By Mark Huffman
June 14, 2010
The number of foreclosures remains near record levels causing an increasing number of desperate homeowners to grasp at straws. All too often, these straws are nothing more than cruel scams.
A growing trend in hard hit areas like Florida, California and Nevada is the "rent-buy back" scheme. To someone about to lose his home to foreclosure, it sounds heaven-sent.
A private investor appears and offers to take title to the property, then rent it back to the "owner" for about half of what the mortgage payment is. Under the premise of the deal, the investor will take over the payments to the lender to prevent the foreclosure and, at some point in the future, will sell the property back to the original owner.
In fact, the above scenario is just one of the so-called foreclosure rescue tactics. Since the foreclosure rescue business has deservedly gotten such a bad reputation lately, the scammer presents it under the guise of a legitimate business investment.
But how could it possibly be that? The "investor" is going to make the full mortgage payment but collect only half that amount in rent? What kind of business deal is that?
You can be assured that the "investor" has no intention of paying your lender a dime, but most assuredly will deposit your rent check each and every month.
You may also be told that surrendering the title will permit a borrower with a better credit rating to secure new financing -- and prevent the loss of the home. But the terms of these deals usually are so burdensome that buying back your home becomes impossible.
You lose the home, and the scammer walks off with all or most of your home's equity. Worse yet, when the new borrower defaults on the loan, you're evicted. In a variation, the scam artist raises the rent over time to the point that the former homeowner can't afford it. After missing several rent payments, the renter -- the former homeowner -- is evicted, leaving the "investor" free to sell the house.
In a similar equity-skimming situation, the scammer offers to find a buyer for your home, but only if you sign over the deed and move out. The scam artist promises to pay you a portion of the profit when the home sells.
Once you transfer the deed, the scam artist simply rents out the home and pockets the proceeds while your lender proceeds with the foreclosure. In the end, you lose your home -- and you're still responsible for the unpaid mortgage. That's because transferring the deed does nothing to transfer your mortgage obligation.
Whether they call it foreclosure rescue or a business investment, scammers use half-truths and outright lies to sell services that promise relief and then fail to deliver.