Don't be Victimized by Mortgage Scams

If you're behind on your monthly house payments or upside down in your mortgage (in other words, you owe more on the loan than the property is currently worth), be careful. You may already have seen ads or even received "offers" of help from companies that claim to be able to solve your mortgage woes. Many of these are scams; don't fall victim to them. Here's a typical example of how they operate.

The company charges you a percentage of your loan amount or a flat fee to take over your property, perhaps $2,000 to $3,000. Remember, you're paying them for the privilege of signing over your property to them. They also tell you that they will take over your loan payments (but they won't be legally liable for them, as we'll soon see).

The company requires you to sign an agreement stating that they are not responsible for making the mortgage payments and that you will transfer the title of your property over to them by means of a quitclaim deed. The company can then dispose of the property any way that it deems necessary.

Needless to say, the main objective of this company is to collect an up-front fee. Once they have the property they may or may not continue with payments to your mortgage-holder. They may try to find a buyer for the property; it would typically be one who could not qualify for a traditional mortgage due to past financial problems. The buyer would generally pay the company a down payment and pick up the monthly payments on the home. The company would then transfer title to the buyer with another quitclaim deed. And then, of course, the lender accelerates the loan, making it fully due and payable because of the change in property ownership.

The big problem in all of this is that you're still financially liable for the original loan. If the company makes the mortgage payments, the lender may not find out for a while. If they stop making payments, however, your problem will have just become a catastrophe.

If a new buyer has the home, he or she will make the payments (hopefully) on the loan to the company. The payment will naturally be higher than the one for the original loan, with a higher interest rate. The company would then make the original payment to your mortgage lender and pocket the difference. This is known as a wraparound loan or all-inclusive deed of trust. If the company doesn't find a buyer for the property, it will likely go into foreclosure. This will seriously damage your credit report as well as your chances of getting a new mortgage for many years to come.

Again, if goes perfectly, the mortgage company may not find out, at least for some time. But that's no better than a role of the dice; the odds are not very good. The only way that you will be released from your obligation to your lender is if the new buyer refinances the loan in his or her own name. And if that were a possibility, they likely would have gone that route in the first place.

The company that makes you this offer will probably also suggest that you purchase another home prior to signing over your current home. This is especially attractive if you aren't late on your mortgage payments, but simply owe more on your mortgage than the appraised value of the property. By doing this you'll be secure in your new home because your credit rating is still good. However, if the company doesn't continue to make the loan payments on your original home a foreclosure will ensue, putting a huge hole in your financial future.

Don't fall victim to these unscrupulous predators. If you're in trouble, talk to you mortgage lender immediately. It's in their best interest to do all that they can to help you through the difficulty. Don't panic by accepting the first "deal" that's thrown at you; but don't wait until the small problem becomes a hole that is about to swallow you completely.