Consumer Scams

Foreclosure Relief Scams and How to Spot Them

For most, their home is the biggest investment of their lives, and they are desperate to save it from foreclosure. That desperation allows the evil and unscrupulous to step in and con the vulnerable homeowner out of his home and what remains of his money.

Whether it’s called mortgage relief or foreclosure relief, we are talking about the same thing – a program to help homeowners in danger of losing their homes to foreclosure. While there are legitimate programs sponsored by the federal government and by lenders, the programs that sound too good to be true are usually scams. Arm yourself with information about common scams and the federal laws that can help you.

There is More Than One Type of Mortgage Relief Scam.

People get behind on mortgage payments for all sorts of reasons.  A job loss, family illness, recession, or incapacitating accident can all lead to a financial crisis for a family.  People deplete their savings trying to keep up with debts and living expenses.  Suddenly, they realize they are behind on their house payments and falling further behind every month.  In frantically searching for a solution, they are easy prey for crooks and scammers.  If you ever find yourself in this situation, these are the types of scams to watch out for.

Lease-Back or Repurchase Scams

In this version, you may be approached by telephone or see an ad for a “mortgage relief service” that will help you repair your credit and save your home. The fake counselor advises you to “temporarily” sign over your home to the company or to an independent “investor” who will pay off the mortgage and refinance at a lower rate.  Meanwhile, you can stay in your home by paying rent to the investor.  Once you sign away your ownership interest, the property changes hands multiple times.  Your rent may go up dramatically after a few months.  Eventually, you are evicted from your home, only to find that the “investor” never paid off your mortgage debt.  You still owe your lender and do not have a house to surrender to foreclosure.  One of the worst parts of this scam is that you may not know you have been scammed for months or even years after you sign away your rights.  By then, the mortgage relief service and the investor are long gone.

Partial Interest Bankruptcy Scam

The phony mortgage counselor asks you to transfer a partial interest in your home to one or more persons.  For clarity, we’ll call those individuals “the investor.” You make your monthly house payments to “the investor” instead of your lender.  The premise of the con is that “the investor” supposedly has better credit than you and will be able to refinance for a lower rate. However, “the investor” neither makes the monthly payments to the lender as promised; nor does he make any effort to get new financing.  Instead, he files for bankruptcy without your knowledge.  If there is more than one investor, they will file successive bankruptcies.  The bankruptcy petitions stay the foreclosure proceeding.  This allows the Investor to keep collecting the monthly payments you are sending him.  When the bankruptcy is complete, the lender forecloses on the house.  The investor has disappeared, and you are left holding the bag. 

Refinance Scams

Your lender may work with you to refinance your loan to allow for smaller payments.  However, when mortgage brokers or refinance agencies offer to refinance your home at a lower rate, beware.  The scam artist drafts up a ream of “foreclosure rescue” documents for you to sign.  There will usually be a huge pile of documents with small print and lots of “legal boiler plate.”  Hidden in this pile of paperwork are terms transferring ownership of your property to the scammer.  Months may elapse before you receive an eviction notice and learn that you no longer own your home.

Internet and Telephone Scams

In this scenario, the scammer contacts you by telephone or on the internet and offers a low interest mortgage loan that will allow you to keep your house.  They use the ploy to extract personal information like social security numbers, bank account numbers, and credit card data.  They use the information to steal your identity and sell your personal information.  Now, all your credit card and bank accounts are compromised. The scammer probably charged you a hefty fee to originate the fake loan. You are in worse financial trouble than you were before.

Phony Foreclosure Help Counseling

Either by phone or through an ad, a fake mortgage help counselor contacts you.  He advises that for a fee (usually a substantial fee) he will contact and work with your lender to get your mortgage refinanced at a lower rate.  Once you pay the fee, you never hear from the counselor again.  His phone number has been disconnected, and he is in the wind.

The Forensic Audit

In this scam, a “forensic auditor” contacts you and offers to have a lawyer go through all of your loan documents to see if your lender has fully complied with the law.  The auditor tells you that most lenders are not in compliance, and loopholes his lawyer discovers can be used as leverage to get your loan refinanced.  Of course, the auditor requires an upfront fee and disappears as soon as he gets his money.

