According to the FBI, foreclosure rescue fraud has reached pandemic proportions across the United States, in part fueled by the proliferation of get-rich-quick home study courses and seminars taught by so-called real estate gurus.
As an example, of how to spot these foreclosure rescue frauds I am using advice offered by public interest advocacy groups and law enforcement agencies in Colorado.
The two articles reprinted below (#1 and #2) make it VERY CLEAR that you should NEVER deed your home over to an LLC, trust, or the investment vehicle of a stranger you just met through a letter or newspaper ad. Such an act is beyond folly. It is pure stupidity---and in Colorado these days it is almost always illegal.
But, of course, that is precisely what nearly every get-rich-quick real estate course suggests what "investors" try to do. Find some desperate person in foreclosure and GET THE DEED.
The best advice in these articles is that if you are in foreclosure assume you are the target of foreclosure rescue fraud and act accordingly.
Do not accept help offered to you by strangers unless they plan on paying off your defaulted mortgage in full by buying your home and arranging their own financing.
The time to put these creative real estate frauds away is now.
Just look at the havoc and personal destruction they are causing.
Robert J. Abalos, Esq.
As record numbers of homeowners are defaulting on mortgages and are at risk of foreclosure, foreclosure rescue scammers are coming out of the woodwork in droves. These people and companies pretend to help homeowners facing foreclosure, but instead steal homes, equity, and money -- leaving the former homeowner in a more desperate financial state than before.
Don't become the latest victim of these scams. Learn how the scams work, what the scammers are like, and how to protect yourself.
More Foreclosures Bring More "Rescue" Scams
Due to the current credit crunch and less-than-careful lending practices by banks, more people are having trouble paying their mortgage. And because the housing market is in a slump, it's harder for homeowners in financial distress to sell their home (the sale price often doesn't cover the mortgage) or refinance on better terms. The result is a dramatic increase in the number of people facing foreclosure.
Enter the scammers. Foreclosure "rescue" is rampant for some very good reasons:
- There are lots of potential victims.
- It's easy to find victims because the notice of default is public record (the lender must record the notice of default with the county recorder), and nowadays this information is often computerized.
- People are desperate.
- Usually, a lot of money is at stake.
How Do the Scams Work?
The methods scammers use to rip off homeowners are extremely varied. But most of them fit into three broad categories.
1. Sale-Leaseback Scams
In these schemes, foreclosure scammers prey upon the overarching desire of many homeowners -- to stay in their home. The foreclosure scammer tells the victim that the scammer will buy the house so that the mortgage is up to date and the homeowner can rent the home indefinitely and then buy the home back from the scammer. Unfortunately, the rent payments and buyback provisions are usually so onerous that homeowners can never buy the home back.
2. Charging High Fees for Little or No Services
Some foreclosure scammers pretend they are legitimate foreclosure consultants (to learn more about legitimate consultants, see "Protect Yourself: How to Avoid Foreclosure Scams," below) and then exploit the homeowner's trust by:
- charging exorbitant fees for services the homeowner could easily have performed himself
- charging fees for services they never perform, or
- taking steps that hurt the homeowner.
These schemes cause the homeowner to lose much-needed money. Worse, because the homeowner believes the foreclosure "consultant" is handling the situation, the homeowner does nothing during the crucial time period when action must be taken. By the time the homeowner realizes he has been scammed, it is too late to get current on the loan, negotiate with the lender, sell the house, or find effective assistance.
3. Stealing the Home Without the Homeowner's Knowledge
In these schemes, the foreclosure scammer gets the homeowner to unwittingly surrender ownership of the home. Often, the foreclosure consultant promises that he will bring the mortgage up to date and allow the homeowner to stay in the home, setting up a payment plan for the homeowner to pay him back. The victim doesn't realize that the home has actually been sold to the scammer (usually at a ridiculously low price) and ends up paying extremely high rent to stay in the home.
