Increasing numbers of homeowners are falling behind on their mortgage payments and face the prospect of foreclosure. With the rising tide of foreclosures has come a wave of con artists who promise to “rescue” the homeowner, but who actually run scams designed to strip the property’s built-up equity or to steal the title outright.
Foreclosure rescue scams, also known as home equity thefts or deed thefts, target vulnerable homeowners who are short of money and fear losing their homes. Desperate for assistance, many of these homeowners are easy prey for so-called “foreclosure rescue specialists” who claim they can “stop the foreclosure” or “save your house.”
Foreclosure rescue scams have been described as a “serious epidemic” in New York. The scammers market their services by plastering signs and posters on telephone poles and bus stops in low- and moderate-income neighborhoods. They also contact homeowners directly by phone, a personal visit, or leaving a flyer at the door.
The “rescuers” promise a “fresh start” that will allow homeowners to pay off mortgage arrears and keep their homes. But the reality is that these con artists are out to steal titles, not to provide assistance.
Help is on the way in the form of New York’s Home Equity Theft Prevention Act, which took effect in 2007.
How the Foreclosure Rescue Scam Works
There are several variations on the foreclosure rescue scam, but most fall into one of the following three categories:
- Bailout” or “Lease/buyback” - The scammer tells the homeowner that title must be transferred to someone else with better credit, so that new financing can be obtained. The scammer also assures the homeowner that they can remain as a renter, make “lease” payments, and buy back the house at a later date. The problem: after the deed is signed away, the scammer evicts the homeowner, and the homeowner permanently loses possession and title.
- “Bait and switch” - The scammer tells the homeowner that their loan will be refinanced. Hidden amidst the loan documents which the scammer instructs the homeowner to sign is a deed which transfers title to the scammer. Title is literally stolen out from under the homeowner.
- “Phantom help” - The scammer offers consultation services to the homeowner and makes grandiose promises about how he can prevent foreclosure. The scammer charges outrageously high fees but provides few if any services. The scammer gets paid, while the homeowner ends up in even worse shape than he started.
Provisions of the Home Equity Theft Prevention Act Protections
- The homeowner has the absolute right to cancel the deal within five days of signing the contract.
- The law prohibits making false statements with intent to defraud the homeowner.
- A written contract must be provied that includes disclosure regarding the terms of the title transfer.
- The homeowner can cancel the deal for up to two years for violations of the law.
- The company that ultimately ends up acquiring title to the property by leasing the home back to the homeowner must pay the owner at least 82 percent of the property’s fair market value.
- The law establishes civil and criminal penalties for violating the law.
- Consumer education notices must be sent to all homeowners in foreclosure warning them about mortgage foreclosure scams.
Tips to Avoid Being Scammed
If you’re behind on your mortgage payments and are facing foreclosure, consider the following:
- DO contact your lender and try to refinance the loan or work out a payment plan.
- DON’T ignore warning letters from your bank or lender. The problem will not go away, and will only get worse if you ignore it.
- DO contact an attorney.
- DO contact a reputable counseling agency.
- DON’T sign a contract under duress.
- DON’T sign any documents without consulting with an attorney or counseling agency.
- DON’T sign any agreement with blank lines or spaces.
- DON’T enter into oral agreements.
- DO get everything in writing.
- DON’T sign over your deed to a third-party or agree to any deal that supposedly allows you to rent the property and buy it back later.
- DON’T sign any documents without reading them first.
- DON’T make your mortgage payments to someone other than the lender.
- DON’T make a deal with someone who solicits you uninvited by mail, telephone, flyer or in person.
- DON’T fall for promises that sound too good to be true. That’s a tell-tale sign of a scam.
What to Do if You've Been Scammed
If you’re caught up in a foreclosure rescue scam, you should contact an attorney immediately. If you’re low income, you may qualify for free legal services. Go to Lawhelp New York for further information about free legal services.
A not-for-profit counseling agency may also be able to help. Visit the Department of Housing and Urban Development (HUD) for a list of counseling agencies approved by them. HUD can also be reached by telephone at (1-800) 569-4287 or TDD (1-800) 877-8339.