A foreclosure rescue scheme is a scam that targets those whose house is facing potential foreclosure. The scheme preys on desperate homeowners whose mortgages are in default by offering to prevent the foreclosure.[1][2] There are various ways in which foreclosure rescue schemes work, causing different types of harm to the homeowners, but all ultimately with the likely end result of the owner being forced out of his/her home and losing even more money.
Foreclosure rescue schemes are typically advertised in a variety of informal settings, such as roadside signs.
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Avoid Foreclosure Rescue Scams | Federal Trade Commission
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Beware Foreclosure Rescue Scams
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The financial problems started when I was injured at work. There was no money coming in. I had to figure something out quick. We received our letter of default around christmas-time. There's nothing worse than having the fear that you're about to lose your home. The desperation that goes along with that is very intense for just anyone. We did go out to see if we could find some foreclosure prevention companies, but during the conversation and meeting with them, we found out that the first thing they wanted up front from us was money, before we even filled out the application. There's lots of companies that were offering their services and making a lot of promises to us that they could save our home. I really just didn't feel comfortable with them at all, and I just decided to take another path. There are a lot of companies claiming that they can stop the foreclosure process, or help you modify your loan. You should be extremely cautious of people who make any guarantee, ask for money up front, or tell you to make your mortgage payments to them. I called one of the loan modification specialists. They said they could help. They needed a $500 deposit, and then $3000 after that. They said they had attorneys working on their side. They would talk to the mortgage company. They took my money and they didn't do anything for us at all. We were desperate to save our house, and I guess that's why we believed in them. It was just a scam. All of a sudden on a saturday night, our front doorbell rings. I open the door, and there's this lady on our front step, talking at the top of her voice, saying 'you're going into foreclosure. You're going to lose your home.' Well, I immediately asked her to leave. I then called my servicer, and they didn't know anything about her. Apparently it was a scam. Unfortunately, there are a lot of scam artists out there. Some even look to be affiliated with the government. Their websites have official looking logos and graphics, and their names include words like 'federal'. HOPE NOW connects you with counselors that provide free foreclosure prevention assistance. When I met with the counselor that HOPE NOW connected me with, I was a little suspicious when I first went in there. I noticed that she didn't ask me for any money. I really felt that there was someone finally here that could really help me now. I do believe that HOPE NOW saved my house. If it wasn't for them, I don't know where I would be. We probably wouldn't be sitting here today. Our counselor was so professional, I was impressed. She looked at our entire situation, and helped guide us through the whole process. Everything that she has done was free, no cost to us. Time is of the essence when it comes to the risk of foreclosure. No one can guarantee you can get a loan modification, or that they can stop the foreclosure process. But, if you are in trouble, the first thing to do is contact your mortgage company and get housing counseling. You can do this by contacting the homeowners' hope hotline at 888-995-hope. The sooner you call, the sooner you can get peace of mind. It's very scary knowing you could lose your house. You feel like you're all alone in the world. It's hard to know who you can trust. But you can't let that fear lead you down the wrong path with people who might be out to scam you. There are real people offering real help, and they're at 888-995-hope.
Types of foreclosure rescue schemes
There are several ways foreclosure rescue schemes operate:
Lease-buyback
In a lease-buyback scheme, the owner turns the lease over with an option to buy it back later. The owner is promised to be able to rent the property back, which will be counted toward an eventual buyback. These can be legitimate; however, in a scam they may end in loss of the property or considerable additional cost: the renting prices may be made so high that the original owner cannot afford to continue paying and/or the buyback price may be set far above the fair market value of the property.[3]
Equity stripping
Equity stripping or equity skimming is a variation on lease-buyback and is one of the most common types of foreclosure rescue schemes.[4] In it, the perpetrator assumes ownership of the house while allowing the former owner to continue living there, provided that s/he pay rent to the perpetrator, who is the new owner. The perpetrator often claims this ownership is temporary, and the victim will later reassume ownership of the home once the terms of the loan are renegotiated. But after taking over the deed to the house, the perpetrator cashes out all the equity in the home. The perpetrator also collects money from the victim by charging rent to the victim for living in the house while not owning it.
The final result is eviction from the house with zero equity paired with greater financial loss to the victim. The perpetrator, who then has ownership of the home, will either sell the property or allow it to go into foreclosure.[5]
Consulting service
A firm may offer to act as an agent to renegotiate the terms of a loan with the lender, in return for a fee.[4] The firms are unlikely to have any better negotiation power so the value of the fee may be disproportionate to the service received, the firm may be unable to negotiate any better terms or in the worst cases may not contact the lender.[5] Firms may also encourage the original borrower to avoid any contact with the lender, under the guise that such contact would interfere with their efforts to secure a modification, when in fact it might reveal that the firm has not contacted the lender at all.[6]
When negotiation does take place the firm may put in place a deal to buy the property from the lender, if the equity value of the property has reduced, then this may be at a lower price than the current outstanding debt. Lenders may accept this to guarantee payment now, rather than gamble on future values, ability of the owner to pay etc. In these cases the situation can be similar to the other schemes with the original owner being offered the option to rent the property with a future buy back. As for the other schemes in a scam situation the terms of any tenancy or buy back may also be set to the gross disadvantage of the original owner.
Loan modification scam
In this case a firm will market to you aggressively to help you get a loan modification. These scammers target the homes of older seniors with equity which are the types that servicers usually won't modify. They may help you get a modification for a rental property first in order to win your trust. When they get to the property with equity they will trick you into missing payments, convince you to ignore the notice of default and notice of trustee's sale, and trick you into missing your sale date - all while telling you they are getting you a modification. Meanwhile, they will feed the property to their investors who will be waiting at the foreclosure sale to scoop up your hidden gem.[citation needed]
See also
References
- ^ "The Foreclosure "Rescue" Racket". www.businessweek.com. Archived from the original on 2007-06-17.
- ^ Mullins, Luke (August 7, 2008). "How to Avoid 'Foreclosure Rescue Scams'". U.S. News & World Report.
- ^ "Homeowners warned about foreclosure 'rescue' scams". Seattle Post-Intelligencer. 21 September 2006.
- ^ a b Noelle Knox (2007-11-08). "Con artists circle over homeowners on the edge. 'Foreclosure rescue' scams can rob victims of house and hope". USA Today. p. 1B. Retrieved 2022-08-02.
- ^ a b "Home Foreclosure in Georgia: A Comprehensive Guide". 15 May 2023.
- ^ "Best RRSP Canada". Wednesday, August 19, 2020
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This page was last edited on 25 February 2024, at 23:15