Sometimes, the homeowner believes she is merely signing new loan documents to bring the mortgage current, but instead is signing title over to the scammer. Or the scammer may simply forge the homeowners' signature on documents.
Profile of a Scammer: What to Look For
The people and companies that prey upon homeowners in foreclosure use many tactics to gain the homeowner's trust. Here are some examples:
- The scammer contacts you by telephone, mail, or even knocks on your door (legitimate foreclosure consultants don't seek you out, you must go to them).
- The scammer is smooth-talking and preys upon your desperation.
- He provides little or no information about the foreclosure process.
- Many scammers claim government affiliation.
- They often use "affinity marketing" -- Spanish-speakers marketing to Spanish-speakers, Christians to Christians, senior citizens to senior citizens, and so on.
- Some offer "testimonials" from other customers.
- They claim the process will be quick and easy (dealing with foreclosure is never quick and easy) and use messages such as: "Stop foreclosure with just one phone call" or "I'd like to $ buy $ your house" or "Do you need instant debt relief and CASH?"
- They tell the homeowner to cease all contact with the mortgage lender.
Protect Yourself: How to Avoid Foreclosure Scams
If you are having financial troubles, believe you may lose your home, or are in foreclosure, here's how you can make sure that you do not become a victim of a foreclosure scam.
Stay in touch with your mortgage lender. Contrary to what a foreclosure scammer will tell you, you should contact your lender the minute you have trouble paying. Often, you can refinance or restructure the loan. Keep contacting your lender during the mortgage workout or foreclosure process.
Get full information about the foreclosure process. Your best offense in saving your home, and your best defense in preventing scams, is to learn about and understand the foreclosure process. Get full information about the process in your state, understand all deadlines for responding to documents from the court and lenders, and be sure you know at which point in the process you can lose the legal right to own your home.
Seek help from a legitimate foreclosure counseling agency. Get help from a HUD-approved Housing Counseling Agency (see HUD's website at www.nfcc.org).
Check state laws governing foreclosure consultants. Many states have laws that specify what foreclosure consultants can and cannot do, what must be included in the contract for services, and require the consultant to provide the homeowner with a three- or five-day right to cancel the contract (meaning if you change your mind within a few days, you can get out of the deal). If a foreclosure consultant hasn't complied with your state's laws governing foreclosure consultants, go elsewhere -- it's a red flag that the consultant is either incompetent or not above-board. (On the flip side, just because a consultant complies with all of these laws doesn't mean he's not a scammer.)
Never make a verbal agreement. Always get everything in writing.
Read and understand everything before signing any document. Have a lawyer, financial professional, or trusted friend or relative review the documents too. This is especially true if you are transferring title to your home to someone. Never sign a blank page or a document with blank lines.
Use your own translator. If you don't speak English, use your own translator. Don't rely on the translator provided by the company or organization helping you.
What to Do If You Think You've Been Scammed
If you think you've been scammed by someone before or during the foreclosure of your home, get help immediately. You may still have time to save your home. Or, you may be able to sue the scammer to recover your home or some of your lost money. Contact a lawyer, a HUD-approved Housing Counseling Agency, or a counselor certified by the National Foundation for Credit Counseling (contact information is listed above.)
Be sure to report suspected fraud to local and state authorities. Authorities may be able to help in your individual case. And even if they can't help you, your complaint may lead to a criminal investigation (especially if others have complained against the same scammer).To report possible fraud, contact your state attorney general's office, the state district attorney, the Better Business Bureau (.
For more information on the foreclosure process, obtaining reputable credit counseling services, and pulling yourself out of debt, read Solve Your Money Troubles: Get Debt Collectors Off Your Back & Regain Financial Freedom, by Robin Leonard, J.D., and attorney John Lamb (Nolo).*************************************************************************************
Foreclosure "Rescue" Scams and Other Sharks
General Rule. If your home is in foreclosure, you will almost certainly be the target of one or more foreclosure “rescue” scams. The sole purpose is to steal the equity in your home, and almost always leave you with worse credit. Get help from an attorney before you do anything with a foreclosure consultant or other shark. Never deed your home to a trust, LLC, or middle man. New laws in Colorado now generally prohibit this.
