Understanding Foreclosure - Foreclosure Scams

Bankruptcy foreclosure fraud is a growing problem that threatens the integrity of
the bankruptcy system as it takes advantage of families in distress. The United
States Trustee Program is working hard to identify bankruptcy foreclosure scams
around the country and to take appropriate action through criminal referrals and
civil suits. Be especially alert to the following:

> Equity skimming: In this type of scam, a "buyer" approaches you, offering to
get you out of financial trouble by promising to pay off your mortgage or give you a
sum of money when the property is sold. The "buyer" may suggest that you move
out quickly and deed the property to him or her. The "buyer" then collects rent for a
time, does not make any mortgage payments, and allows the lender to foreclose.
Remember, signing over your deed to someone else does not necessarily relieve
you of your obligation on your loan.

> Phony counseling agencies: Some groups calling themselves "counseling
agencies" may approach you and offer to perform certain services for a fee. These
could well be services you could do for yourself for free, such as negotiating a new
payment plan with your lender, or pursuing a pre-foreclosure sale.

> Probably the most widespread foreclosure scam involves the use of
foreclosure notices to identify individuals facing the loss of their homes. The scam
perpetrator contacts the home owner, advertising "mortgage assistance" or
"foreclosure counseling" and promising to work out the home owner's problems
with the mortgagee or to obtain refinancing for an up-front fee typically ranging
from $250 to $850. The perpetrator may direct the home owner to "fill out some
forms," including a blank bankruptcy petition. The perpetrator subsequently files a
bankruptcy petition in the home owner's name. The bankruptcy petition invokes the
automatic stay, the imminent foreclosure is postponed, and the home owner stops
receiving collection calls and letters.


In most cases, the perpetrator does not tell the home owner about the
bankruptcy petition, instead convincing the home owner that foreclosure activity
has ceased because mortgage problems have been worked out. The perpetrator
may tell the home owner that he or she might receive a notice from the court, which
should be ignored. The home owner may even be told that the perpetrator has gone
to court on the home owner's behalf. No one appears at the Section 341 meeting,
the case is dismissed, the foreclosure goes forward, and the home is lost.
The United States Trustee Program welcomes information that will help detect
bankruptcy foreclosure scams, and is indebted to those trustees, judges,
clerks, secured lenders, bankruptcy attorneys, and private citizens who
report suspicious fact patterns. They coordinate with all participants in
the bankruptcy system to eradicate this destructive form of fraud. You
can find information online about the United States Trustee Program at
http://www.usdoj.gov/ust. For Your Information Foreclosure Scams
For - Understanding Foreclosure -
Sources: Federal Citizen Information Center, HUD, VBA, USDOJ
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