As if it's not enough of a devastating experience, homeowners facing foreclosure often end up the prey of ruthless criminals aiming to scam them out of their homes or equity. 'Unfortunately, what we're seeing is a lot more people who are trying to take advantage of the homeowner going through foreclosure,' says Carla Douglin, head of The Douglin Group and Douglin Foundation, a Maryland-based nonprofit firm that specializes in helping homeowners faced with foreclosure. Today's exceptionally high number of delinquencies is keeping her tremendously busy.
She says it's important that homeowners understand they can't keep their delinquency status or foreclosure a secret. When a homeowner falls behind on mortgage payments, his name goes on a list that is available for sale. As a result, he begins to receive more and more mail from people offering a foreclosure service or to buy the home. 'That's when you really need to be very, very careful and [become aware] that there are con artists out there who are trying to steal your home or your equity,' Douglin cautions.
Even though this may be the most frightening financial hardship you'll ever endure, it helps to approach foreclosure carefully, with eyes wide open. For starters, don't sign anything you don't understand. If the paperwork is complicated, written in a lot of legalese, seek expert help. 'Any person coming to you with an offer, if legitimate, will allow you a few days to review it with an attorney or somebody who can say, 'Yes this is a good idea, or no, this isn't a good idea,'' Douglin says.
'The Foreclosure Workbook' (Xulon Press), by Douglin, lays out some of the most common foreclosure scams. Here are a few:
The Leaseback Opportunity
Although it can be legitimate, the leaseback opportunity is the most attractive scam to homeowners right now. Someone offers to bail you out of your financial troubles by buying your home and then allow you to rent it back. Often they will say that you will be able to buy your home back from them within a period of a couple of years. The new owner collects the rent and then simply waits for you to make even the slightest mistake, such as being late or even just paying a penny less than the agreed-upon rental fee. That's when you find yourself evicted and without any opportunity to repurchase your home.
'They may keep you in the property, but they have every right to cash out the equity that's in the property, so that when you do try to buy it back, say in two years, you're buying it back at a much higher price than what you originally sold it for to them,' Douglin says.
This is a modified leaseback scam (though not all straw buying is fraudulent) in which a scammer offers their good credit to refinance a new loan for your home and purchase it. The scammer requires you to be the co-borrower on the loan and then have you pay a flat fee out of the home's equity during the refinance process.
You are told that you can live in the home rent-free. At the end of an agreed-upon time frame, the scammer gets off of the title, and you will buy back the home. (In other words, you will purchase and refinance it back, as the scammers did.) By that time, the scammers will have stripped the equity out of the home, making it unaffordable.
'What they have every right to do is pull the equity out of the house,' says Douglin. 'Any money that's open, any money that can be refinanced, any cash in your home, they have every right to it.'
Watch out for loan mitigation companies that are attempting to work with your bank to solve your foreclosure problem. Of course, not all of these companies are scamming homeowners, but the ones that do, work like this: The homeowner pays an initial upfront fee of several hundred dollars to have their case reviewed. The loan mitigation company claims it can help you and then typically charges a few thousand dollars more to get the process started. The owner is told the company will negotiate with the lender on their behalf.
'You pay the [money] and then you wait and wait,' Douglin says. 'These people have not made one phone call to your mortgage company. They have not made any attempts to reach out to solve your situation with your lender. They took your money and they walked away.'
The bottom line is, don't jump at the first solicitation of help. Investigate, research and call reputable resources to learn about the company or person you're considering getting help from. You can contact the fraud-investigation unit of your state's attorney general's office to find out if they have any complaints on file against a particular person or business who offers foreclosure services. A phone call like that could save you from financial ruin.