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Mortgage Fraud, Foreclosure "Rescue" Scams are Rampant

Florida Attorney General Bill McCollum addressed the Central Florida Bankruptcy Law Association last Friday at their annual seminar. He noted that Florida is the second highest foreclosure state in the U.S. (after Nevada), and the second highest mortgage fraud state (after California). Not only was there near-record fraud in the making of the mortgages, but now the current schemes center around so-called "foreclosure defense."

Mr. McCollum told CFBLA members that the AG's office is currently prosecuting about 40 criminal mortgage fraud cases, some 40 civil mortgage fraud cases, looking into a further 80 cases where mortgage fraud is suspected, and another some 80 cases of interest where the AG is interested in the initial facts.

McCollum pointed out that pursuant to Florida law, in particular, §501.1377, foreclosure defense firms are prohibited from accepting any payment in advance, no matter what form that payment takes. McCollum said that Florida Courts are interpreting the section broadly, and that even so called "forensic" mortgage services fall under the same rule. So, homeowners should not agree to pay any of these services up front, until a modification has been obtained.

If you are a homeowner facing the possibility of foreclosure, your best bet is to attempt to workout a modification with your lender, and if that fails, contact an attorney. If you cannot afford a private attorney, you can contact legal aid or the Orange County Bar Association for help.


60% of Modified Mortgages Re-Default

According to this article on the MotleyFool website, a recent report by the Office of Thrift Supervision and the Comptroller of the Currency detailing the amount of redefaults, or troubled loans that find their way back into default after modification, some 60% or more ultimately find their way back to default:


Of the modified loans 30 or more days delinquent, here's what it found:

Modification Date (2008)

Three Months After Modification

Six Months After Modification

Nine Months After Modification

12 Months After Modification





















Source: Comptroller of the Currency, Office of Thrift Supervision, June 2009.


Perhaps the most alarming statistic is that almost half of modified mortgages are back in default within three months following the modification.

The take-away for most homeowners who are working with their lender to come up with a modification to prevent foreclosure on their home: don't take just any modification that the lender offers, even though you may be so happy to get a response that you're tempted to accept anything. Make sure the modified loan is one that you can comfortably keep up with. Otherwise, insist on more workable terms. You may need to consult with an attorney if you need help.

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