The Farce of Foreclosure Rescue (scams)


It’s become commonplace to see advertisements of all type promoting some new foreclosure rescue company that is the savior of those in distress and about to lose their home. These companies appear to have all the answers to the distressed homeowners mortgage issues, and for absolutely free, they will save you and get those nasty banks off your back!

Last week I had the great displeasure of learning a bit about the inner workings of such operations, and believe me, they’re not helping anyone but themselves. A client of mine noticed a short sale listing in his neighborhood boasting a price of 130k under the homes tax assessed value, which is pretty incredible. I found it hard to believe the lender had approved that price, since they’re almost certain to do better than that at auction. The home had sold for over one million three years ago and is on the water; it carried 1.3 million in debt, and was listed at just 878k.

My client was very interested in making an offer on this home, so I contacted the agent, and then the foreclosure rescue company (as directed by the agent) that was apparently mediating between the lender and homeowner. I’ve been involved in a few short sales and I’m quite familiar with the process, so I asked the foreclosure co. when the offers would be presented to the lender; I was told, they would not.

He (the company owner) was bold enough to tell me that he would hold all of the offers, and then submit his own offer to the bank for just 500k. Now all of this was being done without the seller’s knowledge, or the listing agents. The foreclosure company was attempting to acquire the property for ½ price, then “accept” an offer from one of the sellers for over 300k more. The idea was apparently to manipulate the escrow company into some type of a dual close with two sets of docs (the lender only seeing one set), which would never happen at an honest escrow company.

Now some of you may even feel this is an ingenious way to make a fortune, and I have to disagree; there are several things that concern me here (aside from the overall dishonesty of it all). Mainly that the seller is being mislead, and believes the offer she accepted and signed is to be presented to the lender, and the listing agent (after I informed him of what is happening) is turning a blind eye to whats going on, and believes that as long as he submits the offer she accepted to escrow, his job is complete. Also, the agents that are spending their time and money showing this property and writing these offers are doing so in the belief their offers will be submitted to the bank, which is exactly what the listing says. That is a lie.

They also lead people to believe the lender has approved the listing price, when in fact they have not (there are of course too many MLS rule violations to even get into for the agents participating in this process).

Then there are the major issues. The seller will be reported to the IRS for capital gains tax purposes by the lender; if you borrow one million, and the lender accepts payment of just 500k, then in the eyes of Uncle Sam, you made 500k on the deal. So that seller may end up on the tax hook for the money that went into the pocket of the “rescue” company. Also, the lender may still pursue the sellers for the money owed, and attach liens to other properties or assets they may have.

Many company’s do make legitimate profit buying homes from lenders at lowball prices, and selling them for profit. Theres not a thing in the world wrong with that. The types of company’s I’ve just described are attempting to play the middle, and use no money of their own. They are creating additional problems for people already in distress and that is wrong.

So if you are involved in this practice, I beg of you to stop preying on people and destroying lives and making the mortgage crises worse (not that you will listen). The lenders are already going broke, and stealing a little more from them isn’t being a business genius, it’s being a thief. Until people stop viewing the theft of money from banks as a victim-less crime, our economy will continue to suffer.

If you’re a seller, in need of a short sale, contact the bank directly. These sales need to have their approval to move forward or you will never close. You can, if you choose, have your agent deal directly with the lender (you must write a letter of authorization) and submit all offers to them.

The lender will pre-approve a listing price, as well as a commission for the agents involved (it’s typically lower than average commissions). Never go to someone and think you can hand them your problem and they will fix it for free, it simply doesn’t happen that way. If you want it done right, you must do it yourself. If not, then your troubles have only just begun. Don’t fall for the farce of foreclosure rescue.

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  1. Pingback: The Farce of Foreclosure Rescue (scams) | The Long List of Odysseus Medal Nominees | Realtors and real estate, mortgages, lending, investments

  2. We are experiencing a number of foreclosures in our area too. The problem is most lenders still think its 2003 and still want to list the homes at those prices.

    One home was never lived in and the lender had kept it on its books for 2 years and still wanted to ask for top dollar

  3. I’m simply amazed at the number of people who aren’t willing to speak with their bank about foreclosure, but will hand over their keys to some fly by night scam without a second thought.

    I heard on NPR this week that over 50% of homeowners who are foreclosed on never have contact with their banks. That just boggles my mind.

  4. Sadly many people are very intimidated by lenders; and the complicated process of getting a human being on the phone doesn’t help. Often their lenders are not local and can only be reached by phone. I had one client that wanted me to sell her home, but had no idea what she owed on it, or what the pre-pay penalty was. She never could get that information for me. It was as though you had asked her to call the President.

  5. It seems the problems getting worse and is now beginning to bite the UK market too. Lenders have finally stopped offering 100% mortgages to first time buyers which is good from the foreclosure point of view but makes it even more difficult for them to get on the property ladder.

    Some of predicting a return to the massive foreclosure numbers of the 1980s but hopefully it won’t come to that.

  6. Pingback: International Listings Blog » Blog Archive » 101 Tips & Resources for the Upside-Down Homeowner

  7. I have a real problem with the government taking money out of my check to give to someone that made a bad choice and bought more house than they can afford. I also have a problem with my tax dollars being used to bail out billion dollar corporations.

    There is a thing called personal choice and people should be responsible for it.

  8. I completely agree with you! “Foreclosure rescue” is an illusion that many Banks, Lenders and Servicers would like homeowners to believe, only so that they can fleece their pockets with even MORE money. Rather than trying to stop foreclosure, they are focused on making money from the whole situation. What a shame. Greed is the motivating factor, even when it comes to something as important as foreclosure and saving your home.

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