From Bad to Worse: Foreclosure Fraud

All across the U.S., more than 1 million homes have been put in foreclosure so far this year. A recent study commissioned by the Greater Minnesota Housing Fund predicts that 28,000 homes within the state alone will be foreclosed on in 2008, which is not only a 39 percent increase from a year ago but would be a record for foreclosure homes in Minnesota. If those projections are accurate, it means that between 2005 to the end of 2008, one in every 31 households statewide will have gone through the foreclosure process.

With more foreclosures occurring throughout the country, "foreclosure rescue" scams are also on the rise. From California to Indiana to New York, to right here in Minnesota, unsavory individuals have been calming the fears of residents facing foreclosure with promises of help, only to swindle them out of their homes and equity in the end. Thus, the end of the predatory lending outrage has simply transformed into the beginning of foreclosure fraud scandals.

Some elected officials have been requesting federal legislation to prevent predatory lending. Others have been asking lenders to voluntarily delay raising adjustable rate mortgage rates for home owners in the most trouble. Individual states are stepping forward in attempts to protect homeowners from this new scam as well. About twelve states have enacted laws designed to crack down on fraud by "foreclosure consultants" who claim to help homeowners in trouble.

Earlier this month, Attorney General Lori Swanson filed lawsuits in Hennepin County District Court against several out-of-state companies which had billed themselves in Minnesota as “foreclosure prevention experts”: National Foreclosure Relief; Lewis Loss Mitigation of Alabama, which also does business as Stop Foreclosure and Lewis and Associates Consulting; D.R. Financial Services of California, which also does business as D.R. Financial and Superior Home Loans; and Mortgage Default Assistance of Florida, and Home Assure of Florida. Swanson is also seeking injunctions to stop the companies from operating in Minnesota, part of an ongoing effort by her office to stop foreclosure fraud. It is alleged that they violated state law by collecting fees up front before completing the services they agreed to do. In addition, the companies did not deliver on their promises to save homes from foreclosure, resulting in losses for some residents.

Some of the companies are taking money for services up front and simply not performing their tasks as described. Some companies ask residents to hand over ownership of their house, effectively making them renters in their own home, all the while promising that after a few years they will be able to reclaim ownership. Some homeowners have even signed papers, thinking they’re agreeing to help, only to find they have inadvertently signed ownership of the home to their supposed credit counselors. The method isn’t always the same, but the result usually is. Some lost their homes outright. Other deceived homeowners ended up spending extra time and money trying to save their homes: time and money which could have gone toward good use at lawful organizations which truly do help homeowners.

If you find yourself facing foreclosure proceedings, there are many honest and ethical organizations willing to help. You just need to find them! Here are some tips to help lead you in the right direction.

1. If you have received a foreclosure notice, or even if you feel you won't be able to make your mortgage payments, it is imperative that you contact your lender immediately. In reality, lenders do not want to foreclose on your home. It is expensive for them and can cut into their profits. If you communicate effectively from the first signs of trouble, you may be able to negotiate your payments and schedule.

2. Be suspicious of marketing procedures. That man soliciting your business by traveling door-to-door or that woman distributing flyers in the parking lot is not a professional. Be wary of any “rescue” ads or deals which proclaim they can save your home or that they will pay your mortgage. Offers to lease back your home, so you can buy it back over time, are weighted against you and you should never agree to such terms. Avoid marketing pitfalls by watching for false promises, such as a guarantee to "save your credit."

3. Don’t be fooled by anyone calling themselves a foreclosure “specialist” or “consultant.” Walk away from anyone who promises to persuade your lender to negotiate or to find a buyer for the house. After all, you as the homeowner and mortgage borrower are in the best position to negotiate. Realtors, brokers, or real estate agents can find a buyer for your home if it is necessary.

4. Verbal agreements mean nothing: Get it in writing! Then, review the paperwork with a lawyer. Don’t be pressured to sign a contract without reading it thoroughly. And certainly do not ever sign anything which has blank spaces, as anything could be added later without your knowledge. Check out any reports on them at the Better Business Bureau. Make copies of the paperwork for you to keep on hand in case they try to pull anything.

5. A legitimate company will explain everything in detail. They will not be pushy or try to bully you into signing anything. They will sit down with you and carefully collect documentation. When they put together a package, it will be presented to both you and your lender. After all, your lender is part of this equation.

The number of foreclosure fraud, real estate scams, and predatory lending cases are increasing. Scams to take advantage of homeowners in trouble are getting more creative. As a homeowner, you need to protect yourself and your family from the wolves. Even if you are facing foreclosure, a positive outcome is still possible. The first place to start is always to discuss your situation with your lender. If you seek more help, research the company ahead of time before you meet with them. It is your home and your investment, do your best to protect it!