The Common Law

Avoid Foreclosure-Rescue Scams

I've had trouble making regular payments on my mortgage, and the lender may foreclose. I was contacted by a foreclosure-prevention company that says it can help me avoid foreclosure. Can the company really help me avoid foreclosure?

The increase in foreclosures nationwide has lead to a new scam – "foreclosure prevention" or "foreclosure rescue" companies. Foreclosure-related scams are very lucrative for the scammers and are expected to increase along with the number of foreclosures in 2008. Last week's "Common Law" column addressed the general problems with foreclosure-prevention and -rescue companies. Today's column outlines several specific foreclosure-rescue scams.

Refinance Scam: The lender claims it can rescue a homeowner who is on the brink of foreclosure by refinancing the loan with lower mortgage payments. Initially, the mortgage payments are low (usually because the homeowner is only paying interest) but are followed by a large balloon payment. Lenders sometimes target homeowners with large amounts of accrued equity, because when the homeowner defaults on the high payments, the lender forecloses and strips the homeowner of all equity.

Phantom Counseling: A foreclosure-rescue company claims to stop foreclosure proceedings by negotiating a repayment plan or organizing a preforeclosure sale. In truth, these companies charge very high fees for basic phone calls and paperwork that the homeowner can accomplish.

Repetitive Refinancing: A lender tempts a homeowner to refinance multiple times by offering extra cash, money for home renovations, or vacation packages. The lender fails to explain to the homeowner all the consequences of a refinance, including higher interest rates and additional fees and costs. The repetitive refinancing puts the homeowner in debt and leads to foreclosure.

The Bailout: The scammer "bails out" the homeowner by convincing the homeowner to surrender title to the house on the promise that the homeowner can stay on as a renter and buy the house back in the future. The deal is arranged in a way that makes it virtually impossible for the homeowner to regain legal ownership of the house, and the scammers end up with the home, including its equity.

Please submit column suggestions, questions, and comments to thecommonlaw@austinchronicle.com. Submission of potential topics does not create an attorney-client relationship, and any information submitted is subject to being included in future columns.

Marrs, Ellis & Hodge LLP, www.jmehlaw.com.

The material in this column is for informational purposes only. It does not constitute, nor is it a substitute for, legal advice. For advice on your specific facts and circumstances, consult a licensed attorney. You may wish to contact the Lawyer Referral Service of Central Texas, a non-profit public service of the Austin Bar Association, at 512-472-8303 or www.austinlrs.com.

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