Foreclosure rescue scams are yet another potential stress for homeowners in distress.
The possibility of someone losing a home to foreclosure can be terrifying. The reality that scam artists are preying on the vulnerability of desperate homeowners is equally frightening. Many so-called foreclosure rescue companies or foreclosure assistance firms claim they can help a homeowner save their home. Some are brazen enough to offer a money-back guarantee. Unfortunately, once most of these foreclosure fraudsters take the homeowner's money, they leave the homeowner much the worse for wear.
Fraudulent foreclosure “rescue” professionals use half truths and outright lies to sell services that promise relief and then fail to deliver. Their goal is to make a quick profit through fees or mortgage payments they collect from the homeowner, but do not pass on to the lender. Sometimes, they assume ownership of the homeowner's property by deceiving the homeowner. Then, when it’s too late to save the home, they take the property or siphon off the equity. The homeowner has then their home to foreclosure despite their best intentions.
How the Scams Work: Foreclosure rescue firms use a variety of tactics to find homeowners in distress: Some sift through public foreclosure notices in newspapers and on the Internet or through public files at local government offices, and then send personalized letters to homeowners. Others take a broader approach through ads on the Internet, on television, or in the newspaper, posters on telephone poles, median strips and at bus stops, or flyers or business cards at homeowners' front doors. The scam artists use simple and straight-forward messages, like:
- “Stop Foreclosure Now!”
- “We guarantee to stop your foreclosure.”
- “Keep Your Home. We know your home is scheduled to be sold. No Problem!”
- “We have special relationships within many banks that can speed up case approvals.”
- “We Can Save Your Home. Guaranteed. Free Consultation”
- “We stop foreclosures everyday. Our team of professionals can stop yours this week!”
Once they have the homeowner's attention, they use a variety of tactics to get the homeowner's money:
Phony Counseling or Phantom Help: The scam artist tells the homeowner that he can negotiate a deal with the homeowner's lender to save the house if the homeowner pays a fee first. The homeowner may be told not to contact his/her lender, lawyer, or credit counselor, and to let the scam artist handle all the details. Once the homeowner pays the fee, the scam artist takes off with the money.
Sometimes, the scam artist insists that the homeowner make all mortgage payments directly to him while he negotiates with the lender. In this instance, the scammer may collect a few months of payments before disappearing.
Bait-and-Switch: The homeowner thinks that he/she is signing documents for a new loan to make his/her existing mortgage current. This is a trick: the homeowner just signed documents that surrender the title of his/her house to the scam artist in exchange for a “rescue” loan.
Rent-to-Buy Scheme: The homeowner is told to surrender the title as part of a deal that allows the homeowner to remain in his/her home as a renter, and to buy it back during the next few years. The homeowner may be told that surrendering the title will permit a borrower with a better credit rating to secure new financing – and prevent the loss of the home. But the terms of these deals usually are so burdensome that buying back the home becomes impossible. The homeowner loses the home, and the scam artist walks off with all or most of the home’s equity. Worse yet, when the new borrower defaults on the loan, the former homeowner is evicted.
In a variation, the scam artist raises the rent over time to the point that the former homeowner can’t afford it. After missing several rent payments, the renter – the former homeowner – is evicted, leaving the “rescuer” free to sell the house.
In a similar equity-skimming situation, the scam artist offers to find a buyer for the homeowner's home, but only if the homeowner signs over the deed and moves out. The scam artist promises to pay the homeowner a portion of the profit when the home sells. Once the homeowner transfers the deed, the scam artist simply rents out the home and pockets the proceeds while the homeowner's lender proceeds with the foreclosure. In the end, the homeowner loses his/her home (and is still responsible for the unpaid mortgage). That’s because transferring the deed does nothing to transfer your mortgage obligation.
Fraudulent foreclosure “rescue” professionals use half truths and outright lies to sell services that promise relief and then fail to deliver.
Bankruptcy Foreclosure: The scam artist may promise to negotiate with the homeowner's lender or to get refinancing on the homeowner's behalf if the homeowner pays a fee up front. Instead of contacting the lender or refinancing the loan, though, the scam artist pockets the fee and files a bankruptcy case in the homeowner's name – sometimes without the homeowner's knowledge.
A bankruptcy filing often stops a home foreclosure, but only temporarily. What’s more, the bankruptcy process is complicated, expensive, and unforgiving. For example, if the homeowner fails to attend the first meeting with the creditors, the bankruptcy judge will dismiss the case and the foreclosure proceedings will continue.
If this happens, the homeowner could lose the money he/she paid to the scam artist as well as his/her home. Worse yet, a bankruptcy stays on the homeowner's credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job.
Where to Find Legitimate Help: If a homeowner is having trouble paying his/her mortgage or has gotten a foreclosure notice, the homeowner should contact his/her lender immediately. The homeowner may be able to negotiate a new repayment schedule. Remember that lenders generally don’t want to foreclose; it costs them money.
Other foreclosure prevention options, including reinstatement and forbearance, are explained in Mortgage Payments Sending You Reeling? Here’s What to Do, a publication from the FTC. Find it at www.ftc.gov.
The homeowner may contact a credit counselor through the Homeownership Preservation Foundation (HPF), a nonprofit organization that operates the national 24/7 toll-free hotline (1.888.995.HOPE) with free, bilingual, personalized assistance to help at-risk homeowners avoid foreclosure. HPF is a member of the HOPE NOW Alliance of mortgage servicers, mortgage market participants and counselors. More information about HOPE NOW is at www.hopenow.com.
Red Flags: If a homeowner is looking for foreclosure prevention help, avoid any business that:
- guarantees to stop the foreclosure process – no matter what the circumstances
- instructs the homeowner not to contact his/her lender, lawyer, or credit or housing counselor
- collects a fee before providing the homeowner with any services
- accepts payment only by cashier’s check or wire transfer
- encourages the homeowner to lease his/her home so he/she can buy it back over time
- tells the homeowner to make his/her mortgage payments directly to it, rather than to the homeowner's lender
- tells the homeowner to transfer your property deed or title to it
- offers to buy the homeowner's house for cash at a fixed price that is not set by the housing market at the time of sale
- offers to fill out paperwork for the homeowner
- pressures the homeowner to sign paperwork that the homeowner hasn’t had a chance to read thoroughly or that the homeowner doesn't understand.
If a homeowner is having trouble paying his/her mortgage or has gotten a foreclosure notice, the homeowner should contact his/her lender immediately.
Report Fraud: If a homeowner thinks that he/she has been a victim of foreclosure fraud, contact:
- Federal Trade Commission
- Your state Attorney General
- Your local Better Business Bureau
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