Warning Signs That You Are Dealing With a Scam Rather Than a Legitimate Company.

  • The company offers you a HAMP loan modification.  That program closed December 31, 2017, but scammers are still using it as a ploy to collect your money.
  • Beware of anyone who claims they can guarantee your loan will be modified to lower payments.  Only your lender can guarantee a modification.
  • Beware of anyone who wants to charge you up-front to get your loan refinanced.  As you will see in the next section, such charges are illegal under federal law.
  • Anyone who tells you not to contact your lender or your lawyer is a scammer.
  • If a company or individual wants you to make loan payments to anyone other than your lender, you are being scammed.
  • If the company offering to help modify your mortgage accepts payment only by cashier’s check or wire transfer, beware.
  • Anyone asking you to sign over the deed to your home is not a legitimate company.
  • If you are pressured to sign a pile of papers without an opportunity to read them carefully or have your lawyer look them over, that is a red flag you are being scammed.

Know Your Rights Under the Law.

The Federal Trade Commission has rules in place to protect you from unscrupulous grifters and con artists.  The key one is the Mortgage Assistance Relief Services Rule (also known as Regulation O).  Regulation O makes it illegal for companies to collect any fees from a homeowner until that homeowner receives an offer of mortgage relief from his or her lender and accepts the offer.  Knowing about Regulation O equips homeowners to identify many of the recognized scams and to report scammers to authorities.

In addition, Regulation O requires companies to provide specific information in their ads and in their telemarketing calls.  They must disclose:

  • That they have no association with the government, and their services are not endorsed by any government agency;
  • That they cannot guarantee the lender will agree to refinance your loan;
  • That you risk losing your home if you stop making mortgage payments to the lender;
  • That they cannot tell you to stop working with your lender and talking to your lender.

Precautions and Considerations If a Lawyer Offers to Help.

If a lawyer offers to help you refinance your mortgage, there are some circumstances where the lawyer can charge you an up-front fee.  They can only ask for money in advance if:

  • They are licensed to practice in the state where you live or in the state where the house is located.
  • They place the advance fee in a client trust account in accordance with state requirements.
  • They are providing you with actual legal services.
  • They are in compliance with state ethics rules.

If you decide to work with a lawyer, go online to make sure he or she is licensed in Arizona or in the state where the house in jeopardy is located.  You may also want to check with the State Bar Association to see if the lawyer has a record of ethics violations.

Legitimate Mortgage or Foreclosure Relief Resources.

The best advice is to speak with your lender first.  The lender who holds the deed of trust or mortgage on your home is in the best position to help if you fall behind on payments.  The lender has a real motivation to help you.  Foreclosing on a house costs lenders money.  They have to pay attorneys, appraisers and others to facilitate foreclosure and market the house.  If the house is under water, the lender may lose money on the auction, and Arizona lenders won’t be able to get a deficiency judgment on a first mortgage. 

The federal government provides legitimate and free mortgage counseling services.  If you need a foreclosure avoidance counselor to advise you on restructuring your loan, contact HUD at

You can also contact a credit counselor to help through the Home Ownership Preservation Foundation (HPF).  This is a non-profit organization that has been endorsed and recommended by the FTC.  They have a 24 hour help line at 1-888-995-HOPE. You can also find help and additional information at

Finally, if you have been the victim of a scam or if you are contacted by suspected scammers, please report them to the authorities.  Contact the Federal Trade Commission or the Arizona Attorney General’s Office.  You can report fraud on these websites:, or



This website has been prepared for general information purposes only. The information on this website is not legal advice. Legal advice is dependent upon the specific circumstances of each situation. Also, the law may vary from state-to-state or county-to-county, so that some information in this website may not be correct for your situation. Finally, the information contained on this website is not guaranteed to be up to date. Therefore, the information contained in this website cannot replace the advice of competent legal counsel licensed in your jurisdiction.