Foreclosure Scams to Avoid: Protect Yourself
When you're facing foreclosure, you're vulnerable - and scammers know it. Fraudsters specifically target desperate homeowners with promises they can't keep, taking your money and leaving you in an even worse situation. Understanding these scams is your first line of defense.
This guide will help you identify common foreclosure scams, recognize red flags, and find legitimate help.
The #1 Rule: Never Pay Upfront Fees
In California, it is illegal for foreclosure consultants to charge fees before services are fully performed. Anyone demanding upfront payment for foreclosure help is likely breaking the law. Report them immediately.
Common Foreclosure Scams
Phantom Help / Foreclosure Rescue
How it works: A company promises to negotiate with your lender to save your home. They charge upfront fees, collect your payments, but do little or nothing. Meanwhile, your foreclosure continues while you think you're protected.
Warning signs:
- Demands payment before providing any services
- Tells you not to contact your lender directly
- Guarantees they can stop foreclosure
- Pressures you to act immediately
- Asks you to redirect mortgage payments to them
The reality: No one can guarantee a loan modification. Legitimate professionals work with you and encourage lender communication.
Equity Stripping / Bait and Switch
How it works: A "rescuer" offers to pay off your mortgage or buy your home and let you stay as a renter. In reality, they steal your equity by having you sign over the deed, then either evict you or sell the home.
Warning signs:
- Offers to take over your mortgage payments
- Asks you to sign over the deed to your home
- Promises you can stay as a tenant and buy the house back later
- Presents complicated documents with little explanation
- Rushes you to sign without time to review
The reality: Once you sign over your deed, you lose all rights to your home. They take your equity and leave you with nothing.
Fake Government Assistance
How it works: Scammers claim to be from a government program or affiliated with HUD, offering special access to programs that can save your home - for a fee.
Warning signs:
- Claims to be from a government agency but asks for money
- Offers "special access" to government programs
- Uses official-looking but fake documentation
- Claims to have insider connections
The reality: Government programs don't charge fees. HUD-approved counselors provide free help. Real government agencies never demand payment.
Rent-to-Buy / Leaseback Scam
How it works: You're convinced to transfer your deed with a promise to rent the home and buy it back later. But the terms are impossible to meet, and you lose both your home and your equity.
Warning signs:
- Promises you can buy back your home in the future
- Requires you to transfer ownership first
- Sets unrealistic repurchase terms
- High "rent" payments that build no equity
The reality: The buyback terms are designed to be impossible. You lose your home and any chance of keeping your equity.
Bankruptcy Mills
How it works: A company files bankruptcy on your behalf without proper legal representation, often without your full understanding. This temporarily delays foreclosure but doesn't solve the problem, and often makes things worse.
Warning signs:
- Non-attorney files bankruptcy paperwork for you
- Promises bankruptcy will solve everything
- Files without thorough review of your situation
- Multiple bankruptcies filed in quick succession
The reality: Improper bankruptcy filings can be dismissed, leaving you with court costs and a damaged bankruptcy record that affects future options.
Fake Loan Modification Companies
How it works: Companies claim they can modify your loan and charge fees upfront. They may submit incomplete applications, make false promises, or simply disappear with your money.
Warning signs:
- Charges fees before modification is approved
- Guarantees modification approval
- Tells you to stop communicating with your lender
- No verifiable license or address
- High-pressure sales tactics
The reality: You can apply for loan modification yourself for free, or work with HUD-approved counselors at no cost.
Red Flags: How to Spot a Scam
Major Warning Signs
Signs of Legitimate Help
Trustworthy Professionals Will:
How to Verify Legitimacy
1. Check Licenses and Credentials
In California, verify licenses through:
- Real Estate Agents: California DRE (dre.ca.gov)
- Attorneys: State Bar of California (calbar.ca.gov)
- Mortgage Professionals: NMLS Consumer Access (nmlsconsumeraccess.org)
2. Research the Company
- Search for reviews online (but be aware reviews can be faked)
- Check the Better Business Bureau (bbb.org)
- Search for complaints with the California Attorney General
- Look for news articles or legal actions
3. Verify Physical Presence
- Get a physical address (not just a P.O. Box)
- Visit their office if possible
- Search the address online
4. Get Everything in Writing
- All promises should be in a written contract
- Review contracts carefully before signing
- Have an attorney review if possible
Get Legitimate, Licensed Help
We are licensed California real estate professionals (DRE #02076038 | NMLS #2033637). Verify our licenses and get a free consultation with no upfront fees.
Free, Legitimate Resources
These resources provide free foreclosure help - no payment required:
HUD-Approved Housing Counselors
Free, government-approved foreclosure prevention counseling:
- Call HUD: 1-800-569-4287
- Find local counselors: hud.gov/counseling
Your Lender's Loss Mitigation Department
You can apply for loan modification directly with your lender for free. Don't pay someone to do what you can do yourself.
Legal Aid Organizations
If you qualify based on income, legal aid can provide free legal help:
- Find legal aid: lawhelpcalifornia.org
- California Courts Self-Help Center: selfhelp.courts.ca.gov
What to Do If You've Been Scammed
- Stop all payments to the scammer immediately
- Contact your lender directly to understand your current status
- Document everything - save all communications, contracts, receipts
- Report the scam:
- Federal Trade Commission (FTC): ftc.gov/complaint
- California Attorney General: oag.ca.gov
- Consumer Financial Protection Bureau: consumerfinance.gov
- Local police for fraud report
- Consult a legitimate attorney about your options
- Act quickly on your foreclosure - time may be limited
Protecting Yourself
Before Signing Anything:
- Take time to read every document carefully
- Never sign blank or incomplete documents
- Get copies of everything you sign
- Have documents reviewed by an attorney if possible
- Don't be rushed - legitimate help will give you time
During Foreclosure:
- Stay in direct communication with your lender
- Open all mail and respond to notices
- Keep records of all communications
- Be skeptical of unsolicited offers
- Verify credentials before working with anyone
Frequently Asked Questions
Is it legal to charge for foreclosure help?
In California, foreclosure consultants cannot charge fees until services are fully performed. Charging upfront fees is illegal. Real estate agents and attorneys have different rules but must be licensed and transparent about fees.
How do scammers find me?
Foreclosure notices are public record. Scammers monitor these filings and contact homeowners through mail, phone, or even door-to-door visits.
What if I already paid a scammer?
Stop payment if possible. Report the scam to authorities. Consult with an attorney about recovery options. Focus on addressing your foreclosure with legitimate help.
Can anyone guarantee to stop my foreclosure?
No. No one can guarantee a loan modification, sale, or any specific outcome. Anyone making guarantees is likely a scammer or lying.
Get Help You Can Trust
As licensed California professionals, we're committed to honest, transparent foreclosure help. Verify our licenses and get a free, no-obligation consultation.
Licensed: DRE #02076038 | NMLS #2033637