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The New Mortgage Fraud

Services for Real Estate Pros with McMichael & Toledo, CPAs

Unfortunately mortgage fraud has not fizzled out along with the real estate market. It's just changed. The new mortgage fraud preys upon desperate homeowners threatened with foreclosure, and these tough economic times are creating plenty of potential victims.

The Foreclosure Rescue Scam is probably the most common and one that I have fielded many calls about. These companies offer to help negotiate with your lender to avoid foreclosure and modify the terms of your loan. First of all, there's nothing that even a reputable firm can do that a persistent homeowner can't do themselves. You're better off calling yourself to negotiate a modification. The real problem, however, is that the scammers will collect money up front and then do little or no work. Homeowners end up still facing foreclosure and out hundreds or even thousands of dollars.

The Mortgage Elimination Scam is another popular one today. In this scenario the scammer prepares paperwork that appears to eliminate the mortgage. There is, of course, a fee for this service and, of course, it doesn't actually work since the only way to eliminate your mortgage is to pay it off. The homeowner stops making payments and by the time they receive notice that they're in default the scammer is long gone.

The Equity Theft scam is essentially a version of the foreclosure rescue scam. To avoid foreclosure homeowners are convinced to execute a quitclaim deed transferring the property to the scammer for very little money. The scammer promises to rent the home back to the homeowner with the option to buy it back down the road. Of course, these promises are never in writing and the scammer proceeds to evict the former owner and sell the property. This one only works if the owner has significant equity.

The newest scams involve the Federal Stimulus Bill and other mortgage relief legislation. Basically these are the same basic scams, but by invoking the legislation or government agencies we've all been hearing about on the news they lend themselves instant credibility.

Scam artists will continue to come up with newer and more clever ways to commit mortgage fraud as long as there's money to be made. However, there are some basic guidelines that should keep most homeowners out of trouble. The oldest piece of advice on the topic is still the best, "If something seems too good to be true, it probably is." If you keep this one concept firmly in mind, you will be very difficult to take advantage of.

The other big one is to be wary of anyone who requires payment up front. Also avoid anyone who wants to rush you into things and won't allow time for you to check it out. Another common red flag is being told not to contact family, friends, attorneys, financial advisers, etc. Desperate people make the easiest victims, so take a step back to be sure you understand everything. When in doubt, take the time to check with the Better Business Bureau or the State Attorney General's office.