How To Avoid Short Sale Fraud And Foreclosure Fraud

We’ve all seen them. The signs on billboards, on TV or the Internet, on fliers pasted to telephone poles. “Stop foreclosure now!” “We can save your home. Guaranteed. Free consultation.”  “We stop foreclosures every day! Let our team of professionals stop yours!” If you are desperate enough and looking for a short sale or are on the verge of foreclosure, you may be tempted to call one of these companies, and you might find out the hard way that they are not what they seem.

Here are some common sense rules in how to avoid short sale fraud.

  • Never pay an upfront fee in advance of services rendered. Sometimes the scam artist will pocket your money and file bankruptcy in your name, without your knowledge. Bankruptcy may stop foreclosure but you could still lose your house – and the money you paid to the scammer.
  • If someone tells you to let them handle all the details and to not contact your lender, attorney, or credit counselor, it is probably a scam.
  • Do not sign any documents without showing them to your attorney. A common scam is the “bait-and-switch” in which the documents you thought were a new loan actually transfer your property title to the scam artist.
  • Do not agree to surrender the title to your house in order to rent it back with the rent going towards payments. Usually the scammer will raise the rent to an amount you cannot afford, and then evict you, keeping your house.
  • Never make mortgage payments to a third party who is not your lender, and never make payments with a cashier’s check or wire transfer.

Fraud can occur during a short sale as well. Some of the big banks that are second lien holders are being investigated on fraud. If the second lien holder does not drop the lien, there is no short sale. To get them to drop it, the primary lien holder pays them a small amount. This is legal. What is illegal is that some second lien holders are demanding a cash payment (on the side and off the record) from the homeowner in order to allow the short sale to go through.

Final rule for homeowners: never make a cash or cashier’s check payment to a second lien holder during a short sale.

Always consult a legitimate short sale realtor and other professionals such as a real estate attorney before entering into a short sale or foreclosure.