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Servicing

Foreclosure rescue scam complaints more than double

GAO: African Americans, seniors hit the hardest by scams

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Foreclosure rescue schemes have more than doubled since 2010, according to data collected by federal regulatory agencies.

The scams investigated have become increasingly complex, involving attorneys and the bankruptcy code, among other things – leading to such a significant increase. Particularly, schemes involving attorneys appear to have increased recently, presenting challenges to law enforcement, the Government Accountability Office said. 

"Schemes involving attorneys—which tend to involve greater losses—had become more common in recent years following a regulation that bans upfront fees, but provides an exception for attorneys," said GAO director of financial markets and community investment Lawrance Evans.

He added, "These schemes present unique challenges because attorneys typically collect fees upfront and enforcement officials have difficulty trying to determine whether attorneys are providing legitimate services."

For instance, complaints about these scams rose from 9,000 in 2009 to more than 18,000 each year in 2010, 2011 and 2012.

Officials and representatives of nonprofits also noted that some populations, specifically minorities and the elderly, continued to be disproportionately targeted.

For example, complaints filed by black or African American homeowners increased from 17% in 2010 to 24% in the first four months of 2013.

According to the Lawyers’ Committee, seniors are also among the hardest hit by rescue schemes.

As of October 2012, seniors filed 49% of all foreclosure rescue scam complaints. The average loss reported by seniors was $3,129, compared with the overall average loss of $2,997.

The recent foreclosure crisis resulted in significant opportunities for companies to take advantage of homeowners who are at serious risk of losing their homes, GAO explained.

In 2010, the agency reported that national default and foreclosure rates rose sharply from 2005 through 2009 to the highest level in 29 years.

While the default and foreclosure rates have modestly declined since then, the number of home loans potentially facing foreclosure — borrows who are more than 60 days past due — remains elevated, with nearly 1.6 million of homes currently under servicing.

The Financial Fraud Enforcement Task Force (FFETF) members have undertaken numerous actions to educate borrowers on how to avoid being victimized by such schemes.

These efforts emphasize the need for consumers and institutions to report possible fraudulent schemes and the importance of sharing information among law enforcement agencies investigating and prosecuting these crimes.

The FFETF has developed and participated in various outreach efforts to combat these schemes, including hosting regional education summits.

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