Foreclosure Rescue Scams

How They Work

Foreclosure rescue scams (firms) use a variety of tactics to find homeowners in distress: Many do so by searching through public records at local government offices. (Yes, once you receive your default notice, your information becomes public).

After gathering your info, often times they will send you a personalized letter or postcard suggesting they can help you with your “problem”.

Others do so by placing ads. For example, on the Internet, TV, the newspaper, bandit signs, bus stops benches, flyers or even business cards at your front door.

Which ever the case, foreclosure rescue scams all tend to come at the homeowner the same way, with a simple and straight-forward messages, like

•  “Stop Foreclosure Now!”
• “We guarantee to stop your foreclosure.”
• “We Can Save Your Home. Guaranteed. Free Consultation”
• “Keep Your Home. We have special programs designed to help troubled homeowners out of foreclosure"
• "Instant debt relief"

If you have seen headlines like this or some variety of these headlines, good chance they’re up to no good! Once these people have your attention, they use a variety of procedures to get your money: Here are the four most common scams:

1) Bait and Switch

First off, NEVER sign anything!!! They will ask you to sign documents (for what you think) is a new loan to make your existing mortgage current. However, what you’ve really signed was documents that surrender the title of your house in exchange for a “rescue” loan.

2) Phony Counseling

They (foreclosure rescue firm) tells you that they and only they can negotiate a deal with your lender to save your house if you pay a fee up front. You may be told not to contact your lender, lawyer, or credit counselor, and to let them handle all the details. Once you pay the fee, they’re gone, never to be seen again.

In some instances they may insists that you make all your mortgage payments directly through them while they negotiate with your lender. In this instance, they managed to collect a few months of payments before disappearing.

The reason so many people are continuing to get away with this is because distressed homeowners got have the funds to pursue a legal matter. So homeowners are often stuck if or when this happens.    

3) Rent to Buy

You are told that in order to stay in the home you will need to surrender the title as part of a deal. In doing so you will remain in your home as a renter, and to buy it back during the next few years. You may be told that surrendering the title will permit a borrower with a better credit rating to secure new financing, thus prevent the loss of your home. However, the terms of these deals are often slanted to heavily in favor of the rescue firm that buying back your home becomes impossible.

This means, you lose your home, and the foreclosure rescue firm walks off with all or most of your home’s equity. Worse yet, when the new borrower defaults on the loan, you’re evicted.

In a variation of this scam, the rescue firm will raise the rent over time to the point where the former homeowner can’t afford it. After missing several rent payments, the renter (the former homeowner) gets evicted, leaving the rescuer free to sell the house.

In a similar equity skimming situation, the foreclosure rescue scam offers to find a buyer for your home, but only if you sign over the deed to the house and move out. They will then promises to pay you a portion of the profit when the home sells.

However, as soon as you transfer the deed, the rescue firm 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. Because transferring the deed does nothing to transfer your mortgage obligation.

4) Bankruptcy Foreclosure

The rescue firm may promise to negotiate with your lender or to get refinancing on your behalf if you pay an up front fee. Instead of negotiating with your lender or refinancing your loan, they will pockets the fee and file a bankruptcy case in your name, often times without your knowledge.

A bankruptcy filing can stop a home foreclosure, but only temporarily. To make matter worse, the bankruptcy process is complicated, expensive, and very unforgiving. If you fail to attend the first meeting with the creditors, the bankruptcy judge will dismiss the case and the foreclosure proceedings will continue as planned, yet you knew nothing of the sorts.

If this happens, you could lose the money you paid to the foreclosure rescue scam as well as your home. Worse yet, a bankruptcy stays on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, or even get a job.

If you end up falling into one of the many foreclosure traps you could lose much more than just your home. You may severely damage your financial future. So please beware 

Red Flags

Avoid these people like the plague, if they:

• Call themselves a "mortgage consultant" or "foreclosure service."
• Contact you. People who come to you are typically up to no good.  
• Insist that you lease your home so you can buy it back over time.
• Demands a fee prior to providing any services to you. If you see this run like hell! Once they have your money, there’s a good chance you may never see them again.  
• Instructs you to cease all contact with your lender, credit or housing counselors, lawyer or any other legitimate experts.
• Tells you to make your mortgage payments directly to them and not the lender.
• Requires that you transfer your property deed or title to them.
• Tells you that as part of the deal you will need to move out of your house for some period of time for remodeling or other reasons.
• Use common sense: If something doesn’t seem right, then leave. No one has your best interest at heart more then you do.

I hope this didn't scare you, but it is important that you understand exactly what's out there and what to look for so you don't become a victim to these foreclosure rescue scams. Remember, I use to work in the foreclosure rescue scam (firm) industry and these scams are happening at an alarming rate.

The reason why more awareness hasn't been made of this is simply because most homeowners after being scamed don't have the financial resources to go after them. Many times homeowners are stuck and can't do anything about. And that's why it is continuing to happen.

 State Foreclosure Laws