Foreclosure rescue and Foreclosure Options
Foreclosure rescue, also known as equity skimming or equity stripping, is any of various predatory real estate practices aimed at vulnerable, often low-income, homeowners facing foreclosure in the United States. Most often, these transactions take advantage of uninformed, low-income homeowners.
The term “foreclosure rescue” has sometimes referred to subprime lending refinance practices that charge excessive fees thereby “stripping the equity” out of the home. The practice more often describes foreclosure rescue scams. While most do not consider foreclosure rescue a form of predatory lending per se, foreclosure rescue is related to traditional forms of that practice.
Subprime loans targeted at vulnerable and unsophisticated homeowners often lead to foreclosure, and those victims more often fall to foreclosure rescue scams. Additionally, some do consider foreclosure rescue, in essence, a form of predatory lending since the scam works essentially like a high-cost and risky refinancing. Foreclosure rescue, however, is conducted almost always by local agents and investors, while traditional predatory lending is carried out by large banks or national companies.
Trends in the United States economy have led to the growing market for foreclosure services and foreclosure rescue. Property values have increased dramatically from 2000-2005.
Foreclosure A homeowner falls behind on his mortgage payments and enters foreclosure. Foreclosure notices are published in newspapers or distributed by reporting services to investors and rescue artists. Foreclosed homeowners also contact lenders to inquire about refinancing options.
Solicitation Rescue artists obtain contact information for foreclosured homeowners and make contacts personally, by phone, or through direct mail. Some lenders and brokers will also refer foreclosed homeowners that do not qualify for new loans to rescue artists for a commission. Rescue Artists offer the foreclosed homeowner a “miracle refinancing” and/or say they can “save the home” from foreclosure.
Acquisition Rescue artists arrange the closing (often delaying the date until shortly before the homeowner’s removal in order to create urgency). At the closing, the homeowner transfers title (possibly unwittingly) to the rescue artist or an arranged investor. The rescue artist or arranged investor pays off the amount owed in foreclosure to acquire the deed, and inherits or is paid any portion of the homeowner’s remaining equity.
Result The homeowners remain in the home and pay rent or contract-for-deed payments (often higher than their previous mortgage payments). Several states have passed laws to prevent and/or regulate foreclosure rescue schemes. Minnesota and Maryland passed laws in 2005 aimed at “foreclosure reconveyance” practices . The statutes also ban certain deceptive and unfair practices associated with foreclosure rescue.
Reinstatement of Loan (Cure): This option is paying the lender everything that is owed in one lump sum to include missed payments, any late fees associated with these payments, foreclosure fees, legal fees and the principal owed during the delinquency.
Repayment Plan: This is a written agreement between the lender and the seller. These plans require higher payments than the regular monthly mortgage amount for a period of time until the loan is brought up-to-date.
Loan Modification: A loan modification involves changing one or more terms of a mortgage. Modifications can be considered to reduce the interest rate of the mortgage, change the mortgage product (from an adjustable rate to a fixed rate, for example), extend the term of the mortgage or capitalize delinquent payments (add delinquent payments to the mortgage balance-only available in extreme hardship situations).
Forbearance Agreement: The lender will allow you a period of time (3-6 months typically) of either low payments or no payments at all.
Special Forbearance (FHA Loans only): Allows eligible borrowers to postpone monthly mortgage payments for a minimum of four months.
Deed-in-Lieu: A Deed in Lieu is an option in which a borrower voluntarily deeds collateral property in exchange for a release from all obligations under the mortgage.