F

oreclosure rescue scams target homeowners facing foreclosure, particularly if they are equity-rich

but cash-poor. Rescue scams cost consumers

thousands of dollars and, often, their most valuable

asset — their homes. [This information was updated

in April 2009 from an article originally published in

the 2007 edition of the Community Liaison.]

With foreclosure rates on the rise, foreclosure rescue

scams are also increasing.1 The elderly, and people

with low incomes or blemished credit, are particularly

vulnerable. 

Common Types of

Foreclosure Rescue Scams

Perpetrators of rescue scams promise much-needed

help to homeowners in financial straits. The fraudulent

practices generally fall into the following three categories. 

Q Phantom help -The rescuer charges exorbitant

fees for telephone calls and paperwork that the

homeowner easily could have handled, or promises robust representation and services that never

materialize. In either event, the homeowner may

have little or no financial resources remaining to

save the home. 

Q Bailout -The rescuer bails out the homeowner by

helping “dispose of” the house. The homeowner

typically surrenders title to the house while believing they can stay on as renters and buy the house

back once they resolve their financial matters. The

terms are typically so onerous, however, that

repurchase becomes impossible, the homeowner

permanently loses possession, and the “rescuer”

walks off with all, or most, of the homeowner’s

equity.

Q Bait and switch -Rescuers tell the victims they will

obtain a new loan that will solve their problems. In

reality, the homeowner signs documents that give

the scammers ownership of the home, while the

victims remain responsible for the mortgage

repayment obligations.

Many homeowners believed they were signing documents for a new loan to make the mortgage current, or arranging for an intermediary to negotiate

more favorable terms with the lender. Victims say

they had no intention of selling or giving up their

home, although there frequently is no written documentation to substantiate agreed-upon terms and

conditions.

How Do Rescue Scams

Work?

While various programs can work to some extent for

some borrowers, homeowners should carefully consider and review foreclosure rescue offers, especially

when the potential “rescuer” seeks them out. The following list comprises tactics frequently used in foreclosure rescue scams: 

Q An individual or a company, after reviewing publicly available foreclosure notices, contacts the

homeowner, offering to lend money to “stop foreclosure” or “save your house.” These businesses

often refer to themselves as foreclosure consultantsor foreclosure rescue specialists. Initial contact may occur by telephone, personal visit, or

card/flyer left at the home, and often consists of a

simple yet powerful message such as “Stop foreclosure with just one phone call,” “I’d like to

$buy$ your house,” “You have options,” or “Do

you need instant debt relief and cash?”

At this point, the lender has not foreclosed on the

property, although foreclosure is possible because

the homeowner has fallen behind on mortgage

payments.

Foreclosure Rescue Scams:

How to Avoid Becoming a Victim

Q Initial discussions emphasize a “fresh start,” and

often feature “testimonials” from other homeowners the rescuer has supposedly helped. 

Q Scammers may instruct the homeowner to cease

all contact with lawyers or the mortgage lender

and let the rescuer handle negotiations. This tactic cuts off access to refinancing options while

running out the clock on legitimate ways to prevent the foreclosure. 

Q The homeowner loses the property when the scam

is completed or the house is sold to someone else

at foreclosure. If there is a foreclosure sale, there

may be little, if any, equity remaining.

Facing Foreclosure:

What You Can Do

The following outline advises homeowners on constructive ways to deal with pending foreclosure:

Q Do not panic or avoid the issue. The problem will

not go away, and will worsen if ignored.

Q Check the Web site of the U.S. Department of

Housing and Urban Development (HUD) to locate

a HUD-approved housing counselor. HUD’s Web

site lists certified counselors by state at

http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm.

Q Check the following Web sites for foreclosure prevention resources:

X HOPE NOW at http://www.hopenow.com/

HOPE NOW is an alliance of HUD-approved

counseling agencies, mortgage companies,

investors and other mortgage market participants that provides free foreclosure prevention assistance. The site features information

about the HOPE hotline, 1-888-995-HOPE,

which is staffed by HUD-approved credit

counselors who can guide homeowners to

foreclosure options. 

X NeighborWorks® America at

http://www.nw.org/network/home.asp. 

NeighborWorks® America administers the

federally appropriated National Foreclosure

Mitigation Counseling (NFMC) program,

which was created to significantly increase

the availability of housing counseling geared

to homeowners at risk of foreclosure.

1 Foreclosure filings in the U.S. climbed 30 percent in February 2009 from the previous year, according to RealtyTrac, Inc. data. Properties with first-time foreclosure filings totaled 161,976, the highest number in

RealtyTrac records dating to January 2005. One in 440 U.S. housing units received a foreclosure filing in February 2009; filings rose 6 percent from January 2009 figures.
– 2 –

NeighborWorks® America participates in

the HOPE NOW Alliance. 

