Foreclosure Scams: Beware the Kindness of Strangers
Foreclosure is one of the most intimidating threats a homeowner might face in his or her lifetime. Once an individual falls behind on mortgage payments, a river of frightening letters, phone calls and legal notices are unleashed upon the cash-strapped debtor. These communications portray a sense of great urgency, they might describe impending legal action, acceleration of debts, eviction, an upcoming forced sale of one’s home and the possibility of personal liability for mortgage debts. Some of these communications, such as notices of default and notices of trustee’s sale, are made public, thereby stoking a sense of embarrassment and isolation in their recipients. People targeted by such communications are typically already in financial distress and constant threats can push them to sheer desperation. Isolation, desperation and a sense of urgency set the stage for a parade of characters far more dangerous than the prospect of foreclosure.
“Foreclosure consultants,” “foreclosure prevention specialists,” “foreclosure experts” and a variety of other self-styled titles describe a group of individuals who make a living by taking assets from people facing foreclosure. These “consultants” constantly monitor public records, looking for notices of default and notices of trustee’s sales. When notices are posted, the foreclosure consultants initiate contact with the homeowners mentioned in the notices. This contact may come in the form of phone calls, letters or in-person solicitations. While some foreclosure consultants are legitimate, others have nefarious intentions.
Many foreclosure consultants present themselves as the single ray of hope in the foreclosure process. They can be extremely sympathetic and charming; they may say they know a lot of people who have gone through foreclosure and they just want to provide help. Their purpose is to gain the undivided trust of individuals facing foreclosure. Their ultimate objective is almost always the same: take title to your home. Once they have title to your home, they will frequently break contact with you, take out loans on your home, sell notes secured by your home and then sell your home to other conspirators. Finally, they frequently fail to pay your mortgage, so you lose your home and still have to deal with your mortgage debt.
While an unscrupulous foreclosure consultant’s objective is almost always to take title to your home, there are various, increasingly-sophisticated methods for doing so.
“Just Give Me Your Home.” The most basic scam involves the foreclosure consultant winning your confidence and then outright asking you to transfer your property to them. They promise to be able to make mortgage payments, push off the foreclosure, and then sell your house to pay off the mortgage and bring you a cash profit out of the proceeds. They will then somehow “split” the proceeds with you as compensation. They will frequently ask you to simply sign a grant deed granting them 100% ownership of your home.
Equity Purchase Agreement. A more sophisticated version of the above scam is where a foreclosure consultant has you sign a detailed contract by which they promise to sell your home for you. A formal contract gives the transaction the appearance of trustworthiness and helps your foreclosure consultant try to avoid claims of fraud or other illegality. Ultimately, the contract requires you to grant the foreclosure consultant 100% ownership of your property, and requires you to move out of your home so they can sell it. They falsely promise to find you a new apartment, help you pay the rent, give you a small amount of cash up front, and then somehow share the proceeds with you.
Transfer and Rent Back. The consultant tells you that your best option for avoiding foreclosure is to transfer ownership of your home to the consultant and then have the consultant rent it back to you. This consultant will most likely describe some kind of financing transaction where the consultant buys out your mortgage or arranges some kind of refinancing for you.
Negotiate Your Loan. Sometimes a consultant will say they can negotiate directly with your mortgagor to keep you in your home on terms you can afford. They might ask you to execute a financial power of attorney for their benefit in order to assist them with negotiating on your behalf. After some period of “negotiating,” they will tell you they’ve put together a great deal through which you can avoid foreclosure. Almost inevitably, some part of this deal will involve granting the consultant ownership of your home.
Arrange Refinancing. Another scam is for the consultant to arrange a refinancing transaction of your loan. While they might actually refinance your loan, the terms will secretly be so oppressive that you have no hope of paying the new loan. Your home will, of course, be used to secure the new loan. You will most likely default, with the consultant’s company taking your home.
Any of the above scams might also involve the consultant bringing you a lot of documents to quickly sign as part of the work he or she claims to be doing on your behalf. Eventually the consultant will try to sneak a grant deed into these documents, having you unknowingly sign away ownership of your home.
Even large companies can perpetrate foreclosure fraud, so do not be lulled into a false sense of security by big offices and official-looking business cards. The objective of these scam artists is to push you into isolation and have you rely entirely on them to make decisions while under the pressure of an impending foreclosure.
The United States Department of Housing and Urban Development approves specific non-profit no-fee agencies that provide foreclosure avoidance counseling. A list of these organizations is on the H.U.D. website at http://www.hud.gov/offices/hsg/sfh/hcc/fc . You can also call 211 to connect with resources for mortgage assistance and foreclosure assistance services.
Avoid scam artists by having an attorney review all important documents you sign, never willingly sign a deed or a power of attorney without the advice of an attorney, and reach out to public interest organizations if you feel lost but cannot afford to hire help. Most importantly: do not put your trust in anyone who initiates contact with you based on the fact that your house is in foreclosure!
By, Eric M. Mendelson
Eric is an experienced civil litigation attorney admitted in California, New York and New Jersey. He is associated with Elder Law & Advocacy on a pro bono basis.