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David Bach The Automatic Millionaire

David Bach, The Automatic Millionaire

How to Spot a Foreclosure Rescue Scam

by David Bach

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Posted on Monday, December 17, 2007, 12:00AM

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.

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42 Comments

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  • Yahoo! Finance User - Friday, December 21, 2007, 4:34PM ET  Report Abuse

    • Overall: 1/5

    I am so sick of hearing about the subprime gov't bailout. And especially fearful of more gov't control because of more stupid bad apples. I thought we were a capitalist society. No risk No Reward.

  • Yahoo! Finance User - Friday, December 21, 2007, 2:24PM ET  Report Abuse

    • Overall: 3/5

    Viking--Since you learned how to save your money already your next lesson should be grammar and the difference between their, there and they're. I think I learned that in the 3rd grade.

  • Yahoo! Finance User - Wednesday, December 19, 2007, 4:11PM ET  Report Abuse

    • Overall: 2/5

    As always, thanks to the readers that point out Bach's hypocrisy. Why can't these authors re-read their own advice before they write new articles. Along w/ Rk, Bach is another one that touts his own records without being accountable to anyone. Keep up the good work & research, posters!

  • SandyLady - Wednesday, December 19, 2007, 1:31AM ET  Report Abuse

    • Overall: 5/5

    EXCELLENT ARTICLE...COMMENTS TO THE ARROGANT BOZOS WHO SNEER AT PEOPLE WHO ARE FACING FORECLOSURE: Gee Whiz, SO SORRY we aren't all making 100K plus a year with all benefits with a locked in job future like you! Hope YOU can keep your lifestyle if the economy hits a recession.... YOU might have to tap into your cushy savings account...and your glorious masterplan will go astray....boo hoo!!

  • Pak Sam - Tuesday, December 18, 2007, 9:09PM ET  Report Abuse

    • Overall: 4/5

    good, those folks deserve to file foreclosure!. haha! they should spend what they can afford. No wonder the average saving rate is negative, but I save about 30% of my income monthly and my portfolio is giving me over 100% annual return for 3 years so far. haha

  • Ryan - Tuesday, December 18, 2007, 8:59PM ET  Report Abuse

    • Overall: 1/5

    scumbag scheister

  • Mike - Tuesday, December 18, 2007, 7:16PM ET  Report Abuse

    • Overall: 1/5

    What and idiot, this from the same guy that said buy any house at any cost, don't worry you can refi out of it after it goes up in price. Why can't you write some solid advice like be responsible for your financial decisions. What kind of message does this send to the responsible borrower with good credit that they worked hard for, to the few of us that live with in our means? I have no sympathy for those that have treated there homes like an endless ATM sucking out every dime to finance a life style that they could not afford. I have no sympathy for Wall Street hounds and there insatiable appetite for mortgage backed securities and above all I have no sympathy for the mortgage bankers and there voodoo products. When did it even begin to make sense? My cat could walk in to a bank and claim a $2M income on his signature and walk out with a liar’s loan. What do you mean I can’t have my $1M home for $300/month any more, it’s not my fault I didn’t understand the terms Uncle Sam save me. These are the same misfits (with there negative 2% saving rate) that we will be bailing out over and over again (think long term health care, food and shelter and diapers in there old age). How can I teach my kids to pay your self first (15%), live with in your means, save 30% for a down stroke on a house, make sure the college funds are fully financed before there 15th b-day, have 6 months worth of living expenses in the bank at all times, and have retirement 80% funded before age 50 when every fool and his brother is spending like there’s no tomorrow? Not to worry irresponsibility and unaccountability are a live and well. The only guy I feel for is the Joe average guy with his 20% down and a 30yr. fixed driving his Joe average car and taking the kids on a Joe average vacation. With 3 or 4 foreclosures on his block and the people that had no business buying the house next to him turning in the keys and tanking his property valves for him, well let just hope Joe doesn’t need to move for a while. And yes owning a home is the American dream but it is not and American entitlement ( no yet anyway).

  • donalds - Tuesday, December 18, 2007, 7:05PM ET  Report Abuse

    • Overall: 2/5

    While you touched on some improtant aspects of fraud in loss mitigation you have promted a government endorsed program that really does not help homeowners who are late on their mtg payments. The gov program, among other stips, requires you to be CURRENT on ones payment. So how does thie article help someone who is facing foreclosure??? From both a loss mit side and a title side, having delt with the collection aspects of delinquent loans in both regards, I can say that this problem in the mtg industry is not contained to subprime loans, as the media is reporting. It spans the whole gammet from A to b/c paper to home equity loans, especially home equity. Its not a subprime problem its a consumer problem and on a nationwide level.

