With the current climate in the housing industry, and overall economy for that matter, it’s no surprise that some people may look for any angle in order to get ahead, and sometimes this may include taking advantage of those in financial desperation. Unfortunately, distressed homeowners trying to avoid the loss of their home through foreclosure are finding out the hard way these days that they may have fallen prey to an unscrupulous scam artist (or as they refer to themselves as “real estate investors”).
The scariest part is that if you’re currently delinquent on your mortgage then chances are that you may have already met a few face-to-face, as these so-called “investors” frequently stalk the occupants of distressed properties for any possibility of “assisting them to avoid a foreclosure.” But beware of their empty promises, there are no quick corners to cut in order to “avoid foreclosure,” and there are also many legalities surrounding the foreclosure process in which homeowners should be aware of before they allow anyone to provide any such “foreclosure prevention services” or pay any upfront fees of any kind.
Potential victims are easy to find: mortgage lenders publish notices before foreclosing on homes. Private firms frequently compile and sell lists of these foreclosed properties and distressed borrowers. After reading these notices, con artists approach their targets in person, by mail, over the telephone, or by e-mail. They often advertise their services on television, radio, or the Web, and in newspapers, describing themselves as “foreclosure consultants” or “mortgage consultants,” offering “foreclosure prevention” or “foreclosure rescue” services.
Here are the top Foreclosure and Loan Modification scams to be aware of:
1. Foreclosure “Rescue” and Refinance Fraud. The scam artist offers to act as an intermediary between you and your lender to negotiate a repayment plan or loan modification and may even “guarantee” to save your home from foreclosure. You may be told to make mortgage payments to the scammer directly — along with significant, up-front fees — and be told that the scammer will forward the payments to your lender. In reality, the scammer may pocket your money and leave you in worse shape on your loan. The scam artist also may tell you to stop making payments or stop communicating with your lender. Don’t follow that advice, remember that your mortgage lender should be the starting point for finding options to avoid foreclosure and you also should consider contacting qualified and approved credit counselors.
2. Fake “Government” Modification Programs. Unscrupulous people may claim to be affiliated with, or approved by, the government or may ask you to pay high up-front fees to qualify for government mortgage modification programs. While government-supported mortgage modification and refinancing initiatives are legitimate, the scam artists’ claims are not. Keep in mind that you do not have to pay to benefit from these government programs. All you need to do is contact your lender or loan servicer. Additionally, the scam artist’s name or Web site may be very similar to those of government agencies. These tactics are designed to fool you into thinking the scam artist is somehow approved by, or affiliated with, the government. The government is taking actions to stop this fraud, but you also need to protect yourself. Your lender will be able to tell you whether you qualify for any government initiatives to prevent foreclosure.
3. Leaseback/Rent-to-buy Schemes. In this type of scam, you are asked to transfer the title to your home to the scammer, who will, supposedly, obtain new and better financing and/or allow you to remain in the home as a renter and eventually buy it back. The agreement may be very hard to comply with, because it may require, for instance, high up-front costs and monthly payments that you may not be able to afford. In fact, the scammers may have no intention of ever selling the home back to you. And remember, transferring your title does not change your payment obligations — you will still owe your mortgage debt. The difference will be that you will no longer own your home.
4. Bankruptcy Scams. You may have heard that filing bankruptcy will stop a foreclosure. This is true — but only temporarily. Filing bankruptcy brings an “automatic stay” into effect that stops any collection and foreclosure while the bankruptcy court administers the case. Eventually, you must start paying your mortgage lender, or the lender will be able to foreclose. Bankruptcy is rarely, if ever, a permanent solution to prevent foreclosure. In addition, bankruptcy will negatively impact your credit score and will remain on your credit report for 10 years.
5. Debt-elimination Schemes. Scammers may claim to be able to “eliminate” your debt by making illegitimate legal arguments that you are not obligated to pay back your mortgage. These scammers will provide you with inaccurate claims about applicable laws and finance, such as that “secret laws” can be used to eliminate debt or that banks do not have the authority to lend money. Do not stop making payments on your mortgage based on their claims.
Always proceed with caution when dealing with anyone offering to help you modify your mortgage or avoid foreclosure. Remember that you do not need a third party to work with your lender — any such party should make the process easier, not harder and more expensive.
The main ways to protect yourself from falling victim to a foreclosure scam are to:
- Always keep in contact with your lender no matter what anyone else says;
- Always make payments on your mortgage to your lender and no one else;
- Avoid paying upfront fees of any kind;
- Always understand what you are signing before you sign it;
- Never, under any circumstances, sign the title of your property away to anyone without proper legal counsel;
- Be sure to get all promises in writing.
It’s important that homeowners understand that there are FREE foreclosure counseling services and loan modification services available. One of the most important services is offered by your lender, and if your lender becomes unresponsive then the government has sponsored a number of other resources such as the “Hope Now Alliance” and “Making Home Affordable” programs.
But it’s up to you to keep yourself from falling prey to a foreclosure scam. Work with real estate professionals with a proven track record of assisting homeowners in your similar situation. And for more information on these scams and ways in which you can protect yourself, please visit http://www.occ.treas.gov/ftp/ADVISORY/2008-1.html
