How Mortgage Foreclosure Scams Rip You Off

You’re behind on your mortgage payments. A foreclosure has been filed against you. What do you do? Unfortunately, there are many scam artists who prey upon people in a desperate situation and are unaware of their rights. Some of the common scams we see are:

Equity Skimmers. “Facing foreclosure? How does this sound: we’ll give you $5,000, stop the foreclosure, and let you live in the house rent free for the next year. Just sign here.” What you’re signing is a deed to your home. Even if the person calling him or herself an “investor” really cures the default and really lets you stay in the house for a year (not necessarily a given), what are they really buying? Your equity. If you have $100,000 in equity in your house, and rent is $1,000 a month, you’ve just given the equity skimmer a profit of $83,000 in one year’s time. Far better is to sell the house on the open market so that you can keep the equity you’ve built up in your home.

In some cases, you’ll be told that you can lease the property back, and they will resell it to you in six months or a year. The problem, of course, is that in the vast majority of cases, you can’t qualify for a new mortgage loan to buy the property back, and end up losing the house. And even if you can, you’ll need a new loan that’s larger than the loan you have with an interest rate greater than what you have with higher payments.

Some states, such as Maryland, have passed laws that prohibit or severely restrict equity skimmers.

Foreclosure Timing Artists. Most people believe that if their house is foreclosed on they have to be out the next day (or they can be immediately evicted). In most states, that is not true. Months may pass before a foreclosure purchaser can actually take steps to remove you from the house. Foreclosure Timing Artists take advantage of this lack of knowledge, promising people in foreclosure that, due to their connections, they can delay the eviction for months. You pay them, and sure enough, because of state law restrictions (with the FTA doing absolutely nothing), the eviction is delayed for months.

Refinance Churners. “We’ll get you a new loan and get you out of this mess.” Many of the mortgage brokers that offer “subprime” loans—loans to people in financial difficulties or with credit problems—that have high interest, high fees, and high costs. The brokers make a lot of money, and you end up with a loan you can’t afford. Don’t forget, every time you refinance, unless you lower your interest rate and pay the closing costs out of pocket, your loan balance will go up, which means your payment goes up and your equity goes down. I’ve seen many people refinance low interest rate, low payment loans that they’ve fallen behind on due to temporary setbacks with high interest loans they could not afford. A Chapter 13 would have given them time to catch up on missed payments and keep their current loan; instead, they end up losing their home.