For the past two years, real estate, mortgages and foreclosures have dominated the news. During the first half of the decade, new, and often risky, loan products put more people than ever before into homes. According to the U.S. Census Bureau, the home ownership rate in America grew to 69.2% by the beginning of 2005, the highest in history. However, these new loan products carried a dark side. Lenders were approving loans to borrowers with riskier credit histories than in the past. And borrowers were taking advantage of record low interest rates, adjustable rate loans and lower underwriting standards to qualify for higher amounts than in years past – in many cases more than they could repay when introductory rates reset. Now foreclosures – the process banks take to reclaim money they’ve loaned by reacquiring a house – are higher than ever. RealtyTrac reported that more than 272,000 homes entered into foreclosure filings in July 2008, an increase of 55 percent from the previous year. People stuck in foreclosure are often vulnerable and desperate to keep their home. Con artists are increasingly targeting homeowners facing foreclosure with promises to help erase the debt and keep the home. In reality, they only wish to steal your money, ruin your credit and wipe out your home equity.
Types of Debt Elimination Fraud
Debt elimination fraud – as most of these foreclosure scams are known – take on several guises, but they all share one goal – to separate you from your money or home.
The most common debt elimination fraud scheme is for phony “foreclosure counselors” to offer help in fighting the foreclosure in exchange for outrageous fees. They claim to know the public notary procedures needed to fight a foreclosure, but in reality, these con artists are making phone calls and filing paperwork that the homeowner could do for free. In addition, none of these actions will save the home, leaving the victim with a false sense of security and still in danger of losing their home.
A related scam to foreclosure counselors are credit counselors who promise, for a fee, quick fixes to a homeowner’s credit rating. The promise is that homeowners will be able to refinance into a lower payment once their credit is higher. Unfortunately, just like the foreclosure counselor, the victim is paying a con artist high fees to do paperwork that could be done on their own.
Another common money scam is to offer a “lease/buyback.” In a lease/buyback the con artist convinces the homeowner to sign over the deed for the home, promising to pay the bank back on the loan. In reality, the con artist will never make a payment on the home or find a reason to evict the victim and keeping the equity in the home.
An even more frightening mortgage fraud is the bait-and-switch scam. Con artists claim to be filing paperwork that will bring the mortgage current, but instead the victim is signing over the deed to the house. Instead of eliminating the foreclosure, the victim is now evicted from the home they no longer own.
Red Flags for Debt Elimination Scams
While money scams come under different guises, there are some common red flags to watch for. If you are facing foreclosure and experience any of these warning signs, run as fast as you can from the con artist promising help.
The first warning sign is an offer of foreclosure rescue that is unsolicited. If someone approaches you – by phone, email, or in person – be wary. Since lenders have to publish foreclosure notices, it is very easy for scammers to locate potential victims. Do not trust anyone who claims they can stop foreclosure for a fee. Instead of trusting the stranger who calls, work instead with your lender or bank directly.
Con artists also thrive on victims willing to pay money upfront. Never pay mortgage money to anyone except the bank or lender who services your mortgage.
Never sign documents with blank spaces or with false information. Legally, anything you sign can be upheld, and blank spaces allow con artists to revise the document to their profit. “Mistakes” or false information should be changed in writing before signing anything.
Another warning sign is any deal that is overly complicated or that you do not understand. If the terms of a “deal” are vague or confusing, take the time to have a trusted financial advisor or lawyer review the documents and explain them in clear terms.
Finally, do not believe anyone who promises an overnight fix. Credit scores and financial mistakes take time to repair, and no amount of money can make a credit core shoot up. Likewise, if you are behind on mortgage payments, only the lender can make concessions to past debt. Foreclosure is a scary thing to face. If you find yourself facing the prospect of losing your home, beware con artists selling an easy fix. Instead, contact your lender immediately. All the bank wants is to be repaid money they’ve loaned. They would rather work with you on new payment terms than take on another empty house they can’t sell.