How to Spot a Foreclosure Rescue Scam

When a notice of default is recorded, it becomes a public record. Within days, list brokers have scraped it and sold it. That is why the mail and the calls arrive so quickly, and why some of them are very good at sounding official.

Most of the people contacting you are legitimate. Some are not. Here is how to tell them apart.

The single clearest red flag: an upfront fee

Federal rules prohibit a company offering mortgage assistance relief from collecting any fee until you have a written agreement from your lender or servicer that you have accepted. Not when they start work. Not when they file the paperwork. Not a "processing fee," a "retainer," a "document fee," or an "audit fee."

If someone asks for money before your servicer has put an offer in writing and you have signed it, that alone tells you what you need to know. Walk.

The rest of the red flags

"We guarantee we can stop your foreclosure." No one can guarantee that. Your servicer makes the decision, and the rules explicitly bar anyone from claiming a likelihood of success they cannot substantiate.

"Stop talking to your lender. Let us handle it." Advising you to cut contact with your servicer is prohibited, and it is devastating in practice. Your servicer is the only party who can actually approve a workout.

"Make your payments to us instead." This is theft with extra steps. The money does not reach your loan, and you fall further behind while believing you are current.

"We're a government program" or "HUD-approved," with an official-looking seal. Any company offering these services must disclose plainly that it is not associated with the government. Real HUD-approved housing counseling is free — you can find a counselor at hud.gov or by calling 800-569-4287.

"Just sign here — we'll explain later." Read every document. Never sign a blank or partially completed form, and never sign anything transferring an interest in your property that you do not fully understand.

Pressure and a deadline that isn't yours. "This offer expires tonight." Legitimate options do not evaporate in an evening.

Deed theft and the leaseback

This is the one that costs people the house.

The pitch: sign the deed over temporarily, we will pay off or take over the loan, you stay in the home and rent it back, and you buy it back in a year or two once your credit recovers.

What happens: you have transferred ownership. Your equity is gone. The "rent" is often set higher than the mortgage payment was, and when you cannot pay it, you are evicted as a tenant — with no foreclosure protections at all, because you no longer own the property. The buyback rarely happens, and the terms usually make it impossible by design.

There is almost never a legitimate reason to deed your home to a stranger to avoid foreclosure. If someone raises it, have a real estate attorney of your own choosing review it before you sign anything.

Surplus funds recovery firms

If a foreclosure sale brings more than what is owed, the surplus belongs to you. Some firms contact homeowners offering to "recover unclaimed funds" for a percentage — sometimes 30% or more — of money you can usually claim yourself through the trustee or the court. Several states cap what these firms may charge. Before you sign a recovery agreement, call the trustee or the clerk of court and ask what the claim process is. It is frequently a form.

What real help looks like

Your servicer. Free. The only party who can approve a modification.

A HUD-approved housing counselor. Free. Independent. hud.gov or 800-569-4287.

A licensed real estate broker or attorney, whose license you have verified with the state.

Legitimate professionals will tell you what they cannot do. They will put the fee arrangement in writing before you owe anything. They will encourage you to talk to your servicer, not away from it. And they will not need an answer tonight.

If it already happened

Report it — it helps, and sometimes it recovers money:

CFPB — consumerfinance.gov/complaint

FTC — reportfraud.ftc.gov

Your state attorney general — most have a dedicated mortgage fraud unit

HUD — for anything claiming a government affiliation

If you signed a deed, see a real estate attorney immediately. Do not wait to see whether it works out.

Not sure whether an offer in front of you is legitimate? Call 888-870-0443 and describe it. No charge, and no obligation either way.

For your options from someone who has to hold a license to give them, see Homeowner Options or Foreclosure Help by State.

KW Home Solutions, part of KW Default Solutions and powered by Keller Williams Realty. This article is general information, not legal advice. Consult a licensed attorney about your situation.

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