Chapter Two - Foreclosure Scams - There are predators out there who look at homeowners in poor financial situations as easy prey, devising a number of scams and fraud attempts to take advantage of people who are already on a heck of a ...
Chapter Two - Foreclosure Scams -
There are predators out there who look at homeowners in poor financial
situations as easy prey, devising a number of scams and fraud attempts
to take advantage of people who are already on a heck of a financial
rollercoaster. It is important that you protect yourself by staying current
on the foreclosure fraud and scams that are circulating, so that you do not
get taken by one of these fraudsters. Here are some of the more
prevalent scams that people are trying to pull over on homeowners and
families buying homes or facing foreclosure.
- Sales Leaseback - People often tout this as an easy deal, requiring that
the homeowner hand his or her deed over to an "investor" for little or no
money, on the basis that the homeowner can continue to live in the home,
leasing it back with the option of repurchasing within a year. This may
sound like an excellent concept, but there is a serious catch involved.
Even if you sign the deed over to someone else, you are still legally
responsible for the mortgage, meaning that you would be paying both the
original mortgage and the lease amount to the investor. Paying twice what
you were already having difficulty paying will be close to impossible and
one missed or late payment will have you evicted from the home, and the
home sold out from under you.
- Predatory Lending - Unfortunately, there are a large number of
lenders out there who offer loans with the specific intention of taking
advantage of borrowers who cannot afford to make the payments. If there
is any equity in the home at all, these lenders will attempt to take it all in
the form of incredible fees, exorbitant interest rates, and nightmare
prepayment penalties. While new laws are being passed that prohibit
many of these predatory practices from occurring, it is still quite easy for
lenders to take advantage of homeowners in bad financial situations.
Here are some of the predatory lending practices that you need to steer
- Frequent Refinancing - The frequent refinancing of loans without
offering any real benefits to the homeowner or borrower, or frequent
refinancing of loans simply so that the lender may generate additional
fees for him or herself.
- Equity Switching - Equity stripping, by persuading an owner in dire
financial straights to take out a loan far beyond his or her ability to repay
- Bait and Switch - Attempts at bait and switch, where lenders advertise
a specific set of 'teaser' fees and interest rates, then the rates and fees
skyrocket suddenly at the point of closing, reaching points that are
beyond the homeowner's means.
- Appraisal Inflation - Inflating appraisals up front, forcing the
homeowner to take on much larger loans with much higher interest rates.
Homeowners lose the opportunity to refinance the amount of the loan at a
later time, because the value of the home is no longer enough to cover
the full amount of the loan.
- Loss Mitigation - This practice is regularly referred to as "I can prevent
your foreclosure, but only if you pay a fee". People who try to force this
type of a process on unsuspecting people tout it as the ability to stop or
prevent foreclosure, but only for a fee paid up front. The problem with this
type of service is that the "rescuer" cannot guarantee that they will
actually prevent your foreclosure from occurring, yet they still collect your
fee up front. If you want to protect yourself as a homeowner in a bad
financial situation, there are much easier ways to do it without paying
exorbitant fees to "rescuers" who more than likely will not be able to help
- List and Sell - This is a scheme that is becoming quite popular among
real estate agents and brokers looking for additional income streams. The
concept is simple: The real estate agent convinces a homeowner in default
to allow the agent to list the home in an attempt to sell it. The real estate
agent promises that if the home is not sold within the period before the
foreclosure auction, which is typically around sixty days away, he or she
will purchase it.
But here is the catch: In too many cases, the real estate agent will
drastically overprice the property when listing it in the MLS or Multiple
Listing Service, so that nobody expresses any interest in purchasing it.
Then when it does not sell, the agent is able to purchase it for
substantially less than what it was listed for.
- Hiding things in the contract - Some scammers and predatory
lenders like to hide a variety of different bombshells right in the contract
where they cannot be found. They wait until the absolute last minute, and
then make these hidden terms known. By now, it is too late for the
homeowner to renegoti