Loan Modifications - Still A Risky Scam? Part 2

Home Builder with CREST "BACKYARD' HOMES, ON THE LEVEL General & Manufactured Home Contractor, TAG Real Estate Sales & Investments 521400, 1501015, 01795582

Loan Modifications - Still A Risky Scam? Part 2


The mission for this chapter is to chronicle:

  1. How the bad guys came to get into the fray,

  2. How most scam operators work their cons. and

  3. How RE Brokers, Lenders Realtors, Agents, loan officers and most importantly the Homeowner can spot and avoid the con.

Note that, while we have indeed painted the Loan Modification Boom with a pretty broad brush in no way am I implying that all loan modification programs are scams, nor are attorneys that participate in them greedy opportunists.

How, When and Where The Bad Guys Surfaced.  There are many hard working and sincere people endeavoring to do their level best for their clients and who are taking their plight quite seriously. It’s just unfortunate that we have human beings in our midst that can do such horrendous things to their fellow man/woman and still look at themselves in the mirror.

All things, be they insect, reptile, animal, plant life, human and yes even business models, evolve. This includes the once cottage phenomenon called Loan Modifications.  We’ve already gone through one evolution and we’re about ready to evolve again. But let’s discuss the first generation Loan Modification Company or more aptly stated the outright SCAMS that have surfaced in the past couple of years. When scam artists realized there was a niche for opportunists to exploit desperate homeowners on the brink of foreclosure they were among the first to rise to the occasion. These guys specialize in taking advantage of someone’s misfortune and/or grief and have no morals, ethics or conscience. Following is one example of how they do it.

The scam artist doesn’t care about a pitchman’s (phone salesperson) background, education, experience or reputation. If they sound half way decent over the phone they’re hired. If they don’t produce within a few days their history. The scammers keep a help wanted add running 24/7 knowing that the attrition is going to be significant. It’s all part of the game plan. Their ads are come-ons promising huge commissions and bonuses.

HOW MOST SCAM OPERATORS WORK THEIR CONS.  They hire car salesmen, retail clerks, encyclopedia and vacuum cleaner salesmen and young enthusiastic newbies looking for a start in life. Then they couple them up with “Ole Pros” (professional con men along with a few ex-cons) who know how to separate unwary victims from their money. Their mission is to train and show all the others how to pull off the con. Sadly by the time the “Pros” get finished brain washing all these misguided souls they won’t even think their doing anything wrong. A lot of these people are young and naive and looking for a place to start a career, have never held a job more than a few months or are always looking for that pie in the sky opportunity to hit a lick.

I spoke with a gentleman who started selling LM’s in ’07. He was a car salesman for ten years before that. Then I spoke with a gal who came from the retail clothing industry and then a dynamic duo who worked for Circuit City. While there’s nothing wrong with these folks individually the problem starts with the fact that they are in no way, shape or form anywhere near qualified let alone adequately trained in this field. The very brief training they do receive is not about dealing with someone’s mortgage problem it’s about how to close a deal over the phone by getting a credit card number and an advanced fee.

Boiler Rooms Are Back.  The hype that’s generated in these boiler rooms is not about helping desperate folks on the brink of the worst crisis of their lives and being genuinely compassionate and empathetic.  It’s about closing the deal and getting the money“You’ve only got one chance to nail these Mooches”, “they’re Lay Downs” or “Get Me Done's” “Slam Dunks” or “you’ve just hit a Home Run” or” a Grand Slam” or you’ve “Stuffed Someone Into A High Gross Deal” This is the type of conversation that goes on in a boiler room environment every day. When they “Lay Away a Mooch”  there’s a big bell that gongs several times and everyone cheers the lucky pitchman for his success. After the shift it’s down to the local pub to Brag about all the Mooches you Bamboozled.

Some LM Companies even hire legitimate RE professionals for credibility.  It didn’t take long for the complaints to start rearing their ugly heads to legal authorities and the bad press to start streaming down the streets. So a few raids and arrests later thescammers realized they would have to do something quickly our shut down their operation and go into hiding. So they quickly evolved to the second generation; Hiring licensed RE brokers, lenders and agents to make them look more legitimate and credible.

