Families Facing Foreclosure Scams

Foreclosures are threatening one percent of all homeowners. They are targets for a number of well-established scams.

By Martin W.G. King, NCPC Staff

The arrest of a man in California on charges that he defrauded homeowners desperate to pay their mortgages illustrates the perils of homeownership for many families in the current economic downturn.

The suspect is alleged to have committed mail fraud and identity theft in the U.S. Attorney’s District of Kansas for defrauding families desperate to save their homes from foreclosure. He is alleged to have taken money from the families and promised that by filing bankruptcy petitions for them, they would be able to keep their homes. However, the bankruptcy petitions he filed were fraudulent and the homeowners ended up no better off than they were before. (Bankruptcy can stave off, though not prevent, foreclosure.)

Scams like this are on the upswing as the nation’s housing crisis continues unabated. According to figures for 2007 from real estate reporting firm RealtyTrac, 2.2 million foreclosure filings were lodged against 1.3 million properties nationwide, a figure that was 175 percent higher than in 2005. Altogether, more than 1 percent of all U.S. households faced foreclosure in 2007, double the rate of .58 percent in 2006. Meanwhile, according to the Associated Press, sales and construction have come close to flatlining, with housing starts dropping from a high of 2.3 million units in January 2006 to 1 million units in January 2008. So, while some people are trying to sell their homes to relieve themselves of their mortgage debt, keep some of their equity, if they have any, and avoid foreclosure, the market is drying up.

The Federal Housing Administration warns of a number of schemes that homeowners facing difficulty should look out for.

• Equity skimming. In this scheme, a con artist approaches a homeowner in distress and offers to repay the mortgage or sell the property if the owner signs over the deed and moves out—usually leaving him with the debt and no house. Signing over the deed does not necessary relieve you of the responsibility to pay the debt.
• Charging for phony counseling services. These are often available free of charge to any homeowner.
• Flim-flam. Take your time and read everything in front of you. If you can, take the documents to a lawyer. Never sign anything you don’t understand.

Other scams found on the Internet at BankRate.com include these:

• Phantom help. The scam artist charges enormous fees for light paperwork and phone calls, none of which saves the property. The con artist takes the homeowner’s money and gives the impression that he is going to save the home, but all he really does is delude the homeowners and keep them from getting qualified help when time is precious.
• The bailout. In this scam, the homeowner is deceived into signing over the title in the belief that he will be able to remain in the house as a renter and eventually buy it back. The terms of these scams are so onerous that the buy-back is impossible, the homeowner loses possession, and the “rescuer” gets most or all of the equity in the house.
• The bait-and-switch. In this scam, the homeowner thinks he is signing documents to bring the mortgage current, but instead he actually surrenders ownership. He usually doesn’t even know he’s been scammed until he’s served with an eviction notice.

KVBC-TV in Las Vegas, NV, reports one more scam that has taken place in its viewing area: Mortgage documents with blank lines on them. Don’t sign any document unless it’s completed in full!

The Department of Housing and Urban Development urges homeowners having trouble making their mortgage payments or facing foreclosure to contact their lender immediately as an essential first step before pursuing any other action. The lender may try to work out a solution with you, as few lenders want to be stuck with homes they will have to sell. Homeowners can also call the free, nonprofit Hope Now Alliance’s Hotline at 888-995-HOPE, whose trained, Housing and Urban Development Department-approved counselors helped 100,000 people facing foreclosure this February alone. Another step that is increasingly recommended is to show your documentation to an attorney. Above all, keep an eye out for crooks and remember, if it sounds too good to be true, it probably is.

Resources:

BankRate.com, http://www.bankrate.com/brm/news/mortgages/20050728a2.asp

CNNMoney.com, http://money.com/2006/12/07/pf/saving/toptips/

Federal Bureau of Investigation, Kansas City Field Division, http://kansascity.fbi.gov/dojpressrel/pressrel08/yass022908.htm

Federal Housing Administration, http://portal.hud.gov/portal/page?_pageid=33,717348&_dad=portal, 800-CALL-FHA
Freddie Mac, http://www.freddiemac.com/avoidfraud/

Hope Now Alliance, http://www.hopenow.com/

KVBC, Las Vegas, http://www.kvbc.com/Global/story.asp?S=7569200

U.S. Department of Housing and Urban Development, Homes and Communities website, http://www.hud.gov/foreclosure/