4 Examples of Foreclosure Fraud

Foreclosure fraud is the term that describes any schemes that purport to help you avoid foreclosure. The consequences of foreclosure can be devastating. Not only do you lose a place that has been you home (perhaps for years and even decades), a place that you probably put time and money into improving, but your credit scores drop significantly, making it harder for you to borrow again. In this light, it's easy to see how a normally cautious, careful person might be tempted to try something, anything, to prevent foreclosure. Yet much as you may feel like throwing caution to the wind, you should remain vigilant--otherwise, you may wind up losing money without saving your home from foreclosure.

1) Phony Counseling Scam

In this scheme, the scam artist tells you that he or she can negotiate with the lender to save your house. All you have to do is pay an upfront fee.  The scam artist will tell you not to contact your lender, lawyer or credit counselor, claiming that doing so will interfere with his or her ability to do the necessary work. Suffice to say, once the fee is paid, the scam artist takes off with your money.

In another version of this scheme, the scam artist will tell you to make all mortgage payments directly to him or her while the negotiations with the lender are in progress. The scammer will collect those payments for perhaps a few months, only to then disappear. 

2) Bait-and-Switch Scam

In this form of fraud, the scam artist will offer to give you a loan that will allow you to pay off the mortgage debt. You will be asked to sign certain documents. The scam artist will try to get you to sign them without looking them over too carefully, hoping that you won't notice that the documents allow him or her to take over your mortgage in exchange for the above-mentioned loan.

3) Rent-to-Buy Scam

In this scheme, the scam artist claims to be able to secure you financing from a borrower with better credit. All you would have to do is surrender the title. The scam artist will assure you that you will be able to keep living in your home as a renter until you have enough money to buy it back. However, once you turn over the title, the scam artist will walk away with most of your home's equity. You can remain in your home so long as you pay rent, but buying it back will be all but impossible. In some cases, the scam artist will try to force you into eviction by raising rent until you can't pay it anymore. Once you're evicted, the scam artist will be free to sell your house.

4) Bankruptcy Foreclosure Scam

In this scam, the scam artist will promise to negotiate with your lender or to get refinancing on your behalf if you pay a fee up front. However, the scam artist will actually pocket the fee and file for bankruptcy in your name. This will stop your home foreclosure--but only temporarily. Furthermore, the bankruptcy process carries its own host of problems, and it will ultimately harm your credit rating just as badly as a foreclosure would.

The scam artist may promise to negotiate with your lender or to get refinancing on your behalf if you pay a fee up front. Instead of contacting your lender or refinancing your loan, though, the scam artist pockets the fee and files a bankruptcy case in your name - sometimes without your knowledge.

A bankruptcy filing often stops a home foreclosure, but only temporarily. What's more, the bankruptcy process is complicated, expensive, and unforgiving. For example, if you fail to attend the first meeting with the creditors, the bankruptcy judge will dismiss the case and the foreclosure proceedings will continue.

If this happens, you could lose the money you paid to the scam artist as well as your home. Worse yet, a bankruptcy stays on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job.