Foreclosure is traumatic, and but it happens to people in every walk of life. Facing foreclosure is tough to handle, but you also need to be wary of scammers trying to capitalize on your situation.
Educate yourself on the signs of a scam and how to protect against them. A little knowledge can go a long way in saving you a heap of trouble during an already trying experience.
How Do Foreclosure Scams Work?
Foreclosure scams rely on people facing the loss of their homes. Lenders must file foreclosure notices with public trustees, who then print it in a local publication. Some scammers comb the foreclosure sections and bombard the property owners with offers to help.
There is another, broader approach that some scammers use to find vulnerable people. Have you ever seen flyers or ads from companies promising to bail out struggling homeowners and prevent foreclosure? There’s a good chance those companies are as fake as their claims of success.
How to Identify Common Foreclosure Scams
These scammers are tricky in their attempts, and they can appear convincing in their desire to help. In some cases, it can be difficult to identify a foreclosure scam because they are skilled at selling their stories. Still, there are always tells that can tip you off to possible scams.
The Equity Scams
There are two ways scammers go after your equity, skimming and stripping. In each case, you still lose your property and more.
Equity skimmers try to buy your property in exchange for paying off your mortgage. They ask you to transfer the deed to them and move out of the house. Any number of things can happen once you sign over the deed, and none of them result in the scammer paying off your mortgage.
Equity strippers offer you a loan to cover your debt. They encourage you to inflate your income on the application to gain approval even though there’s little chance you can make the payments. When you default, the lender takes your property – and all of your equity.
Fake Mortgage Counselor Scams
It doesn’t take much to negotiate repayment plans with lenders, but these agencies pretend to help you through the process for an exorbitant fee. Often, these scammers provide false or misleading information to convince homeowners that they can help.
These are devious mortgage scams that sound great at the beginning but fall apart quickly. The scammer will offer you a cash bonus to refinance your mortgage. Once you agree and start making payments, they will offer more cash to refinance again.
This situation sounds ideal, and you can do anything with that extra cash, but if you didn’t read the fine print, you could be in big trouble. These scams rely on people not asking about fees, penalties, or interest rates. You could end up in more debt than when you started.
Fake Loan and Refinancing Scams
In these mortgage scams, they try to convince you to refinance to secure lower monthly payments. Initially, you may experience lower payments, but eventually, the fake lender asks for larger amounts or additional fees.
These scams are devastating and can take many forms. In some cases, the document you sign may transfer the title to the scammer for much less than it’s worth.
How to Protect Against Foreclosure Scams
There are many possible scams to look out for, and some even compromise your personal information. The only foolproof homeowner protection against these scams is to refuse all assistance, but that’s not always an option.
It’s necessary to take extra precautions when dealing with potential lenders or property buyers, especially if you’re dealing with financial difficulties. Knowledge is power, and if you know the signs of mortgage scams, you can identify them easier. Avoid businesses that exhibit any red flags.
- Legitimate companies and lawyers generally do not reach out to customers at all, so be wary of people who reach out to you.
- Say no to companies that guarantee certain outcomes or claim that they’ve helped all or most of their customers.
- The first thing many scammers do is tell you to cut contact with your lender or attorney.
- Don’t pay for a service upfront, especially if they ask for a cashier’s check or wire transfer.
- Refuse companies that ask you to lease your home, transfer your deed, or make payments to them instead of your lender.
- Don’t sell your house for less than it’s worth.
Contact the Federal Trade Commission, Better Business Bureau, or your state’s Attorney General’s office if you suspect you’re a victim of a foreclosure scam. Reporting these scams is the first step in stopping them.
Final Thoughts on Foreclosure Scams
If you’re facing foreclosure, you already have a lot on your plate. While it may sound beneficial to accept help, be careful. Stay in contact with your lender and only accept help after you thoroughly vetted a person or agency.