Homeowners facing foreclosure sometimes reach out to anyone offering a lifeline that could save the family home. Unfortunately, there's almost no limit to the number of scam companies willing to defraud you. The scams vary widely, but usually seem too good to be true. They make inflated promises and provide few results.
In this article, you’ll learn how to spot—and avoid—typical foreclosure rescue scams, like loan modification scams, leaseback scams, and others.
Typical Foreclosure Rescue Scams
Scammers often send letters promising to rescue a home from foreclosure with statements such as "Stop Foreclosure Now" and "Save Your Home." If you’ve fallen behind on your mortgage payments, these letters might sound like the perfect solution to your problem.
When you make the phone call, a friendly "agent" tries to sell you on the company's services. Once the agent gains your trust, the scam often unfolds in one of the following ways:
Loan Modification Scam
The company offers to act as a liaison between you and your loan servicer to negotiate a loan modification. You’ll likely pay several thousand dollars for their modification “negotiation services.” The company might even tell you to pay for their services, rather than putting the money towards your outstanding mortgage debt.
But the scammer company will do little or nothing to help you get a modification. In the meantime, you’ll fall further and further behind in your monthly payments. Eventually, the company stops returning your calls or disappears and you realize you’ve been scammed. By then, you’re way behind in payments and facing imminent foreclosure or, perhaps, you've already lost your home to a foreclosure sale.
Loan modification companies also sometimes charge for foreclosure information that you can find online for free on official government agency and state websites. The bottom line is that you should avoid hiring a loan modification company. (To learn more about loan modification scams, see Scam Alert: Mortgage Refinancing and Loan Modification Scams.)
Leaseback Scam
Another popular scam involves convincing you to “temporarily” sign over the title to your home to the scammer. The scammer tells you that you can then rent the property and repurchase it later on. The scammer promises to pay the mortgage, which will reduce the amount you owe on the loan.
But the scammer won't make any mortgage payments and instead takes out new loans on the property, using up all the equity. To make things even worse, you’ll probably discover that the terms of the lease are brutal with a rental price you can’t afford, and virtually no chance you’ll ever be able to get the home back. The scammer then might move to evict you for failing to pay the rent. Or, the scammer might sell the property to someone else, taking off with the money and leaving you with nothing except a terrible rental agreement.
Mortgage Elimination Scam
In this scam, the scammers tells you that they can get you out of your mortgage in a relatively quick period of time—perhaps under a year—because of some loophole. The scammer charges a premium price for its “services” but no loophole exists, and the scammers disappear with your money.
Refinancing Scam
Scammer companies sometimes try to get you to pay an upfront fee to refinance your existing loan. The fee supposedly covers expenses like "refinance counseling" or a "refinance consultation." These fees might be hundreds or even thousands of dollars. The company ends up doing little or nothing—keeping your money but not refinancing your home. Or, the scammer company might promise you a low interest rate on a refinance, but then, at the closing, raise the rate and tack on extra fees and costs.
Paperwork Overload Scam
With this scam, the scammer convinces you that the company will work with your servicer to save your home from foreclosure. The scammer then has you sign massive amounts of paperwork. The documents include a transfer of the home's title to the scammer company. In this transaction, you’ll likely be completely unaware that you’ve signed over ownership of your home to the scammer. Like in a leaseback scam, the company then strips the equity from the property or sells it to someone else.
Tips to Avoid Falling Prey to Foreclosure Rescue Scams
Scammers prey on the desperate; they understand that people facing foreclosure will believe just about anything. Keep the following tips in mind to avoid becoming the victim of a foreclosure rescue scammer.
- Ignore calls, advertisements, posters, fliers, and letters offering help to save your home from foreclosure. Legitimate services that help people avoid foreclosure don’t seek out homeowners.
- Don't take the advice of "rescuers" recommending that you break off contact with your servicer or a HUD-approved housing counselor. (A HUD-approved housing counselor is an excellent source of information on ways to avoid a foreclosure, like loan modifications, short sales, and deeds in lieu of foreclosure. And, a housing counselor will help you for free.) In fact, cutting off contact with your servicer is the worst thing you can do. The servicer can tell you what loss mitigation (foreclosure avoidance) options are available, how to apply, and what’s happening in the foreclosure process.
- Be aware of tactics that scammers use, like lies, exaggeration, misinformation, and pressure.
- Don’t pay upfront fees to a foreclosure rescue company. Because so many “rescuers” disappear with clients’ money without performing any work, many states prohibit companies from collecting money before completing their services.
- If you're contacted by a company you believe is trying to scam you, inform your state attorney general. The attorney general's office can then investigate the company.
- Don’t sign paperwork you haven't read thoroughly or that you don't understand. If you don't understand what you're agreeing to, have an attorney review the documents before you sign them.
- Use common sense and research anyone you work with in trying to avoid a foreclosure to ensure they’re trustworthy. If you have questions about foreclosure and ways to save your home, its best contact a HUD-approved housing counselor or a lawyer.
If you’re already the victim of a foreclosure rescue scam, contact your servicer directly to learn what damage has been done—like whether any deadlines have passed or whether any payments have been missed—and to figure out your options.
Getting Help
If you need help straightening out a mess that a scammer made, consider talking to a consumer protection attorney. You might also be able to sue the scammer for any money or property you've lost as the result of a foreclosure rescue scam. If you need assistance dealing with an impending foreclosure, contact a foreclosure lawyer.
