Foreclosure Scams
Don't Lose Your Home to a Foreclosure Recovery Scam!
When you fall behind on your mortgage payments, you may receive mailers or phone calls offering to help you out of a difficult situation. Many of these people however, are looking to take advantage of you. DO NOT SIGN anything with anyone offering a service that seems too good to be true.
Become aware of the real estate foreclosure scams taking place in the market. Our Top Priority is to provide you information and guidance, so you can make an informed decision that is best for you and your individual situation.
Many short sale and foreclosure scams involve companies that:
- Charge upfront fees for foreclosure prevention
- Offer to help you “get rid of” your home
- Request you to sign the home over to them in exchange for something
You don't need to pay fees for foreclosure help. And if any company asks you to sign over your deed or have them act on your behalf, you may become a renter in your own home! Learn what your best options are and make the right decision.
Below are some of the typical schemes and how to avoid them.
Scam #1 - The Foreclosure Rescue Scheme
This foreclosure rescue scheme, also known as "Equity Skimming," often begins with a scam artist offering a promise to pay off your delinquent mortgage, allowing you to stay in the home as a renter with the option to purchase the home back when your financial situation improves.
What really happens is a series of steps designed to cash out the equity in the home and disappear.
Foreclosure Rescue Scheme #1:
- Troubled homeowners are tricked into signing their home title over to the perpetrator with the promise that they'd get their homes back when they get back on track.
- The homeowners become renters, and are told to make their payments to the scam artist, who will forward them to the lender.
- But the con man never makes any payments. Instead, he collects money from the owner, and the house eventually goes into foreclosure.
Foreclosure Rescue Scheme #2:
- Troubled homeowners actually sell the property to the scam artist "investor," with the promise that owner can stay in the home as renters, and will be able to buy their home back within two years. And to make it sound more legitimate, the scam artist includes a "reasonable profit" into the price they will sell the property for back to the homeowner.
- But what really happens is the proceeds of the sale are used to pay off the delinquent loan, the new borrower removes all the equity in the house, and is never seen again. The home goes into foreclosure, and the homeowner who thought they were renting, is evicted.
A variation on this includes:
- The proceeds of the sale are used to pay off the delinquent loan, and the homeowners become renters, with the promise they will be able to buy the property back at a set price.
- The new borrower pays the mortgage, but makes the lease terms and monthly rent to the homeowner so burdensome, that they have grounds to evict the former homeowner and sell the property, pocketing all the equity.
Scam artists are very crafty and will vary the scheme depending on the homeowner they are talking to. Some warning signs that a scam artist may be trying to set you up as a victim of a foreclosure rescue scheme include:
- Being approached by a stranger with an unsolicited "rescue" offer.
- Receiving an unsolicited call, mail or flyer about "foreclosure rescue" or saving your home.
- Participating in a complicated deal that you don't fully understand.
- Signing documents that have blanks or false statements.
Scam #2 - Phony Counseling
Some people want to profit by your misfortune by offering to contact and conduct loan workouts and negotiations with your lender on your behalf – for a fee. An individual or group approaches and offers to help, then charges you thousands of dollars for various administrative duties like filing forms, making phone calls, negotiating, etc. The real goal of these companies is to make money off the fees they charge you, not to help you out of your situation.
Reputable counseling and assistance is available from companies such as Watkins Realty Group - free of charge. Be sure you deal with someone knowledgeable, or the counseling could hurt instead of help you.
Scam #3 - Illegal Flipping
Flipping is a legitimate practice where an investor purchases a property in need of repairs or upgrades, makes the necessary changes to the property, and sells the home for a profit. We've all seen the TV shows about flipping, but there are scam artists who use flipping to make money illegally.
Often times, the scam artist will offer much more than the asking price of a home with a stipulation that the "surplus" amount over the asking price is given back to the borrower at closing.
At closing, the inflated value of the home will be attributed to home improvements that were never made. The scam artist will pocket the surplus money and default on the loan.
As a homeowner, especially one whose house has been on the market a long time, this may seem like an attractive deal. But remember – falsifying documents is fraud.
Scam #4 - Predatory Lending and Mortgage Fraud
Unfortunately, when dealing with foreclosure not all mortgage lenders have your best interest in mind. Beware of predatory lending traps, such as:
- High-Risk Second Mortgages. These may seem like a good option, but be cautious – they could further complicate the problem.
- Bait and switch. Borrowers are offered fixed rate loans but ultimately are refinanced into adjustable rate loans with high interest rates.
- Forgery. Homeowner's names and signatures are forged on loan documents and sometimes misspelled.
- Inflated Appraisals.
This scam is used with builders trying to move inventory. They get an inflated appraisal to sell a $400,000 house for $440,000, and use the extra money to fund the buyers' down payments, closing costs, and lavish buyer incentives they hide from lenders. Builders used to give away microwaves. Now, they give away cars, HOA dues, mortgage payments, or guaranteed rental income. But the costs of these incentives are built into the inflated purchase price and are not disclosed to the loan officer or the appraiser.
Scam #5 - Phony Investment Clubs
Foreclosure scams also target buyers and investors.
- Phony Investment Clubs are growing in popularity. Investors are lured into buying houses at distress-sale prices with the promise of big rewards when the houses are sold.
- Most of the houses are never purchased. But if they are, they are sold at inflated values to fictitious buyers. So now, the thief not only has money from unsuspecting investors, he pockets the proceeds from the sale as well.
Short Sale and Foreclosures - DO's and DON'Ts
- DO call your lender if you're in trouble. Ask for the loss mitigation department. Some lenders will work with you. Why? Lenders lose more money on a foreclosure and would prefer a loan workout or a short sale.
- DO make sure you are released from liability for your mortgage if you sell you home.
- DO obtain the assistance of a real estate professional you trust. It’s important to have knowledgeable professionals on your team to help give you accurate information.
- DON'T sign away ownership of your property using a quitclaim deed without the advice of a lawyer you trust.
- DON’T believe false promises from a scam artist. If it sounds too good to be true, it probably is!
- DON’T sign a contract under pressure. Always know exactly what you're signing. And don’t sign anything with blank spaces. Information could be added later that you didn't agree to.
- DON'T panic. Get information on the foreclosure process, what you options are, and make the best decision for you.
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