Foreclosure Scams

 

Foreclosure scams are flourishing in this time of rising mortgage rates, with desperate homeowners being lured by offers of help, only to be cheated out of the equity they’ve built up in their home, or tricked into transferring ownership of their home, or end up stuck paying expensive fees for little or no help.

Foreclosure scams are becoming increasingly common. Scammers often target homeowners struggling to meet their mortgage commitments or anxious to sell their homes.

The scammer or 'rescuer' identifies struggling homeowners through public foreclosure notices in newspapers or at government offices. 

They will contact you by phone, postcard, flyer, advertising or even show up at your home. You will usually find that the initial contact is a simple message stating that they can help you keep your home.

If you decide to have a meeting with them, they will promise a fresh start. They will also ask you to stop talking to anyone but them as they will handle all the negotiations for you.

Variations of foreclosure scams have evolved over time, however, the end result is always the same The homeowner loses everything!

The homeowner may be forced out of the home and the scammer will move in tenants and collect rent until the home is foreclosed on, leaving the homeowner straddled with the debt. The scammer may also 'sell' the property to someone, victimizing both the buyer and homeowner.

The Main Types of Foreclosure Scams

People involved with foreclosure scams typically promise to help homeowners who are in financial straits but instead charge exorbitant fees for services with little or no value, strip equity out of victims’ homes, or take ownership of the homes outright.

See our page on Foreclosure Rescue Scams for more information on the way those scams work.

Three types of schemes are common:

  • Phantom help – The supposed rescuer charges high fees for no work or for services that the homeowner could have easily handled or obtained free from legitimate organizations
  • Bailout – A homeowner surrenders the title to the home after receiving a false promise that the he or she can remain as a renter and buy back the home later. The scammer obtains possession of the home and most or all of its equity
  • Bait and switch – Homeowners are told they can refinance their homes but instead sign documents transferring the titles to scammers, while the victims remain responsible for making the mortgage payments

Businesses that carry out these scams often refer to themselves as 'foreclosure consultants' or 'foreclosure rescue specialists.'  They use high-pressure sales tactics and distribute cards or flyers with messages such as 'Stop foreclosure with just one phone call,' or 'I’d like to buy your house.'

foreclosure scams

Do I have Options with Foreclosure Scams?

There is help available when facing financial problems or foreclosure, but make sure you are dealing with a reputable organization before getting involved.

If you've received a foreclosure notice, contrary to what the scammers would have you believe, contact your mortgage company first. There are many remedies available, including renegotiating the terms of your mortgage, that can save your home or failing that, allow you to walk away with most of your equity.

If you can't refinance, renegotiate or sell quickly, it may make sense to look at filing for bankruptcy.

Most people fear or loathe bankruptcy, and understandably, however it may be a more reasonable option instead of carrying on and maintaining a debt that you may still be obligated to pay.

Possible Alternatives

  • Special Forbearance
    Your lender may be able to temporarily reduce or suspend your payments for a fixed period of time. At the end of that time, you must make a lump sum payment or enter into a long term repayment plan to pay back the reduced or suspended amount. Forbearance may be a good option when the cause of your default is specific and temporary and it is reasonable to assume you will be able to resume making payments at the end of the forbearance period.
  • Repayment Plan
    Your lender may be able to arrange a simple repayment plan whereby you make your mortgage payment plus an amount of the total in default. The plan could be a few months long, or may extend to a year. At the end of the time period, you would have paid off the past due amount and your payments go back to the original payment amount. Your lender or servicer may require a good faith payment upfront to begin the plan. A repayment plan may be a good option when the situation that caused your default is resolved. For example, the default may have occurred because you were unemployed for a period of time, but you have now become employed again.
  • Mortgage Modification
    You may be able to refinance the debt and extend the term of your mortgage loan. This will help you catch up by possibly reducing the monthly payments to a more affordable level. You may qualify if you've recovered from a financial problem but your net income is less than it was before the default.
  • Partial Claim
    Your lender may be able to work with you to obtain an interest-free loan from HUD to bring your mortgage current, if you qualify.
  • Pre-Foreclosure Sale
    This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating. If you're unable to afford the house long-term, you may sell the house yourself before the foreclosure sale and save some of your equity.
  • Deed-in-lieu of foreclosure
    As a last resort, you may be able to voluntarily "give back" your property to the lender. This won't save your house, but may help your chances of getting another mortgage loan in the future.

Red Flags of Foreclosure Scams

  • Be suspicious of an person or company that call themselves foreclosure consultants, foreclosure experts or a foreclosure expert
  • Be suspicious of high-pressure marketing techniques or pressure to sign
  • Be very careful with a company or individual who requires fees before providing any services to you
  • Be suspicious of anyone who instructs you to make your mortgage payments directly to them or their company
  • Be suspicious of offers to take title to your home and lease it back to you, promising that you can buy it back over time
  • Be suspicious of promises to 'save your credit' or find a buyer for your home within a specified number of days

Advice for Foreclosure Scams

  • Don't sign any papers you don't fully understand. Take the time to review it carefully and ask questions if it doesn’t make sense to you
  • Don't sign any document that has blank spaces or incomplete information
  • Make sure you get all the "promises" in writing
  • Signing over the deed to someone else doesn’t necessarily relieve you of your loan obligation. If your name is still included on the documents, you’re still liable for repaying the loan
  • Check with your attorney or your mortgage company before entering into any deal involving your home
  • Check to see if there are any complaints against the prospective buyer if you’re selling your house

It is important to talk to a attorney or legal aid organization, since your rights vary from state to state. Most states and large cities have legal aid organizations; to find one near you, go to the Legal Services Corporation, a government-sponsored organization that provides high-quality civil legal assistance to low-income Americans.

Homeowners in danger of foreclosure should work with their lenders to avoid foreclosure, consult a counselor approved by the U.S. Department of Housing and Urban Development www.hud.gov, or seek advice from a government-sanctioned program, such as HOPE NOW www.hopenow.com.

Resources for Foreclosure Scams

Check the website of the U.S. Department of Housing and Development [HUD] to locate a HUD approved counselors [they are listed by state].

Foreclosure prevention resources are available at the following web site:

Foreclosure Scams prevention [HOPE NOW is an alliance of HUD-approved counseling agencies, mortgage companies, investors and other mortgage market participants that provides free foreclosure prevention assistance. The site also has a HOPE hotline on 1-888-995-HOPE which is staffed by HUD-approved credit counselors who can guide homeowners to foreclosure options.

Our best advice is, DON’T SIGN ANYTHING before having a licensed attorney review the paperwork. 



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