Top 3 Foreclosure Scams To Avoid

With so many people facing foreclosure these days, it’s a good idea to educate yourself about the types of scams that take advantage of folks who are having trouble paying their bills. Even if you are doing ok, perhaps you can help someone else by recognizing a scam.

The FTC lists the top 3 foreclosure scams to be aware of as the housing crisis deepens.

Top 3 Foreclosure Scams To Avoid

  1. The foreclosure prevention specialist: The “specialist” really is a phony counselor who charges outrageous fees in exchange for making a few phone calls or completing some paperwork that a homeowner could easily do for himself. None of the actions results in saving the home. This scam gives homeowners a false sense of hope, delays them from seeking qualified help, and exposes their personal financial information to a fraudster.

  2. The lease/buy back: Homeowners are deceived into signing over the deed to their home to a scam artist who tells them they will be able to remain in the house as a renter and eventually buy it back. Usually, the terms of this scheme are so demanding that the buy-back becomes impossible, the homeowner gets evicted, and the “rescuer” walks off with most or all of the equity.

  3. The bait-and-switch: Homeowners think they are signing documents to bring the mortgage current. Instead, they are signing over the deed to their home. Homeowners usually don’t know they’ve been scammed until they get an eviction notice.

(Photo: Getty)

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  1. monkeytown says:

    As unfortunate as it is, if it sounds too good to be true, it probably is. In making decisions that can drastically effect your life, do your research! A few hours on Google is definitely not enough time, unless in that short time you see some serious red flags.

    • godlyfrog says:

      @monkeytown: Sadly, most of the people who are desperate enough to fall for these things are the same ones who didn’t do their research when they bought the house and got in over their heads to begin with, so the common sense argument flies out the window.

  2. Maglet says:

    I’ve heard of the other two, but that “bait-and-switch” is EVIL. How in the world is that okay? Sure, if you don’t read what you sign, tough crap. But, holy hell… that’s awful. There are plenty of people that can be easily tricked/persuaded.

    After the eviction notice, then what? Is it all boxes and moving companies? LOL! Or do they get to fight back? Yikes… that’s scary.

    • ZenMasterKel says:

      @Maglet: It’s called an equity stripping scheme. It’s not that easy to do now, since most people in foreclosure don’t have any equity, and lenders are scrutinizing the appraisals much more closely.

  3. HogwartsAlum says:

    I’ve heard of the first one.

    That last one IS scary. What would someone do in that situation?

  4. TrueBlue63 says:

    That is why you need to hire a lawyer if you can’t/won’t read legal documents.

    Don’t tell me you can’t afford one. You can probably get free legal aid in most places, or at the least, pay a law student to read it and explain it.

  5. KyleOrton says:

    I hope the lease/buyback becomes popular. Some enterprising crook will be chuckling to himself about all of the people stampeding to take part. And at the end of the day he’ll have all of their sweet, sweet debt.

  6. SamDFA says:

    The lease/buyback option sounds strikingly like what happened to the immigrants in “The Jungle” by Upton Sinclair. I will be betting on similar results for those who choose option 2

    • Red_Flag says:

      @SamDFA: I think you’re right. Wow… it’s been years since I read that book.

    • Anonymous says:

      @SamDFA:
      Actually, that scheme drifted to the South suburbs with many rent-to-own ‘programs’ being sold.

      100% financing was not easy to get in this area until 2004. We had plenty of gurus selling rent-to-own kits to retirees and low income buyers.

  7. fashionista says:

    Considering the article’s subject matter, I am a little concerned by the Google ads in the middle of the page. I guess scammers gotta pay their mortgage too.

  8. Corporate-Shill says:

    Considering the importance of this story, how about a rewrite and posting the story as a sticky?

    If you protect just one consumer you have performed a commendable task.

  9. SugarMag says:

    Are there any legit “foreclosure prevention specialists”? I saw an ad/webpage recently for a company that does as such and I couldn’t find anything obvious that would make it seem scam worthy. (I’m admitting my ignorance here)