Don't Lose Your Home to Foreclosure "Rescue" Scammers

Foreclosure "rescue" scammers steal your home, equity, and money.Here's how to protect yourself.

As record numbers of homeowners are defaulting on mortgages and are at risk of foreclosure, foreclosure rescue scammers are coming out of the woodwork in droves. These people and companies pretend to help homeowners facing foreclosure, but instead steal homes, equity, and money -- leaving the former homeowner in a more desperate financial state than before.

Don't become the latest victim of these scams. Learn how the scams work, what the scammers are like, and how to protect yourself.

More Foreclosures Bring More "Rescue" Scams

Due to the current credit crunch and less-than-careful lending practices by banks, more people are having trouble paying their mortgage. And because the housing market is in a slump, it's harder for homeowners in financial distress to sell their home (the sale price often doesn't cover the mortgage) or refinance on better terms. The result is a dramatic increase in the number of people facing foreclosure.

Enter the scammers. Foreclosure "rescue" is rampant for some very good reasons:

  • There are lots of potential victims.
  • It's easy to find victims because the notice of default is public record (the lender must record the notice of default with the county recorder), and nowadays this information is often computerized.
  • People are desperate.
  • Usually, a lot of money is at stake.

How Do the Scams Work?

The methods scammers use to rip off homeowners are extremely varied. But most of them fit into three broad categories.

1. Sale-Leaseback Scams

In these schemes, foreclosure scammers prey upon the overarching desire of many homeowners -- to stay in their home. The foreclosure scammer tells the victim that the scammer will buy the house so that the mortgage is up to date and the homeowner can rent the home indefinitely and then buy the home back from the scammer. Unfortunately, the rent payments and buyback provisions are usually so onerous that homeowners can never buy the home back.

2. Charging High Fees for Little or No Services

Some foreclosure scammers pretend they are legitimate foreclosure consultants (to learn more about legitimate consultants, see "Protect Yourself: How to Avoid Foreclosure Scams," below) and then exploit the homeowner's trust by:

  • charging exorbitant fees for services the homeowner could easily have performed himself
  • charging fees for services they never perform, or
  • taking steps that hurt the homeowner.

These schemes cause the homeowner to lose much-needed money. Worse, because the homeowner believes the foreclosure "consultant" is handling the situation, the homeowner does nothing during the crucial time period when action must be taken. By the time the homeowner realizes he has been scammed, it is too late to get current on the loan, negotiate with the lender, sell the house, or find effective assistance.

3. Stealing the Home Without the Homeowner's Knowledge

In these schemes, the foreclosure scammer gets the homeowner to unwittingly surrender ownership of the home. Often, the foreclosure consultant promises that he will bring the mortgage up to date and allow the homeowner to stay in the home, setting up a payment plan for the homeowner to pay him back. The victim doesn't realize that the home has actually been sold to the scammer (usually at a ridiculously low price) and ends up paying extremely high rent to stay in the home.

Sometimes, the homeowner believes she is merely signing new loan documents to bring the mortgage current, but instead is signing title over to the scammer. Or the scammer may simply forge the homeowners' signature on documents.

Profile of a Scammer: What to Look For

The people and companies that prey upon homeowners in foreclosure use many tactics to gain the homeowner's trust. Here are some examples:

  • The scammer contacts you by telephone, mail, or even knocks on your door (legitimate foreclosure consultants don't seek you out, you must go to them).
  • The scammer is smooth-talking and preys upon your desperation.
  • He provides little or no information about the foreclosure process.
  • Many scammers claim government affiliation.
  • They often use "affinity marketing" -- Spanish-speakers marketing to Spanish-speakers, Christians to Christians, senior citizens to senior citizens, and so on.
  • Some offer "testimonials" from other customers.
  • They claim the process will be quick and easy (dealing with foreclosure is never quick and easy) and use messages such as: "Stop foreclosure with just one phone call" or "I'd like to $ buy $ your house" or "Do you need instant debt relief and CASH?"
  • They tell the homeowner to cease all contact with the mortgage lender.

Protect Yourself: How to Avoid Foreclosure Scams

If you are having financial troubles, believe you may lose your home, or are in foreclosure, here's how you can make sure that you do not become a victim of a foreclosure scam.

Stay in touch with your mortgage lender. Contrary to what a foreclosure scammer will tell you, you should contact your lender the minute you have trouble paying. Often, you can refinance or restructure the loan. Keep contacting your lender during the mortgage workout or foreclosure process. (To learn more about your options to avoid foreclosure and how to negotiate with your lender, see How to Avoid Foreclosure.)

Get full information about the foreclosure process. Your best offense in saving your home, and your best defense in preventing scams, is to learn about and understand the foreclosure process. Get full information about the process in your state, understand all deadlines for responding to documents from the court and lenders, and be sure you know at which point in the process you can lose the legal right to own your home.

Seek help from a legitimate foreclosure counseling agency. Get help from a HUD-approved housing counseling agency (see HUD's website at or call 800-569-4287) or from a counselor certified by the National Foundation for Credit Counseling (

Check state laws governing foreclosure consultants. Many states have laws that specify what foreclosure consultants can and cannot do, what must be included in the contract for services, and require the consultant to provide the homeowner with a three- or five-day right to cancel the contract (meaning if you change your mind within a few days, you can get out of the deal). If a foreclosure consultant hasn't complied with your state's laws governing foreclosure consultants, go elsewhere -- it's a red flag that the consultant is either incompetent or not above-board. (On the flip side, just because a consultant complies with all of these laws doesn't mean he's not a scammer.)

Never make a verbal agreement. Always get everything in writing.

Read and understand everything before signing any document. Have a lawyer, financial professional, or trusted friend or relative review the documents too. This is especially true if you are transferring title to your home to someone. Never sign a blank page or a document with blank lines.

Use your own translator. If you don't speak English, use your own translator. Don't rely on the translator provided by the company or organization helping you.

What to Do If You Think You've Been Scammed

If you think you've been scammed by someone before or during the foreclosure of your home, get help immediately. You may still have time to save your home. Or you may be able to sue the scammer to recover your home or some of your lost money. Contact a lawyer, a HUD-approved housing counseling agency, or a counselor certified by the National Foundation for Credit Counseling (contact information is listed above).

Be sure to report suspected fraud to local and state authorities. Authorities may be able to help in your individual case. And even if they can't help you, your complaint may lead to a criminal investigation (especially if others have complained against the same scammer). To report possible fraud, contact your state attorney general's office, the state district attorney, the Better Business Bureau (, the state department of real estate, the Federal Trade Commission (, or a lawyer (see How to Find an Excellent Lawyer).

For more information on the foreclosure process, obtaining reputable credit counseling services, and pulling yourself out of debt, read Solve Your Money Troubles: Get Debt Collectors Off Your Back & Regain Financial Freedom , by Robin Leonard, J.D., and attorney Margaret Reiter (Nolo).

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