Foreclosure Scams — Legal Concerns & Consumer Protections
For homeowners, facing a foreclosure is a nightmare. The threat of being forced out of your home raises many issues, including a damaged credit score and being left without a place to live. Many ill-wishing people prey upon individuals who are facing the threat of foreclosure and take advantage of their desperation and poor bargaining position. All too often, fraudulent companies will offer homeowners facing foreclosure false promises in exchange for large amounts of money. In many cases, these companies will make empty assurances regarding their ability to renegotiate the length of the loan, the interest rate, and the total monthly payment due. Some truly malicious companies will claim to be associated with a government entity. In reality, these companies simply collect their fees and take no further action on the homeowner’s case.
The United States Federal Trade Commission (FTC) is tasked with enforcing a wide variety of consumer protection rules, including those that pertain to foreclosure scams. The FTC established the Mortgage Assistance Relief Service, or MARS, which prohibits any foreclosure assistance company or program from collecting fees until they have actually provided meaningful relief to the borrower and the borrower has accepted the proffered assistance. Essentially, this allows a borrower to forgo making a payment until the borrower obtains the assistance that they truly desire.
Identifying Foreclosure Scams
There are many ways to identify a foreclosure scam before it is too late. Many foreclosure companies advertise for homeowners in distress through various media outlets. One way to identify a potentially malicious company is through advertisements that use simple phrases that sound too good to be true. Examples include “100% money back guarantee,” “we have special relationships with lenders,” and “over 90% of customers get results.” These statements are intended to draw in desperate homeowners and collect a fee from them as soon as possible.
One of the most common foreclosure scams is a so-called “phantom help line.” In this situation, the fraudulent company will maintain a hotline encouraging users to call in regarding their impending foreclosures. They may represent themselves as attorneys, promising to take care of all of your foreclosure-related issues. In many cases, they will tell you to refrain from making contact with your credit counselor, lawyer, or bank.
Another common type of foreclosure scam is a rent-to-buy scheme, in which the fraudulent company instructs the borrower to transfer title of the home to the company and stay in the property as a renter. In exchange, the company promises to find a borrower with a better credit rating, allowing them to refinance the home or to obtain a loan modification. Once the refinance has been secured, the company promises to sell the home back to the borrower. In reality however, the repurchasing terms are so outrageous that the borrower never has any hope of owning the property again. In other situations, the company continues to raise rent throughout the deal, preventing the borrower from accruing enough funds to repurchase the home through the new modification deal.
There are some fraudulent companies that offer a “forensic audit” of your lender’s practices and your mortgage deal in order to look for any circumstances in which the lender violated applicable laws. The auditors will almost always require an upfront fee and promise that they work with qualified attorneys and experts when reviewing your mortgage documents. Forensic audit companies market their services as a way to help get a modification or refinancing deal. There is little proof, however, that an audit assists in accomplishing either of these tasks.
Finally, in a bait-and-switch scheme, the fraudulent company presents paperwork to the borrower alleging that the borrower needs to sign it in order to obtain another loan. The company promises that the new loan will satisfy the outstanding debt on the existing loan. Within these papers, however, is a document that surrenders title of the property to the fraudulent company in exchange for a rescue loan.