However, realizing they were dealing with a more sophisticated group of sales professionals they softened their tone and played the “We’re licensed RE professionals” game. They would put the professionals through training program so they would learn the pitch.  This proved to be pretty scary for a lot of otherwise honest and hardworking professionals.

It worked for several months and in some cases for that past couple of years. Business has been robust and theso called loss mitigation counselors (sales people) were and/or are making good money. To many former RE agents and lenders it started looking like the good ole days again. But then reality set in. Homeowners were getting very little if any satisfaction from these companies for all the large advance fees they were paying and the LMcompanies we starting to realize that they were playing hardball with the big boy lenders and not getting anywhere with most of their LM clients.

Well, simply hiring RE Professionals was not the answer and soon began generating a lot of heat whence more complaints started flying. District Attorneys and Attorneys General, Real Estate Commissions and NAR Associations of Realtors were deluged with disgruntled homeowners complaining that they had been duped by LM companies that were staffed with licensed and experienced RE pros who supposedly knew how to negotiate with lenders. Game Over.

MOVE UP TO ATTORNEY LOAN MODIFICATION FIRMS.  Now in walks the third generation LM business. Knowing that they were in the hot seat and that they had better run for cover or shift gears fast they started aligning themselves with attorneys. Not partnering, joint venturing, or in any way becoming part of the law firm via equity or ownership.  They pitched many law firms into letting them generate leads for them for a healthy fee. Of course many of these law firms, having been hit hard by the tight economy, jumped at the opportunity in order to realize an appreciable increase in revenues and cash flow.

Now just when it looked like they had finally established a comfortable and credible niche in walks the Obama Plan called “Making Homes Affordable” and it was Katy bar the doors. Attorneys by the hundreds climbed out from under rocks, hung their shingles and Walla overnight they were experienced loss mitigation specialists with a team of telephone pitchmen buying lists of delinquent homeowners from credit reporting agencies and other mailing list companies and alas a cottage industry is born.  The loan modification business is made for real estate attorney, knowing that in many states it is illegal for real estate licensees to negotiate loan modification proposals for home owners.

{Treasury Secretary, Tim Geithner said, “In the wake of all the publicity surrounding the Obama Plan called ‘Making Homes Affordable, it appears many unscrupulous players are now creating websites and other print marketing materials with fraudulent claims to lure in those seeking foreclosure assistance.”  “American homeowners desperately need the relief this program offers, but the very last thing they need is to be taken advantage of as they try to hold on to their homes. This Administration is deeply committed not just to providing at-risk homeowners with assistance but also to cracking down on anyone who seeks to defraud them.”

IDENTIFYING THE SCAM.  “The real problem it seems are the upfront fees loan modification companies (read scams) charge before any services are performed. Another possible fraudulent act is promising a loan modification is forthcoming. Many companies are using pseudo-government sounding names to allow the foreclosure victim to believe the company is part of the government or are authorized to participate in government assistance programs.

Attorney General Eric Holder said, “The Department of Justice’s message is simple: if you discriminate against borrowers or prey on vulnerable homeowners with fraudulent mortgage schemes, we will find you, and we will punish you.”}

SEE:  LOAN MODIFICATION COMPANIES - New Business Model or Risky Scam? Chapter 1.

Research Resources:   

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John DL Arendsen, Broker, General & Manufactured Home Contractor and Dealer 

TAG Real Estate Sales & Investments

TAG (The Arendsen Group) Real Estate Sales & Investments is a full service, one-stop, turnkey, family owned and operated real estate brokerage, General Contractor, Manufactured Home Contractor, Developer, Investor, Property Manager, Interior Design, Engineering, architectural, Landscape design, Expert Witness, Consulting, Curative Title and Troubleshooting company with over 100 years of combined experience in the San Diego real estate sales, construction, design & development arena.





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