Foreclosure could happen to the best of us. Sometimes unanticipated financial troubles can affect our ability to meet our obligations. Sometimes foreclosure is being caused by the devaluation and/or lack of demand for real estate, thus even though you are trying to sell your property to meet your obligation you can't because the property is worth less than the total amount owed to the lender. This may complicate things, as it allows your lender to pursue a deficiency judgment against you, which represents the difference between the sold price of the property and the amount owed to the lender. If this happens to you then not only do you lose your home, you are also liable to the bank for the difference (deficiency).
Many families are still battling to protect their homes and families from foreclosure. It is during these difficult times that some people lurk around the darkness to take advantage and pray on the weak. There are predators out there who look at homeowners in poor financial situations as easy prey, devising a number of scams and fraud attempts to take advantage of people who are already on a heck of a financial roller-coaster. It is important that you protect yourself by staying current on the foreclosure fraud and scams that are circulating, so that you do not get taken by one of these fraudsters. Here are some of the more prevalent scams that people are trying to pull over on homeowners and families buying homes or facing foreclosure.
- Sales Leaseback - People often tout this as an easy deal, requiring that the homeowner hand his or her deed over to an "investor" for little or no money, on the basis that the homeowner can continue to live in the home, leasing it back with the option of repurchasing within a year. This may sound like an excellent concept, but there is a serious catch involved. Even if you sign the deed over to someone else, you are still legally responsible for the mortgage, meaning that you would be paying both the original mortgage and the lease amount to the investor. Paying twice what you were already having difficulty paying will be close to impossible and one missed or late payment will have you evicted from the home, and the home sold out from under you.
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- Predatory Lending - Unfortunately, there are a large number of lenders out there who offer loans with the specific intention of taking advantage of borrowers who cannot afford to make the payments. If there is any equity in the home at all, these lenders will attempt to take it all in the form of incredible fees, exorbitant interest rates, and nightmare prepayment penalties. While new laws are being passed that prohibit many of these predatory practices from occurring, it is still quite easy for lenders to take advantage of homeowners in bad financial situations.
Here are some of the predatory lending practices that you need to steer clear of:
- Frequent Refinancing - The frequent refinancing of loans without offering any real benefits to the homeowner or borrower, or frequent refinancing of loans simply so that the lender may generate additional fees for him or herself.
- Equity Switching - Equity stripping, by persuading an owner in dire financial straights to take out a loan far beyond his or her ability to repay it.
- Bait and Switch - Attempts at bait and switch, where lenders advertise a specific set of 'teaser' fees and interest rates, then the rates and fees skyrocket suddenly at the point of closing, reaching points that are beyond the homeowner's means.
- Appraisal Inflation - Inflating appraisals up front, forcing the homeowner to take on much larger loans with much higher interest rates. Homeowners lose the opportunity to refinance the amount of the loan at a later time, because the value of the home is no longer enough to cover the full amount of the loan.
- Loss Mitigation - This practice is regularly referred to as "I can prevent your foreclosure, but only if you pay a fee". People who try to force this type of a process on unsuspecting people tout it as the ability to stop or prevent foreclosure, but only for a fee paid up front. The problem with this type of service is that the "rescuer" cannot guarantee that they will actually prevent your foreclosure from occurring, yet they still collect your fee up front. If you want to protect yourself as a homeowner in a bad financial situation, there are much easier ways to do it without paying exorbitant fees to "rescuers" who more than likely will not be able to help you.
- List and Sell - This is a scheme that is becoming quite popular among real estate agents and brokers looking for additional income streams. The concept is simple: The real estate agent convinces a homeowner in default to allow the agent to list the home in an attempt to sell it. The real estate agent promises that if the home is not sold within the period before the foreclosure auction, which is typically around sixty days away, he or she will purchase it.
But here is the catch: In too many cases, the real estate agent will drastically overprice the property when listing it in the MLS or Multiple Listing Service, so that nobody expresses any interest in purchasing it. Then when it does not sell, the agent is able to purchase it for substantially less than what it was listed for.
- Hiding things in the contract - Some scammers and predatory lenders like to hide a variety of different bombshells right in the contract where they cannot be found. They wait until the absolute last minute, and then make these hidden terms known. By now, it is too late for the homeowner to renegotiate the contract, and he or she is trapped dealing with the true intentions of the contract.
Homeowners who are caught in situations like these are very rarely capable of seeking legal advice. They suddenly find out that there are costs behind their resources, but if they fight the contract at closing they could potentially lose their home in the foreclosure process.
Profile of a Scammer: What to Look For
The people and companies that prey upon homeowners in foreclosure use many tactics to gain the homeowner's trust. Here are some examples:
- The scammer contacts you by telephone, mail, or even knocks on your door (legitimate foreclosure consultants don't seek you out, you must go to them).
- The scammer is smooth-talking and preys upon your desperation.
- He provides little or no information about the foreclosure process.
- Many scammers claim government affiliation.
- They often use "affinity marketing" -- Spanish-speakers marketing to Spanish-speakers, Christians to Christians, senior citizens to senior citizens, and so on.
- They claim the process will be quick and easy (dealing with foreclosure is never quick and easy) and use messages such as: "Stop foreclosure with just one phone call" or "I'd like to $ buy $ your house" or "Do you need instant debt relief and CASH?"
- They tell the homeowner to cease all contact with the mortgage lender.
Reccomended Reading:The Foreclosure Survival Guide: Keep Your House or Walk Away With Money in Your Pocket
