Whenever we are faced with a crisis in this country, be it a natural disaster, a stock market crash, or a terrorist attack, one thing is certain.  Crooks will find a way to take advantage of those who are already at or near rock bottom.  The current foreclosure crisis is a perfect example.

Many homeowners, facing foreclosure as a result of the crash of the sub-prime mortgage market, are desperate to save their homes.  They seek assistance from foreclosure rescue companies who promise to help the homeowners avoid foreclosure, but ultimately, these companies do nothing and the homeowners lose their homes to foreclosure.

Over the past few months, several foreclosure rescue scams have been brought to a screeching halt.  In Maryland, a ring of foreclosure assistance scammers, accused of defrauding $35 million from lenders, was recently indicted by a federal grand jury.   

The Washington Attorney General's Office settled a lawsuit against Foreclosure Assistance Solutions, LLC of Clearwater, Florida.  Accused of violating Washington's Consumer Protection Act by requiring homeowners to pay $1200-$1500 up-front to hire them to save their homes, Foreclosure Assistance Solutions has been ordered to make restitution to Washington homeowners to the tune of $78,125. 

The Massachusetts Attorney General recently negotiated a $1.8 million foreclosure rescue scam settlement from ten lenders and loan servicers, including Countrywide Home Loans, EMC Mortgage Corporation, Select Portfolio Servicing, Ocwen Mortgage, and others.  According to the Massachusetts Attorney General, the lenders' various loans "facilitated fraudulent foreclosure rescue transactions." 

Fraudulent foreclosure prevention assistance providers engage in various schemes to bilk homeowners out of the precious little money they have.  Their goal is to make a quick profit by requiring homeowners to pay up-front fees or by collecting mortgage payments, which never get remitted to the lender, from unsuspecting homeowners. 

One of the most common scams is the rent-to-buy.  The homeowner is told that an investor will buy their home and allow the homeowner to rent it at a reasonable rental rate until they can afford to buy the home back.  Most times, the investor will have the homeowner sign over title to the property, but the homeowner's loan is never paid off.  The investor may make a few mortgage payments to the homeowner's mortgage company, but eventually defaults and the homeowner's lender forecloses.

In a variation of the rent-to-buy scheme, the investor buys the home outright and the homeowner's mortgage is paid off.  However, the investor frequently raises the rent until the homeowner can no longer make the rental payments.  The investor evicts the homeowner and sells the property, keeping all the equity for himself.  

Equity skimming is another common scheme.  The scam artist offers to find a buyer for the home on the condition that the homeowner sign title to the property over to him and move out.  The scam artist then rents the property and collects the rent until the homeowner's lender forecloses.

Many foreclosure rescue schemes involve the promise of counseling or other help.  In exchange for an up-front fee, the scam artist promises to contact the homeowner's lender and negotiate a workout of some kind.  The scammer tells the homeowner to cease all communication with their lender, attorney, and credit counselor and requires the homeowner to make all mortgage payments to him with the assurance he will pay the mortgage company.  The scammer collects a few  mortgage payments from the homeowner, but never remits them to the mortgage company.  He eventually disappears and the lender forecloses.

Another common scheme involves the scam artist promising to negotiate with the lender on behalf of the homeowner in exchange for an up-front fee.  Instead of contacting the lender, the scammer pockets the fee and files bankrutpcy in the homeowner's name, usually without the homeowner's knowledge.  The bankruptcy filing stops the foreclosure, temporarily, so the homeowner believes that the scammer is actually working on his behalf.  Eventually, though, the bankruptcy case gets dismissed, because the homeowner, unaware that a bankruptcy has been filed in his name, fails to attend the mandatory meeting of creditors.

The bait and switch is also a common foreclosure rescue scheme.  This involves the scammer having the homeowner sign mortgage documents which the scammer has led the homeowner to believe contain more favorable loans terms.  In actuality, the documents transfer title to the property to the scammer in exchange for a "rescue loan".

All of these scammers use half truths, outright lies, threats, and scare tactics to take advantage of homeowners.  But, there are some red flags to look for before moving forward with anyone offering foreclosure prevention assistance:

• requiring an up-front fee (in several states it's against the law for foreclosure prevention assistance companies to collect a fee until they have performed the promised services);
• guaranteeing that they'll be able to stop a foreclosure;
• telling you to stop communicating with your lender, lawyer, or credit counselor;
• encouraging you to lease (rent)your home so you can later buy it back;
• accepting payment in the form of a cashier's check or wire transfer only;
• requiring you to make your mortgage payments directly to the foreclosure prevention assistance company or to an investor;
• requiring you to transfer ownership of your property to the company or an investor;
• offering to fill out paperwork for you;
• pressuring you to sign paperwork you haven't read or don't understand;
• refusing to allow you to have an attorney review paperwork before you sign it.

Another warning sign that you may be getting involved with a scam artist is the type of correspondence you receive in the mail.  Many scammers find owners of distressed properties by reading through foreclosure notices in newspapers and scouring court records.  They will use the information they glean to contact homeowners with letters that say: "Stop Foreclosure Immediately", "Guaranteed Foreclosure Assistance", "Free Consultation!  We Stop Foreclosures Everyday!".  Some scammers will even send correspondence that claims to be from government entities like the Department of Housing and Urban Development.

Avoid getting involved with companies that tell you any of the above red flags are a part of their program or who send the type of correspondence described above.  Report fraudulent foreclosure prevention schemes to the Federal Trade Commission by calling 1-877-FTC-HELP (1-877-382-4357).  You can also report scammers to your state's Attorney General or to your local Better Business Bureau.

The good news is that legitimate foreclosure prevention assistance is available.  To find legitimate foreclosure prevention assistance in your area, contact the Department of Housing and Urban Development (HUD).  The Neighborhood Assistance Corporation of America (NACA) offers FREE foreclosure prevention assistance through their Home Save Program.   The Homeownership Preservation Foundation (HPF) also provides foreclosure prevention assistance.  To contact HPF, dial 1-888-995-HOPE.

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