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Foreclosure Scams and Precautions


If you are interested in buying a foreclosed home or if you are in a foreclosure, the most important thing you can do is arm yourself with as much information as possible. One important key to the power of negotiation is education. Knowing and understanding the foreclosure process as well as what to be wary of is the first thing you should do.

It is important to know that the majority of foreclosed homes are sold honestly by reputable and qualified sellers. However, there are people who use known scams as a way of taking your money and giving you little or nothing in return. This chapter will provide you with a summary of some of those scams and teach you what to look for.

There is an old cliché that states, "Anything that seems too good to be true, probably is."


Bogus Financial Counseling Agencies

As you start your search for a home in foreclosure, there is a good possibility you will at some point get approached by companies referring to themselves as financial services or counseling agencies. The truth is, the very services they offer such as new payment negotiation, tax advice, debt management, and finding foreclosed homes is something you can easily do yourself - free! If you are short on time, legitimate counseling agencies can be of value. However, before you decide to go this route, do a quick search with either of the following links to ensure they have a good business reputation.


Equity Skimming

If you are in foreclosure, this is a scam to be aware of. In this situation, a person posing as a buyer offers to pay off your mortgage as a way of getting you out of financial trouble or they may state they will provide you with a lump sum of money once the foreclosure is complete. At this point, the "buyer" will recommend you move from the home immediately and that you deed the property to him or her with the implication that they will take over financial responsibility. The "buyer" then rents your vacant home and collects the rent for as long as possible. The problem is that while they are adding the rent to their pockets, no money is being paid on the mortgage for you.

In your mind, you have signed the deed over and therefore, that buyer is responsible for making all past and current mortgage payments, right? Well actually, signing over a deed in no way releases you from your mortgage responsibility. Once the house goes into foreclosure, the bank will track you down, not the "buyer."

Another variation of this scam is that you might be promised that you can get a new loan from the buyer. It is possible for this to happen but the chances of you qualifying are slim and the interest rates can be astronomical. In this situation, consider some type of equity loan or an open market sale, which would probably provide you with the amount of money needed without using a third party.


Home Visitors

As you go through the foreclosure process with your home, you will have a lot of people such as real estate agents and investors appear out of nowhere. Most will come by at all hours, leave flyers on your door, and try to find any opportunity to talk to you. More than likely, you will have people that even pose as government employees offering you some great program to get out of foreclosure. The fact is, unless you have initiated a call asking for someone to assist, none of those people who show up are authorized to be there.


Short-term Loans

Again, if in foreclosure, there are some "lenders" that will offer to provide you with a short-term loan consisting of high interest rates and balloon type payments. However, the truth about these loans is they are additional liens against the home whereas if you fail to make the balloon payment, you could again be faced with foreclosure.



People have been told that if they are in a bankruptcy or if they file a bankruptcy, they can avoid foreclosure on their home. Although this could delay the process, bankruptcy does not in any way stop foreclosure.
In conclusion, as with anything, conduct research so you are empowered and consider the following guidelines as a note of precaution:

  • Make sure you fully understand all documentation you are asked to sign
  • Get all promises/commitments in writing
  • Before you lock into any deal buying a foreclosed home or if you are in foreclosure, always check with an attorney or mortgage company first
  • If in a foreclosure, before signing any deals with a potential buyer, check with the state's Attorney General or state Real Estate Commission to determine if that buyer has any complaints against him or her

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