7 Forms of Foreclosure Fraud to Avoid

According to Mortgage Bankers Association, 250,000 new families enter into foreclosure every three months. Foreclosure is probably one of the most stressful and unwelcome realities a family could face. In a poll conducted in 2005 by Freddie Mac among 2,031 U.S. homeowners, the reasons why homeowners fail to contact their lender are embarrassment, don’t believe the lender can help, and/or believe it would cause them to lose their home more quickly. However, there are worse scenarios than an impending foreclosure – becoming a victim of foreclosure fraud.

Foreclosure fraud is becoming rampant in the market, that’s why determining if you are dealing with scams in relation to foreclosing your property is essential. Below are common foreclosure fraud you should watch out for:

Common Foreclosure Fraud Schemes

Learn more about the process of foreclosure and the options available to avoid foreclosure fraud

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1. Equity Skimming

This scam often happens if you have reasonable equity in your property. A ‘buyer’ convinces you to sell your property to him, often less than market value, and promises to pay off your mortgage. The ‘buyer’ will ask you to transfer the deed of the property to him, move out of the house and stop interacting with your mortgage lender. The ‘buyer’ will then rent out your property to a third party and start collecting monthly rental payments. As expected of a scam, the ‘buyer’ will not pay the mortgage payments, eventually resulting to foreclosure of your property. The scammer will use your equity to flip the property to pay off the debt and then make a profit by keeping the equity.

2. Equity Stripping

In this scam, a ‘mortgage lender’ will approach with an offer to get you a loan. The ‘lender’ pushes you to ‘balloon’ your income on the application form in order to get the loan approved. Although you are entirely sure that you cannot afford the monthly payments, you are likely to accept the loan because you need the money. The lender will then rush in to foreclose your property, the very moment you default on your mortgage payments, thus, stripping you of your hard-earned equity.

3. Fraudulent Loan Transactions

A lender introduces you to a refinancing loan document that claims to bring your neglected loan current. Unknown to you, the document may have the hidden motive of transferring the title of your home to the company’s name for a very small part of its value. Oftentimes, the terms of the loan includes prepayment penalties, balloon or interest-only payments, huge fees and immediate rate adjustments.

4. Fake Counseling Agencies

Phony counseling agencies will offer to negotiate a repayment plan with your lender or organize a pre-foreclosure house sale on your behalf for an outrageous fee but in reality, all they do is make some inexpensive phone calls and complete paperwork.

5. Lender Scams

A ‘lender’ will offer to rescue you from a foreclosure situation by offering to refinance your loan with lower mortgage payments. Initially, the mortgage payments are considerably low as you are unknowingly paying for the interest only. Often, it is too late when you realize that the total amount you borrowed is due in a lump sum balloon payment and if you can’t make the entire payment or get your loan refinanced again, you will lose your home to the ‘lender’.

6. Loan Flipping

A ‘lender’ may offer to refinance your loan with some extra cash. Once you agree to get your loan refinanced and as soon as you make some payments, the lender will convince you to refinance your loan again and offer you more cash so you can spend it on home repairs or renovations. The offer is so attractive you take the cash and get your previous loan refinanced. You do not realize that the increase in the loans means higher interest rates or even prepayment penalties each time you take a loan, putting you deeper in debt that may ultimately lead to the foreclosure of your home.

7. Internet and Phone Scams

‘Lenders’ will convince you to apply for a low-interest mortgage loan on the phone or through the internet then they extract vital information regarding your social security and bank account numbers. The loan is immediately ‘accepted’ so you start faxing documents and wire transfer payments to the fraudulent company. This scam puts you in twice as much trouble by stealing your personal details and have your home foreclosed.

Tips to Avoid Foreclosure Fraud:

  • Do not sign any document that you do not completely understand
  • Do not sign any document that seem to force you into signing
  • Do not make mortgage payments to any individual other than your lender
  • Do not sign over the deed without some closure or affirmation for your protection
  • Do not ever yield to any individual who claims to stop foreclosure; you can stop the auction yourself

Foreclosure fraud is rampant and may rob you of your home. The moment you receive foreclosure notice, contact your lender’s Loss Mitigation Department and let them know about your monetary problems and situation. Best of all, don’t be a willing victim by being ignorant. Learn about the foreclosure process and the options that are still available to avoid foreclosure.

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