We are seeing an increase in the number of people with questions about foreclosures, short sales, and loan modifications.  This is a complex issue, and a very personal one for those facing the possibility of losing their home. 

There are credit consequences to a foreclosure; however, this article is about the growing number of scams and unscrupulous companies trying to make some money by taking advantage of the fear and confusion about foreclosure.

Last week National Public Radio talked about this topic and gave updates on the government crackdown of phony foreclosure rescue schemes.  They warned that many of these scams request money up front which is often an indicator that something is not legitimate and is actually illegal in several states.

TYPES OF SCAMS

Phony Counseling

The consumer is told that the company, for a fee, can negotiate a deal with the lender to save the house.  The consumer is usually told not to contact the lender, their lawyer or a credit counselor. Sometimes, they require the homeowner to make mortgage payments directly to them during the lender negotiations. 

Bait and Switch 

The homeowner thinks they are signing documents for a new loan to make the existing mortgage current.  In reality, the signed documents surrender title of the house to the scam artist. 

Rent-to-Buy Scheme

The homeowner is told to give up the title as part of the deal to remain in the home as a renter and buy it back in a few years.  People are often told that surrendering the title permits a borrower with a better credit rating to get a loan to prevent foreclosure of the home.  This can be a double disaster as the scam artist takes most of the home’s equity and when the new borrower defaults on the loan, the original homeowner-turned-renter is evicted.

Bankruptcy Foreclosure

The scam artist promises lender negotiation or a loan refinance for an upfront fee.  They take the homeowner's money and file a bankruptcy case in the homeowner's name, often without telling them.  Even though a bankruptcy (BK) filing can temporarily stop the foreclosure process, this can be disastrous to the owner financially, they can still lose the home and their credit will be severely impacted with the BK filing.

WATCH FOR THESE MESSAGES

"Stop Foreclosure Now!"
"We Can Save Your Home. Guaranteed.  Free Consultation."
"We have special relationships within many banks that can speed up case approvals.”           

OTHER RED FLAGS TO AVOID

- A business that guarantees to stop the foreclosure process no matter what.
– Instructions for NO contact with your lender, lawyer or housing counselor.
– A business that only accepts payment by cashier's check or wire transfer.
– Instructions to make all mortgage payments directly to them instead of your mortgage company.
– Anyone that offers to fill out your paperwork for you. 

Some companies are even telling people "I promise you, you're not going to lose your house" and "Don't call your lender, they are just going to lie to you".    They know people are worried and unsure about what to do, and they have a knack for saying enough of the right things to get what they want. 

Many homeowners end up spending countless hours on the phone trying to get back to the person who told them these things, looking for the paperwork or documents they were promised, wondering what the next step is because they are still getting notices from their lender.  Meanwhile, the foreclosure clock is ticking and precious time goes by with no results to help them keep their home.

WHAT TO DO
 

The Federal Trade Commission provides more details about these scams, what to look for and avoid, along with where to get more information.  If you are considering using one of these companies, contact the Better Business Bureau before paying for any services.  Request a written agreement that you can read before signing to see exactly what they are going to do, what the time frame is to accomplish it in, and what their refund policy looks like.

Check with your lender first.  They are the direct line to stopping or slowing the foreclosure process.  Keep in mind that the lending industry in still changing and will be for some time.  There are new programs announced and publicized in the media, but the guidelines and processes for those programs are not always completely in place in each lending company right away. 

Protect yourself by writing EVERYTHING down: who you talked to, their employee number, the date and time, what they are doing, what you are supposed to do.  Ask for written confirmation to have an additional  record of what you were told.  You can also write down your understanding of the conversation and agreements and send it to them as a written record.

If you believe you have been the victim of a foreclosure or loan scam, report it to the Better Business Bureau, the Federal Trade Commission and your State Attorney General's office.  You may also want to contact your federal congressional representatives to make them aware of the situation.