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Beware of foreclosure scams

Updated December 23, 2009

The recent mortgage crisis has left the door open for fraudulent foreclosure “rescue” professionals who use half-truths or outright lies to sell services that promise relief and then fail to deliver. If you think you may be facing foreclosure or know someone who is, the Federal Trade Commission (FTC), the nation’s consumer protection agency, offers the following tips to help you recognize a foreclosure rescue scam and the options available to help you save your home.

How the scams work

Foreclosure rescue firms use a variety of tactics to find homeowners in distress. They use simple and straightforward messages, such as “Stop Foreclosure Now!” or “We guarantee to stop your foreclosure.” Once they have your attention, they use a variety of tactics to get your money.

Phony counseling

In phony counseling scams, the scam artist tells you that he can negotiate a deal with your lender to save your house if you pay a fee first. You may be told not to contact your lender, lawyer or credit counselor, and to let the “negotiator” handle the details. Once you pay the fee, the scam artist takes off with your money.

Bait and switch

In a bait and switch scheme, you think you are signing documents for a new loan to make your existing mortgage current. However, this could be a trick: you could be signing documents that surrender the title of your house to a scam artist in exchange for a “rescue” loan.

Rent-to-buy scheme

In a rent-to-buy scheme, you are told to surrender the title of your home as part of a deal that allows you to remain in your home as a renter, and buy it back during the next few years. You may be told that surrendering the title will permit a borrower with a better credit rating to secure new financing and prevent the loss of the home. The terms of these deals are usually so burdensome that buying back your home becomes impossible. You lose your home and the scam artist walks off with all or most of your home’s equity. Worse yet, when the new borrower defaults on the loan, you are evicted.

Bankruptcy foreclosure

A smooth talker may promise to negotiate with your lender or to get refinancing on your behalf if you pay a fee up front. Instead of contacting your lender or refinancing your loan, though, this scam artist pockets the fee and files a bankruptcy case in your name—sometimes without your knowledge.

Finding legitimate help

If you are having trouble paying your mortgage or have already gotten a foreclosure notice, contact your lender immediately. You may be able to negotiate a new repayment schedule. Other foreclosure prevention options, including reinstatement and forbearance, are explained in a publication from the FTC entitled “Mortgage Payments Sending You Reeling? Here’s What to Do.” Find it on the FTC website.

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