Last month we did a two part article on foreclosure. The bottom line was, if you are in financial trouble, take control of the situation and get in touch with your lender the very minute that problems loom.

That message has been upper-cased, bold-faced, and underlined by a recent report from the National Consumer Law Center.

The Center's recent report "Dreams Foreclosed: The Rampant Theft of Americans' Homes Through Equity-Stripping Foreclosure 'Rescue' Scams", is a pretty sad indictment of those real estate investors who will, apparently, go to any length to make a profit off of the misery and misfortune of others. But, turned inside out, the report can serve as a strong warning to homeowners who find themselves in financial difficulty to pay attention before they are coerced or provoked to cast caution aside in an attempt to save their homes.



The report, which incidentally reads a little like a who-dunit with state-by-state case studies, starts out with the statement that "A new wave of fraud and fast-dealing is ripping the homes right out from under thousands upon thousands of Americans."

Well, that should be enough to catch almost anybody's attention.

The report ties the necessity of this warning to the virtually unprecedented rise in real estate values coupled with financial pressures on many American families - the rising costs of health care, education, housing, and increasing job insecurity - and the downward pressure on real income. The report goes on to indict the nation's lenders "with their increasingly reckless extension of credit plus their striking array of grossly unfair and extremely high priced credit products collectively known as 'predatory lending.'"

The very nature of foreclosure itself plays into the situation. Homeowners facing foreclosure are "by definition short of money." This limits their ability to hire an foreclosure lawyer or find other truly helpful ways out of their situation. And in those many states where foreclosure is non-judicial (there are two kinds, judicial foreclosure and non-judicial foreclosure and in the latter no court is overseeing the process), there is a lack of transparency; a homeowner is given no clear sense of where to turn or how much time remains to reverse or stop the foreclosure process.

There, the report says, at the junction of "pressures and surging home values" foreclosure rescue scams find fertile ground.

Foreclosure "rescue" comes in at least three forms with countless variations on each. In the first the rescuer charges high fees to perform activities that the homeowner, properly informed, could have done on his own. In a Michigan case a rescue operation charged people an exorbitant amount of money for a couple of futile phone calls to their mortgage company and/or referral to a bankruptcy attorney. Once those tasks were performed, the rescuer refused to have any more contact with the client.

This type of rescue leaves the homeowner in worse shape than before and often with little time left for alternative strategies.

The second form of foreclosure help is what the report calls the "bailout" that never quite works. This includes various schemes where the homeowner is convinced to give up title to the house under the promise that he or she can remain as a renter or eventually regain ownership of the home. The rationale here is that an intermediary with a better credit rating will be able to secure new financing and avoid the foreclosure altogether. The terms of the buy-back, however, are almost always so onerous that the rescuer walks off with the house and its equity.

The third scam is one in which the homeowner does not even realize that he is giving up ownership of his home, only signing the necessary papers to qualify for a new loan to pay off the delinquent mortgage.

For example, a 33 page complaint in Boston against a firm operating in at least three states on both coasts, alleges that it charged over $64,000 for an advance of $14,400 to bring the plaintiffs mortgage current and that the plaintiff was never informed that the home was to be transferred to a trustee who was instructed to immediately evict the homeowner from her home.

Even worse the report claims, in many cases the homeowner unwittingly gives up ownership of his home but is still responsible for the mortgage debt and thus liable for the deficiency once the foreclosure is complete. This can result in a summary judgment that can attach to other assets such as automobiles, business equipment or even the tools the homeowner needs to earn a living.

In cases where the homeowner may lack cash but have substantial equity in the home, the rescuer may also manage to grab the surplus amount that results from the sale at foreclosure that should be paid back to the homeowner once all of the debt is satisfied.

There are thousands of potential rescuers out there. The National Consumer Law Center displays a full page of ads that it says are "some of the many signs currently lining the streets of Richmond, Virginia." No doubt you have seen these small signs stuck in the ground or hung on telephone poles your own area: "We Buy Houses; "We Buy Houses FAST;" "Cash for Houses, Any Condition, Any Situation."

A lot of the above is not necessarily fraud in the technical and legal sense; but it is never a nice way to behave; as if that counts in this day and age. There are real estate investment gurus everywhere advocating these methods as a route to riches and these are, in fact, among the secrets that many of those 3 a.m. telemarketing shows (buy real estate for no money down) are touting.

It cannot be said often enough. If you have a problem with your mortgage or are looking for help preventing foreclosure, call your lender immediately. The person on the end of the line might not be polite - might even be mean, but nothing could be worse than falling into the hands of these "rescuers."