FHA and conventional borrowers in California and elsewhere have been targeted by alleged scam artists claiming to help borrowers avoid foreclosure by adding their names to lawsuits (for a fee) against financial institutions.
According to an August 19, 2011 L.A. Times article by E. Scott Reckard, the California Attorney General is pursuing actions against a group of Southern California lawyers and their associates for such activities.
The action stems from situations where homeowners were allegedly tricked into paying up to $10 thousand each to be included as plaintiffs in lawsuits. According to legal paperwork filed in Los Angeles County Superior Court, “Consumers are led to believe that joining these lawsuits will stay foreclosures, reduce their loan balances, entitle them to monetary benefits and potentially get them their homes free and clear of their mortgage…”
The homeowners targeted in the alleged scheme were spread across 17 states and more than 2,000 home owners are said to be victims according to the California Attorney General.
Part of the scheme included direct mail advertising or other types of contact sent by mail claiming the borrowers were “potential plaintiffs” in nationwide litigation, but according to the lawsuit brought by the Attorney General of California, no settlements are actually available and in some instances there is no record of any lawsuit ever initiated on behalf of the plaintiffs.
FHA borrowers should beware of any foreclosure avoidance scheme which requires the borrower to pay a third party other than the mortgage company unless that third party has been specifically approved of by the lender. Borrowers in trouble should contact the FHA for advice and get an FHA-referred housing counselor to explain options to avoid default or foreclosure on an FHA home loan.