Foreclosure Rescue Scams

Scam #5 of 12 of the Dirty Dozen Foreclosure Scam Tricks

Foreclosure Rescue Scam #5) Bait and Switch

The red flag word in this scam is "rescue loan" or "refinance rescue loan". This is a twist on the refinance scam referred to earlier. But it is not a refinance at all.

Let me say that a legitimate refinance can be a great way to avoid foreclosure. If you are behind on your mortgage and have equity in your home, you can sometimes refinance and get enough cash out to pay off your loan, pay over-due amounts, pay off second mortgages, and even have some cash left over to pay other bills that may have become delinquent. In this case, if the payments on the new loan are fixed and affordable, refinancing can be a real life saver. If you cannot qualify for a refinance, there are other options available to avoid foreclosure.

But in the bait and switch refinance scam, there is a tiny twist that is hard to catch. Even with a legitimate transaction, there are so many papers to sign.

In this transaction, however, there is a single clause slipped in with all the legalese and the pile of paperwork. It is called a "deed transfer clause." It may be in fine print. This clause (possibly only a paragraph long) transfers the ownership of the house into the hands of the scammer or possibly into a "trust", also called a "land trust."

This is out and out deceit, but the papers are legal. That doesn't sound possible, does it? But, the deceit comes in the form of the spoken word of the scammer. He tells you that you are signing papers to get yourself out of a mess, and "explains" the paperwork to you.

If you catch on and sue the foreclosure rescue scammer, it is your word against his in court. Deceit is hard to prove, because it is your responsibility to read and understand any documents that you sign. As a matter of fact, you probably signed a statement within the paperwork that says "I have read this agreement, and I fully understand its terms and conditions."

Check the "List of Legitimate Resources for Help" section. Item #11 on the list is a "must have."

This foreclosure rescue scam and others like it usually load the new loan with excessive fees and closing costs, prepayment penalties, adjustable rates, and/or balloon payments – any of which can put an unsuspecting homeowner in deep financial trouble.

Some lenders have a demand clause which allows them to demand payment in full for any reason and at any time during the life of the loan - that's scary.

Some clauses spell out a short time period after which a large principal payment (or even payment in full) is due. This is called a "balloon" payment – not because it makes you feel like you can float on air, but because it is inflated- that means big, really big. By the way, balloon payment clauses are legal.

These clauses are more commonly found in commercial loans, business loans, or loans to wealthy clients. For those clients, large amounts of money are shifted around as common practice. It is a legal way to build credit, create cash flow, or expand a business. The clauses may be legal, but they are usually out of place in private residential lending - unless you are rich.

If the homeowner notices these clauses and raises questions, the scammer will say it is the only way to get the "great rate." He will reassure you that you can refinance or sell before the balloon payment is due. "No big deal, I see it done every day," he'll say.

Red Flags to look for:

• Terms like "rescue loan" or "refinance rescue loan."

• Words within the contract like "deed transfer", "trust", "land trust", "payment in full", "on demand" or "balloon payment."

• If you notice a page that says "Quit Claim" (or "Quitclaim") on it – this form surrenders your right of ownership.

• If your "specialist" tells you there is no need to try and read all the legal language in the contract, and that he will explain everything to you.

• If they bring an outside, third party into the transaction.

Keep in mind:

• NEVER SIGN A QUIT CLAIM DEED UNLESS ADVISED TO DO SO BY A TRUSTED ATTORNEY.

• NEVER ENTER INTO A TRANSACTION WHERE THERE WILL BE AN UNKNOWN THIRD PARTY.
Back to Dirty Dozen

Return to Main Menu - Foreclosre Rescue Scams