Foreclosure Fraud

By Vicky Katz Whitaker

March 21, 2008 6 min read

FORECLOSURE FRAUD

Scams target vulnerable homeowners, offer false hope

By Vicky Katz Whitaker

Copley News Service

Your mortgage payment is overdue - really overdue. You think nobody knows it, but you're wrong. Scam operators, calling themselves "foreclosure rescue consultants," are about to knock on your door, contact you by phone or inundate you with advertisements for their services.

If you take the bait, it could cost you a lot more than your home, legal and home mortgage experts warn.

Information about property in foreclosure or pre-foreclosure (where a homeowner falls behind in mortgage payments) is a matter of public record. Once difficult and time-consuming to compile and access, foreclosure and pre-foreclosure lists are now available online. Packaging such information has become a big business for data gatherers like www.propertyshark.com and www.realtytrac.com that for a fee, can supply detailed foreclosure and pre-foreclosure data to anyone willing to pay for it.

While these services are of great value to individuals, institutions and industries with a legitimate need for the information, it has also made it easy for scam artists to target homeowners about to lose their homes.

There are several types of foreclosure "rescue" scams, says the nonprofit Boston-based National Consumer Law Center, which developed a consumer guide on the subject, "Dreams Foreclosed: The Rampant Theft of Americans' Homes Through Equity Stopping Foreclosure 'Rescue' Scams." The most common are:

- Phantom help: In exchange for a high fee that must be paid in advance, the "rescuer" makes a few perfunctory telephone calls and fills out paperwork that homeowners could have done themselves. Instead of vigorously working on behalf of the client, the scammer "essentially abandons the homeowner to a fate that might well have been prevented with better intervention," the NCLC says.

- Bailout: Homeowners transfer title to their house to the "rescuer" after being assured that they can continue to live in their home, paying rent until they can buy it back in a few years. "Homeowners are sometimes told that surrendering title is necessary so that someone with a better credit rating can secure new financing to prevent the loss of the home. But the terms of these deals are almost invariably so onerous that the buyback becomes impossible," the NCLC says.

- Bait and switch: Targeting homeowners in pre-foreclosure, the "rescuer" offers to get them a new loan to make their mortgage current. Stressed-out homeowners believe they're putting their signatures on a loan document, more often than not, one with blank sections that can be altered later to make it appear that the scammer now owns the home.

NCLC staff attorney Elizabeth Renuart, the guide's co-author, contends that all foreclosure rescue services are scams and, from the homeowner's perspective, are "doomed to fail from the start." The scam artists, she says, "aggressively go after homeowners who are experiencing the worst financial period in their lives." Legitimate real estate investors, by comparison, wait for a court-ordered sale to acquire foreclosed property.

Some 15 states now have laws in place to protect homeowners from foreclosure scams, some more effective than others, she says. Several more states are weighing foreclosure scam legislation. The NCLC study is available online at www.consumerlaw.org.

Why do people fall for these ruses?

"A scam by its nature disguises its intent," NCLC says. People facing foreclosure are vulnerable to pressure tactics, especially if they lack financial savvy or are desperate to obtain cash. The scammers exploit the homeowner's trusting nature by making sympathetic-sounding sales pitches and then ply them with piles of documents to sign, some with blank sections that later can be altered. In addition, the scam victims are directed to end contact with lawyers or the mortgage lender so that the "rescuer" can handle all negotiations.

The best way to prevent yourself from being victimized by a foreclosure scam is to do your homework. That's the gist of advice from real estate investor Jim Vinson, whose Web site, www.all-foreclosure.com, takes a comprehensive look at all aspects of the foreclosure process and provides details on how foreclosure rescue scams work. His advice? "Think twice before embarking on a plan and think very long and hard before signing anything."

If you're headed into foreclosure, you can avoid becoming a scam victim by:

- Learning more about the foreclosure process, including deadlines for responding to documents from the court and lenders.

- Fending off high-pressure tactics designed to make you immediately sign a contract or hand the "rescuer" a quitclaim deed to your home. Talk to your lawyer first.

- Paying the lender directly even if the scammer promises to pass payments along to the bank or mortgage company.

? Copley News Service

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