A foreclosure-related scam is a loose term for fraud, deceit, or trickery committed against homeowners facing foreclosure or others involved in the foreclosure process. With the rise in foreclosures in the mid-2000s, foreclosure-related scams have exploded onto the real estate scene. Some con artists offer to help homeowners in foreclosure, but in truth, merely intend to dupe the distressed homeowners out of their money or property. Other scams target real estate agents, investors, buyers, lenders, tenants, or other people involved in the foreclosure process.
Red flags to look for in foreclosure-related scams
Homeowners in foreclosure and their real estate agents should be wary when dealing with someone who does any of the following:
How a foreclosure scam works
There are many different types of foreclosure-related scams, and new types of scams sprout up every day. These foreclosure-related scams can be loosely categorized as follows:
In this type of scam, the scam artist offers to negotiate with the lender or perform other foreclosure-related services for the homeowner in exchange for a fee. However, in reality, the scammer performs little or no service at all and eventually absconds with the money. Whatever services the scam artist does provide, the homeowner could have probably done on his or her own. The homeowner ends up not only losing the money, but often loses valuable time to make other arrangements to save his or her home from foreclosure.
This scam involves a con artist who offers some sort of plan or scheme to get the homeowner out of his or her predicament. One common example is the rent-to-buy scheme where the scam artist promises to take title to the property, cure the default, and rent the property back to the homeowners until they get back on their feet again and buy back the property. What in fact happens is that the scam artist reneges on these promises by, for example, not curing the default, not honoring the rent-back agreement, or selling the property to an unsuspecting buyer.
This is another common type of scam where, for example, the scam artist tells the homeowner to sign one thing, but the homeowner ends up signing something else altogether, such as the grant deed to the property.
Other types of foreclosure scams
In addition to the above categories, there are many other types of foreclosure-related scams, including forgeries, theft, identity theft, property flipping scams, loan fraud, predatory lending practices, pyramid schemes, ponzi schemes, bankruptcy fraud, landlord-tenant fraud, short sale consulting fraud, and bank-owned property or REO fraud. A scam can be a highly elaborate scheme or as crude and simple as a "We Buy Homes" or "Stop Foreclosure Now" sign on a telephone pole at the side of a road.
How homeowners can protect themselves against foreclosure-related scams
The basic rule is "if it sounds too good to be true, it probably is." Other measures to take to protect against scams include, but are not limited to, the following:
Find legitimate help for foreclosure-related matters
The conventional wisdom is for homeowners facing foreclosure to contact their lender immediately. Homeowners may also seek the advice of a reputable housing, financial or credit counselor, attorney, or other qualified professional. The U.S. Department of Housing and Urban Development (HUD) has a Guide to Avoiding Foreclosure on its Web site at www.hud.gov/foreclosure/index.cfm. Find a list of HUD-approved housing counseling agencies in California here. Also, the non-profit organization Homeownership Preservation Foundation has a 24/7 toll-free Homeowner’s HOPE Hotline at (888) 995-HOPE or visit its Web site at http://www.995hope.org.
Where to report a foreclosure-related scam
The following is a list of government enforcement agencies and other organizations for reporting fraud activities. Some of these agencies and organizations are also excellent resources for obtaining more information about foreclosure-related fraud.
Office of the Attorney General
(800) 952-5225 (in California only)
http://ag.ca.gov/consumers/mailform.htm (Consumer complaints)
California Department of Real Estate
http://www.dre.ca.gov/cons_complaint.html (Consumer complaints)
Federal Bureau of Investigation (FBI) Headquarters
Or contact your local FBI field office
https://tips.fbi.gov/ (FBI tips and public leads)
Department of Housing and Urban Development (HUD) Headquarters
HUD Office of Inspector General Hotline (GFI)
Federal Trade Commission
Better Business Bureau - contact your local bureau