X The Obama Administration has launched a

comprehensive Financial Stability Plan to

address key problems in the current housing

crisis. A major initiative of that effort is

“Making Home Affordable,” a plan to stabilize

the housing market and help up to 7 to 9 million Americans reduce their monthly mortgage payments to more affordable levels.

Check the Web site at http://www.making

homeaffordable.gov/ for further information.

Q Make sure that your home actually is in foreclosure. If you are behind in your mortgage payments, you will receive a delinquency notice from

the lender. These letters notify you of your delinquency and give you a chance to resolve the debt.

If you receive a Notice of Trustee’s Sale, or similar document, your home is in foreclosure, and

you need to respond accordingly.

Q Ask your lender about renegotiating or refinancing your loan or working out a payment plan. Be

honest about your financial situation. The sooner

you contact your lender, the sooner you may be

able to remedy the problem. The federal bank,

thrift and credit union regulatory agencies are

encouraging financial institutions to work with

homeowners who are unable to make mortgage

payments. The regulators also have advised financial institutions to consider working with reputable consumer advocacy entities to help financially stressed borrowers avoid predatory foreclosure rescue scams.

Q Contact your attorney, not one referred by the

individual or company that is involved in the foreclosure prevention/agreement. 

Q Do not sign a contract under duress. Request time

to review documents. If you do not understand a

document’s contents, ask a trusted family member, attorney, or financial planner to review the

documents with you.

Q Do not accept verbal representations. Obtain

offers in writing, and review all written offers

thoroughly.

There are legitimate organizations, including nonprofit consumer advocacy groups that provide services to

distressed homeowners. Reputable foreclosure rescue

organizations will work with borrowers who are

unable to meet their mortgage obligations, and assist

homeowners in making mutually satisfactory workout

arrangements with their lenders Q 

— Prepared by Stacy Messett 

Senior Project Manager in Compliance and Consumer

Protection, Office of Thrift Supervision, Washington, DC.

— Updated by Stephanie Caputo 

Senior Compliance Program Specialist in Compliance and

Consumer Protection, Office of Thrift Supervision,

Washington, DC.

Excerpted Article From The

How do companies successfully lure borrowers into rescue arrangements? As described in a National Consumer

Law Center Report, here are a few commonly used ploys.

Q Employing saturation marketing of purported rescue

services, commonly characterized by exaggerations,

misrepresentations, and pressure tactics.

Q Capitalizing on the homeowner’s desperation to save

the home, obtain needed cash, or make a fresh start,

generally conducted in a manner in which the homeowner is encouraged to conclude there is very little

time to act.

Q Exploiting the homeowner’s belief that someone

would not lie to his or her face - reinforced by many

sympathetic-sounding and often face-to-face sales

pitches - or the false assurance that s/he is being

helped when, in fact, the homeowner is left in a worse

financial position.

Q Keeping homeowners “in the dark” about the foreclosure process. This includes failure to provide

information about foreclosure deadlines, legal rights,

and low-cost alternatives that can save the home.

Q Using various fraudulent and deceptive documents,

including forgeries. Scammers use many complex

documents that disguise the rescuer’s equity-stripping intent. Unscrupulous companies also may use

documents that run out of space for signatures on

pages containing critical text. The homeowner signs a

blank page, and his/her signature is fraudulently

transferred to an entirely different document.

Q Using affinity-marketing strategies. These approaches appeal to the homeowners’ belief that people who

share similar ethnic, racial, religious or age profiles

are their advocates, protecting them from those who

don’t act in their best interests.

Q Preying on homeowners who lack financial awareness, particularly about sophisticated mortgage loan

products.

The Department of Justice’s U.S. Trustee Program

outlines red flags that homeowners should keep in

mind if they are falling behind on their mortgage

payments or facing foreclosure.

Q Be suspicious of any person or company that

calls itself a foreclosure consultant, foreclosure service, or similar designation.

Q Be wary of high-pressure marketing techniques. This includes the use of flyers or

door-to-door solicitations. 

Q Proceed with care if an individual or company attempts to collect fee(s) before providing

services to you, or instructs you to make your

mortgage payments directly to the individual/company.

Q Be suspicious of offers to take title to your

home and lease it back to you, with the

promise that you can buy it back over time. 

Q Avoid promises to “save your credit” or find

a buyer for your home within a specific number of days. 

Q Never sign a contract or other documents

under pressure. Review all paperwork with a

representative of your choosing, preferably a

real estate attorney. 

Q Do not sign documents containing blank lines

or spaces. Unscrupulous parties could add

information later without your knowledge or

consent.

Q Obtain all terms, conditions, provisions and

special arrangements in writing. Make copies of

the paperwork for your records.

Rescue Scammers: How They Set the Trap Foreclosure Service

Scams: Know the

Warning Signs