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Now that many pandemic-related financial relief programs have ended, more and more homeowners are at risk of foreclosure. If you're among them, you're a prime target for scam artists. To protect yourself, learn about some common foreclosure scams and how to get legitimate help with your mortgage.
Foreclosure Scams to Watch Out for
Scammers search publicly available information about homes facing foreclosure and target those homeowners, offering phony help. Here are their most common tricks:
- Online or phone scams: Scam artists contact you offering a low-interest mortgage loan. They say you can apply over the phone or online right away—just give them your Social Security number and bank account information. The criminals immediately approve the loan and ask you for payments via wire transfer. By the time you realize you've been scammed, you've lost the money you wired, you still risk foreclosure and your identity has likely been stolen.
- Refinancing scams: Crooks claiming to be mortgage brokers offer to refinance your loan and bring your account current. If you agree, they'll present a stack of paperwork and rush you to sign it. Hidden in the stack is a deed transfer document putting your home in the con artist's name. If you sign it, your "mortgage payments" go to the scammer, and you'll be none the wiser until you're eventually evicted.
- Partial interest bankruptcy scams: You're asked to give one or more scam artists an interest in your home and make mortgage payments to them. The crooks don't pay your mortgage lender; instead, they keep the money and eventually file for bankruptcy without telling you. Each bankruptcy filing causes a temporary delay in foreclosure proceedings. Meanwhile, you keep paying the scam artist, believing they're making loan payments for you.
- Phony rent-to-buy or leaseback scam: The scammer offers to buy your house for a rock-bottom price and rent it back to you with an option to buy. The con artist then raises the rent until you can't afford it and eventually evicts you. Even if you manage to pay the rent, the buyback price will be far above the home's market value, making it unaffordable.
- False intermediary scams: Fake intermediaries promise to either negotiate with your mortgage lender, find a buyer for the home or legally represent you—for a steep upfront fee. Meanwhile, they ask you to make mortgage payments to them, not to contact your lender and not to look for legal advice or debt relief elsewhere. Of course, the scammer never performs any services; they simply abscond with your money.
How to Protect Yourself From Foreclosure Scams
When you're overwhelmed with worry about losing your home, it's easy to panic and grasp at the first offer of help. Scammers prey on your fear and desire for a fast solution. The first rule of scam prevention: If it sounds too good to be true, it probably is. Watch out for anyone who:
- "Hard sells" by soliciting you via mail, flyers, phone calls or emails
- Rushes you to act quickly
- Promises results such as saving your home or repairing your credit
- Demands an upfront fee before providing services
- Offers cash for your home
- Asks you to sign documents that have blank spaces or errors
- Asks you to transfer ownership in your home
- Asks to collect your mortgage payments so they can pay your lender
- Instructs you not to contact your lender, a lawyer or a credit counselor
- Asks for payments by cashier's check or wire transfer
How to Know if You're at Risk of Foreclosure
A few weeks after you miss a mortgage payment, your lender will contact you reminding you to pay. Although even one missed payment can hurt your credit score, it won't put your home at risk as long as you make up the payment and any late fees.
However, 90 days after the first missed payment, you're officially in default on your loan. At that point the lender will send you a notice of default stating their intent to start foreclosure proceedings. This stage, called pre-foreclosure, varies in length depending on your state laws; you can find the details in your loan contract. In many states, lenders petition the court 30 days after sending this notice, asking for permission to seize your home. Once the court authorizes the seizure, the lender can sell your home at auction.
As though losing your home weren't painful enough, foreclosure can also have a major negative impact on your credit score. A foreclosure usually shows up on your credit report within a month or two after foreclosure proceedings begin. It stays there for seven years from the date of the first missed payment that resulted in foreclosure.
How to Avoid Foreclosure
One missed loan payment doesn't have to send you down the path to foreclosure. The key is to act quickly. If you can't make your next mortgage payment, or have already missed one, contact your lender or loan servicer right away. Let them know about your situation and see if you can find a solution that will allow you to stay in your home. This may include mortgage forbearance or modifying your loan so you can afford the payments. You might also be able to sell your home and use the money to move elsewhere.
You can also get help from a housing counseling agency approved by the Department of Housing and Urban Development (HUD). Visit the HUD website or call or call 888-995-HOPE to find an agency in your area. They can discuss your options, recommend local resources, help you with documents and even submit documents to your mortgage company for you.
A foreclosure attorney can help you fight for your home, explain your legal rights and defend you in court if necessary. Search for "legal aid" to find free or low-cost local legal help.
As you work to avoid foreclosure, watch your credit carefully. Experian's free credit monitoring service is an easy way to keep tabs on your credit—after all, you have other things on your mind.
