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Don't Become a Victim of These Mortgage Scams

We’re all at risk when it comes to fraud, but these days one group is especially vulnerable: people in danger of losing their homes. MSNBC’s Bob Sullivan reports that foreclosure scams come when ‘foreclosure rescue’ experts descend on victims promising a deal to let them stay in their homes. The homeowner unknowingly agrees to a complicated transaction that gives ownership of the home to the scam artist at a deep discount. In some versions, called ‘lease-back’ scams, the home is rented to the resient with an option to buy it back at a later date. But the rental terms are oppressive and the buyback price can be 50% higher than the sale price. Meanwhile, the con artist takes out a separate loan on the home, draining it of any remaining equity.

The situation has gotten so bad that, in some cities, the state police are getting proactive. Local police in Portland, Ore. now automatically send a letter to homeowners who enter foreclosure warning them that they will be inundated with shady offers of help.

The scams boil down to two types, according to Sullivan: The first is a simple fee-based racket, in which the criminal offers to help the homeowner stave off foreclosure, collects an up-front fee and then disappears. But the more lucrative scheme involves seducing homeowners into complicated transactions that allow the middlemen to steal equity in the home or walk away from the closing table after netting thousands in phony payouts. In either situation, it is paramount that you not pay upfront fees, Sullivan says.

There’s a reason rescue scam firms have generic sounding names like Equity Preservation Incorporation – it makes them hard to search for online and thus harder to do background checks on.

Of course, there is legitimate help you are entitled to if you’re in danger of losing your home. The first step is to talk to your bank. Sullivan says that the worst thing a homeowner in trouble can do is avoid engaging their lender. Many scam artists will insist that homeowners not talk to their banks, which is an easy way to spot a scam. If an aid company insists on secrecy, walk away.

If the bank won’t help, enlist the services of a HUD-certified counselor, which you can find here. Any other service, especially one that solicits you first, should be avoided, Sullivan says.