Legitimate companies that provide this service generally don't charge money up front, she says. "They are paid most or all of their fee only when they successfully negotiate the agreement." Scammers might charge anywhere from $500 to $5,000 upfront, she adds.
Scammer activity is not likely to decrease anytime soon, as the foreclosure rate is still at high levels that haven't been seen since the mid-1990s. In November, one U.S. home foreclosed for every 617 households in the nation, according to RealtyTrac, which collects and lists foreclosure properties.
Although the national foreclosure rate fell 10% for the month of November compared to October, it is still up 68% from November 2006.
Nevada, Florida and Ohio have the highest foreclosure rates, while California, at 39,992 foreclosure filings, had the greatest number of foreclosures, reports RealtyTrac. It is no surprise that these states are prime targets for foreclosure scams.
One Ohio victim of a foreclosure scam was 86-year-old Sadie Booker, who was trying to make her mortgage payments on her income as a house cleaner, hairdresser and Avon(AVP) representative. When the Cleveland-area resident could no longer meet her payments on her 2003-obtained predatory loan, she sought rescue from a company that proclaimed in a TV advertisement that it helps save homes from foreclosure.
According to July reports from WKYC, the local NBC station, the foreclosure-solutions company charged her $500 upfront, which she paid -- then sent her a letter a week before her home was set to be sold by the sheriff's office, to inform her that they couldn't help her after all. Luckily, a community action group heard her story and stepped in and saved her home. But not everyone can be so lucky.
Whether the foreclosure solutions company Booker originally hired to help her truly couldn't help or whether it was a scam is hard to know. But in Booker's case, the company fit the profile of a scam that real estate experts have seen before.
"There is no agreed-upon definition of what makes a foreclosure rescue a scam," says Jones-Cox, "but a sign that the company might be trying to scam you is that it asks for an upfront fee before they will help."
Other scams might be in the form of a sale or leaseback, she says. The "rescue" involves an investor offering to buy the property and sell it back to the foreclosed owner via a lease/option or similar arrangement. The investor's profit comes in the form of a lower-than-market purchase from the owner followed by an at-market resale to the owner several years later.
"The problem with this program is not that it is in and of itself a scam -- if the buyer and seller both understood the potential outcomes of the arrangement," says Jones-Cox. "The problem is that a seller who is under threat of losing his home is rarely thinking clearly about the fact that both his payment and the amount he owes to buy the property back will be higher, not lower, than what they are currently," says Jones-Cox. "Many sellers cry 'foul' about this deal months later, when they're being evicted for non-payment of rent."
Legitimate Services Grow, Too
The growing number of people entering foreclosure in recent months has also sparked a growing business model for entrepreneurs looking to connect homeowners with certified professionals and legitimate services.
For instance, the Homeleafs.com Web site, set to launch in January, will be a place where homeowners can submit applications to reach a variety of licensed service providers who would be useful to homeowners at risk of foreclosure. Professionals include real estate agents interested in selling properties, investors looking to purchase homes, bankruptcy attorneys and financial institutions and mortgage companies offering refinancing options.
"We believe that by joining these two segments of the community, each can have their needs met -- homeowners can prevent foreclosure and service providers can find a group of people hungry for their services," says HomeLeafs.com CEO Wesner Michel. "During this sensitive time, we want to make the process as convenient and comfortable as possible."
Freddie Mac (FRE), which has a foreclosure investigations unit, reports that one of its 2007-sponsored studies discovered that 25% of delinquent borrowers go to the Internet first for mortgage information -- that's only slightly less than those who first call their mortgage lender (28%) or bank (32%).
To reach homeowners who turn to the Internet for information, Freddie Mac posted a dramatization of a common foreclosure scam
on YouTube. It also launched an "Avoid Fraud" page on its Web site and added two fraud investigators this year and are likely to add three more in 2008, says spokesperson Brad German. "We are trying to reach borrowers through a variety of channels," he says.
The NFCC also has a Web site to educate consumers about such scams and other housing-related issues. At the site is the homeowner self-diagnostic tool called Mortgage Reality CheckSM, which can help homeowners assess their risk of foreclosure.
The NFCC advises homeowners fearing foreclosure to proceed with extreme caution if an individual or company:
Calls itself a "mortgage consultant" or "foreclosure service."
Contacts people whose homes are listed for foreclosure, including anyone who uses flyers or solicits for business door-to-door, by phone or email.
Encourages you to lease your home so you can buy it back over time.
Collects a fee before providing any services to you.
Instructs you to cease all contact with your lender, credit or housing counselors, lawyer or other legitimate experts.
Tells you to make your mortgage payments directly to him or his company (not the lender).
Requires that you transfer your property deed or title to him or his company.
Makes a promise that seems too good to be true, for example, instant cash with "no strings attached."
Tells you that as part of the deal you will need to move out of your house for some period of time for remodeling or other reasons.
Offers to buy your house for cash at a fixed price that is not set by the housing market at the time of sale.
Source: The National Foundation for Credit Counseling