Foreclosure rescue scams are becoming more sophisticated, as perpetrators of such frauds devise more complicated schemes for taking advantage of homeowners seeking to avoid foreclosure.

Reports of such scams continue to come in at around double the rate of just a few years ago, according to a new report from the Government Accountability Office (GAO), while new types of scams are emerging, including some that involve the use of attorneys.

The basic model of such scams is charging an up-front fee in return for shielding a homeowner against foreclosure, often by negotiating a loan modification or legal strategies designed to block repossession of the property. However, law enforcement officials warn that many such schemes are based on illegal tactics and that no one can guarantee they can negotiate a way out of foreclosure for a homeowner.

Homeowners taken in by such schemes paid an average of $2,500 in fees to the scammers in 2012, according to the report, and sometimes ended up losing their home to the scammers as well.

The report details several of the new, more sophisticated scams that are being run:

Forensic audits

In this scheme, scammers offer to review a homeowner's loan documents in order to uncover possible legal defects they say would make the mortgage contract unenforceable. In many cases, scammers claim that 95 percent of all mortgages contain such flaws. In return for a fee, they promise to use such errors as leverage to negotiate more favorable mortgage terms for the homeowner, but do not do so and the home still goes into foreclosure.

Avoiding foreclosure through bankruptcy

The scammer promises to negotiate a loan modification for the homeowner in return for a fee, but instead of contacting the lender files a bankruptcy claim in the homeowner's name. This halts foreclosure proceedings and all debt collection temporarily, so the homeowner may think the negotiations have been successful.

In some cases, they may be paying fees to the scammer while collection efforts are suspended and not be aware a bankruptcy has been filed in their name. But eventually the foreclosure process resumes and the house is lost anyway.

Mass joinder lawsuit

This type of scam usually involves an attorney, according to the GAO. The pitch is that this type of lawsuit can be used to force a lender to grant a mortgage loan modification. While mass joinder suits can be used in this manner, law firms typically do not charge unless the suit is successful. In fraudulent cases, scammers use attorneys to file the initial lawsuit claims, but then do not follow up on the suits after being paid by homeowners. The Federal Trade Commission reports that fees charged to homeowners in such scams often range from $6,000 to $10,000.

Short sale schemes

Scammers present themselves as "short sale negotiators" or "short sale processors" and promise to negotiate a short sale for a homeowner in return for an upfront fee. However, they make little or no effort to deliver on this promise once the fee is paid.

Older homeowners, minorities targeted

Certain groups are more likely to be targeted by foreclosure rescue schemes, according to the report. Figures from the Lawyer's Committee for Civil Rights under law show than 49 percent of all complaints regarding such schemes that were received in 2012 were filed by persons aged 51 and older.

Minority communities are also being increasingly targeted. African-Americans accounted for 17 percent of foreclosure scam complaints filed with the Lawyer's Committee in 2010, rising to 20 percent in 2011, 22 percent in 2012 and 24 percent in the first four months of this year. The GAO also noted evidence of telemarketers targeting Latino communities with suspicious foreclosure rescue offers.

Published on October 30, 2013