Foreclosure Scams, Like Tax Refund Scams, Help Lead Nowhere But Bankruptcy

Tax returns have been filed, or should have been filed, anyway. Hopefully, readers of my Indiana bankruptcy blog, "Watch Out For Hidden Fees In Rapid Refunds" weren't burned by the early refund scam into paying enormous fees, hoping to receive their tax refund a couple of days early.

In almost twenty-five years helping consumers with financial problems, though, I've learned there are scams for every season and then some. Just a few weeks ago, an Indiana insurance fraud case was settled against a repair company that faked hail damage to Indianapolis homes after the 2006 storms.

Although, up until now, the bankruptcy process could not deal in mortgages, I've often helped clients avoid foreclosure, both by helping them negotiate terms with their lenders, and through Chapter 13 bankruptcy. (The new bankruptcy law pending in the U.S. Senate would allow bankruptcy judges to modify mortgages.)

Meanwhile, there are so many new scams involving "foreclosure consultants" that I wanted to be sure to issue an alert to my Indiana bankruptcy clients, as well as blog readers, about this new danger. These mortgage consultants charge a fee to negotiate a modification to your mortgage. The typical scammer pockets the fee and disappears without ever contacting your mortgage lender! This sort of scam is going on across the country, but, with the high foreclosure rate in our state of Indiana, phony consultants have targeted many homeowners here.

Just since 2007, the Indiana Attorney General's office has sued four companies:

Capital Foreclosure
Firststep Group
Nationwide Foreclosure Consultants
Law & Associates

Remember,foreclosure prevention consulting is available for free from the U.S. Department Of Housing and Urban Development-approved consumer credit counseling agencies. A recent Indianapolis Star article (April 3rd issue) mentioned that the law requires foreclosure consulting companies to post a $10,000 surety bond with the state, and also requires that consumers be allowed to cancel the contract and get their money back within seven days.

For-profit foreclosure counseling companies will often use direct mail to solicit business, so if you receive a postcard or letter, be sure to check out the company to be sure it's complied with the law. If you suspect a scam, contact the Indiana Attorney General's office.