Watch Out for These Foreclosure Scams

In this time of high home foreclosure rates, the growing sector of foreclosure-rescue companies is rife with scam artists, say experts.

Foreclosure-rescue scams usually revolve around heavily promoted deals supposedly designed to save the homes of people who have fallen behind on their mortgage payments and are facing foreclosure. The scam artists proclaim to "save your home" or "pay your mortgage," but in reality they only generate a quick profit for themselves while possibly stripping away the value of the home with no benefit to the owner.

"Scam artists can evict a family from their own home and then sell it on the open market before the homeowner has any idea of what is going on," says Gail Cunningham, spokesperson for the National Foundation for Credit Counseling.

Foreclosure-rescue scammers usually identify potential victims through public foreclosure notices in newspapers, via Internet listings, or from government offices that post foreclosures. The "rescuer," whose goal is to make a quick profit through fees or direct mortgage payments that are never passed on to the lender, often first contacts the homeowner by phone, personal visit, card or flyer left at the door, or other advertising means, say experts.

How It Can Happen

The initial contact typically centers on a message that tells homeowners that they can stay in their house easily, keep their credit rating or receive instant cash.

During the first meeting, the unsuspecting homeowner is often told to stop all contact with lenders, credit counselors or lawyers and let the "rescuer" handle all the details. This cuts off the homeowner's access to legitimate financial solutions and digs a deeper financial hole, experts say.

"Bank work-outs" are promised by both legitimate and illegitimate companies, says Vena Jones-Cox, who produces the annual Foreclosure Summit, a four-day conference that teaches real estate investors how to legally, ethically and profitably invest in pre-foreclosure and bank-owned properties.

Legitimate companies that provide this service generally don't charge money up front, she says. "They are paid most or all of their fee only when they successfully negotiate the agreement." Scammers might charge anywhere from $500 to $5,000 upfront, she adds.

Scammer activity is not likely to decrease anytime soon, as the foreclosure rate is still at high levels that haven't been seen since the mid-1990s. In November, one U.S. home foreclosed for every 617 households in the nation, according to RealtyTrac, which collects and lists foreclosure properties.

Although the national foreclosure rate fell 10% for the month of November compared to October, it is still up 68% from November 2006.

Nevada, Florida and Ohio have the highest foreclosure rates, while California, at 39,992 foreclosure filings, had the greatest number of foreclosures, reports RealtyTrac. It is no surprise that these states are prime targets for foreclosure scams.