Foreclosure Rescue Scams
Articles from The Massachusetts Focus
Newsletter of Stewart Title Guaranty Company, Massachusetts Offices
Fall 2008, Volume 7, Number 4
Foreclosure Rescue Scams
by Craig J. Celli, Vice President and State Manager
Credit to Paul E. Swenson, Connecticut State Underwriting Counsel
Foreclosure rescue scams are on the rise in Massachusetts, New England and the country. Con artists acting as phony “mortgage counselors” with sham mortgage-rescue and credit-repair scams are targeting homeowners having problems meeting their monthly mortgage obligations. The scam is generally referred to as “equity skimming” mortgage fraud. Numerous states have passed legislation making such scams illegal and subject the perpetrators to criminal and civil penalties.
In these “rescue” scams, the con artists promise to save the borrower’s home from foreclosure, when actually they are intent upon stealing title to the home or the equity accumulated therein. Here are some examples of reported predatory scams:
- The foreclosure prevention specialist: The specialist is really a phony counselor who charges hefty fees in exchange for making a few phone calls or completing some paperwork that a homeowner could do for him or herself.
- The lease/buy back: Homeowners are deceived into deeding title to the home to a scam artist, who allows the homeowner to remain in possession as a renter so he can eventually buy it back. But the buy-back terms are so demanding they are impossible to meet. The homeowner is evicted, and the “rescuer” walks off with the equity.
- The bait and switch: Homeowners think they are signing documents to bring their mortgage current, when actually they are signing over the deed to their home. They do not realize the scam until they get the eviction notice.
Attorneys must be extremely cautious in counseling clients in this regard and also closing any transaction that may be part of one of these schemes. If you contact one of these “rescue” companies, they will seek to convince you that they are providing a public service by helping a homeowner in default. In fact, they are only helping themselves steal the equity out of the property.
If a foreclosure consultant approaches you or if a client is working with one, do not agree to close or insure the transaction without first contacting State Underwriting Counsel for Stewart Title Guaranty Company.
While it is not always easy to determine whether a foreclosure rescue scam is being attempted, there are certain telltale signs, which may indicate that an improper “rescue” is in the works. These include:
- Beware of any sale transaction in which the seller is remaining in possession of the property after closing.
- Watch for any sale transaction in which the existing debt is not being paid off and the seller is not being specifically released by the lender.
- Look out for any “creative” transactions including those with leaseback arrangements or equity participation.
- Be cautious in any transactions in which a foreclosure notice has been filed or you otherwise know that the loan is in default.
- Consider excessive fees to a third party to be another red flag.