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Delays Getting Into Mortgage Programs Push Homeowners Toward 'Rescue' Companies

KENNETH R. GOSSELIN

September 20, 2009

It's tough enough facing foreclosure after losing a job or getting stuck with a big medical bill.

Sometimes, you can't even get your lender on the line.

Then a "mortgage rescue" company promises a way out. You'll be able to keep your house. You'll have lower monthly payments. Maybe less to pay back, too.

One such pitch gave Kristen and Joseph Noyes hope they'd be able to stay in their modest, ranch-style house in Coventry.

But four months later, they lost the title to their home in a foreclosure.

As the number of seriously delinquent mortgages and foreclosures continues to rise in Connecticut and the nation, the door is opening wider to companies that offer desperate homeowners help for a hefty fee — only to either disappear or fail to deliver the promised service.

While officials have been warning of companies that promise mortgage rescue or foreclosure relief since the subprime collapse in 2007, they now expect the offers to intensify — especially as a new wave of adjustable-rate mortgages resets to higher monthly payments, leaving more homeowners on the brink.

The offer of a rescue may now be growing more attractive for another reason. Even though both the state and the federal government have created high-profile programs to help troubled homeowners avoid foreclosure, housing counselors that refer people to those programs are overwhelmed by requests, creating delays.

"For someone who is panicking, it may seem like too long of a time," said Erin Kemple, executive director of the Connecticut Fair Housing Center in Hartford. "They may think they don't have time. It may seem like a way to get to the head of the list."

But she said, "There is no way to get to the head of the list."

'You Won't Lose Your House'

A new law takes effect in Connecticut Oct. 1, banning companies from demanding up-front payments for mortgage help. That is too late for the Noyes family, who paid $1,500 to a New Jersey company in January after being served with foreclosure papers.

The family had fallen behind in mortgage payments after Joseph Noyes was out of work a couple of times with back problems from his job as a truck driver for a machine shop in Manchester. At times, the family's household income was more than cut in half, even with Kristen Noyes' income as a day care provider.

Kristen Noyes grew frustrated with their lender, after being kept on hold, repeatedly being transferred and getting nowhere after hours of waiting — even though, she said, she wanted to work out a payment plan. That's when she Googled "foreclosure help" and her search returned Davis Foreclosure Assistance.

She paid the fee and was initially buoyed by e-mails she received, promising her she'd be able to stay in her home, stop the foreclosure and make her mortgage more affordable.

"Don't worry, we guarantee you won't lose your house, Kristen," one e-mail read.

What the Noyeses didn't know is that Davis wasn't familiar with the foreclosure laws in Connecticut. Although Davis was on the case, the foreclosure ran its course and the title transferred to the lender.

The Noyeses demanded their money back and were initially rebuffed. Then they hired a lawyer, and the $1,500 fee was returned in incremental payments.

Now, the couple and their 10-year-old daughter, Samantha, are still in the house — even though they no longer hold title to it. They are pursuing legal action against Davis and their lender.

Davis didn't return a telephone call seeking comment. The company's website says it has stopped taking new clients.

The attorney general's office in Connecticut has received a handful of complaints against Davis, some of them in the past week.

"It's very misleading," Kristen Noyes said. "There's a lot of hype and 'you're not going to lose your house,' and it was all B.S."

Although Davis did communicate with her lender, Kristen Noyes still feels she was scammed because the company didn't understand how foreclosures work in Connecticut.

A New Wave

Attorney General Richard Blumenthal said it is more clear-cut when companies take fees and then disappear.

"There is a grayer area where they may make a call to the bank," Blumenthal said. "In my view, they may be scams as well if they are just making a call knowing it won't have results."

On Thursday, Blumenthal was among a dozen attorneys general who went to Washington to meet with U.S. Treasury Secretary Timothy Geithner, U.S. Attorney General Eric Holder and other federal officials to address the growing problem of mortgage rescue scams.

They talked about how to best work together, using both state and federal laws.

They were particularly concerned that a new wave of foreclosures may be looming, as "pay option" adjustable-rate mortgages reset to higher payments. Pay option ARMs give borrowers the option of making small payments initially, with the difference between what is paid and the full monthly payment added to mortgage balance. Typically, after five years, the payment reverts to a full monthly payment, which can be a huge increase.

According to a report from Fitch Ratings, pay option ARMs with outstanding balances of $134 billion will jump to higher payments in the next two years.

"These ARMs are about to hit, and there are clear warning signs that there could be a vast expansion in mortgage rescue scams," Blumenthal said.

Blumenthal was at the forefront in tightening Connecticut statutes that will prohibit, as of Oct. 1, mortgage rescue companies from charging up-front fees and requiring licensing — regulations that have now been adopted in 20 states.

He also has been vigorously investigating complaints about such companies, which have intensified in number in the past eight months. More than 100 complaints have come to his office in the past year, Blumenthal said.

Last month, Blumenthal pursued action against one firm with an office in East Berlin that collected at least $750,000 from about 200 Connecticut consumers who did not receive the promised services.

He hopes the new laws will make Connecticut homeowners less vulnerable targets.

"If they can't take the money and run, it won't be as attractive," Blumenthal said.