Bankruptcy

Foreclosure Rescue Scams: What to Watch Out For

By Meaghan Olson

A recent press release from the Virginia Attorney General announces a lawsuit against a ?foreclosure rescue? company. The suit alleges that the company charged illegal fees and offered insufficient help to the consumers it was supposed to assist.

So what does that mean for you?

Loan Modification vs. Foreclosure Rescue

The nation is in the midst of a foreclosure crisis, which means that millions of Americans are either struggling to make their mortgage payments, in danger of losing their homes and/or in some phase of the foreclosure process.

As they look for ways to keep their houses, some home owners are turning anywhere for help.

However, not all foreclosure prevention measures are created equal. Here?s a look at three you might have heard of:

• Mortgage loan modification: This involves a bank or lender sitting down with a borrower and figuring out modified payment terms so that the borrower can continue making mortgage payments and stay in his or her home. The Obama administration?s Home Affordable Modification Program aims to encourage banks around the country to modify mortgages for those struggling to make payments.
• Chapter 13 bankruptcy: Another legitimate option for people struggling to make mortgage payments is Chapter 13 bankruptcy, which allows filers to reorganize their finances and repay debts over 3-5 years. While the bankruptcy court cannot modify the terms of a mortgage, bankruptcy?s automatic stay prevents all collection action ? which includes foreclosure ? while a case is pending. Thus Chapter 13 can give filers some breathing room while they resolve their debts.
• Foreclosure rescue: This is often a scam. Generally, representatives from these less-than-reliable companies learn about foreclosure action by doing local research ? foreclosures are a matter of public record. Then they may offer to ?rescue? a homeowner from his or her troubles ? for a significant fee.

The companies targeted by Virginia?s Attorney General reportedly charged consumers upfront fees as high as $1,200, and then did little or nothing to actually prevent the foreclosure of the home.

Such scams are depressing because they involve preying on people who are in desperate circumstances: Those in danger of losing their homes are often willing to take chances, including giving their money scammers disguised as angels.

Here are some of the signs that the Federal Trade Commission has identified as tip-offs, noting that a company might be fraudulent if it:

• Charges fees up front, before any services have been provided
• Guarantees that it can halt foreclosure, regardless of your situation
• Suggests that you not contact your lender, housing counselor, credit counselor or lawyer
• Suggests that you lease your home to buy it back over time
• Accepts payment only through cashier?s check or wire transfer
• Indicates that you should make mortgage payments to it rather than your lender
• Encourages you to let one of its representatives fill out paperwork
• Pushes you to sign paperwork you don?t fully understand or haven?t read in full

Full post as published by The Bankruptcy Blog on July 31, 2010 (boomark / email).