Watch Out for Scams!
As you are searching for a solution to stop your foreclosure, you will likely be inundated with potential scams. Some scammers seek you out in the form of unsolicited mail, phone calls, even people knocking on your door. The Internet is full of web pages claiming to be able to stop your foreclosure – and most are scams of one form or another. People in desperate situations are a prime target for scammers because the victim wants to believe that there is an easy way out of their situation. There is no magic bullet to stop foreclosure. Your mortgage / deed of trust is a well defined, time-tested legal contract that you willingly entered into. There are many ways to stop a foreclosure, but you must never forget the old, true statement that “If it seems too good to be true, it probably is.” Some of the scams I’ve heard of include:
Mortgage Cancellation
These guys will try to tell you that mortgages are illegal documents and that banks commit some kind of crime by not disclosing to you how they borrow money. They will cite court cases where people allegedly had their mortgages “cancelled” by suing their lender and ended up with their house for free. They allege that the Federal Reserve is unconstitutional and the mortgages are somehow against the law. All you have to do is send in a few hundred bucks and you’ll get a package with the forms etc. to start the process! Other variations of this scam claim that they’ll take care of everything for you – all you do is fill out a form, send in your money, and they go to work canceling your mortgage using some secret loopholes that only they have discovered.
Needless to say, if this were actually true, word would spread like wildfire and everyone would be cashing in on the free house bonanza. This would result in the mortgage companies instantly changing their legal documents to prevent it and exerting their considerable lobbying power in Washington D.C. to close the alleged loopholes. Without getting into a big discussion on macro economics – this type of loophole would be a disaster for the economy.
This scam has close cousins claiming you can cancel credit card debt and even your income taxes. Do not fall for any of these scams! I personally know people who have – and who paid dearly for their naivety. One couple bought into the “You don’t have to pay your taxes because it’s unconstitutional” scam and ended up having to file bankruptcy as a result. In fact, when they finally did see the error in their ways and tried to negotiate with the I.R.S. through an attorney, they were turned down cold. It seems the special I.R.S. programs for one-time negotiation etc. are not open to people who have participated in these schemes.
There is no such thing as a free lunch – OR a free house, or free taxes, or free credit card bills.
Other Up-Front Fee Scams
There are many variations of this scam where you are promised some sort of service for in exchange for a fee paid in advance. This may be an “application fee”, a “program fee”, etc. The bottom line is you’ll never see that money again and they won’t do anything to help you stop the foreclosure. Remember – if they are asking for your money up front, be wary. “Loss Mitigation Consultants”, “Foreclosure Consultants” or “Case Reviewers” will offer to review your situation, negotiate on your behalf, coach you on improving your credit, or provide help selling your home. You may be asked to send hundreds of dollars up to one month’s mortgage payment to these scammers to get started. Often these guys stop answering the phone once they have your money. In most other cases, they are simply performing things that you can do yourself for free.
Quit-Claim Deeds / Powers of Attorney
As discussed in later chapters, if you need to sell your home fast, your local, professional real estate investor can be your best friend – IF you’re dealing with an honest, professional investor. It is very important that you understand exactly what you’re signing. In particular, anytime you are signing a deed, understand that you ARE transferring ownership of the house. The investor may promise that you can get the house back, but it may prove to be impossible. Go over any contracts with a microscope and make sure everything is in writing!
Some investors will get you to deed the house to them by signing a “Quit-Claim deed” or other document. They may also ask you to sign a power of attorney so they can make decisions regarding the property on your behalf and without your knowledge. If you are ready to dump your house and get out of town with no care what happens to the house or your credit, you might want to sign those papers – you will at least have a chance that the investor will do as they say and keep the foreclosure off your record. However, you could find yourself in a position where the investor fails to keep his promises and you could be left holding the bag. If you deed the house, you no longer own it, but are still responsible for loan! And if you signed a power of attorney, you have no control over it, whatsoever.
Deeds in Escrow
Another variation is the “Deed in Escrow”, where the investor will loan you enough money to stop the foreclosure and then hold a deed from you to him “in escrow” until you pay him back. He’ll put you on a payment plan and promise to tear up the deed once you’ve paid him back. But the minute your payment is a day late, he simply records the deed and owns the house. You’ll have nothing to prove that he loaned you money and he’ll have a deed signed by you giving him the house.
Trust Scams
Be wary of an investor or company that proposes transferring your house into a trust. If you deed your house to a trust, and someone else is the trustee, then you have essentially given your house away. They may promise that once you pay back a loan (which they give you to stop the foreclosure), they’ll give you back the house. But in reality, you no longer own the home, and they can evict you at any time. Trusts are used for privacy reasons and to fool mortgage companies that ownership has transferred of the house. Never sign any sort of trust agreement or deed to a trust without getting an attorney to review the documents!
Seller Leasebacks
Another investor scam to be wary of is “Seller Leasebacks” or similar arrangements. Not every Seller Leaseback is a scam but if the terms are such that you are robbed of your equity, and the terms and price under which you can repurchase the home are impossible…you get the idea. Because there are honest seller leaseback arrangements, I’ve devoted an entire chapter to this later in the book. Just be aware that these arrangements need to be examined very carefully before you agree to them.
Bankruptcy Scams
If you are in foreclosure, you are likely getting lots of mail from law firms. Despite what their marketing materials say, they want you to file bankruptcy. The “plans” and “programs” they refer to in their solicitations mean Chapter 13 repayment plans and bankruptcy programs. Attorneys routinely pressure people in foreclosure into bankruptcy by telling them it is the only way to save their house. However there are numerous avenues to stop foreclosure without resulting to filing bankruptcy, as you will soon see.
The “BK” may be the best option for you – but it could be the worst. We will cover this in detail in the Bankruptcy chapter.
Are You a Victim?
If you have fallen victim to one of these or another scam artist, you immediately contact management at the company and request a refund. Tell them that their service was not what they represented and be persistent. Tell them you intend to take the actions in the next paragraph if you are not issued a refund immediately.
If you are unable to contact the company or they ignore your request for a refund, you should report them to the Better Business Bureau and the Attorney General of your state. Get in online forums, and post your experience – but stick to the facts.
