There are numerous ways to defraud homeowners when it comes to foreclosure. Homeowners whose mortgage debts have spiraled out of control and who are facing losing their homes are vulnerable to such schemes. Particularly in the wake of a housing bubble bursting, predators will be on the lookout for homeowners facing foreclosure, and try to lure them in with promises of escaping their debt, only to make the situation worse.
If your home is in danger of foreclosure, watch out for anyone you don’t know who tries to sell you on a solution that gives them power over the ownership of your home or your mortgage debt. You should also be extremely cautious when it comes to signing any written agreements regarding the home. If you are found to have had any knowledge of the fraudulent activity, it can lead to legal repercussions for you, further worsening your financial woes.
There are many ways to defraud homeowners facing foreclosure. Typically, though, the fraud has something to do with the mortgage on the home. Below are some of the most common methods of foreclosure fraud:
- Foreclosure Bailout Schemes or “Equity Skimming”: In this scheme, a person approaches the homeowner with an offer to buy their home, which is in danger of being foreclosed on. They do so with the understanding that they will pay the mortgage off. Meanwhile, the homeowner becomes a renter in their own home, paying rent to the buyer.
- Of course, the buyer does nothing they’ve promised, and the home is foreclosed on anyway. The homeowner loses their home, and their so-called buyer makes off with the rent payments.
- Hidden Balloon Payments: In this scheme, a person offers a homeowner facing foreclosure a new mortgage repayment plan. In other words. they offer to refinance the mortgage for the homeowner, with lower payments the homeowner can better afford. Although the homeowner is relieved to be paying lower amounts in mortgage payments each month, unbeknownst to them, they are actually only paying the interest on the mortgage with each payment.
- The result of this is that at the end of the scheme, having paid only the interest on their home loan each month, the homeowner is now responsible for repaying the remaining principle of the loan all at once. This is the “balloon payment,” and it is very likely to be a whopping sum that the homeowner cannot afford to pay, since they were unable to make their regular monthly payments in the first place. They are then subject once again to foreclosure.
- Language regarding these types of financing schemes may be hidden deep within the written financing agreement. So once again, it is very important to read any contracts before signing them.
- Obtaining a Deed through False Claims: In this scheme, a person pretending to be a money lender simply preys upon homeowners facing foreclosure by offering to help them get out of foreclosure by helping them to refinance. They tell the homeowner that the deed must be transferred to them in order for them to help. Once the false lender has the deed, of course, they disappear and provide no assistance to the homeowner. The “lender” now has possession of the home and may do with it what they wish.
- Forged or Altered Documents: A foreclosure predator may simply sign documents in the homeowner’s name, rather than try to persuade them to sign the house over. Or, they may have a homeowner sign documents, them alter them.
- False Counseling Services: In some cases, a person or group of people may profess to be mortgage counselors or consultants, and charge fees for their services to homeowners facing foreclosure. The homeowner may not realize that they are being charged for information that they can get elsewhere without paying for it.
There are some things you can do to avoid being taken advantage of in a foreclosure fraud scheme:
- Remember that you are responsible for your mortgage, and you cannot relieve yourself of this debt simply by signing it over to someone you don’t know.
- You do not have to transfer ownership of your home in order to refinance it.
- You must be cautious of anyone who offers to help you with your foreclosure situation. Strangers who approach you unsolicited during this time are likely to be fraud schemers.
- Do your best to understand how foreclosure and mortgages and operate. The more knowledge you have, the harder it will be for someone to take advantage of you.
- Work with people you know and trust, and research anyone who offers to help you but does not fit those criteria.
- Be extremely careful before signing any documents. An attorney can help you review documents if you are unsure.
If you have already experienced foreclosure fraud, you should consult with a real estate lawyer. The lawyer may be able to help you with any losses you have sustained, or to pursue your defrauder for damages.