Mortgage Relief Scams And How to Avoid Them
The American real estate sector bears witness to the sale of over 5.96 million homes every year, out of which 63% are financed by a mortgage. While mortgages were intended to be an opportunity for aspiring homeowners, it has also become a thriving opening for enterprising scammers.
A mortgage is always taken against a property. When you default on paying the monthly installment, the lender acquires the right to foreclosure, or more plainly, the right to seize (and sell) your property.
Scammers often reach out to desperate homeowners who are contemplating ways to avoid foreclosure. Usually, these fake “attorneys” or “property consultants” would demand anything between $1,000 to $5,000. In one such scam, a company that went by the name of Shmuckler Group stole approximately $2.8 million from desperate borrowers.
To help you avoid these types of losses, here is everything you need to know about mortgage scams, how to identify them, and the measures you can legally take to avoid foreclosure.
Know Your Rights To Keep Away From Scams
The Federal Trade Commission (FTC), America’s consumer protection agency, has a rule in place called the “Mortgage Assistance Relief Services Rule”. This rule makes it illegal for any company to ask for payment until a borrower has received some form of relief from the service. This means that you only pay for a service after the job you are paying for is done.
Additionally, the rule requires all the companies to disclose whether they are associated with the Government. They are also bound to tell you that your lender may not agree to waive off your loan despite the services.
These consultancies or legal firms should also warn you about the consequences of not paying the mortgage directly to the lender, a huge disadvantage being this could damage your credit score. Under no circumstances would they ask you to stop talking to your lender or lawyer.
If you find any of these rules being violated, it is a sure-shot scam. Keep reading to familiarize yourself with the most common mortgage relief scams.
1. Counseling On The Phone Or Helping Anonymously
A scammer claims that they could help you negotiate with your mortgage lender in this particular con. They may even promise to rescue you from foreclosure. However, they will always insist you do not discuss this conversation with your lender or loan counselor.
Once you pay them their fees, they'll simply stop taking your calls.
Some scammers might ask you to deposit a reduced mortgage payment into an account. They assure you that the payment will be redirected to the lender, but that never happens.
2. Forensic Audit
This is one of the more sophisticated cons whereby the scammer claims to be a mortgage or foreclosure prevention auditor. They offer to scrutinize your mortgage papers for illegalities. They also offer to lower the mortgage amount or even cancel it.
3. Rent-To-Buy Schemes
In this common con, a scammer will ask you to transfer the property to their name, while they allow you to continue your stay as a tenant. They assure you that you can always buy the property back whenever you’re ready.
However, if you transfer your property to the scammer, they can always ask you to vacate the house. They may even sell the property to someone else, thus, rendering all your previous installments futile.
4. Bait And Switch
As the name suggests, the perpetrators bait you into signing “legal papers”. From a quick glance, the papers seem to be about waving the mortgage off. However, amidst the bulk of these papers, the fraudsters sneak in a transfer deed for your property. With your signature on that paper, you have lost your house without even realizing it.
Legal Methods To Get Navigate Foreclosure
If you are ever the recipient of a foreclosure notice for your property, the first step is always to speak to the lender. In certain cases, there might be a way to negotiate through these situations. You could also seek help from the housing counseling agencies approved by the US Government. Apart from these steps, there are other options you can explore when navigating foreclosure:
- Apply for Bankruptcy: This is the easiest way to stay the execution of foreclosure. This will stop the bank from selling your property immediately for debt recovery.
- Apply for Loan Modification: Change the way you pay the loan. When you apply for loan modification, the bank is barred from foreclosing your property. This is because of the pending loss mitigation. Loss mitigation is a process whereby the lender and borrower work together to prevent foreclosure.
- Mortgage Forbearance Agreement: Upon signing this agreement, you will get the leverage to pay the loan back when your financial situation improves.
- Refinance Your Mortgage: When you refinance your loan, you will only have to pay a closing cost and fees for a new mortgage and might even be able to get a better interest rate and lower monthly payment.
Scammers prey on desperate borrowers and those facing foreclosure are especially vulnerable. Instead of being conned out of your home, ensure that you take all the proper steps towards avoiding these vultures.
Always speak directly with the lender, or government-approved groups to navigate the foreclosure process and uncover potential solutions to avoid falling prey to these scammers.