New Mortgage Scams Sweep Away Homes and Dreams

The foreclosure crisis is pushing desperate homeowners into the arms of scammers who have come up with three clever new mortgage scams: Internet ScamBusters #249

We have a very timely issue for you today on mortgage scams. As the housing market continues to decline, and legions of homeowners face foreclosure, scammers are swooping in to exploit people’s desperation.

Using three new mortgage scams, con artists are lining their pockets by promising to “rescue” financially distressed people.

In this issue, we’ll help you discover how to avoid these mortgage scams before you, or your loved ones, lose your homes.

Since aspects of these scams are new and so many homeowners are in trouble right now, we highly recommend that you pass this info on to friends, family and colleagues who may be vulnerable to these mortgage scammers.

Let’s check out today’s topic…

New Mortgage Scams Sweep Away Homes and Dreams

For over 15 years, low interest rates and soaring real estate prices encouraged some mortgage lenders to engage in “predatory” practices — something that’s come back to haunt both the lenders and millions of homeowners.

“Nearly 19 percent of all loans to less credit-worthy consumers, or 1.1 million mortgages, were either delinquent by more than 30 days or in foreclosure,” The New York Times recently reported.

To exploit the fears of desperate homeowners, a new type of predator has become much more prevalent: the mortgage scammer.

These con artists use three basic schemes to steal victims’ homes or as much of the equity as possible.

Though mortgage scams are sweeping the nation, these schemes are so new that law enforcement is just starting to catch up. For example, only seven states have passed laws to prevent “equity stripping” or “bailout” mortgage scams (see below). For that reason, as always, prevention is the best remedy for avoiding mortgage scams.

The Big 3 Mortgage Scams

There are already many variations on the three most popular scams, but here are the basics:

  1. Equity Stripping” or “Bailout.” In this scam, the con artist “rescues” the homeowner by helping her get rid of the house. In one way or another, the scammer convinces (or tricks) the homeowner into surrendering the title to the house by promising that she can stay on as a renter and then buy back the house once things have been “fixed.”In the end, the homeowner can’t afford to buy back the house and the rescuers bleed the house of most (or all of) the equity. Result: the homeowner usually loses the house anyway.
  2. Phantom Help. Here, the supposed rescuer charges very high fees for basic phone calls and paperwork that the homeowner could have done himself. Often, the scammer promises to represent the homeowner to his lenders in an effort to “work things out,” but never follows through.Even worse: the scammer will insist that the homeowner IGNORE notices and phone calls from the lender or its agents, almost guaranteeing that the house will enter foreclosure. By the time the homeowner knows he’s been conned, it’s usually too late.
  3. Bait and Switch. In this scheme, the scammers masquerade as legitimate housing counselors, armed with mounds of legal documents — often for new loans that are going to “solve” the homeowner’s problems. In reality, the owner signs forged documents that give the scammers ownership of the home.To make things worse, the victims still owe money for the mortgage, but no longer have the asset!In one instance, a scammer attached documents to a clipboard, and placed Post-It notes next to the various signature lines. “His victims — some of whom were elderly, or didn’t speak English well — were usually overwhelmed by the documents and also couldn’t exactly see what they were signing thanks to the clipboard.”One of the things the scammer allegedly got them to sign was a “grant deed” that passed their home’s title to a third party.

See Don’t Hand Your House to a Thief for more details.

In addition, the New York Times writes: “a study published [in June 2007] by the Federal Trade Commission found that [the mortgage loan documents used by scammers] were so confusing that 9 out of 10 borrowers could not identify upfront fees on mortgage loans and half could not specify the amount they were borrowing.”

Mortgage Scammers: Gaining Your Trust

Make no mistake: most mortgage scammers are very good at what they do. After all, this isn’t something the average “street thug” can pull off.

Not only are these scammers convincing liars, they also know how to target the most vulnerable homeowners in a given area.