Fraud Warning - foreclosure “rescue” scams target those who have fallen behind in their mortgage payments. A con artist promises to help save the home - but he is really intent on stealing the equity in the home.
If the Notice of Election and Demand has been recorded with the county clerk, you will now likely offers of “help” from different strangers. Most of these offers will end up taking your equity and leaving you with nothing but big bills. Often your credit is worse.
How Foreclosure “Rescue” Scams Work
1. Phantom Help. Where the “rescuer” charges outrageous fees either for light-duty phone calls and paperwork or makes a promise of additional representation that never happens.
Generally the you will be left without assistance to save your home and little or no enough time to get competent help by the time you find out what the con artist is doing. In other words, the clock is run out to the point where you have no viable options to keep your home.
2. The False Bailout. Here you surrender time to your home under different schemes where you are supposed to have the right to get your home back. Most often the sale/lease-back scheme is used where you have the right to rent the home and then buy it back later. But almost always you are never able to get the home back, and the rescuer takes all of your equity and your home. Sometimes you are asked to deed your property to a trust, LLC, or middle man. Don't do it.
3. Bait-and-Switch. Here you do not know that you are transferring the ownership of your home by deeding it to the rescuer. In most cases, you are led to believe that you are signing new loan documents. But instead, you are giving your home to the rescuer. Sometimes the deed is forged.
Ways You Can Avoid a Foreclosure Rescue Scam:
Look for the following instances of fraud where you will lose your equity:
1. An offer of a quick “buyout” or “cash for your home.”
2. Sale and lease-back offers - a plan in which your are encouraged to sell the home for much less than its value, but with an offer to rent it back until you can buy it again.
3. Promises to “cure” your default or “repair your credit.”
4. Claims of foreclosure solutions, a plan to stop your foreclosure.
5. Offers to cure the default with a 2nd mortgage with a high interest rate and payment terms which you almost certainly cannot meet, thus virtually assuring the loss of your equity and your home.
6. A request to falsify loan documents or other documents to misrepresent the value of the home or employment income to qualify for a loan. When you have no real ability to repay the loan.
What to Do
1. Don’t sign any documents until you have had an attorney review them - it is generally now illegal in Colorado for them to deed your propety to a trust, LLC, or a middle man.
2. Understand that any deed means that you are selling your home - don't sign any deed unless you are doing it at a title company.
3. Essentially all lease-back plans are plans to steal your home equity.
Get legal help from a competent attorney before you do anything with a Foreclosure Rescue consultant.
Legal Challenges to Foreclosure Rescue Scams
You may have a number of options if you have been victimized by a foreclosure scam.
1. Colorado has a new law which regulates how foreclosure consultants may operate. Although attorneys are generally exempt, as well as certain activities of real estate brokers and mortgage brokers. Colorado prohibits the collection of any fees by a foreclosure consultant until after the services have been provided. You may be able to get a refund of money collected in advance.
2. Colorado Unfair and Deceptive Trade Practices Act prohibits abusive and unfair practices and misrepresentations. Successful lawsuits may entitle you to 3 times damages and attorney fees.
3. Truth in Lending Act (TILA) A sale/lease-back plan may be a thinly disguised loan, such to Truth in Lending recision rights. TILA provides the right to rescind a non-purchase money (refinance) loan if the loan was not used to purchase the home. This includes first or second mortgages. You may have up to 3 years to rescind based on a TILA violation.
4. Fraud and conspiracy laws. And unconscionability, breach of fiduciary duty, and contract legal claims.
5. Home Improvement Fraud. Loans secured by a deed of trust where the proceeds are used to pay a home improvement contractor and the contractor ripped you off or did shoddy work, may be cancelled.