Dreams Foreclosed: Saving Older Americans from Foreclosure Rescue Scams

A growing scam that disproportionately targets older Americans can, and often does, literally cost them the homes they have lived in for years and worked hard to obtain. It is called a foreclosure "rescue" scam, and it is anything but what the word "rescue" implies.

Foreclosure "rescue" scams target those who have fallen behind on their mortgage payments. In this scam a con artist who promises to help consumers save their home is actually intent on stealing the home - often an older American's most precious asset - or most of its accumulated equity.

Why are older Americans special targets? Many have lived in their homes for decades, have paid down their mortgages, and have accumulated substantial equity in the house. Unfortunately, many older Americans have trouble paying their bills and need to tap into that accumulated home equity due to rising medical bills and other age-related expenses.

Identifying Foreclosure "Rescue" Scams and How They Work

Phantom Help Scams
Foreclosure rescue scams most often appear in one of three varieties. The first might be called "phantom help," where the "rescuer" charges outrageous fees either for light-duty phone calls and paperwork the homeowner could have easily done or makes a promise of additional representation that never occurs. In either event the homeowner is usually left without enough assistance to save the home, and with little or no time left to prevent the loss of the home or seek other assistance.

False Bailouts
A second variety of the scam is the "bailout" that never quite works. This scenario includes various schemes under which the homeowner surrenders title to the house in the belief that he is entering a deal where he will be able to remain as a renter, and then repurchase the house over the next few years. This is also known as a "lease/buyback scheme." Homeowners are sometimes told that surrendering title is necessary so that someone with a better credit rating can secure new financing to prevent the loss of the home. But the terms of these deals are almost invariably so bad that the buyback becomes impossible, the homeowner permanently loses possession, and the "rescuers" walk off with all or most of the home's equity.

Bait-And-Switch
The third variety is a bait-and-switch where the homeowner does not realize he or she is surrendering ownership of the house in exchange for a "rescue." Many homeowners later insist that they believed they were only signing documents for a new loan to make the mortgage current. Many also say they had made it quite clear they had no intention of selling or giving up their home to anyone. It is important to note that substantial numbers of this third type of scenario involve fraud and forgeries of deeds.

Typical Tactics Employed by "Rescue" Scammers
The "rescuer" identifies distressed homeowners through public foreclosure notices in newspapers or at government offices. These records are more readily accessible than in the past because they are computerized and because more private firms now compile and sell the lists. The homeowner has not been foreclosed on yet, but is merely threatened with foreclosure after falling behind on mortgage payments.

The "rescuer" then contacts the homeowner by phone, personal visit, card or flyer left at the door, or advertising. Initial contact typically revolves around a simple message such as "Stop foreclosure with just one phone call," "I'd like to $ buy $ your house," "You have options," or "Do you need instant debt relief and CASH?" This contact also frequently contains a "time is of the essence" theme, adding a note of urgency to what is already a stressful and possibly desperate situation.

Initial meetings stress the promise of a "fresh start" - likely what a frightened homeowner most wants to hear - and often feature written or recorded "testimonials" from other homeowners the "rescue" scammer supposedly saved. While it is true that these programs "work" for some, what's glossed over is that even that help often comes at a very steep price.

Homeowners are also frequently instructed to cease all contact with lawyers or the mortgage lender and let the "rescuer" handle all negotiations. This doubly-devious tactic simultaneously cuts off access to possible refinancing options while running out the clock on ways to prevent the foreclosure.

Once it is too late to save the home the property is either taken by the "rescuer" or, having been drained of substantial equity through the "rescuer's" imposition of heavy fees and other charges, simply lost to foreclosure. After things fall apart many homeowners suffer the added stress and indignity of being evicted by their "rescuer" from the home they once owned.

Ways Consumers Can Avoid Foreclosure Rescue Scams

It is wise to advise consumers who have fallen behind on their mortgage payments to proceed with extreme caution if an individual or company:

• Calls itself a "mortgage consultant," "foreclosure service," or something similar.
• Contacts or advertises to people whose homes are listed for foreclosure, including anyone who sends flyers or solicits door-to-door or by phone.
• Collects a fee before providing services.
• Tells the consumer to make home mortgage payments directly to the individual or company (and not the mortgage lender).
• Tells the consumer to transfer the property deed or title to the individual or company.

FOR MORE INFORMATION
For more information on foreclosure "rescue" scams and how to avoid them please see NCLC's report Dreams Foreclosed: The Rampant Theft of Americans' Homes Through Equity-Stripping Foreclosure 'Rescue' Scams. You can order this report through NCLC or find it on NCLC's website at: http://www.consumerlaw.org/news/ForeclosureReportFinal.pdf

In addition, several manuals published by the National Consumer Law Center as part of the Consumer Credit Series will be helpful for advocates challenging these practices.

• Unfair and Deceptive Acts and Practices (6th ed. 2004)
• Repossessions and Foreclosures (5th ed. 2002 and Supp.)
• The Cost of Credit: Regulation and Legal Challenges (2nd ed. 2000)
• Truth in Lending (5th ed. 2003 and Supp.)
• Guide to Surviving Debt