Protect Your Home from Foreclosure Rescue Scam Artists
The good news is that the economy seems to be stabilizing and in the past year has moved away from the brink of collapse. The bad news is the unemployment rate is high, the real estate market is still in shambles and for every homeowner drowning under mortgage payments, there are "foreclosure rescue" scam artists seeking to prey upon homeowners' desperation to stay in their homes.
These foreclosure rescue scammers are people, and sometimes companies, who purport to help overwhelmed and underwater homeowners fight foreclosure and assist them with their with mortgage problems, but are actually only looking to make a profit for themselves. These scam artists are real-life wolves in sheep's clothing, looking to make a quick buck by taking your money and delivering no services, stealing equity and in some cases taking your home outright.
While there are legitimate organizations which can offer guidance to homeowners who are having problems making mortgage payments or face foreclosure, it's important to protect yourself from foreclosure rescue scammers while looking for foreclosure help. The following are tips on how to identify scam artists and how their scams work.
More Money, More Problems (a little background)
The only rule all scam artists observe is "follow the money". In today's environment of underwater homes and continuing high rate of foreclosures, scam artists have swarmed to distressed homeowners like bees to honey. Because of the high unemployment rate, homeowners can easily fall behind in mortgage payments, and due to the slumping housing market, homeowners find it difficult to sell their homes (and even the ones who are able to sell are often forced to do so well below the cost of their mortgage).
Foreclosure rescue scammers are acutely aware of the economic climate and prey on the fears of distressed homeowners because they know there is money to be stolen. Scam artists flock to this "market" because there is a plethora of potential victims. Foreclosure notices are either public record or can be easily obtained so scammers can easily identify their victims. The scammers know that their targets are desperate and may go to extremes to protect and stay in their homes.
The past year has brought some relief to homeowners in the form of increased possibilities to modify their mortgage at an attractive rate. The current housing slump appears to be prolonged, however, and there are still significant numbers of homeowners in serious trouble, even after a loan modification.
Types of Scams
Foreclosure rescue scam artists employ a wide variety of strategies to separate a homeowner from their money or property, but most scams fit within the following three categories.
1. Phantom Help
Just as the name implies, the scam artist takes payment from the homeowner but delivers little or no services.
Often times, the foreclosure rescuer will charge high prices for things homeowners can easily do by themselves. In other cases, the scammers may never perform services and as a consequence will make the situation worse for the homeowner, who believes that the problems are being addressed by the "rescuer". In either scenario, the desperate homeowner has spent money that could have been used elsewhere and, more importantly, has lost precious time to get current on the mortgage or explore other options to improve their situation.
2. 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 while 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, which is their goal. At this point, they can do whatever they wish with the house, and (former) homeowners often find that the terms of the leaseback are crushing, with little chance that the homeowner can ever buy back the home.
3. 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, while in other cases, the scam artist will confuse and trick the homeowner into signing documents signing over ownership. Homeowners think they are signing documents for one purpose when in reality the scam artist is stealing their home. For example, you think you're signing for a "rescue" loan to stay current with your mortgage, when in reality you are signing over ownership to your home in exchange for the "rescue".
Scammers prey upon the fears of homeowners and will first attempt to gain the homeowner's trust. The best strategy is not to allow scam artists in the door, and there are several red flags that should raise your suspicions right away.
Proceed with care if a person or company:
- Contacts you claiming to be a foreclosure or mortgage consultant. Legitimate services do not seek out homeowners.
- Attempts to collect a fee before providing services.
- Tells you to make mortgage payments directly to the person or company rather than the lender.
- Instructs you to cease contact with the lender, with the understanding that they will work out an arrangement with the lender.
- Encourages you to lease your home so you can buy it back over time.
- Offers to buy your house.
- Pressures you to sign paperwork you haven't had a chance to read thoroughly or that you don't understand. Legitimate consultants will walk you through the process step by step and will give advice without pressuring you.
How to Avoid Scams and What to Do If You're a Victim of a Scam
While there's no guaranteed strategy to avoid a foreclosure scam (other than not accepting any assistance whatsoever), there are steps you can take to minimize your exposure to such scams. Whether or not you choose to employ a consultant to assist you, always be sure to:
- Keep in contact with your lender. Cutting off contact with the lender is the first thing a scammer will want you to do and the worst thing you can do. Lenders can assist in a loan modification and even if they don't, you need to stay in touch with them regarding deadlines and filing requirements.
- Find legitimate foreclosure assistance through state or federal government sites or certified consultants. Go to www.hud.gov or www.nfcc.org or other state-specific sites to get more information.
- Keep yourself independently informed about the foreclosure process. Don't simply trust what a consultant tells you.
- Check your state's laws governing the behavior of foreclosure consultants.
- Get everything in writing. Verbal promises are practically impossible to enforce.
- Don't sign anything that you don't fully understand. If you don't understand what you are signing, have an attorney or someone familiar with mortgages review the document. Your state bar association can point you in the right direction.
If you feel that you're a victim of a scam, contact your lender directly and find out what damage has been done (deadlines passed, payments skipped, etc.) and figure out your options with the lender. Outside of the mortgage, you may be able to sue the scam artist for money or property they've stolen. You can visit the websites listed above, as well as contacting your state bar association for information on programs they may have to assist you.
You should also report the fraud to the Federal Trade Commission (www.ftc.gov or 877-FTC-HELP), the state Attorney General and your local Better Business Bureau.
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.