More and more shady businesses are cropping up promising to help homeowners avoid foreclosure.  Of course some are legitimate, but the hallmark of a fraudulent mortgage foreclosure rescue scam is a company that promises consumers their homes will be saved from the pending foreclosure permanently.  Allow me to deconstruct the essential elements:  First, the "foreclosure consultant" contacts a troubled homeowner promising that they can help the homeowner avoid foreclosure.  Next, the shady company requires an upfront fee for their services and outlines what they'll do for the homeowner.  However, the  scammer doesn't even contact the lender, but runs off with the homeowner's money, leaving them deeper in debt and in a worse position to deal legitimately with their lender.

According to the Federal Trade Commission, some variation of the following are the most common type of mortgage rescue scam:

  • Title Transfer: The fraudulent operators may in fact take title to the homeowner's property. Two variations on this scheme are:

► The fraudster represents that the homeowner is signing documents for a new loan to bring the mortgage current, when in actuality the scam artist has either slipped the deed into a large stack of documents or forges the homeowner's signature on the deed. Ultimately, the fraudster ends up with the deed to the house, even though the consumer believed he was only signing documents for a refinance loan.

► The fraudster convinces the homeowner that the home needs to be sold to the rescue company itself in order for the homeowner to remain in the home as a renter. The firm then promises the consumer that he will be able to repurchase the house over the next few years. However, rather than allow the homeowner to repurchase the property, the fraudster typically asserts ownership of the home outright and evicts the homeowner. In other instances, the terms of repurchase are so outrageous that the firm knows the consumer will never be able to repurchase the house.

  • Mortgage Negotiation: Firms promise borrowers that, for a fee, they will "save your home from foreclosure" by negotiating with the loan servicer for either a temporary lower monthly payment or a permanent loan modification. In the end, however, these firms charge thousands of dollars and rarely stop the foreclosure. In some cases, the company promises a full range of options: credit counseling, debt negotiation, emergency lending - whatever the consumer needs.  Of course, the scammers aren't really negotiating with the lenders.  The lenders send the homeowners notices of default, but the homeowners continue to pay the scammers for each new "solution."  Frequently, the firms instruct the victims to have no further contact with the loan servicer, even though servicers will agree to loan workouts or modifications to avoid foreclosure in some circumstances.

The FTC also warns that when homeowners try to get in touch with the mortgage foreclosure rescue company they've hired, they are often unable to reach them to find out updates about their case.  In fact, after signing these homeowners up, taking their money, and leaving them hanging for months on end, the foreclosure rescue firms finally tell the homeowners to file for bankruptcy or grant a deed in lieu of foreclosure to the lender. The vast majority of consumers are shocked that the lenders still end up foreclosing on their homes.  (For your reference, you can read the entire FTC prepared statement on forecolsure rescue fraud here.)

While it is unfortunate that these scams are the latest growth industry, homeowners can take some comfort in that the state Attorney General Offices and the Federal Trade Commission are hip to the fraud, investigating complaints, and charging these fraudulent companies with criminal and civil penalties.   Some states have even pulled together various forms of a Mortgage Task Force.  Others have even begun enacting legislation to deal with the fraud crisis.

If you're facing foreclosure, contact an attorney in your area who deals with these kinds of matters.  An attorney is the only professional who can advise you of the variety of options available for your situation including options for avoiding foreclosure, securing a loan modification, obtaining debt relief, or even filing bankruptcy.  Attorneys owe a fiduciary duty to their clients by virtue of their license to practice law that these fly-by-night companies simply don't have.

If you believe you may be the victim of a foreclosure rescue scam, contact the Federal Trade Commission or your state Attorney General to file a complaint.