If you've fallen behind on your mortgage payments and are at risk of losing your home, you may be tempted by advertisements that promise to help you avoid foreclosure. Unfortunately, many of these so-called "foreclosure-rescue" businesses are not legitimate. They make money by preying on people who are at their most vulnerable. You can steer clear of these scam artists by becoming familiar with their tactics and by learning to recognize some typical warning signs.
Identifying foreclosure rescue scams
Firms that promise to help homeowners avoid foreclosure find potential victims by searching through public foreclosure notices in newspapers, on the Internet and through local files at government offices. They send personalized letters to homeowners or slip their business cards underneath their doors. It's also common for them to advertise on the Internet, television, and newspapers and even on posters and flyers. They promise to stop foreclosures and use wording like, "We have special relationships with many banks that can speed up case approvals," and "We can save your home. Free consultation!" Once they've made contact, the scammers will try one or more of the following tactics to get your money:
- Asking for a fee up front. The scammer promises to negotiate a deal with your lender to save your house, if you pay a fee first. The scammer then disappears with your money. Sometimes the scammer will pocket your money and file a bankruptcy case on your behalf. The bankruptcy stalls the foreclosure, but doesn't stop it and you're left to deal with a bankruptcy, which is expensive, complicated and devastating to your credit.
- Instructing you to divert mortgage payments to him or her. The scammer tells you to make payments out to him or her during the supposed negotiations with your lender. After a few months, the scammer disappears with your money.
- Tricking you into surrendering the title to your home. The scammer gives you documents to sign, telling you they will bring you up-to-date on your existing loan and issue you a new one. But the documents actually surrender the title to your property in exchange for a rescue loan.
- Offering you a "rent-to-buy" deal. The scammer tells you to surrender the title to your home in exchange for staying in your home as a renter. You're told you can buy your home back over time. But the terms of the deal are so burdensome that you can't buy back your home and the scammer retains all or most of your home's equity. Sometimes the scammer will raise your rent over time so you can no longer afford to live there. You're evicted and the scammer is free to sell the home.
- Offering to sell your home for you. The scammer offers to find a buyer for your home and pay you a portion of the profits if you sign over the deed and move out. Once you transfer the deed, the scammer rents the house instead of selling it and keeps the rent money instead of using it to pay the mortgage. Your lender forecloses on the property. In the end, you lose the home and you're still responsible for the unpaid mortgage.
Forensic loan audit scams
People or businesses that promise to review your mortgage loan documents to find errors call themselves forensic loan auditors, mortgage loan auditors, or foreclosure prevention auditors. Typically, they charge an up-front fee of several hundred dollars and promise to look for loopholes in your loan documents to help you avoid foreclosure.
The problem with these services is that lenders aren't required to make changes to a loan because of errors in the loan documents. If you cancel your loan, you'll not only lose your home, you'll have to return the money you borrowed from the lender.
If a business or person does any of the following, chances are it's a scam:
- Guarantees to stop your foreclosure. Avoid any business that guarantees to stop the foreclosure process, no matter what your circumstances. Nobody can make that promise.
- Instructs you not to contact your lender, your lawyer or your credit housing counselor. The scammer promises to handle all of the details, preventing you from getting advice from trusted sources.
- Offers to buy your house. If they offer to buy your house at a fixed price that's not set by the housing market at the time of the sale, be very suspicious.
- Offers to fill out the paperwork for you. Also, watch out for businesses that pressure you to sign paperwork you haven't had a chance to read through thoroughly or that you don't understand.
If you have experienced an unresolved issue with a company about a financial product or service, submit a complaint on the Consumer Complaint Database at the Consumer Financial Protection Bureau.
Steps to take if you're at risk of foreclosure
If you've fallen behind on your mortgage payments and have received a foreclosure notice, contact your lender immediately. Ask about the following options:
- Reinstatement. This is an option if your financial problems are temporary. With a reinstatement, you pay the loan servicer the entire past-due amount plus any late fees and penalties by a date you both agree to.
- Negotiating a repayment plan. If you've missed a small number of payments, speak with your lender about allowing you to pay off the amount you owe by adding it to future mortgage payments.
- Forbearance. You and the loan servicer agree to reduce or suspend your mortgage payments for a specified amount of time. When that period is over, you resume your regular payments and pay back the portion that was suspended in either a lump sum or over time. Forbearance may be an option if your income is reduced temporarily; for instance, if your income was reduced because of a deployment.
- Loan modification. You and your loan servicer agree to permanently change one or more of the terms of your mortgage contract to make your payments more manageable for you. Modification may include reducing the interest rate, extending the term of the loan, or adding missed payments to the loan balance. A modification may also involve reducing the amount of money you owe on your primary residence by forgiving or canceling a portion of the mortgage debt. Be aware of the tax implications of a loan modification.
Be sure to contact your installation's legal office to learn whether you are eligible for protections under the Service Members Civil Relief Act. Find the nearest military legal assistance office by using the Legal Assistance locator.
To learn more about how to avoid foreclosure scams, listen to the podcasts Foreclosure Rescue Scams and Foreclosure Rescue Scams: Red Flags and Real Help.
For assistance in taking positive steps to avoid foreclosure, contact the Homeowner Preservation Foundation at 888- 995-HOPE (888-995-4673). And if you've been a victim of fraud, contact the Federal Trade Commission. You can file a complaint online. You can also find the publication, When Paying the Mortgage is a Struggle.