A foreclosure rescue scheme is a scam that targets those whose house is facing potential

foreclosure Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan. Formally, a mort ...

. The scheme preys on desperate homeowners whose

mortgages A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any ...

are in default by offering to prevent the foreclosure. There are various ways in which foreclosure rescue schemes work, causing different types of harm to the homeowners, but all ultimately with the likely end result of the owner being forced out of his/her home and losing even more money. Foreclosure rescue schemes are typically advertised in a variety of informal settings, such as roadside signs.

Types of foreclosure rescue schemes

There are several ways foreclosure rescue schemes operate:

Lease-buyback

In a lease-buyback scheme, the owner turns the lease over with an option to buy it back later. The owner is promised to be able to rent the property back, which will be counted toward an eventual buyback. These can be legitimate; however, in a scam they may end in loss of the property or considerable additional cost: the renting prices may be made so high that the original owner cannot afford to continue paying and/or the buyback price may be set far above the

fair market value The fair market value of property is the price at which it would change hands between a willing and informed buyer and seller. The term is used throughout the Internal Revenue Code, as well as in bankruptcy laws, in many state laws, and by sever ...

of the property.

Equity stripping

Equity stripping or equity skimming is a variation on lease-buyback and is one of the most common types of foreclosure rescue schemes. In it, the perpetrator assumes ownership of the house while allowing the former owner to continue living there, provided that s/he pay rent to the perpetrator, who is the new owner. The perpetrator often claims this ownership is temporary, and the victim will later reassume ownership of the home once the terms of the loan are renegotiated. But after taking over the deed to the house, the perpetrator cashes out all the

equity Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the diff ...

in the home. The perpetrator also collects money from the victim by charging

rent Rent may refer to: Economics *Renting, an agreement where a payment is made for the temporary use of a good, service or property *Economic rent, any payment in excess of the cost of production *Rent-seeking, attempting to increase one's share of e ...

to the victim for living in the house while not owning it. The final result is eviction from the house with zero equity paired with greater financial loss to the victim. The perpetrator, who then has ownership of the home, will either sell the property or allow it to go into foreclosure.http://www.miamiherald.com/news/miami-dade/story/987802.html

Consulting service

A firm may offer to act as an agent to renegotiate the terms of a loan with the lender, in return for a fee. The firms are unlikely to have any better negotiation power so the value of the fee may be disproportionate to the service received, the firm may be unable to negotiate any better terms or in the worst cases may not contact the lender. Firms may also encourage the original borrower to avoid any contact with the lender, under the guise that such contact would interfere with their efforts to secure a modification, when in fact it might reveal that the firm has not contacted the lender at all. Wednesday, August 19, 2020 When negotiation does take place the firm may put in place a deal to buy the property from the lender, if the equity value of the property has reduced, then this may be at a lower price than the current outstanding debt. Lenders may accept this to guarantee payment now, rather than gamble on future values, ability of the owner to pay etc. In these cases the situation can be similar to the other schemes with the original owner being offered the option to rent the property with a future buy back. As for the other schemes in a scam situation the terms of any tenancy or buy back may also be set to the gross disadvantage of the original owner.

Loan modification scam

In this case a firm will market to you aggressively to help you get a loan modification. These scammers target the homes of older seniors with equity which are the types that servicers usually won't modify. They may help you get a modification for a rental property first in order to win your trust. When they get to the property with equity they will trick you into missing payments, convince you to ignore the notice of default and notice of trustee's sale, and trick you into missing your sale date - all while telling you they are getting you a modification. Meanwhile, they will feed the property to their investors who will be waiting at the foreclosure sale to scoop up your hidden gem.

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