If at any time the adage of “Let the buyer beware” were

applicable, it would certainly be when a homeowner is

experiencing foreclosure. Distressed homeowners

undergoing foreclosure are often approached by less than

ethical business people (lenders, financial advisor and/or

realtors) that are more interested in their own financial

gain than “helping” the homeowner to get out of

foreclosure.

A homeowner should be very wary of such too-good-to-be-

true offers and keep in mind that each foreclosure

situation is unique to the individual homeowner. While

some homeowner’s may be seriously in debt, unemployed and

overextended, others may have enough equity and credit to

be able to sell their home or restructure their loan. The

first rule of thumb a homeowner should determine to do is

to explore ALL their options, this would help them avoid

or be tempted by some of the following foreclosure scams.

Equity Stripping or Skimming

In this type of scam, a “buyer” approaches the homeowner,

offering to assist the homeowner out of financial trouble

by promising to pay off their mortgage or give them a sum

of money when the property is sold. The “buyer” may

suggest that the homeowner should move out quickly and

deed the property to him or her. The “buyer” then collects

rent for a time, does not make any mortgage payments, and

allows the lender to foreclose. Remember, signing over

your deed to someone else does not necessarily relieve you

of your obligation on your loan. A homeowner may find

himself saddled with the loan he thought he had signed off

on and therefore, in a worse financial situation then the

previous one he or she was experiencing.

If the home has a lot of equity in it the “skimmer” will

sell the home, pay off back debts on the home, and keep

the equity the homeowner could have had if they had sold

their home themselves.

Straw Buyer

A straw buyer (usually a person with good to excellent

credit) is usually offered a payment, often several

thousand dollars, for the use of their name and credit

information to make a “false purchase”. A straw buyer may

or may not know that their name will be on the mortgage

application. Straw buyers are also used to sign documents

that contain false information. For example a straw buyer

might sign something that states that the purchaser

intends to live in the property when they really have no

intention of doing so. If any document is signed that

states the property is worth a specific amount, but the

straw buyer has never seen the property, they are

committing fraud. If the lender asks if the down payment

came from the straw buyer’s own funds and he/she answers

dishonestly, this too would be fraud.

After a straw buyer takes title to the property, the

originator of the scheme, be it a realtor or loan officer

behind the scheme usually assumes the mortgage and the

title to the property. However, a straw buyer may still be

responsible for a mortgage even after someone else has

assumed it because it was obtained fraudulently.

It is a criminal offence to obtain credit under false

pretences. If payments are not made on the mortgage, the

lender will foreclose on the property to recover their

losses. The straw buyer could be sued for the difference

between the amount of money received from the sale of the

property and the amount of money owed on the mortgage.

Signing Over Their Deed

A distressed homeowner having trouble keeping up with the

mortgage is pursued by another lender, who tells him it’s

necessary to deed the house over to him in exchange for

new financing. Often, the money never comes, and the scam

artist sells the property to someone else. Don’t ever sign

your deed away!

In addition, a homeowner should beware of solicitations

either by mail or phone from counseling agencies that

charge exorbitant fees to ??assist?? them. Some groups

calling themselves “counseling agencies” may approach the

homeowner and offer to perform certain services for a fee.

These could very well be services the homeowner could do

for themselves for free, such as negotiating a new payment

plan with the lender, or pursuing a legitimate pre-

foreclosure sale. Review the legitimacy of these

businesses with the Better Business Bureau or other

federal agencies.

Some general tips a homeowner should keep in mind is to

call or write their mortgage lender immediately and be

honest about their financial situation. Many lenders have

programs to assist homeowners in financial distress.

Also, the homeowner should make sure that they stay in

their home to make sure that they qualify for such

assistance. Most importantly, a homeowner should explore

ALL their alternatives before taking any action.