Steps of Foreclosure

Common Foreclosure Scams

With the rise in foreclosures, the number of common foreclosure scams are also on the rise. As a homeowner, you need to know about foreclosure scams and how you can avoid them at all costs. Common foreclosure scams will prey on homeowners who are desperately looking for a solution to their housing problems.

Common Foreclosure Scams #1: - Equity Skimming
You can't make your payments on your home anymore and so decide to put your house up for sale. You have a buyer who makes you a full asking price offer and claims they can solve all your financial problems by telling you they will pay off your mortgage. The buyer will suggest that you move out of your home right away and sign the deed to the property over to them. Once you move out you are assuming that the buyer will continue to make the mortgage payments. Unfortunately, the buyer collects rent on your house for the next six to eight months and does not make any mortgage payments. The lender then has no choice but to foreclose on the property. As a homeowner you need to understand that signing over the deed to your property does not relieve you of the obligation to pay off the outstanding loan on the property.

Common Foreclosure Scams #2: - Bait and Switch
This scam is where the buyer tells the current homeowner that they will bring the mortgage current and the current homeowners can continue to live in the home. This buyer is only after the equity that the current homeowner has in the property. The buyer insists they need to have certain documents (such as the deed) signed to give them ownership and protect their interest. After the documents are signed, typically the current homeowner will receive an eviction notice from the new owner of the property.

Common Foreclosure Scams #3: - The Bailout
This type of scam also involves the homeowner signing over the deed to the buyer and then renting or leasing the house with the promise that you will eventually be able to buy it back. Typically the terms of the lease agreement to buy back the house are so restrictive that it makes it impossible for the original homeowner to ever buy back the house. The scam buyer usually walks away with most or all of the equity in the property.

The best way to protect yourself against any of these scams is to not sign any papers that you don't fully understand and are being pressured into signing. Don't make payments to anyone other than your lender. Don't sign the deed over to anyone without a clear agreement that will protect you. Don't pay anyone who claims they can magically stop the foreclosure auction. If you have any doubts about what a potential buyer is offering you, contact an attorney or title company and ask questions to get help.