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What Is a Foreclosure Scam?

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  • Written By: Jeremy Laukkonen
  • Edited By: Allegra J. Lingo
  • Last Modified Date: 17 November 2016
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    Conjecture Corporation
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When an individual is in danger of losing his home due to nonpayment of a mortgage or taxes, he may fall victim to a foreclosure scam. These scams usually offer to save the homeowner from foreclosure through one of a number of different fraudulent means. The two main types of foreclosure scam promise to either save a homeowner's credit or allow him to stay in the house. Some dishonest people may also pretend to be lawyers or promise nonexistent legal services. Facing the possibility of a foreclosure can be very stressful, but any deal that seems too good to be true could in fact be a scam.

One type of foreclosure scam promises to save the homeowner's credit. Defaulting on a loan can be very damaging to a credit rating, so some dishonest people or organizations will offer to absorb that damage if a homeowner signs over his title. This risky action can actually cause the homeowner to lose ownership of his house but still maintain financial liability. A variant of this foreclosure scam may offer the homeowner a small amount of money to sign over his title, though it can come with the same type of risks.

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Another type of foreclosure scam is sometimes referred to as rent to buy. This type of scam usually involves an offer to allow the homeowner to stay in his house and pay rent if he signs over his deed. There may be a promise that someone with better credit will apply for a new loan on the property, and that the original homeowner will be able to purchase it back later. In practice, the scam artist may take rent payments but ultimately leave the homeowner responsible for his unpaid mortgage.

Other scam artists may pose as counselors, auditors, or lawyers. Any unsolicited offer of advice or auditing services regarding an impending foreclosure should typically be looked at with suspicion, especially if an up front payment is requested. In the United States, these types of activities are highly regulated. Legitimate providers of these services are not allowed to charge up front unless the homeowner agrees. If someone offering a mortgage or foreclosure relief assistance service demands payment up front, they may be breaking the law.

Lawyers are one notable exception, as they are typically allowed to charge a retainer if they comply with regulations. According to United States law, a lawyer providing assistance regarding mortgage relief or loan modifications may ask for an up front retainer if he places it in a trust account. The lawyer may then draw on that account, but only when he provides tangible legal services and informs his client.

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