“The fraudster’s greatest liability is the certainty that the fraud is too clever to be detected.” – Attorney & Former Director of the FBI, Louis J. Freeh
As a homeowner, the more you know about mortgage fraud, in this case, foreclosure rescue scams, the better you’ll be prepared should you find yourself, friends, or family in a situation that seemingly offers you a solution that will rescue you from financial peril. The word to the wise? Don’t fall for it in your time of need. Educate yourself with our DomiDocs® Guide to Foreclosure Rescue Scams.
Why are foreclosure rescue scams so prevalent?
In uncertain economic times, there are always those willing to take advantage of other’s misfortunes. According to Freddie Mac, America has hit the perfect storm with a trifecta of rising interest rates, a slowing market, and a lack of homes on the market. This is when individuals or even unscrupulous real estate industry professionals swoop in to offer a Hail Mary last-minute solution to your financial woes.
What is foreclosure?
Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments by forcing the sale of the asset. In other words, the homeowner is not financially able to make payments so the lender will take back the home and undertake the eviction/selling process.
What is a foreclosure rescue scam?
Freddie Mac defines a foreclosure rescue scam as “A type of fraud that takes advantage of homeowners who have fallen behind on their mortgage payments. The fraud perpetrator approaches the homeowner with promises of paying off the delinquent mortgage and helping the homeowner stay in the property.”
The most common foreclosure rescue scam.
Out of the blue, a homeowner receives an unsolicited offer in their mailbox, or their inbox, offering short-term financing from a ‘private investor’ who is willing to pay off their delinquent loan and take it over ‘temporarily’ from their lender. Sounds too good to be true? You’ve got that right.
| What a Foreclosure Rescue Scam Offers | What a Foreclosure Scam Actually Does |
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The homeowner is advised that they can remain in their home and rent from the new private investor who approached them |
Upon closing, the homeowner transfers the deed to the straw buyer |
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Besides paying off the delinquent mortgage, the homeowner is further enticed by the thought of repairing their credit or paying off other debts like credit cards |
The defaulted loan is paid off |
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The homeowner ‘temporarily’ transfers the title of their home to the private investor as collateral |
The homeowner no longer owns the home and has lost the biggest investment of their lives |
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The new investor promises the homeowner that they can repurchase the home later or offers new financing in the future, most likely through a straw buyer (essentially an individual acting to hide the identity of mortgage fraud participants/organizers) |
The new investor takes the equity from the home and vanishes |
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The straw buyer defaults on the new mortgage loan |
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The homeowner, who is still living in the home unknowingly as promised, is now evicted from the home and comes to the abrupt realization that they’ve been scammed and have legally lost their home and equity |
Other foreclosure scam scenarios can involve homeowners:
- being asked to transfer ownership to a third-party
- being offered phantom help with lofty promises in exchange for exorbitant service fees upfront, however, no services will be provided and the scam artist simply walks away with the cash in hand
- being encouraged to cut off contact with current lenders and debt counselors who are already working to resolve the issue
- being approached by a schemer to give up partial interest in a home, whereby payments are made to them instead of the lender; the scam operator then files for bankruptcy, but the homeowner is liable to keep making payments to the scammer
- being told to stop making mortgage payments
- signing over their deed instead of signing the promised refinancing documentation
Sometimes foreclosure scammers will sell the property or refinance it to another party, all in the name of making money while committing mortgage fraud.
Red flags of a foreclosure rescue scam.
There are some tell-tale signs of a foreclosure rescue scheme but it’s important to note that, as above, some unsuspecting homeowners won’t realize they’ve been scammed until the process has come full circle and they’ve surprisingly been evicted from their homes. Basic red flags of a foreclosure scam can include someone who:
- Demands fees upfront
- Offers to purchase your home as an investment property but will allow you to remain in the home as renters, with the promise of you being able to re-purchase the home in the future
- Is purchasing multiple properties at the same time
- Wants to buy your home as their primary residence, even though they already have their own home that’s valued much higher than yours
- Is unable to contribute any funds to the closing costs
- “Often refer to themselves as a ‘foreclosure consultant’ or ‘mortgage consultant,’ and market themselves as a ‘foreclosure service’ or ‘foreclosure rescue agency’. They count on homeowners being vulnerable and desperate,” states the Federal Deposit Insurance Corporation (FDIC)
- these companies will offer options, such as the ability for the homeowner to:
- keep their property
- refinance or modify an existing mortgage
- ‘buy more time’ by partnering with them
- repair credit issues
Protect yourself from foreclosure scammers.
The FDIC offers the following tips to help protect yourself from foreclosure fraud:
- Know who you’re dealing with: Before doling out any money or providing your personal information, check out the individual or company with the Better Business Bureau or your state’s consumer protection office to verify their legitimacy and to look for any complaints that may have been filed
- Understand what you are signing before you sign it: the best advice from the FDIC states to “Seek advice from a lawyer or trusted financial counselor. Never sign documents with blank spaces that can be filled in later. Never sign a document that contains errors or false statements, even if someone promises to correct them later.”
- Get everything in writing: generally, an oral promise or an agreement is not legally binding so to be sure to get all the details in writing; this involves a written document or contract signed by the person making said promises
- Always make your mortgage payments directly to your lender or mortgage service provider; never allow anyone else to make your mortgage payments for you
What to do if you’re facing foreclosure.
Contact reputable financial counselors or non-profit housing organizations in your area; if you’re not sure who to contact, check with the Homeownership Preservation Foundation, or the US Department of Housing and Urban Development (many of these services are free of charge). If you’re in a lower income bracket, you may be able to access free legal services through FindLegalHelp.org.
How to report a foreclosure scam.
According to the FDIC, “Homeowners who have been approached by foreclosure scammers should report suspicious activity to the:
- Federal Trade Commission
- your State Attorney General’s Office
- your state and local consumer protection agencies
Reporting con artists and suspicious schemes helps prevent others from becoming victims.” The Federal Investigation Bureau (FBI) also advises that “If you are aware of a foreclosure rescue scheme in your area, you are encouraged to contact your local FBI office and report it.”
Whether we’re providing educational resources on foreclosure scams or how to weather natural disasters, DomiDocs® is committed to simplifying home management by offering functional tools designed to help save you both time and money, including streamlined document organization, real-time market value tracking, and more!
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For more information related to property fraud, read:
Mortgage Fraud & How It Can Affect You
One Simple Step to Protect Yourself from Land, Lot, and Parcel Fraud
Author – Connie Motz