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Posted April 24th, 2012 under Underwater Mortgage Pitfalls

How to Avoid Foreclosure and Loan Mod Scams

Tags: loan mod scams, foreclosure scam, underwater mortgage help

How to Avoid Foreclosure and Loan Mod Scams

It's unfortunate, but the real estate crisis has brought some unscrupulous people out of the woodwork. These scammers claim to offer underwater mortgage help to homeowners, but they're really just trying to take their money and sometimes their homes.

The good news is that you can avoid loan mod scams if you know what to look for. Not sure how to spot a foreclosure scam? Below, we've outlined five of the most common loan modification scams.

  1. Bait-and-switch scams. In this scam, someone offers to "rescue" an underwater homeowner by providing a new mortgage loan. In reality, however, homeowners sign documents that give the title to their home to the scammer in exchange for the loan. You can avoid this scam by carefully reading any documents before you sing them.
  1. Lease-back or repurchase scams. These scams involve getting a homeowner to surrender their home's title in the belief that they'll be able to remain in the house as a renter, with the opportunity to buy the property back at a later date. This may sound like a good deal, but in reality, the lease and buy-back terms are usually so demanding that the homeowner can't go through with the buy-back and is eventually evicted from the home. Again, be sure to carefully read all documents before you sign them.
  1. Loan modification fraud. Some scammers will offer to help you renegotiate the terms of your loan with your lender, but only if you pay a fee in advance. The scammer may also ask you to send your monthly mortgage payment to him rather than your bank. By the time you realize you've been scammed, it may be too late to stop a foreclosure. Remember, always send your mortgage payments directly to your lender. If you can't make payments or want to renegotiate the terms of your mortgage loan, contact your lender directly, rather than relying on someone else to do it for you.  
  1. Non-existent foreclosure counseling. Scammers may offer underwater mortgage help and counseling to homeowners in exchange for a hefty fee. In reality, the scammer has no intention of providing counseling or assistance, and is simply pocketing the money you've given him.
  1. Fake "government-sponsored" loan modification programs Scammers prey on underwater homeowners by claiming to be affiliated with legitimate government-sponsored loan modification programs, such as HARP or HAMP. These scammers may charge you a fee to determine if you qualify for these programs. Don't fall for these scams. Instead, contact your lender to see if you qualify free government mortgage assistance.   

There's no sign that the scammers who are trying to take advantage of underwater homeowners will disappear any time soon. But you can avoid becoming a victim by educating yourself. You can also take advantage of legitimate resources that will help you deal with your underwater mortgage, such as those offered by Homeowner 101. Our Underwater Homeowners Assessment and Action Plan is designed to provide objective, unbiased advice that you can use to make a decision that will help you get your finances back on track.