Foreclosure Fraud on the Rise

Data provided by RealtyTrac indicates that third quarter 2008 foreclosure filings numbered roughly 765,000.  This spells gold for conmen who are willing to pounce on tragedy.

Ancient Greek playwright Sophocles once recommended that it's better to "fail with honor than succeed by fraud."  Unfortunately for at-risk homeowners, there's a whole class of criminals out there who don't have much interest in heeding the writer's advice when it comes to mortgage fraud.

Foreclosure scams promise miracles

State housing divisions and the FBI are reporting a spike in foreclosure scams and mortgage fraud. The scams typically follow the same general pattern; someone makes contact with the delinquent borrower, and promises a solution that will either save the home, or save the homeowner's credit. Some variations include:

• Sign it over and you're off the hook. The point man tells the homeowner that she can bypass the credit score impacts of foreclosure by signing the home over to a third party.

• Let me lease it back to you. The mortgage fraud perpetuator offers to purchase the home, and then lease it back to the original owner. And, since he's such a nice guy, he'll write up the lease to include an option to buy the home back at a later date.

• I'll work it all out for you. The foreclosure con claims to have an inside relationship with the lender. He gains trust and offers to use this relationship to settle the foreclosure with no adverse impact on the homeowner's credit report.

• I guarantee a short sale. The scam artist guarantees the homeowner that he can negotiate a short sale with the lender.

• A land grant (or bond program) will save you. The point man informs the homeowner of a land grant or bond program that can block the foreclosure process.

• This seminar teaches you everything you need to know to save your home. The homeowner is convinced, either through advertising or direct contact, to attend expensive counseling sessions to learn the tricks of averting foreclosure.

In reality, none of these proposals are valid foreclosure solutions. Signing over the home won't help; short sales must be negotiated directly between the homeowner and the lender; and there are no land grants or bond programs that will pay off a homeowner's mortgage. Counseling sessions that make big promises are generally worthless, too, particularly since homeowners can get free, qualified advice from the HOPE NOW hotline.

Charging fees, stealing identities

The tricksters running these foreclosure scams are after money, home equity, and identity information. Some may be happy to take a few thousand dollars and run, while others will keep milking their source until they arouse suspicion. Homeowners are advised not to trust anyone who offers a simple or guaranteed solution. Any reputable resolution will always involve direct communication between the lender and borrower, not a third party. Another ancient quote is applicable here-it was Aristotle who said, "Misfortune shows those who are not really friends."