Common Types of Foreclosure Scams

Have you faced difficulties making your home mortgage payments? Are you on the verge of a foreclosure? Before paying someone for help with resolving your mortgage problems, learn as much as you can about bankruptcy foreclosure scams.

Under circumstances where you're facing foreclosure, you might become desperate. Read on to learn how to avoid foreclosure scams, also known as bankruptcy foreclosure scams or foreclosure rescue scams.

Bankruptcy Foreclosure Scams

Bankruptcy foreclosure scams are used to victimize people facing severe difficulties with their mortgages. Scam operators may do any of the following:

• Advertise online
• Market themselves in local newspapers and other publications
• Disseminate flyers
• Contact people whose homes have been listed in foreclosure notices
• Target people from specific religious or ethnic groups

The people operating these scams often promise to handle the problems you're having with your mortgage lender and even claim they can secure refinancing for you. They might say they are capable of negotiating a loan modification of your existing mortgage loan and also offer to assist with how you will need to file for bankruptcy. These claims of mortgage modification should be handled with care. It's always a good idea to proceed with caution.

It's possible these scam artists will ask you to pay your mortgage payments directly to them or the entity for which they work, or request that you yield the deed of your property to them. They may request that you then make payments to their company, claiming this will allow you to remain in your home. However, the scam operators will neither contact your lender nor refinance your home. They'll actually pocket the money they take from you. 

After that, they will file a bankruptcy case in your name, claiming to do so on your behalf. They might do so without letting you know.

To learn more about bankruptcy, review FindLaw's bankruptcy section.

Warning Signs of Scams

Be particularly cautious if a person, company, or entity refers to itself as either a mortgage consultant or a foreclosure service. If they identify themselves by any other name, proceed just as cautiously. A glaring red flag is if they try to collect a fee before providing services to you. This is referred to as an up-front fee. Another warning sign is if they ask that you transfer your property deed or title to them, as mentioned above.

If someone asks that you wire any amount of money to a bank account associated with their group while also engaging in other types of suspicious conduct, it's likely that they're a scammer. Never provide your social security number. Not doing so can prevent falling prey to identity theft. If anyone offers you a debt relief program that is too good to be true, it's best to avoid them entirely.

To learn more about how to protect yourself, review FindLaw's article on protecting your home from foreclosure scam artists, which covers many types of cons in great detail.

Types of Scams

The following types of scams are the most common of which you need to be aware:

• Phantom Help
• Sale and Leaseback Scams, also known as White Knight Schemes
• Bait and Switch Schemes

To learn more about fraud, generally speaking, visit FindLaw's article on fraud and financial crimes. Continue reading here to learn more about the specific types of scams that often occur in the context of foreclosures.

Phantom Help

Under this scheme, the scam artist takes payment from the homeowner. However, they do not deliver services, or if they do, it's very little.

The foreclosure rescuer can also try to charge high prices for things homeowners can easily do by themselves. In other cases, the scammers may never perform services. As a consequence of not doing so, they will make the situation worse for the homeowner. The homeowner will believe that the problems are being addressed by the rescuer.

In either scenario, the desperate homeowner has spent money that could have been used elsewhere. More importantly, the homeowner has lost precious time to get current on the mortgage. They might also have lost time for exploring other options to improve their situation.

Sale and Leaseback Scam - the White Knight Scheme

Here, the foreclosure rescue scammer offers to step in and save the home from foreclosure by buying the home and agreeing to lease it back to the homeowner. At the same time, the homeowner makes monthly payments to buy back the home.

While the method of taking ownership of the house varies, what remains the same in all sale and leaseback scams is that the scammer manages to take title to the house. At this point, they can do whatever they wish with the house. Additionally, former homeowners often find that the terms of the leaseback are crushing. This is the case because there is usually little chance that the homeowner can ever buy back the home.

Bait and Switch

In this scheme, the scam artist will con the homeowner into signing over title and ownership of the home. Sometimes the scheme is similar to the leaseback scam. In other cases, the scam artist will confuse and trick the homeowner into signing certain documents. These documents, if signed, will cause a transfer of ownership. 

Homeowners think they are signing documents for one purpose, when in reality the scam artist is stealing their home. For example, you believe you're signing for a rescue loan to stay current with your mortgage, but you're actually signing over ownership of your home in exchange for the rescue.

