Avoiding Foreclosure Scams
With the steady rise of foreclosures in this country comes the steady rise of foreclosure scams. Distressed homeowners are often approached by honest real estate investors seeking to help, and dishonest real estate scammers seeking to leech. These scammers prey on distressed homeowners, knowing they are stuck between a rock and a hard place, desperate for a solution to the problem. Driven by this desperation, many homeowners make drastic mistakes, choosing to trust individuals who are less than honest. These mistakes can easily be avoided, however, if the homeowner knows how to identify a foreclosure scam
One very popular scam is known as equity skimming. “Foreclosure assistance experts” will often approach the homeowner and offer to pay off their mortgage. In exchange, the homeowner may be required to pay a small fee, and will be required to sign over the deed to the property. After receiving the deed, the “experts” then find a renter for the house and pocket the rent. They never pay anything on the mortgage and the bank forecloses anyway. The name on the loan is still that of the homeowner, therefore the foreclosure is recorded on his credit. In a slight variation to this, some scammers will offer to save your credit by having the foreclosure recorded against them, instead of you. Again, you have to sign over the deed to the home. The results are the same. The scammer does nothing for the home and the bank forecloses anyway, with the foreclosure recorded in the name of the homeowner.
Homeowners may also want to be aware of bankruptcy foreclosure scams. Scammers will approach the homeowner offering a solution to the problem, often for a fee. They may promise a refinance, they may promise to take care of the mortgage, or they may promise to make the payments in exchange for the deed, as mentioned above. In bankruptcy cases the scammers never contact the lender. Instead, they take any fees paid and keep them for themselves, and then file bankruptcy in the name of the homeowner. Sometimes the homeowner is aware, sometimes he isn’t. Bankruptcy is not a solution to foreclosure it is merely a delay in the process. Some homeowner may be able to sort out their finances and find a solution to the foreclosure, while it is being delayed, but for all homeowners the bankruptcy is reported on their credit and stays there for years to come.
Some homeowners are offered potential solutions that, in all honesty, may actually work. These solutions need to be considered carefully and looked over at every angle. In one such solution the homeowner will be paid to sign over the deed to their home. In exchange, the buyer will solve the default. This has the potential to work, but there are a lot of variables involved that must be considered. The homeowner needs to be aware of the amount of equity he is selling, and he needs to be able to trust that the buyer will fulfill his obligation by making the payments on the loan and curing the default. In this case the owner is still responsible for the loan, so if a foreclosure does occur it will be recorded in his name. If a homeowner chooses this option, he needs to keep himself informed and read any contracts involved.
Another potential solution may be found in a lease. An individual may offer to buy the property and lease it back to the homeowner, with the option for the homeowner to buy it back later. This can work, as lease options often do, but the homeowner must be aware that if he is able to qualify for a loan it will be a larger loan than the one he currently has. More than likely the interest rate will be higher as well. Both of these variables will result in a higher monthly payment. However, if the homeowner and buyer have agreed to a lease that will last a couple of years, the homeowner may be able to work out his credit and finances, enabling him to buy the house back when the lease expires. With this option he may be able to avoid foreclosure while still living in the home.
With any offer, there are a few signs homeowners can watch for that may tip them off to a potential scam. First off, be wary of up-front fees. Most investors and agents won’t charge a fee for their services until the deal is complete. It’s also wise to watch for people who want you to make your mortgage payment to them or their company, instead of your lender. Some people will try to convince homeowners not to talk to an attorney or their mortgage company. If they are truly honest, they should have no problems with these conversations. It’s also important for homeowners to read anything they sign. Individuals who pressure the homeowner into signing something they haven’t read, or offer to fill out the paperwork for the homeowner, may not be legit. And last, homeowners must be wary of any offer which requires them to sign over the deed to their property.
Homeowners must always be cautious. Scammers are not the only ones offering their services. Many honest investors and agents contact the homeowners, truly hoping to solve their problem. These individuals keep the best interest of the homeowner in mind as they navigate the foreclosure world. The smartest thing a homeowner can do is watch for the red flags and be wary of anything that seems suspect.
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