This article was last updated on March 17
It seems that wherever there is an easy buck to be made (or stolen in this case) scam artists are on the prowl catching unsuspecting victims in their deceitful webs of misinformation. Earlier this year the biggest scams being perpetuated were around the IRS stimulus checks. Now with the housing slump and resultant spike in foreclosures around the country, foreclosure rescue scams have come to the fore. Distressed homeowners desperate to find a way to keep a roof over their head are particularly susceptible to such scams which range from the simple to very complex.
Around the country legal aid offices and law enforcement officials report that foreclosure rescue scams have spread like wildfire, nearly paralleling the downturn in the mortgage market and even exacerbating the housing slump. The problem is so bad that in some parts of the country, city officials automatically send a letter to homeowners who enter foreclosure warning them that they will be inundated with shady offers of help. If you do find yourself in the unfortunate position of facing foreclosure on your home, you must be on the lookout for common Foreclosure Fraud Signs and Scenarios to avoid getting in an even deeper financial hole. This includes:
– Upfront fees. A vendor asking for an upfront fee with a future promise of staving of foreclosure should raise an immediate red flag. If the person supposedly trying to help doesn’t want to spend the time to understand your situation and starts asking for a fee off the bat then this is a clear prelude to a rip-off. Scammers will collect the up-front fee and then disappear. It will be virtually impossible to track them down and are most likely they used a prepaid phone to get in touch with you and other people they are scamming.
– A Foreclosure rescue scheme often begins with a scam artist offering a promise to pay off your delinquent mortgage. Here is a series of steps that follows in which the scammer cashes out the equity in the home and disappears:
– As part of the “foreclosure rescue,” the unsuspecting homeowner will be required to deed the property to a new borrower who is supposedly “investing” in a rental property, but who is really part of the scam. The distressed homeowner is allowed to stay in the home as a renter with the option to purchase the home back when their financial situation improves. The scammer portrays this as a “win-win” situation for everyone involved.
– The proceeds of the sale pay off the delinquent loan and the new borrower (scam artist) removes all the equity in the house, never to be seen again. The distressed homeowner is now merely a renter in a home they no longer own, unaware that the new borrower is not making payments.
– When the new borrower defaults on the loan, the homeowner is evicted from the home – they have lost the house and all the equity in it. A much worse position than what they started in.
The above scenario has a number of variations which are all based on the basic premise of seducing homeowners into complicated transactions that allow the middlemen to steal equity in the house or walk away from the closing table after netting thousands in phony payouts. That is why a homeowner should be wary of any supposed foreclosure rescue deal that requires transfer of title in any form. This means signing a deed of any kind, transferring the home to a trust, executing an option that gives someone else the right to buy the home for a deep discount, or any other mechanism that gives someone else the right to take ownership of the house without any further recourse. The reason for this should be obvious: control of the home is the ultimate goal of the scammer in most cases. Once the scammer gets that control, through legal ownership of the house, it is easy to borrow money against it, demand extortionate rent, or sell it outright to some third party. The transfer of ownership is both the means and the end of the scam. The scammer will do or say just about anything to get that transfer accomplished – any lie will do, so long as it works – and once he has control of the home, he won’t let it go easily.
– Beware of secrecy. Any deal involving a title transfer, refinancing or home sale is legally required to be publically advertised. Beware of anyone who doesn’t want you to contact mortgage lenders, real estate agents or lawyers for advice.
– Too good to be true deals. Resist easy solutions. Mortgage con artists prey on people when they are most desperate. Promises of restoring bad credit or getting to live in your home (even after selling it) are often fake and illegal.
With the above in mind here are some tips on protecting yourself from becoming a victim of foreclosure fraud.
– Fully understand what you are getting into. If you don’t then do not sign or enter into any legally binding agreement. Don’t get forced making a decision and consult a third party if you have any doubt whatsoever. If you are feeling pressured to sign something by a vendor, walk away.
– Ask for referrals and proof of business. Do not be afraid to ask for referrals that you can verify. Also ask them about their place of business and ask to meet there. If they cannot provide the above or only operate online, move on.
– Foreclosure scams operators advertise over the Internet and in local publications, distribute flyers, or contact people whose homes are listed in the foreclosure notices. They are everywhere and it’s hard to separate the legitimate from the illegitimate. Experts recommend ignoring unexpected solicitations, whether through the mail, by phone or in person. Instead, enlist the help of a HUD-certified counselor. A state-by-state list is available at HUD’s Web site.
– Use Web sites like Zillow.com to get a general idea of your home’s market value. This is a quick way to tell if your home is being undervalued by a scammer trying to pressure you into a deal. If the Internet is not your thing or you live outside a metro area, just make a call to 2-3 real estate agents and ask for a rough valuation of houses in your neighbourhood.
– Talk to your bank or mortgage servicer. Many scam artists will insist on that, telling homeowners not to talk to their lenders to facilitate negotiations. The moment an aid company insists on secrecy, run the other direction.
If you suspect that you have been a victim of mortgage or foreclosure fraud or are aware of a possible scam, report it by calling the Mortgage Fraud Hotline 1-800-4FRAUD8 (1-800-437-2838). You can also contact your state’s attorney general office. Locate your state’s attorney general through the Consumer Fraud Reporting website. For particularly serious or widespread fraud refer it directly to the FBI’s Corporate Fraud Hotline. (888-622-0117).
If you are facing foreclosure, the last thing you want is to be robbed of the limited funds you have in the first place. So when some tries to help you “get out of foreclosure” quickly or cheaply, let this is be a red flag for you. Verify any vendors you work with and report suspicious offers/persons to authorities in order to prevent them from inflicting more harm on other unsuspecting homeowners.