Foreclosure Rescue May Not Offer Help You Need

Kimberly Matlock was about to lose her Illinois home to foreclosure when a shiny flyer from Clearwater arrived in her mailbox.

In big letters, it promised - for a fee - to help find a solution to her delinquent mortgage problems.

She thought it could be her second chance. Matlock ended up sending $1,200 to the company, Mortgage Asset Solutions LLC.

The "solution" she got in return? The company gave her the Web site address for the bankruptcy court in her district and suggested she file by herself, according to documents filed in U.S. Bankruptcy Court last spring.

It was a Web site she could have easily found just by searching Google. The company, she said, never called her lender.

"They sure didn't do what they said they were going to do," Matlock said.

As the nation's foreclosure crisis devours financially strapped homeowners in unprecedented numbers, more are turning to for-profit "foreclosure rescue" companies.

These companies charge fees to negotiate with lenders on behalf of homeowners. The goal is to stop the foreclosure and get the lender to modify the loan so the homeowner can afford to stay.

While some of these companies may serve a legitimate purpose, law enforcement warns that many try to steal equity from homeowners or charge upfront fees and then do nothing.

By the time the homeowner realizes this, valuable time has lapsed, and it's too late to stop foreclosure. Even when the rescue company is successful, lenders say the companies can't accomplish any more than the consumer.

"There's no way people should have to pay for this service," said David Bradley, spokesman for Bank of America.

The Florida attorney general's office last year opened more than 50 investigations and sued several foreclosure rescue companies for not making good on promises to consumers. So far, three Tampa Bay area companies, including the one Matlock paid, have gone out of business amid these investigations.

But for every bad company shut down, another one pops up, said Ira Rheingold, executive director of the National Association of Consumer Advocates.

"It's interesting because we've found that the people running them are typically old mortgage brokers that are helping people get out of the very bad loans they put people into," he said.

Since the foreclosure crisis began, lenders have insisted that they really don't want to take people's homes away. Everyone loses in a foreclosure, they say.

Bradley, with Bank of America, said his institution approved new loans for more than 200,000 homeowners in foreclosure in 2008. Customers don't need a foreclosure rescue company to strike a deal, he said. "Besides, lenders are much more willing to work with the customer than an intermediary."

If that's the case, then why do so many homeowners turn to these companies in the first place?

"It's impossible for an individual to contact a mortgage servicer and get the loan modified before the home is lost in foreclosure," Rheingold said. Lenders either don't return phone calls, he said, or suggest an unaffordable payment plan.

Sometimes the lender the homeowner is dealing with doesn't even have the authority to change the loan's terms. Loans were sold in bundles to investors during the housing boom, and it's not always clear who owns the loan.

So what is a homeowner to do?

The government has created free, nonprofit programs to help navigate the mortgage bureaucracy. The Hope Now program, an alliance of nonprofit, government and lending agencies, offers counseling at no charge through hundreds of local organizations at 1-888-995-HOPE.

But even government-certified counselors have a difficult time getting through to lenders.

As long as that's happening, desperate homeowners will be tempted to turn to rescue companies.

As for Matlock, Mortgage Asset Solutions ended up refunding most of her money before it shut its doors.

But by the time she realized the company wasn't helping her, she was too far behind on mortgage payments to catch up. Even a Chapter 13 bankruptcy filing didn't help.

Her family is moving out this month.

"I'm OK now," she said. "But there are so many other people out there who have no hope."