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
In this issue, we’ll help you discover how to avoid these
mortgage scams before you, or your loved ones, lose your
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.
And as always, we also recommend you check out the most
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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
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:
“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.
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
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
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.
In addition, the
target="_blank" rel="nofollow">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
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
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
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 href="http://www.fraudguides.com/mortgage-foreclosure-rescue-scam.asp" target="_blank">Fraudguides.com 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
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
DO contact an attorney. You can find one through the
National Association of
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:
That’s all for today — we’ll see you next week.