Be prepared. The scam artists are on the move. The inevitable byproduct of any market distress is the introduction of them to further complicate the already confusing situation. According to the FBI foreclosure fraud numbers are as high as they have ever been, having received 35,000 reports last year that adds up to almost $1 billion. The key is to be able to identify the foreclosure rescue scams and steer clear of them. Here are some pointers.
Equity skimming is one of the more widespread tricks. In it the homeowner would temporarily convey ownership of the property to the shady operators while they supposedly consult with the lender and he tries to get his financial affairs in order. The homeowner is now paying rent to them, but instead of negotiating with the bank, they are busy using the bogus ownership to place another loan on the house and suck its remaining equity out. At the end the scammers keep the rent money and whatever equity was there and they are gone forever, leaving the homeowner several steps closer to a foreclosure because the rent was not forwarded to cover the loan payments.
A mortgage counseling service may sound very appealing to a worried consumer, especially when it promises to bargain with the lender on his behalf, but it wants an upfront fee to do so. It's the upfront fee request that should trigger the alarm bells. There are some reliable businesses he could turn to, but to get this type of assistance should cost nothing. The best way to handle a possible foreclosure issue is to contact the lender directly. Or to find a free service, HUD provides a list of approved housing counselors.
Basically, the best practice is to not sign a quit-claim deed to assign the property rights to a third party, unless an attorney or a HUD-approved housing counselor gives his consent. Authorizing a counseling company to represent the homeowner in order to stop foreclosure at once is generally a bad idea. Also, hiring a third party to handle mortgage payments while it promises to handle a looming foreclosure often leads to pilfered payments and a bankruptcy filing that will not stop foreclosure, merely delay it.
All in all, never sign a piece of paper that is not fully understood and always seek legal counsel when in doubt.