With so many homeowners in foreclosure, there are plenty of potential victims for scammers to prey on.  They are easy to find and desparate enough to be willing to try anything.  It is a dream come true for con artists who have a plethora of scams to run on unsuspecting homeowners who are in need of help.  The myriad of government programs, often complex in nature, make it easy for them to make their scam sound legitimate.  Homeowners need to be aware of the variety of schemes designed to rip them off.

First, it is important to note that there is help available for homeowners facing a potential foreclosure.  If you are behind on your mortgage and think that you may be in danger of losing your home, you should talk to your lender and ask for help.  There are programs available, such as the Home Affordable Modification Program and ALT MOD, that your lender can (and should) discuss with you.  You may also want to talk to an attorney to help you understand the process. 

If you get served with a foreclosure complaint, you need to file an answer.  At this point, you should definitely consult an attorney.  If you simply ignore the foreclosure you could quickly lose your home by default judgment. 

It is also important to note that if you are in a foreclosure situation, others may know about it - foreclosures are public records and it can make it easy for scammers to find you.  They may contact you by mail, telephone, or e-mail and describe themselves as "foreclsoure consultants" or "mortgage consultants" offering "foreclsoure prevention" or "foreclosure rescue" services. 

The scam artists use simple and straight-forward messages, like:

“Stop Foreclosure Now!”

“We guarantee to stop your foreclosure.”

“Keep Your Home. We know your home is scheduled to be sold. No Problem!”

“We have special relationships within many banks that can speed up case approvals.”

“We Can Save Your Home. Guaranteed. Free Consultation”

“We stop foreclosures everyday. Our team of professionals can stop yours this week!”

Once they have your attention, they use a variety of tactics to get your money.

The Office of the Comptroller of Currency published Consumer Advisory CA 2009-1 describing several common scams:

Foreclosure “rescue” and refinance fraud. The scam artist offers to act as an intermediary between you and your lender to negotiate a repayment plan or loan modification and may even “guarantee” to save your home from foreclosure. You may be told to make mortgage payments to the scammer directly — along with significant, up-front fees — and be told that the scammer will forward the payments to your lender. In reality, the scammer may pocket your money and leave you in worse shape on your loan. The scam artist also may tell you to stop making payments or stop communicating with your lender. Don’t follow that advice.

 Remember that your mortgage lender should be the starting point for finding options to avoid foreclosure. You also should consider contacting qualified and approved credit counselors.

Fake “government” modification programs. Unscrupulous people may claim to be affiliated with, or approved by, the government or may ask you to pay high up-front fees to qualify for government mortgage modification programs. While government-supported mortgage modification and refinancing initiatives are legitimate, the scam artists’ claims are not. Keep in mind that you do not have to pay to benefit from these government programs. All you need to do is contact your lender or loan servicer.

The scam artist’s name or Web site may be very similar to those of government agencies. The scam artist may use such terms as “federal,” “TARP,” or other words or acronyms related to official U.S. government programs. These tactics are designed to fool you into thinking the scam artist is somehow approved by, or affiliated with, the government. The government is taking actions to stop this fraud, but you also need to protect yourself. So be wary of claims offering “government-approved” or “official government” loan modifications. Your lender will be able to tell you whether you qualify for any government initiatives to prevent foreclosure. You do not have to pay anyone to benefit from them.

Leaseback/rent-to-buy schemes. In this type of scam, you are asked to transfer the title to your home to the scammer, who will, supposedly, obtain new and better financing and/or allow you to remain in the home as a renter and eventually buy it back. If you do not comply with the terms of the rent-to-buy agreement, you will lose your money and face eviction. The agreement may be very hard to comply with, because it may require, for instance, high up-front and monthly payments that you may not be able to afford. In fact, the scammers may have no intention of ever selling the home back to you. They simply want your home and your money.

