A foreclosure rescue scam is a sort of real estate fraud that targets homeowners about to be foreclosed. These types of scams frequently target homeowners who have fallen behind on their mortgage payments and are desperate to keep their homes from foreclosure.
Foreclosure rescue scams can be carried out in various methods, but the most common include a buyer or investor forcing the homeowner out of the home. Some schemes involve legitimate transactions, while many involve illegal and fraudulent activities, such as charging illegal real estate fees.
Mortgage relief scams, foreclosure rescue schemes, and other titles are also used to describe foreclosure rescue scams.
Methods of Foreclosure Rescue Scam
Foreclosure rescue schemes can use various techniques to force or deceive the property owner out of the residence. These may include:
- Lease-Buyback Agreements: In this arrangement, the investor takes over the lease but guarantees the homeowner that they will be able to rent the property, with the payments going towards a buyback contract. Typically, rent rates become so exorbitant that the original owner cannot reclaim control of the lease. Alternatively, the investor could set the buyback price far too high for the original owner.
- Equity Stripping: Equity stripping or equity skimming occurs when an investor obtains ownership of a residence while allowing the previous owner to continue living there (similar to lease-buyback arrangements). The investor may cash out the remaining equity in the residence over time. They may also collect rent if the prior owner is not present.
- Fees for Negotiating: A firm or an agent may propose to negotiate new loan conditions with a lender in this situation. They will act as a go-between for the borrower in debt and the lender. In truth, the costs are frequently exorbitant for the services provided; in other circumstances, the firm or agent may never contact the lender.
There may be other foreclosure rescue programs, but most follow these formats.
What is a Foreclosure Rescue Scheme?
The most typical foreclosure rescue scam occurs when a homeowner receives a mail solicitation promising short-term finance from a “private investor” willing to pay off a late loan:
- The homeowner is advised to remain in their home and rent it out to the ‘investor.’
- The homeowner is persuaded to transfer the title to the ‘investor’ as collateral. The ‘investor’ pledges that the homeowner can continue to live in the home and repurchase it later or that new funding will be provided. A straw borrower will be involved if the homeowner is promised new finance.
What Becomes of the Homeowner?
The homeowner transfers the property to the straw borrower, relying on the ‘investor’s’ bogus assurances. Outcomes may involve different elements, for instance:
- The entire amount is utilized to repay the defaulted loan.
- The homeowner receives nothing.
- The ‘investor’ takes the money and runs.
- The straw borrower fails to repay the debt.
- The homeowner is evicted and loses the residence as well as all equity.
A foreclosure rescue strategy can take numerous forms. In other schemes, the homeowner is required to transfer the property title to a third party inadvertently. Other schemes assure homeowners that if they transfer the title, they will be able to continue renting the property and repurchase it later.
The property purchaser, commonly referred to as the foreclosure rescue artist, can refinance or sell the property to another party. Sometimes the foreclosure “rescuer” asks the borrower upfront hefty “service fees” and then leaves with the money without providing the promised service.
What are Some of the “Red Flags” of a Foreclosure Rescue Scheme?
Identifying ‘red flags’ on a foreclosure rescue scheme is difficult because most schemes cannot be recognized until they have come full circle. However, some of the most important factors to keep an eye out for include borrowers who are:
- Buying a home as an investment while still renting
- Purchasing many rental properties at the same time
- Buying the house as a primary residence when they already possess a superior-valued home
As states consider and, in some cases, pass legislation to help prevent foreclosure rescue schemes, you can educate yourself about how fraud artists operate and the warning signs of a probable fraudulent trap.
High Fees for Few or No Services at Modification Companies
Loan modification firms guarantee they will save you a lot of money and allow you to keep your home if you get a loan modification.
However, these (and other) foreclosure rescue scammers take advantage of a homeowner’s trust and desperate situation by charging very high fees for services that the homeowner could easily do without assistance, such as sending in documentation to the servicer, charging money for specific services and then not doing anything to earn the fees, or taking steps that harm the homeowner, such as missing deadlines, sending incorrect documentation to the servicer, or failing to return the servicer’s call.
You may not have enough time to reinstate the loan, work out an alternative to foreclosure, sell the home, or locate appropriate aid by the time you realize the company is a fraud.
In virtually all circumstances, requesting a modification directly with the servicer or a HUD-approved housing counselor is preferable. A modification firm cannot accomplish anything you cannot do yourself. You might consider engaging a reputable attorney if the servicer is unhelpful or dual-tracking your application.
Loan Forensics and Securitization Audits
A modification company may try to persuade you to pay for a “forensic loan audit” or a “securitization audit” in order to increase your chances of receiving a modification. Don’t even bother.
What Exactly Is a Forensic Loan Audit?
A loan auditor reportedly checks the documents from when you took out your mortgage to see if the lender complied with the law in a forensic loan audit. If the audit discovers legal problems, you can theoretically use the findings to force the lender to modify.
However, most organizations do this type of audit by having a low-level processor enter your information into a compliance software application, which then generates a very rudimentary report. In most cases, no or minor errors are discovered. The salesman may claim that the results of such an audit will compel the servicer to make a modification, which is rarely the case.
You’d have to mention the legal infractions in response to a foreclosure case or launch your own litigation to have any effect.
What Should I Do to Avoid Foreclosure Rescue Scams?
Working with only certified and licensed providers will help you avoid most foreclosure rescue scams. Furthermore, you should never work with any company or agency that needs payment before providing any service. This form of fee collection is prohibited by federal law.
Foreclosure rescue schemes can result in criminal consequences for those responsible and civil damages for the losses they create. Report any cases of foreclosure fraud or scam to the appropriate authorities.
Do I Need an Attorney to Deal with Foreclosure Rescue Scams?
Scammers specializing in foreclosure rescue frequently operate in the “gray zones” of real estate regulations. They frequently use lawful approaches but are coupled with fraudulent purposes and misrepresentation.
You may need to consult a foreclosure lawyer if you believe you have been the victim of a foreclosure scam. Your attorney can assist you in filing a claim in court and ensuring that your interests are safeguarded.
