Buyer Beware! 3 Foreclosure Scams and How to Spot Them

By: Nef Cortez

If at any time the adage of "Let the buyer beware" were
applicable, it would certainly be when a homeowner is
experiencing foreclosure. Distressed homeowners
undergoing foreclosure are often approached by less than
ethical business people (lenders, financial advisor and/or
realtors) that are more interested in their own financial
gain than "helping" the homeowner to get out of
foreclosure.
A homeowner should be very wary of such too-good-to-be-
true offers and keep in mind that each foreclosure
situation is unique to the individual homeowner. While
some homeowner's may be seriously in debt, unemployed and
overextended, others may have enough equity and credit to
be able to sell their home or restructure their loan. The
first rule of thumb a homeowner should determine to do is
to explore ALL their options, this would help them avoid
or be tempted by some of the following foreclosure scams.

Equity Stripping or Skimming

In this type of scam, a "buyer" approaches the homeowner,
offering to assist the homeowner out of financial trouble
by promising to pay off their mortgage or give them a sum
of money when the property is sold. The "buyer" may
suggest that the homeowner should move out quickly and
deed the property to him or her. The "buyer" then collects
rent for a time, does not make any mortgage payments, and
allows the lender to foreclose. Remember, signing over
your deed to someone else does not necessarily relieve you
of your obligation on your loan. A homeowner may find
himself saddled with the loan he thought he had signed off
on and therefore, in a worse financial situation then the
previous one he or she was experiencing.
If the home has a lot of equity in it the "skimmer" will
sell the home, pay off back debts on the home, and keep
the equity the homeowner could have had if they had sold
their home themselves.

Straw Buyer

A straw buyer (usually a person with good to excellent
credit) is usually offered a payment, often several
thousand dollars, for the use of their name and credit
information to make a "false purchase". A straw buyer may
or may not know that their name will be on the mortgage
application. Straw buyers are also used to sign documents
that contain false information. For example a straw buyer
might sign something that states that the purchaser
intends to live in the property when they really have no
intention of doing so. If any document is signed that
states the property is worth a specific amount, but the
straw buyer has never seen the property, they are
committing fraud. If the lender asks if the down payment
came from the straw buyer's own funds and he/she answers
dishonestly, this too would be fraud.
After a straw buyer takes title to the property, the
originator of the scheme, be it a realtor or loan officer
behind the scheme usually assumes the mortgage and the
title to the property. However, a straw buyer may still be
responsible for a mortgage even after someone else has
assumed it because it was obtained fraudulently.
It is a criminal offence to obtain credit under false
pretences. If payments are not made on the mortgage, the
lender will foreclose on the property to recover their
losses. The straw buyer could be sued for the difference
between the amount of money received from the sale of the
property and the amount of money owed on the mortgage.

Signing Over Their Deed

A distressed homeowner having trouble keeping up with the
mortgage is pursued by another lender, who tells him it's
necessary to deed the house over to him in exchange for
new financing. Often, the money never comes, and the scam
artist sells the property to someone else. Don't ever sign
your deed away!
In addition, a homeowner should beware of solicitations
either by mail or phone from counseling agencies that
charge exorbitant fees to ??assist?? them. Some groups
calling themselves "counseling agencies" may approach the
homeowner and offer to perform certain services for a fee.
These could very well be services the homeowner could do
for themselves for free, such as negotiating a new payment
plan with the lender, or pursuing a legitimate pre-
foreclosure sale. Review the legitimacy of these
businesses with the Better Business Bureau or other
federal agencies.

Some general tips a homeowner should keep in mind is to
call or write their mortgage lender immediately and be
honest about their financial situation. Many lenders have
programs to assist homeowners in financial distress.
Also, the homeowner should make sure that they stay in
their home to make sure that they qualify for such
assistance. Most importantly, a homeowner should explore
ALL their alternatives before taking any action.

Foreclosures
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 

» More on Foreclosures