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Loan modification fraud is quickly becoming very common. The downturn in the economy has produced new opportunities for scam artists to emerge as thousands of complaints have been registered nationally relating to loan modification fraud. Cases of fraud have been recorded most frequently in those states which have been hardest by the crisis: California, Florida and Nevada but appear now to be fanning out beyond those states. Scammers have discovered how to exploit existing loopholes in the loan modification process to their full advantage and have determined how to profit at the expense of unwitting homeowners. As loan modification fraud has grown and evolved, patterns have emerged placing the type of fraud into one of two categories. The first type of fraud targets borrowers who have missed making their mortgage payment and are subsequently due to receive a notice of default. The defaulting borrower is sent a misleading notice by the scammers promising a loan modification for an advance fee, siphoning funds from the unknowing homeowner who continues to let the mortgage go unpaid and instead pays the scam artist. The second type of fraud is more elaborate and therefore more dangerous as a bogus mortgage and title company are presented to the borrower in a scheme to transfer title, deeding away an owner's property rights. This scam may also involve a renter who submits to residing in the property, while the borrower remains in default on the mortgage and rather than sending the collected rent to the mortgage lender, has the borrower submit all rental payments received to the scammers. Unfortunately little legal protection exists for a homeowner who unwittingly deeds away their property rights, once the scammer holds title, they in turn sell the property and reap their ill-gotten profits. It is clearly to the benefit of all interested parties to have safeguards in place to prevent fraud from occurring in the loan modification process and it is far easier to initiate roadblocks ahead of time which could flag any potential fraud than it is to undo the fraud and seek restitution for those harmed after the fact. Loan servicers should proactively adopt better channels of communication and make an advance effort to educate borrowers with regards to their procedures and processes, choosing to be actively involved in the prevention of fraud rather than passively standing by leaving the door open for potential fraud to occur.
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