsuits brought by government agencies - ie. Federal Trade Commission, state attorneys general, etc.), possibly based on the mistaken belief that the operators insulate themselves from criminal liability by reason of the contractual nature that these arrangements take with the victims. The notion that the scammers can insulate themselves from criminal charges by using legal contracts to disguise their scams as legitimate arms-length business transactions with consumers is not only incorrect, but borders on the ridiculous. Courts have addressed the issue of whether the terms in a business contract between two parties can operate to restrict law enforcement from prosecuting a crime in relation to said contract. See People v. Frankfort, 114 Cal. App.2d 680, 251 P.2d 401 (Cal.App. 2nd Dist., Div. 2; 1952):

• Defendants insist these contracts insulate them from this prosecution because they contain the statement that they constitute the entire agreement between the parties, that the Spa Corporation is not bound by any representations outside the contract, that no salesman is authorized to make any additional or contrary representations, and that the club member has read and understands what he is signing. The simple answer to this argument is that "The People prosecuting for a crime committed in relation to a contract are not parties to the contract and are not bound by it. They are at liberty in such a prosecution to show the true nature of the transaction." (People v. Chait, 69 Cal.App.2d 503, 519 [159 P.2d 445]; People v. McEntyre, 32 Cal.App.2d Supp. 752, 760 [84 P.2d 560]; People v. Jones, 61 Cal.App.2d 608, 620 [143 P.2d 726]; People v. Pierce, supra p. 605.)

Followed in People v. Nesseth, 127 Cal.App.2d 712; 274 P.2d 479 (Cal App. 2nd Dist., Div. 2; 1954).