Beware of Foreclosure Rescue Scams
When times are difficult, you’ll often find that’s when scams of all kinds are put to work. In our current situation, it’s the housing market. Scammers are taking advantage of homeowners in distress, and making an already difficult financial situation worse, by taking money from those desperate for help.
Quoted directly from the Federal Trade Commission website, “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 you but do not pass on to the lender.” Don’t let this happen to you! Arm yourself against these shady people with the information below.
How the Scams Work
The foreclosure rescue firms utilize a variety of tactics to discover who is vulnerable. They can take a personalized approach by sifting through public foreclosure notices in newspapers, dig through public files at local government offices, and then send personalized letters to homeowners. Others can take a much broader approach by allowing the homeowners in distress to come to them. By posting ads in newspapers, internet web sites, television, or even posters on telephone poles, median strips, and at bus stops. They use simple to the point messaging like:
“Stop Foreclosure Now!”
“We guarantee to stop your foreclosure.”
“Keep Your Home. We know you home is scheduled to be sold. No Problem!”
“We can save your home! Guaranteed. Free Consultation.”
Once they have your attention, they employ a number of tactics to get at your money.
Phony Counseling or Phantom Help
The scam artist tells you that through his firm, or through him, he can negotiate a deal with your lender to save your house. The catch, you must pay a fee first. Do not do this, ever. Even though the situation is desperate, this is a #1 sign of a scam. You may be asked to not contact your lender, that all the details will be handled by the scam artist. Then, once the fee is recieved, you’ll never hear from them again.
In some cases, the scammer may ask that all mortgage payments be made through him as well. This just allows him to collect several months rent before disappearing with the intial fee and your hard earned mortage payments.
Bait-and-Switch
You are made to believe that you’re signing new loan aggreement documents, when in reality, you’re signing over the title of your house, in exchange for a fake rescue loan.
Rent-to-Buy Scheme
You’re told to surrender the title of your house as part of a deal that allows you to remain in your home as a renter, and to buy it back again during the next few years. Some of the reasons that may be fed to you is that if you surrender your title, someone with a better credit rating will be able to obtain better financing than you would.
What will end up happening are several things. The terms of these deals usually are too difficult to maintain so that buying back your home becomes impossible. You lose the home, and the scam artist walks off with all or most of your home’s equity. Worse yet, when the new borrower defaults on the loan, you get evicted.
A variation to the above is that the scammer raises the rent over time to a point that the former homeowner is unable to afford it. As soon as the former homeowner misses several rent payments, they’re evicted, and the “rescuer” is free to sell the home.
In a yet similiar situation, the scam artist offers to find a buyer for your home, but only if you sign over the deed and move out. The scam artist then promises to pay you a cut of the profits when the home sells. Once you tranfer the deed, the scammer simply rents out the home, and pockets the proceeds while your lender proceeds with the foreclosure. In the end, you lose your home – and you’re still responsible for the unpaid mortgage. Transferring the deed does nothing to transfer your mortgage obligation.
Bankruptcy Foreclosure
The scam artist may promise to negotiate with your lender on your behalf if you pay a fee up front. Instead of contacting your lender, the scammer starts the process of bankruptcy in your name. This stalls or stops the foreclosure process but only temporarily. The bankruptcy process is time consuming and expensive. Bankruptcy has many disasterous consequences, as it stays on your credit report for 7-10 years. A bankruptcy can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job.
Where to Find Legitimate Help
If you’re having trouble paying your mortgage or you have gotten a foreclosure notice, contact your lender immediately. You may be able to negotiate a new repayment schedule. Remember that lenders generally don’t want to foreclose, it costs them money.
You can also contact a credit counselor through the Homeownership Preservation Foundation that operates a 24/7 toll-free hotline 1-888-995-HOPE. More information is available at www.hopenow.com.
Red Flags
Below are some very critical red flags you should be watching for. Avoid any business that:
- guarantees to stop the foreclosure process – no matter what your circumstances
- instructs you to not contact your lender, lawyer, or credit or housing counselor
- collects a fee before providing you with any services
- accepts payment only by cashiers check or wire transfer
- encourages you to lease your home so you can buy it back over time
- tells you to make mortgage payments directly to it, rather than your lender
- tells you to transfer your property deed or title to it
- offers to buy your 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 you
- pressures you to sign paperwork you haven’t had a chance to read thoroughly or that you don’t understand
If you have been having trouble making your mortgage payment, contact your lender immediately.
Please see www.ftc.gov for more information. Also, have a look at www.ftc.gov/credit for more information on financial education.
There’s help out there, just be wary of those that might be looking to take advantage of your situation.
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