Foreclosure occurs when a homeowner is unable to continue to make their monthly mortgage payments, and is evicted from the home by the mortgage lender. A mortgage lender has the authority to do so, as the buyer of the home signed a contract stating as much. The house serves as a form of collateral, which is typically stipulated in that contract.
Some lenders do allow for a grace period in which payments may be made before foreclosure proceedings can begin, although it generally only lasts for a couple of months before the property is foreclosed upon.
In terms of foreclosure, there are several ways in which a person may defraud homeowners. Surges in foreclosures due to hard economic conditions provide criminals with another opportunity to make a quick profit at the expense of vulnerable homeowners who are desperate to avoid losing their home. Especially when a housing bubble bursts, predators will be actively looking for homeowners facing foreclosure, and try to lure them in with promises of escaping their debt. Foreclosure fraud is a particularly sinister example of white collar crime.
If your home is in danger of foreclosure, it is imperative that you are vigilant for anyone trying to sell you on a solution that gives them power over the ownership of your home, and/or your mortgage debt. You should also be extremely cautious when signing any written agreements regarding the home. If it is later determined that you had any knowledge of the fraudulent activity, it can actually lead to legal repercussions for you.
What Are Some Common Methods of Foreclosure Fraud?
The most common type of foreclosure fraud occurs when the scammer promises to stop the foreclosure for a fee, while simply pocketing the payment and doing nothing. Another form of foreclosure fraud occurs when a scammer promises to pay off the mortgage while allowing the homeowner to stay in the property as a renter. They provide the renter with the option to purchase the home back later.
However, as part of the deal, the homeowner is required to deed the property to a new borrower that is “investing” in the property. This “investor” is actually part of the scam and strips the home of its equity, and both parties disappear. The homeowner is now merely a renter in a house they no longer own, and will eventually be evicted.
There are many other ways to defraud homeowners facing foreclosure, though commonly involves the mortgage on the home. Below are some further examples of the most common methods of foreclosure fraud:
- Hidden Balloon Payments: A person offers a new mortgage repayment plan to the homeowner facing foreclosure. They offer to refinance the mortgage for the homeowner, with lower payments that the homeowner can better afford. While the homeowner believes they are paying lower amounts in mortgage payments each month, they are actually only paying the interest on the mortgage with each payment. 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 that the homeowner cannot afford to pay this large sum. They are once again vulnerable to foreclosure proceedings. Language regarding these types of financing schemes could be tucked within the written financing agreement;
- Obtaining a Deed through False Claims: This scheme is similar to a previously discussed scenario. Someone pretends to be a money lender while simply preying upon homeowners facing foreclosure. They do this by offering to help them avoid foreclosure by assisting them in refinancing, but tell the homeowner that the deed must be transferred to them in order for them to help. Once the false lender has the deed, they disappear and provide no assistance to the homeowner; and, the “lender” now has possession of the home, and may do with it what they wish. This could include evicting the former homeowner;
- Forged or Altered Documents: A foreclosure predator could simply sign documents in the homeowner’s name, rather than persuade them to sign the house over to them. Alternatively, they may have a homeowner sign documents before altering the documents to suit their scheme; and/or
- False Counseling Services: A person or group of people may claim 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, free of charge.
What Can I Do to Protect Myself from Foreclosure Fraud?
Protecting yourself from foreclosure fraud begins with openly communicating with your lender at the first sign of trouble. Your lender may be able to work out a deal with you, or provide you with legitimate resources. If you are facing foreclosure, be vigilant. If a deal seems like it is too good to be true, it probably is.
Be cautious in who you trust, especially if someone is offering to alleviate any or all of your mortgage debt. Understand the mortgage and foreclosure process, and only work with trustworthy professionals and companies. If you are unfamiliar with the person or business that is offering help, do some research and read all documents before you sign them.
Some additional steps to protecting yourself from foreclosure fraud could include remembering that you alone are responsible for your mortgage, meaning, you cannot relieve yourself of this debt by simply signing it over to someone else (especially someone you do not know). And, remember that you do not have to transfer ownership of your home in order to refinance it.
Mortgage and/or foreclosure fraud is also a criminal offense. Since this particular crime can involve other crimes at both the state and federal level, the potential penalties for foreclosure fraud charges can vary. Generally speaking, penalties can vary depending on whether charges are pursued by federal prosecutors or state district attorneys. Mortgage and/or foreclosure fraud cases can be prosecuted either as felonies or misdemeanors. Most cases involve felony charges, but misdemeanors are possible where small amounts of money are involved (usually less than $2000).
Do I Need a Lawyer for Issues with Foreclosure Fraud?
A foreclosure fraud attorney may prove invaluable if you are facing the foreclosure process. An attorney can review all documents before you sign them, in order to ascertain their legality and protect your rights.
You should consult with a skilled and knowledgeable real estate lawyer if you have already been victim to foreclosure fraud, as the attorney may be able to help you recover losses you have sustained. An experienced real estate lawyer can also represent you in court, as needed.