Foreclosure Rescue Scams Can Spell Trouble For Title Agents
Foreclosure rescue scams were rampant during the Great Recession as homeowners found themselves underwater with their mortgages facing foreclosure. As economic conditions slow and home prices decline in some regions, now is the time to watch for properties being sold under the guise of a foreclosure rescue. Here is a quick overview of different types of foreclosure rescue scams and a few tips on what to do if you suspect your transaction may involve a foreclosure rescue.
Foreclosure rescue scams
Foreclosure rescue scams can be as simple as taking money from a distressed homeowner promising to negotiate an agreement with the servicer or lender and then failing to provide any meaningful assistance. Some schemes require the homeowner to make mortgage payments to the scammer, who promises to manage the payments on their behalf, but instead, takes the money and disappears.
The scams that title agents must watch out for are those that result in a transfer of title to a foreclosure rescue company or investor. Insuring the title in a foreclosure rescue scam transaction may result in a claim when the new owner attempts to evict the tenant – the original owner of the property – and gets sued by the tenant. Becoming a party to a lawsuit could lead to reputational damage for your agency and other potential harm.
Here are a few such scenarios.
Bait and switch: The homeowner is asked to sign documents purportedly to bring the mortgage current, but the owner unknowingly signs a deed transferring the ownership to the fraudster. The homeowner is told they can remain in the property while the details are being worked out with the mortgage company. When the ownership transfers, the property is sold to someone else by the fraudster, and the unsuspecting former owner is evicted by the new owner.
Rent-to-own: The homeowner signs a deed transferring ownership to the scammer under a rent-to-own agreement believing they will be able to buy the home back. The scammer promises the homeowner they will not record the deed, but the deed is recorded. As with the scenario above, the home is then sold to someone else without the knowledge of the original owner.
Equity skimming: The owner signs a deed to the scammer who promises to share a portion of the profit from the home sale. Instead, the scammer rents out the home, pockets the proceeds, fails to make mortgage payments, and may record a deed back to the original owner. When the home foreclosure is finalized, the owner is on the hook for the debt and has lost ownership of the home.
Some rescue services are legitimate, but even in those cases, the owner may not understand that they have lost ownership of their home.
Foreclosure scam Red Flags
Transactions involving foreclosure rescue scams often have similar details. Here are some Red Flags to keep in mind:
- A recently recorded deed from the owner to the investor
- An investor who brings an already executed deed to the title agent and asks the agent to record the deed
- An existing mortgage by the prior owner is in foreclosure
- The prior owner is still living in a property being sold by an investor or foreclosure rescue company (Scammers may call them “tenants” and ask that you do not disturb them as a condition of the sale).
Thankfully, if you spot one of more of these Red Flags, there are steps you can take to help determine whether the transaction is legitimate.
Trust but verify
A title search will show if there is a notice of foreclosure against the property. If this is the case, and the prior owner still resides at the property, a good first step may be to call or write that person to determine:
- Why they are still residing at the property
- If they understand they have transferred ownership of their home to the investor
- Whether they are aware that their home is now being sold to someone else.
Be wary of an investor attempting to steer you away from contacting the previous owner of the property or the lending company. It is best that you communicate directly with all parties, the prior owner and the lenders, letting them know about the impending transaction.
Open communication is also critical in the case of a simultaneous flip. The original owner may not be aware of the second sale for an increased amount. The new lender may include a requirement in the closing instructions that property flips be disclosed or that they are prohibited. Disclosures should be in writing. It is also best to communicate directly with the lender, and not just a mortgage broker.
Here are a few more things to keep in mind in the fight against foreclosure rescue fraudsters:
- Trust your instincts if you are feeling uneasy over a pending transaction or uncover unusual circumstances.
- Watch out for odd or unusual requests from the buyer, seller, or investor.
- As the neutral third party, it’s best to communicate openly with all parties to the transaction. Do not shy away from asking questions.
- Be wary of any party to the transaction requesting secrecy.
At Alliant National, we invite agents to share their stories and thoughts on how we can all help prevent fraudulent transactions. Please email us at: email@example.com.
In addition, agents who prevent a fraudulent transaction from being insured by Alliant National may qualify for a reward through Alliant National’s Crime Watch Program. Learn more at: https://alliantnational.com/title-claims/crime-watch-program/