David Bach The Automatic Millionaire

Back in April, I wrote a column about avoiding foreclosure. If you're having trouble meeting your mortgage payments or know someone who is, please take a few minutes to read it.

Unfortunately, with the millions of people now at risk of losing their homes, an entire industry of "scammers" has been created to take advantage of those facing foreclosure. If you're considering "foreclosure rescue," read on.

Staying Fraud-Free

The exact number of victims of foreclosure fraud is hard to measure, mostly because the crime is lumped in with other types of fraud, and many scams go unreported. But the FBI reports foreclosure fraud is at an all-time high -- the agency received more than 35,000 mortgage fraud reports last year totaling almost $1 billion. And the Better Business Bureau, which has received complaints from every state in the country, issued an alert to consumers to be cautious about foreclosure rescue fraud.

Here are seven things to look out for to avoid being a target of a foreclosure rescue scam:

1. Offers to sign over temporary ownership.

One particularly malicious but popular scam, known as "equity skimming," would have you "temporarily" sign over ownership of your house to a third party while they "negotiate" with your lender and you regain your financial footing. While you're paying rent to this third party, they're using their presumed ownership in the property to borrow against the equity you've built up in your home.

In reality, the third party isn't negotiating with your lender, and you'll soon find yourself even further in arrears with your primary mortgage -- along with new liens placed against your property for the new loans. You're closer to foreclosure, your monthly mortgage has gone unpaid, the rent you were paying is gone, and your home equity has been stolen right out from under you.

Remember, the transfer of ownership by itself doesn't relieve you of your mortgage debt. Typically, a transfer of ownership comes during a property sale, and you'd use the proceeds of the sale to pay off the property's mortgage (most conventional mortgages have a "due on sale" clause that prevents the buyer from assuming the mortgage obligation). You need to be formally released from liability from your mortgage debt, and these scams won't do the trick.

2. Mortgage payments made out to third parties.

Your monthly mortgage payment needs to be paid directly to your mortgage company. Don't agree to send it to a third party who's promised to take care of your foreclosure problem.

Scam operators are all too happy to pocket your monthly payment and then file bankruptcy on your behalf (perhaps even without your knowledge). The bankruptcy filing will delay, but not stop, the foreclosure -- and you'll be out the money you paid to the scam artist.

3. Offers to help you negotiate with your mortgage company for a fee.

Don't ever pay a dime to anybody offering to help with your mortgage loan. Requiring payment -- especially up front -- is a huge red flag. Phony counseling services prey on unsuspecting homeowners who are anxious about admitting to their mortgage companies that they're facing problems. In return for an upfront fee, they'll offer to negotiate on your behalf with your lender.

While some legitimate businesses may offer to do this for you, you're better off talking to your lender yourself, or contacting a HUD-approved housing counselor. You can also reach out to the Homeownership Preservation Foundation, an independent nonprofit education and referral source, by calling 1-888-995-HOPE. They won't charge you for their information and services, and you can use your hard-earned money toward your mortgage instead.

4. Claims to stop your foreclosure immediately.

This sounds promising, but remember -- anything that sounds too good to be true usually is. If you're being asked to sign a document appointing the company to act on your behalf, most likely your best bet is to walk away.

Never sign anything unless it's reviewed by your own attorney, an independent and trusted real estate professional, or a HUD-approved housing counselor. And never sign anything that you don't fully understand.

5. Requests to sign a quit-claim deed.

You may be asked to sign a quit-claim deed as part of a "rescue plan." This is a permanent assignment of your rights in the property to another party. Don't sign a quit-claim deed unless your attorney or representative advises you to do so.

6. Signs posted on telephone poles.

You've probably seen signs in many communities, tacked to telephone poles near busy intersections, that claim "No Credit? Bad Credit? No Problem!" Don't bet your home on that.

7. Unexpected letters from third parties about your mortgage.

Because your home purchase and home financing are often a part of the public record, you could receive many official-looking envelopes in the mail declaring that they contain "important information" about your mortgage. Depending on the local records, they may even contain your loan amount or the name of your lending company -- adding a false sense of credibility to their claims.

While some of these letters could be from legitimate businesses, don't be fooled. Read and act on letters from your lender, but realize that most of the others are simply unsolicited business offers.

Recovering from Fraud

Here are three ways to take immediate action if you or someone you know is a victim of foreclosure fraud:

1. Get the help of a professional.

Contact a local HUD-approved counselor, or talk to an attorney versed in real estate fraud. Your local or state bar association may be able to help you find low-cost legal help, or visit the National Association of Consumer Advocates.

2. Contact your state's attorney general's office.

According to USA Today, so far this year six states have imposed rules against foreclosure rescue companies, and six more states have proposed legislation. The National Association of Attorneys General can help you find out how to contact the attorney general's office in your state to see how they can help.

3. Contact your local U.S. Trustee.

If you think an individual or company is running a mortgage foreclosure scam, contact the local office of the United States Trustee. A U.S. Trustee is a Justice Department official who monitors the bankruptcy system.

A Note for Subprime Borrowers

Less than two weeks ago, President Bush announced a loan modification program that would freeze interest rates for five years on qualified subprime loans. Although many may not qualify, the program is projected to help about 1.2 million subprime borrowers keep their homes.

If you're in a subprime adjustable rate mortgage that's about to reset, and you're not able to afford the higher payment, call Homeowner's HOPE at 1-888-995-HOPE to see if you qualify.