To find potential victims, the scammers consult public foreclosure notices and purchase lists of delinquent borrowers from companies that specialize in compiling these lists.

In many cases, they also target people of similar racial, ethnic, religious and age backgrounds in order to build trust more quickly.

Hence, a scammer of Hispanic origin will most likely set up his “counseling service” in a Latino community.

Scammers usually reach their targets by posting ads in newspapers, leaving fliers under doors, or by making personal sales calls to potential “pigeons.”

Finally, the scammers use a combination of lies, misinformation, “legal documents” and high pressure sales tactics to convince victims that they really want to help, and that it’s in the victims’ best interest to “close the deal” ASAP — i.e., before people have time to think things over and perform a little research.

Do NOT Succumb to Fear

FDR once told the nation that “we have nothing to fear, but fear itself.” The advice may seem cliched, but you should take this wisdom to heart.

No matter how bleak your situation seems, do NOT succumb to fear and irrational behavior. That makes you easy prey for mortgage scammers.

Instead, seek out legitimate counseling services and TALK with your mortgage lender about arranging for alternative payment schedules or refinancing plans.

Believe it or not, most banks and other mortgage lenders are not eager to foreclose on your property, because they’re not in the business of maintaining or selling real estate. They’re in the business of lending money.

Do’s and Don’ts to Avoid Mortgage Scams

With that in mind, we’ve summarized some important do’s and don’ts from to help you avoid being exploited by mortgage scammers.

[Note: This information is not legal or financial advice. Please consult your attorney and/or reputable financial advisor before taking any action.]

  • DON’T ignore the problem, regardless of what anyone tells you. It will only get worse if you do.
  • DO make sure that you are actually in foreclosure. If you’re behind in your payments, you’ll receive a “deficiency notice,” which will inform you of the delinquency and give you a chance to resolve the debt. If you receive a Notice of Trustee’s Sale, or a similar document, you are in foreclosure.
  • Again, DO speak with your lender. Try to work with the lender to restructure the payments or refinance the loan.
  • DO learn the laws regarding foreclosure for your state. It’s important to know how much time you have to resolve the issue.
  • DO consider contacting a counseling agency, but be sure the counselor is certified by the Department of Housing and Urban Development (HUD).
  • DO be careful when choosing a counselor, and pay attention to the certification requirement above. Some counselors are scammers, but you can often tell a scammer from a legitimate counselor: You should NOT have to pay for legitimate counseling.
  • DO contact an attorney.
  • DON’T sign a contract under duress. Request time to review documents by yourself or with the help of an attorney.
  • DON’T enter into oral agreements. Get offers in writing and tell whoever is making the offer that you and/or your representative will review these offers.
  • DON’T make payments to any party other than the lender.
  • DON’T sign a home-sale contract where you are not released from your existing mortgage.
  • DON’T sign a quit claim deed without being specifically instructed by your attorney or representative to do so.
  • DON’T agree to any deal that allows you to rent the property and then buy it back at a later date.
  • DON’T accept an offer from somebody who wants to make good on your missed payments and take the house in exchange for documents that assign them the surplus from the foreclosure sale. Consider this: if you owe $200,000 on your mortgage, plus arrears of $10,000, and your house is worth $250,000, you stand to make money on the sale!
  • DO consider selling your home, but only if there are no other options. Selling a home and receiving the equity is much better than having your home stolen.

What to Do If You Become a Mortgage Scam Victim

If you become a victim of a mortgage scam, contact an attorney as soon as possible. A lawyer can help you navigate the legal processes, but — sadly — there’s a good chance that you will still lose your house.

With any luck, however, you will have read this story before falling victim to this latest wave of scams!

To learn about other types of homeowner scams, visit:

Chimney Repair and Cleaning Scams

9 Tips for Winning When Your Homeowners Insurance Company Denies Your Claim

Free Identity Theft Aid

That’s all for today — we’ll see you next week.