How to Spot a Foreclosure Scam

Scam artists prefer to work in the shadows and prey on people when they are at their most desperate. Here's how to outsmart the scammers.

Just when you think criminals cannot possibly stoop any lower, a new scam pops up to remind you that there are no depths grifters and con artists won't plumb. And now that COVID-19 has shredded the economy and left millions of homeowners with mortgages they cannot afford, foreclosure scams have reappeared.

Once you learn to recognize a foreclosure scam, you can stop scammers in their tracks and take away their leverage. Here, we will cover how to spot a foreclosure scam and how you can protect yourself. 

What is a foreclosure scam?

The goal of a foreclosure scam is to talk you into paying money for a mortgage-related service you will never receive. These scammers sometimes rerefer to themselves as "foreclosure rescue companies." According to the Federal Trade Commission (FTC), they find homeowners in distress by combing through local newspapers, online, or through public filings for signs of anyone who may be facing foreclosure. Fraudsters may phone, send an official-looking letter, or drop a flyer and business card at your front door.

Red flags

Here are some of the most obvious signs that you are being sucked into a foreclosure scam: 

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• You are guaranteed a halt to the foreclosure process or a loan modification, regardless of your circumstances.
• You are told not to contact your lender, a housing counselor, or an attorney. 
• You are asked to pay upfront for the services they offer.
• You are instructed to make your monthly mortgage payments to them rather than your mortgage lender while they work it out. 
• They offer to pay cash for your home (at a much lower selling price than comparable homes). 
• You are pressured to sign papers before you have had a chance to study them. 

Remember, if you are facing foreclosure, there are steps you can take. But there are no easy fixes -- so be suspicious of anyone who makes it sound as if there are.

Experienced scammers

An experienced grifter knows every trick in the book and will invent new ones along the way. Here are some of the cons they may use to manipulate you: 

Forensic audit 

The promise: A scammer offers to have an attorney or mortgage industry expert review your mortgage documents. They say that if the expert finds a mistake in the papers, you can avoid foreclosure, reduce the amount you owe, or even lead the mortgage lender to cancel your loan. 

The reality: The FTC says there is zero evidence that a forensic loan audit will help you in any way, so you'll waste money in fees and be no closer to saving your home.

Negotiation

The promise: These scammers will offer to negotiate a deal with your lender. They may lie and claim to be an attorney or to represent a law firm. They may tell you that they are a former loan officer and know the business well enough to land you a sweet loan modification.

The reality: Once you pay the requested fee, you will never hear from them again. Or worse, victims of fraud may make payments to the scammer instead of their mortgage company.

Rent-to-buy

The promise: If scamming were an Olympic sport, your home title would represent the gold medal. One way scammers get the title to your house is by offering to take it off your hands. They promise that once they have the title, you can stay in the home, rent it back from them, and repurchase it when your finances are in better shape. 

The reality: Terms hidden deep in the bowels of the contract make your home so expensive that buying it back becomes impossible. 

Rent-to-buy with a twist

The promise: The scammers rent your home back to you.

The reality: They raise rent payments regularly until it becomes too expensive for you to keep up. Once you have missed several rent payments, you will be evicted, and the scammer will sell the house. 

Equity skimming

The promise: The bad guys promise to find a buyer for your home and pay you part of the proceeds as soon as they sell. But first, you must sign over the deed and move off the property. 

The reality: Once the deed is transferred, they rent the home out to an unsuspecting tenant, never pay the mortgage, and keep the rent money. The lender forecloses, and you still lose your home. 

Know your rights

As easy as it sounds, hang up the phone. Do not respond to letters, advertisements, or emails that sound too good to be true. If you absolutely must have a conversation with the people trying to rip you off, at least know your legal rights. 

According to the Mortgage Assistance Relief Services (MARS) Rule, it is illegal for anyone to charge you a penny until you have a written offer from your lender, granting you the relief you seek, and you have formally accepted the offer. Also, anyone who offers to help must let you know who they work for and warn you if anything they suggest may damage your credit score or cause you to lose your home. Legally, no company can tell you to stop talking to your lender. If they do, it is a sure sign you are being scammed. 

Find legitimate help

Falling behind on your mortgage payments can be stressful and exhausting. Find out what housing assistance you may be entitled to, and whether you are covered by local or federal mortgage protection. Contact your bank or lender for mortgage assistance if you are having trouble making payments. Ask about all options on the table, including loan modification and forbearance. Also contact the Homeownership Preservation Foundation (HPF), a nonprofit organization offering free advice to homeowners at risk of foreclosure.