Foreclosure Rescue Scams on the Rise – Here’s How to Avoid Them

By Brandon Cornett | 3/25/09
© 2011, All rights reserved

I just saw a segment on my local news channel about the startling rise in foreclosure rescue scams in the United States. I’ve covered this topic before on the Home Buying Institute news blog, but never on this blog. So here’s an updated look at the most common foreclosure scams in use today, and what you can do to avoid them.

How a Foreclosure Scam Works

While they vary slightly from one scammer to the next, the promise is always the same. These scams promise to rescue homeowners from mortgage foreclosure by intervening on their behalf. Typically, the company will tell you not to contact your lender, claiming that they will do this on your behalf. This is contrary to the advice I give — you should always contact your lender first if you are falling behind on your payments.

Many of these scam artists will tell you to send payments directly to them, instead of the lender. Again, this contrary to common sense. But many people fall for it all the same. By the time they realize they’re being scammed, they’ve paid thousands of dollars to the company running the scheme.

A Rising Trend

As long as their have been home foreclosures in this country, there have been unscrupulous people trying to take advantage of them. So these rescue scams are nothing new. It’s the rising frequency that I find startling. So far in 2009, there have been more than 500 indictments related to foreclosure rescue scams (with quite a few convictions as well). At this rate, the number of total scams in 2009 will tower over the numbers from previous years.

Only You Can Rescue You

Here’s the bottom line. No third-party company should come between you and your lender. This is the primary “business model” used by companies that perpetrate foreclosure rescue scams, so should always be viewed as a red flag. Certainly, there are reputable organizations that can give you advice and direction (such as a HUD-approved housing counselor, or the National Foundation for Credit Counseling). But nobody can make your debt disappear or force your lender to modify your loan. You must work with the lender directly, if you want to refinance or modify your loan.

Anytime a company says they can “act on your behalf,” you should immediately become suspicious. This is a hallmark of the foreclosure rescue scam artists. And if they tell you to send mortgage payments to them instead of your lender, you should report them to your state attorney general’s office.

Conclusion and Summary

We have covered a lot of information up to this point, so let’s recap some of the key points made in this article:

• As the rate of home foreclosure continues to soar, the frequency of “rescue” scams increases as well.
• Companies perpetrating these scams will often ask you to pay their fees in advance.
• In some cases, they will tell you to send mortgage payments directly to them, instead of your lender.
• Another red flag is when a third party tells you not to talk to your lender, and that they’ll do it on your behalf. This is bad advice, plain and simple.
• You may be eligible for help under the government’s Making Home Affordable program. But you do not need to work with a third-party company to pursue this option. You can research and pursue government assistance for yourself.
• You can learn more about foreclosure rescue scams through the links provided below. You can probably find local information on your state attorney general’s website, as well.

Where to Learn More:

• Foreclosure Prevention Scams on the Rise (Home Buying Institute)
• Consumer Advisory from the Treasury Dept.
• An FTC Fact Sheet from 2008

Help Us Spread the Word

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