Avoid foreclosure rescue schemes at all costs - here is what to look for

[Ken M.]

What is a foreclosure rescue scheme?

A foreclosure rescue scheme is a type of fraud that takes advantage of homeowners who have fallen behind on their mortgage payments. The fraud perpetrator approaches the homeowner with promises of paying off the delinquent mortgage and helping the homeowner stay in the property.

How does a foreclosure rescue scheme work?

The most common foreclosure rescue scheme unfolds when a homeowner receives a solicitation in the mail that promises short-term financing from a 'private investor' offering to pay off a delinquent loan:

• The homeowner is told they can stay in their home and rent back from the 'investor'
• The homeowner is convinced to transfer the title of the home to the 'investor' as collateral. The 'investor' promises that the homeowner can continue to live in the home and repurchase it later or promises them new financing. If the homeowner is promised new financing, a straw borrower will then be involved.

What happens to the homeowner?

At closing:

• The homeowner deeds the property to the straw borrower, relying on the false promises made by the ‘investor’
• All proceeds are used to pay off the defaulted loan
• The homeowner walks away with nothing
• The 'investor' pockets the equity and runs
• The straw borrower defaults on the loan
• The homeowner is evicted, loses the house and all equity

There are many variations of a foreclosure rescue scheme. Some schemes require the homeowner to unknowingly transfer the property title to a third party. 

** Other schemes will promise homeowners that if they transfer the title, they can continue to rent the home and repurchase it at a future date. 

The purchaser of the property, sometimes the foreclosure rescue artist, is now free to refinance the property or to sell the property to another party. Sometimes the foreclosure “rescuer” charges the borrower high 'service fees' up front and then disappears with the money without providing the promised service.