  • GP - Tuesday, December 18, 2007, 7:05PM ET  Report Abuse

    • Overall: 3/5

    I just pray that Hillary wins the presidency, so she can change the laws so that the government will pay for my ill advised loan. That way, I can keep my $500,000 house courtesy of the taxes on my co-workers $240,000 house. I'll also be able to ditch my health insurance to get a couple more flat screen TVs. The big problem with Hillary is that she wants to prevent me from buying a car that goes from 0 to 60 in less than a day. 2 of 3 is pretty good, so I'll take her anyway.

  • hellriser - Tuesday, December 18, 2007, 6:21PM ET  Report Abuse

    • Overall: 1/5

    stop dreaming and come down to earth.

  • Dallas - Tuesday, December 18, 2007, 6:03PM ET  Report Abuse

    • Overall: 2/5

    You hit some of the vital basic truths but miss the big picture. HARD MONEY lending is VERY REAL, VERY LEGAL, VERY EXPENSIVE, and at the end of the day IT PREVENTS FORECLOSURE. Yes there are many safe ways to lease option, sign over the trust dead, or allow a private party to act as a bank, charge you 12% interest, give you a couple hundred thousand so that you can improve your credit, pay off bills, and get caught up. Once accomplished 6-12 months later the homeowner refinances thier house into a good rate loan which they are only able to qualify for because the private party came in, stopped the foreclosure, helped them pay off debts so that they could qualify for quality financing in the future.

  • Yahoo! Finance User - Tuesday, December 18, 2007, 5:55PM ET  Report Abuse

    • Overall: 3/5

    Anyone stupid enough to take on an ARM without doing the math to make sure they can afford it after the payment increases is probably more easily taken advantage of by scam artists. Even a squirrel with a brain the size of an acorn can plan ahead well enough to store food for the winter. We need a law that requires that the borrower be qualified on the highest possible payment of an ARM and not the initial teaser rate. Apparently some borrowers and lenders are not smart enough to figure this out on their own. I think we need these laws not so much to protect stupid people from their own stupid decisions, but to protect sensible people who could affor a house at $420,000 from having to compete against idiots who have a comparable income, but are stupid enough to take on a negative amortization Option ARM's to drive the price of that $420,000 house up to $700,000. Such a law would also help protect the economy from the disruption these idiots cause when they can't afford the payments after their monthly payment adjusts to more than these morons can afford.

  • Jim - Tuesday, December 18, 2007, 4:34PM ET  Report Abuse

    • Overall: 5/5

    Caveat emptor always holds

  • JC - Tuesday, December 18, 2007, 4:25PM ET  Report Abuse

    • Overall: 3/5

    Merry Christmas!!

  • Chris - Tuesday, December 18, 2007, 3:29PM ET  Report Abuse

    • Overall: 1/5

    You can't be serious, David. What person facing foreclosure has a lawyer to review documents? When you come back from fantasy land, maybe you'll realize that these people don't have a red cent to their names and are scared white. All these people are right, you're a clown. And anybody who listens to you is a clown as well.

  • John - Tuesday, December 18, 2007, 2:10PM ET  Report Abuse

    • Overall: 1/5

    What a joker. Check out this article from the Wall Street Journal in early 2006 where Bach is pumping subprime loans as a good way to buy real estate. As the author explains, "One of Mr. Bach's more dubious arguments for buying real estate is that lenders have become so 'creative,' doling out loans that let you delay the pain of actually paying the money back and spare you from the indignity of having to prove you're employed and solvent.... Bach also thinks that it's a good sign for real estate that mortgage companies now lend to riskier borrowers in the booming subprime market. 'Even if you have bad credit or owe a lot on your credit cards, you can still buy a home.'" I guess having your own column means never having to say sorry. http://online.wsj.com/article/SB114539931592529227.html

  • Yahoo! Finance User - Tuesday, December 18, 2007, 12:51PM ET  Report Abuse

    • Overall: 1/5

    This 2007 article from Bach, entitled: 'Why Homeowners Get Rich and Renters Stay Poor', seems to contradict what he's preaching now. http://finance.yahoo.com/expert/article/millionaire/2585 A clown, indeed.

  • Kenneth - Tuesday, December 18, 2007, 12:41PM ET  Report Abuse

    • Overall: 5/5

    I find it distressing and ironic that even Yahoo's finance page displays advertisements touting a $300,000 mortgage for $965/mo. Obviously, this is a negatively amortized loan. As a loan specialist employed with a credit union, from my vantage point, misinformation is vast and pervasive--and wherever large money transactions exist, there will be plenty of persons of unsavory character more than happy to prey on the uneducated. It is a sad shame how financially illiterate we are as a society.