Remember that transferring your title does not change your payment obligations — you will still owe your mortgage debt. The difference will be that you will no longer own your home. If payments are not made on the mortgage, your lender has the right to foreclose, and the foreclosure and any other problems will appear on your credit report.

Bankruptcy scams. You may have heard that filing bankruptcy will stop a foreclosure. This is true — but only temporarily. Filing bankruptcy brings an “automatic stay” into effect that stops any collection and foreclosure while the bankruptcy court administers the case. Eventually, you must start paying your mortgage lender, or the lender will be able to foreclose. Bankruptcy is rarely, if ever, a permanent solution to prevent foreclosure. In addition, bankruptcy will negatively impact your credit score and will remain on your credit report for 10 years.

Debt-elimination schemes. Scammers may claim to be able to “eliminate” your debt by making illegitimate legal arguments that you are not obligated to pay back your mortgage. These scammers will provide you with inaccurate claims about applicable laws and finance, such as that “secret laws” can be used to eliminate debt or that banks do not have the authority to lend money. Do not stop making payments on your mortgage based on their claims.

A friend of mine from law school recently told me about a client that came to see him after her house was sold at sheriff's sale.  She told him that she had been working with a "debt restructuring/negotiating firm" to help her keep her home.  She paid them $1,000 for their "services."  While they were "working with her lender" she was served with a Foreclosure Complaint.  She called them and was told "not to worry about it because it wasn't a Notice of Sale."  She believed them. 

Next she was served with a Default Judgment Entry because she did not file an answer in her foreclosure case.  Again, they said "don't worry about it."  Then, she received a Notice of Sale and they told her that "they weren't really going to sell her home because they were still working out a deal."

Last week, her home was sold at sheriff's sale - the lender bought it back.  The debt restructuring/negotiating firm told her that they had evidence, in the form of a forensic audit, of numerous violations by the lender of predatory lending laws.  Of course, they wouldn't share this evidence with her unless she paid them another $1,000. 

Remember, a foreclosure is a legal proceeding and you should "worry about it."  You need to file an answer, and you should consult with an attorney.  If it is possible to keep your home, you need to be proactive and communicate with your lender.  Be vary wary if anyone tells you that you should not contact your lender or an attorney.  And, you should be even more sceptical if anyone tells you not to make your payments, or worse - to make your payments directly to them!

Here is a list of "red flags" published by the Federal Trade Commission:

If you’re looking for foreclosure prevention help, avoid any business that:

• guarantees to stop the foreclosure process – no matter what your circumstances

• instructs you not to contact your lender, lawyer, or credit or housing counselor

• collects a fee before providing you with any services

• accepts payment only by cashier’s check or wire transfer

• encourages you to lease your home so you can buy it back over time

• tells you to make your mortgage payments directly to it, rather than your lender

• tells you to transfer your property deed or title to it

• offers to buy your house for cash at a fixed price that is not set by the housing market at the time of sale

• offers to fill out paperwork for you

• pressures you to sign paperwork you haven’t had a chance to read thoroughly or that you don’t understand.

If you’re having trouble paying your mortgage or you have gotten a foreclosure notice, contact your lender immediately.

There is legimate help available.  First, I recommend consulting with an attorney.  See if you can find one willing to give you a free consultation before you retain them. 

Second, you can contact the Homeownership Preservation Foundation (HPF), a nonprofit organization that operates the national 24/7 toll-free hotline (1.888.995.HOPE).  HPF is a member of the HOPE NOW Alliance of mortgage servicers, mortgage market participants and counselors. More information about HOPE NOW is at www.hopenow.com.

Third, if you think you may have been a victim of a scam, conact your state's Attorney General's office.  Many attorney generals are actively pursuing scams that prey on homeowners.  In Ohio, for example, Ohio Attorney General Richard Cordray announced lawsuits against two Ohio foreclosure rescue businesses for failing to provide services for which consumers paid, as a part of a national mortgage fraud sweep dubbed "Operation Stolen Dreams."