Definition
A foreclosure scheme is a type of real estate fraud where a deceitful individual, often known as a shyster, shortchanges homeowners who are at risk of defaulting on their mortgage loans. This predator convinces homeowners to transfer their property deeds to them and to pay substantial fees to purportedly cancel or “fix” their mortgage loans. However, the shyster pockets the fees and often takes out new loans against the property, ultimately exacerbating the financial distress of the homeowner and providing no resolution to the original loan default.
Key Characteristics:
- Targeting distressed homeowners
- Persuasion to transfer property deeds
- Charged fees for false services
- False promises of mortgage cancellation
- Financial profiteering without resolving the mortgage issue
Examples
Example 1
Harry and Helen Horn are four months behind on their mortgage payments. They contact Tricky Tom, who advertises himself as “The Mortgage Doctor”. Tom promises to “fix” the loan issue for a $2,500 fee. Succumbing to the promise, the Horns pay the fee and sign papers transferring the title to Tom. Tom keeps the $2,500 cash but does nothing to resolve the mortgage, leaving the Horns with looming foreclosure.
Example 2
Tricky Tom, upon deceiving another homeowner, falsifies appraisal documents and other necessary paperwork to secure a $10,000 second mortgage on the property under his name. After obtaining the $10,000 loan, Tom does not make the required payments, pockets the cash, and then disappears, leaving the initial homeowner further entangled in debt.
Frequently Asked Questions (FAQs)
Q1: How can I identify a foreclosure scheme? A foreclosure scheme can often be identified if someone asks for high upfront fees to cancel or fix your mortgage, guarantees stopping your foreclosure, or demands you transfer the deed to your home. These are red flags for potential fraud.
Q2: What should I do if I suspect I’m being targeted by a foreclosure scheme? If you suspect being targeted, you should refrain from signing any documents or paying any fees. Contact your mortgage lender directly, consult a legitimate housing counselor, or report the suspicious activity to authorities such as the Federal Trade Commission (FTC).
Q3: Can legal action be taken against foreclosure schemers? Yes, victims of foreclosure schemes can seek legal action against scam perpetrators through the legal system and may be entitled to various reliefs and compensations.
Q4: How common are foreclosure schemes? Foreclosure schemes are unfortunately common, particularly in times of economic hardship when more homeowners are at risk of default, making them prime targets for fraudsters.
Q5: Are there any legitimate services to help with mortgage issues? Legitimate services do exist and include HUD-approved housing counseling agencies, government programs, or directly working with your lender for potential loan modifications or refinancing options.
Related Terms
Deed: A legal document that signifies ownership of property.
Default: Failure to fulfill the legal obligations of a loan agreement, usually by missing several payments.
Mortgage: A loan secured by real property, often used to purchase the property.
Equity Stripping: The practice of targeting distressed homeowners to gain ownership of their property at a significantly lower value.
Predatory Lending: Deceptive and unfair lending practices that impose unfair terms and exploit borrowers.
Online Resources
- Federal Trade Commission (FTC) Consumer Information
- U.S. Department of Housing and Urban Development (HUD)
- National Consumer Law Center (NCLC)
- Better Business Bureau (BBB) Scam Tracker
References
- Federal Trade Commission. “Mortgage Relief Scams.” Available at: https://www.consumer.ftc.gov/articles/mortgage-relief-scams
- U.S. Department of Housing and Urban Development. “Avoiding Foreclosure.” Available at: https://www.hud.gov/topics/avoiding_foreclosure
Suggested Books for Further Studies
- “The Subprime Solution: How Today’s Global Financial Crisis Happened, and What to Do about It” by Robert J. Shiller
- “The Foreclosure Survival Guide: Keep Your House or Walk Away with Money in Your Pocket” by Amy Loftsgordon
- “Mortgage Ripoffs and Money Savers: An Industry Insider Explains How to Save Thousands on Your Mortgage or Re-Finance” by Carolyn Warren
