There are many scams and fraud schemes related to foreclosure and mortgage debt. With the recent real estate crises, many people are trying to take advantage of homeowners or renters who are in difficult financial situations. Remember, if a solution to foreclosure sounds too good to be true, it usually is.
Beware of any individuals who attempt to force you into a mortgage agreement, especially those who are you not familiar with. Knowingly participating in foreclosure fraud can lead to legal consequences and may result in significant financial losses.
How Do Foreclosure Fraud Schemes Work?
Foreclosure fraud can come in many forms, but most of them involve some sort of mortgage fraud. Some of the foreclosure fraud schemes that have been attempted include the following:
Foreclosure Bailout Schemes or “Equity Skimming”: This is where a person poses as a “buyer” and approaches a homeowner who needs help with mortgage payment. The “buyer” offers to rescue the home which is facing foreclosure. They may promise to pay off the mortgage or pay a sum of money if the property is sold. Then, they will ask the owner to transfer the deed and move out so they can rent the property out.
However, in the end, the “buyer” never makes mortgage payments and allows the home to be foreclosed. This may result in further losses or complete foreclosure, since transferring a deed does not necessarily erase the mortgage debt.
“Hidden Balloon Payments”: In this type of foreclosure fraud, a lender will offer to save the homeowner from foreclosure by offering a discounted mortgage refinancing plan. The plan may involve lower monthly payments, but this is because the homeowner is only paying the interest for each month. Upon the end of the monthly payments, they will be required to pay back the entire loan amount in one lump sum payment, called a “balloon payment”.
Oftentimes a homeowner cannot afford the entire balloon payment, and will face foreclosure. The balloon payment language may be embedded within the refinancing contract, so be sure to review any refinancing plans carefully.
Obtaining a Deed through False Claims: This is where a fake “lender” offers to help with mortgage difficulties through refinancing. They may falsely state that it is necessary to transfer the deed to them, claiming that it is a necessary to obtain new financing or to prevent foreclosure. However, after the deed is transferred, the supposed refinancing is never delivered. The fraudster may then begin using the property as their own asset.
Other methods for obtaining deeds are for the fraudster to use fake documents or to forge a signature. You may wish to consult with a lawyer before signing any documents so that they can review the documents and verify that they authentic.
False Counseling Services: Some persons or groups may falsely advertise themselves as “mortgage consultants” or “counseling agencies.” They will then charge fees for advice that could be obtained for free elsewhere. Or, they may charge for services that can easily be performed by the homeowner.
What Can I Do to Protect Myself from Foreclosure Fraud?
The following tips can help you avoid being a victim of foreclosure fraud:
- Remember that signing over a deed to a different person does not automatically relieve you of any mortgage payments or outstanding debt
- Likewise, it is not always necessary to sign over the deed to your home in order to obtain new financing
- Be wary of any person who approaches you offering to relieve you of mortgage debt. Also be wary of strangers who seem to have extensive background knowledge of your mortgage situation
- Do your own research so that you understand the basics of foreclosure and mortgage payments. You may also be able to save money on fees for consulting or advice if you already know the information
- Try to conduct business with persons whom you are familiar with or have worked with in the past. Always do a thorough background check on persons claiming to be professionals
- Double check and read the fine print before agreeing to sign any documents. You may wish to have a lawyer review documents before signing
Do I Need a Lawyer for Issues with Foreclosure Fraud?
If you have been the victim of foreclosure fraud, you should contact a real estate lawyer for advice. Your attorney may be able to help you recover losses or obtain damages. Be sure to keep copies of any relevant documents so that you can present them to your lawyer. They may also be referenced as evidence if a lawsuit becomes necessary. The laws governing foreclosure fraud vary by state, so it may be necessary to inquire with a lawyer if you are unsure about any details of the law.