How Bankruptcy Affects Foreclosure

A bankruptcy filing often stops a home foreclosure, but only temporarily. If a bankruptcy is filed in your name but you don't participate in the case, the judge will dismiss the case and the foreclosure proceedings will continue. If this happens, you will lose the money you paid to the scam operator. In this case, you could also lose your home. You will also have a bankruptcy listed on your credit record for years afterward.

Ways To Protect Against Becoming a Victim

The following precautionary measures should be taken if you believe you might be dealing with a foreclosure scammer:

• Don't sign any papers you don't fully understand. Make sure you get all promises in writing. Beware of any contract of sale of loan assumption where you are not formally released from liability for your mortgage debt. Check with a lawyer or your mortgage company before entering into any deal involving your home.
• If you're selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer. You can contact your state's Attorney General, the State Real Estate Commission, or the local District Attorney's Consumer Fraud Unit for this type of information.

To learn more about ways to protect yourself as a consumer, visit FindLaw's Consumer section.

Other Suspicious Conduct of Which To Be Aware

You should also be aware of the following types of conduct, which are typical of these kinds of scams:

• Equity skimming
• Balloon payments
• Signing over your deed

Equity Skimming

In this scheme, an entity calling itself a buyer approaches you with offers to relieve you of financial trouble. They will claim that they will do so by offering to pay off your mortgage and promising you a sum of money when the property sells. This purchaser might recommend that you leave your property and move out as quickly as possible, asking that you yield your property deed to them. 

They then collect rent but do not make any mortgage payments. In this process, they will allow the lender to foreclose on your property. Keep in mind that signing over your deed to someone else does not necessarily remove the obligation to pay your mortgage.

Balloon Payments

You've fallen behind in your mortgage payments and may face foreclosure. Another lender offers to save you from foreclosure by refinancing your mortgage and lowering your monthly payments. They might indicate they will offer reduced interest rates, but you must look carefully at the loan terms. The payments may be lower because the lender is offering a loan on which you repay only the interest each month. 

At the end of the loan term, the entire amount that you borrowed, known as the principal, is due in one lump sum called a balloon payment. If you can't make the balloon payment or refinance, you face foreclosure and the loss of your home.

Signing Over Your Deed

 If you're dealing with issues related to paying your mortgage, you may be feeling desperate. While you face possible foreclosure, an entity claiming to be a lender may contact you and provide an offer that involves assistance in obtaining refinancing. Before they can help you they ask you to sign your deed over to them, claiming that it's a temporary strategy for forestalling foreclosure. The promised refinancing never materializes.

After the lender takes your property deed, they start to handle it as their own. They might borrow against it or sell it to another person or entity. This is because you no longer own the home, having signed the title over to someone else. As a result, you won't get any money when the property sells. If you still live there they will treat your mortgage payments like rent and can even evict you from your home.

Learn more about what happens when you sign over a deed by reviewing FindLaw's article about transferring property.

Phony Counseling Agencies

Some groups calling themselves counseling agencies may approach you and offer to perform certain services for a fee. These could well be services you could do for yourself for free, such as negotiating a new payment plan with your lender or pursuing a pre-foreclosure sale. These counseling agencies might claim they can stop foreclosure while painting scary portraits of short sales and other difficult processes within the foreclosure process to scare you into working with them. 

Although they will claim they are legitimate foreclosure consultants, it's important to know that they likely are not.

Need More Help? Contact a Lawyer

If you can't pay your mortgage, call your mortgage lender or contact a lawyer for help. Your state or local bar association may be able to help you find low-cost legal help. Mortgage borrowers who are at risk of foreclosure are facing many difficult problems to begin with. It's important to take steps to avoid becoming a victim of foreclosure fraud or mortgage fraud. 

While the Federal Trade Commission and the Department of Housing and Urban Development (HUD) do a great deal to try to protect consumers, it's important to be vigilant, as well. Under many relevant federal laws, the U.S. government tries to prevent these types of scams, but it's important to do things yourself to help protect against becoming a victim.

In a situation where you're at risk of foreclosure, it's important to protect yourself. You might need to speak with a qualified bankruptcy attorney near you. Bankruptcy lawyers are an invaluable resource in the foreclosure process. A foreclosure attorney can also be a wise choice.

Homeowners facing foreclosure should seek the help they need. Mortgage foreclosures are hard enough to handle without other issues arising such as harassing phone calls from unknown phone numbers that turn out to be foreclosure scammers. Contact a bankruptcy attorney in your area for the most reliable information.