Mortgage-rescue scams may sink homeowners facing foreclosure

For people about to lose their homes to foreclosure, the advertisements are like a lifeline: "WE BUY HOUSES FOR CA$H," or "Refinance Your Mortgage! And Receive a 7 Day Vacation."

These so-called mortgage-rescue companies promise that for fees of about $1,000 to $2,500, they can negotiate loans with providers to get owners lower monthly payments. Or they offer deals that suggest homeowners temporarily deed their homes to the company or a third party, theoretically to allow the homeowners time to get back on their feet financially.

But in some cases, these "solutions" have turned out to be far worse than the problem.

At a time when the subprime mortgage crisis has caused a record number of homeowners to enter foreclosure, scam artists have made a bustling industry of preying on people's desperation to save their homes.

States are leading the effort to help homeowners avoid these scams. At least 18 have laws banning foreclosure rescue scams by limiting some practices that lead to them, and six of them - Idaho, Maine, Nebraska, Oregon, Virginia and Washington - enacted laws just this year, according to the National Conference of State Legislatures. A similar bill is now on the desk of Republican Gov. Charlie Crist of Florida.

Mortgage-rescue companies often bombard troubled homeowners with calls or direct-mail solicitations that sometimes look like letters from a government agency. One company that operated in Idaho sent out notices to homeowners falsely claiming that their homes were "scheduled to be sold at auction" and instructing them to call the company. In some cases, consultants have even shown up on owners' doorsteps to drum up business.

In one type of scam, a consultant demands an upfront fee of $1,000 or more to negotiate with the loan provider on the owner's behalf for a more affordable loan, but then the company does little or nothing. Besides being $1,000 poorer, the owner also has lost valuable time to work out a plan with the provider.

In another common rescue scheme, the foreclosure consultant convinces a homeowner to sign over the home's title. The homeowner remains in the house and pays rent, believing that he is buying time and that the consultant will eventually sell the home back to him.

But in some cases, the rent charged to the owner is higher than the mortgage payments. If the owner can't pay, he or she is evicted. Or the consultant refinances the house, often multiple times, draining the equity.

Sometimes, owners don't even know they have given away their homes. In Florida, many of the victims of this scam are elderly, uneducated or don't speak English, said Carolina Lombardi, a staff attorney at Legal Services of Greater Miami Inc.

"They're literally tricked. They sign a stack of papers with no concept they're signing a deed. They think they're refinancing," she said. "Or they know they're signing their deed, but they're told, 'We're just holding this for you until you establish you can improve your credit.' They're desperate, and it seems reasonable."