  • Yahoo! Finance User - Tuesday, December 18, 2007, 12:36PM ET  Report Abuse

    • Overall: 4/5

    Good article David. people need help facing forclosure. Every bit of advise helps. Unfortunatly no one wants to tell the public that 90% of them are "screwed, done, stick a fork in ya". Its the truth, I ought to know I am in the lending business. There is fraud out there but the majority of people is this forclosure situtation were just not very smart in their decisions. Now they face the consequences that will be far reaching and affect their futures for long time. Its unfortunate that there is so little press about that aspect. These people have a chance to realize how bad their decisions were and change, but they have managed to blame everyone else. They will in the future go back to their bad financial ways. In the words of John Wayne. "life is tough, but if you are stupid its a lot tougher".

  • Yahoo! Finance User - Tuesday, December 18, 2007, 12:34PM ET  Report Abuse

    • Overall: 1/5

    How nice of David Bach to warn us how to avoid foreclosure scams. After all, he was also kind enough to tell us, as late as 2006, that housing wasn't overvalued...and that housing prices wouldn't fall. Search Mr. Bach on Yahoo. You'll find plenty of his "housing is a great investment" comments from 2004-2006. This guy is a clown, and will say anything to sell a book.

  • CPifer - Tuesday, December 18, 2007, 12:34PM ET  Report Abuse

    • Overall: 2/5

    Dave Bach is only batting about 50% here. First of all, I'm suspicious of anyone who equate being an "automatic millionaire" in conjunction with any reference to foreclosures in general. I think his article is more about getting credibility points to promote some millionaire Guru training program. On the loss mitigation side, sub prime borrowers are treated differently by their mortgage servicers than other borrowers and there is virtually NO CREDIBLE HELP for them from their servicers, lawyers, HUD or Community Housing Counselors. That is just not reality. If Mr. Bach ever dealt with a loss mitigation deparment, it is not demonstrated in his knowledge in this article. While I agree that most third party loss mitigation companies are scams, there are a few who are not and they do provide a cost effective service to the sub prime niche.

  • Yahoo! Finance User - Tuesday, December 18, 2007, 11:44AM ET  Report Abuse

    • Overall: 5/5

    Jonathan, google "legal aid" in your city/state if you can't afford a lawyer.

  • Jen - Tuesday, December 18, 2007, 11:41AM ET  Report Abuse

    • Overall: 5/5

    Thank you David Bach from the state of Nevada...the #1 state in the country for foreclosure fraud. These crooks need to be put behind bars.

  • Jonathan W - Tuesday, December 18, 2007, 11:38AM ET  Report Abuse

    • Overall: 1/5

    I would be nice if he could offer some real advise for a person facing a foreclosure. People in this financial situation do not have the resources to hire an attorney to review documents on their behalf. The fact is that most people facing foreclosure are going to lose their house. If they can get some money out of selling to an investor, good for them.

  • Yahoo! Finance User - Tuesday, December 18, 2007, 11:36AM ET  Report Abuse

    • Overall: 5/5

    EXCELLENT.....As a real estate professional who has worked for the largest home loan investor in the country i couldn't have said it better. Just remember, no third party can do for you what YOU can do for yourself, for free!!

  • jazi - Tuesday, December 18, 2007, 11:36AM ET  Report Abuse

    • Overall: 5/5

    Another tip: Always check the BBB before you agree to work with any third party. AND get several personal references!!

  • Yahoo! Finance User - Tuesday, December 18, 2007, 11:26AM ET  Report Abuse

    • Overall: 2/5

    I suppose it is prudent to offer advice to those who followed his previous advice and bought a house they couldn't afford.

  • Yahoo! Finance User - Tuesday, December 18, 2007, 10:56AM ET  Report Abuse

    • Overall: 3/5

    Decent article. But failed to mention that there are legitimate companies out there that will stop foreclosure and/or buy a house quickly from a troubled homeowner (such as my company). Faced with the option of losing one's house and ruining credit, it may be best to sell the house at a discount to an investor.

  • Ken - Tuesday, December 18, 2007, 10:54AM ET  Report Abuse

    • Overall: 1/5

    Get the guy on TV -- and man he thinks he knows it all! As a 7 year mortgage veteran and a Top 200 originator as well as avid real estate investor -- only part of what he says has merit. The tactic of give 1 point and then making it broadly applicable is designed to scare people -- and make them run to The Automatic Milionaire for safety! While there are scams in every industry (including self-help financial guru's) there are good, honest and well intentioned individuals trying to help people in every sector of the industry he mentioned!

  • Grunge45 - Tuesday, December 18, 2007, 9:56AM ET  Report Abuse

    • Overall: 5/5

    What is especially useful in this article, is that it makes one aware of some of the lesser known traps. And, a simple reminder that even experienced people could use. The trouble is, losses here can be staggering in amount and in impact.

Showing comments 6-35 of 42<< PreviousNext >>

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