It is hard to find a tragedy in the world that some heartless rat can't find a way to exploit and the current and growing incidence of foreclosures doesn't violate the rule.

Foreclosure fraud is not new - as far back as the spring of 2005 the National Consumer Law Foundation published a 68 page report on incidents they had investigated in every state of the union and the Federal Bureau of Investigation recently published its Mortgage Fraud Report for 2006 which said in part:

"Recent statistics suggest that escalating foreclosures provide criminals with the opportunity to exploit and defraud vulnerable homeowners seeking financial guidance. The perpetrators convince homeowners that they can save their homes from foreclosure through deed transfers and the payment of up-front fees. This "foreclosure rescue" often involves a manipulated deed process that results in the preparation of forged deeds. In extreme instances, perpetrators may sell the home or secure a second loan without the homeowners' knowledge, stripping the property's equity for personal enrichment.



While foreclosure scams vary, they may be used in combination with other fraudulent schemes. For instance, perpetrators may view foreclosure-rescue scams as a new method for fraudulently acquiring properties to facilitate illegal property-flipping and equity-skimming."

Bear in mind that the two aforementioned publications reflect life as we knew it during the real estate "bubble." One can only imagine how much worse it is now and how much more ugly it is likely to become as more and more homeowners are or are likely to be unable to make their monthly payments.

Well, actually, one needn't imagine too hard. Several of the regular and cable news networks have done stories on the problem in recent weeks. One reported that the Attorney General of North Carolina had banished one foreclosure "rescue" company from doing business in the state (the proprietor moved just a few miles from Charlotte across the South Carolina border where he continues to operate freely.)

Another network interviewed several people who had fallen for offers to "save" their homes and found themselves not only foreclosed but out of substantial funds they had advanced in hope of being saved.

Last month the Attorney General of Ohio Marc Dann filed lawsuits against six companies, charging that they had made false promises to save homes from foreclosure. Dan said that the accused may have each violated at least five different consumer protection laws and that, in addition to the suits, he was "issuing a warning to companies who think they can get away with exploiting families who face the prospect of losing their homes: "Stop now or my office will stop you."

"While predatory lending is despicable," Dann said, "I can think of little that is more shameful or sleazy than attempting to profit from the misery and fear of Ohioans who face foreclosure and are willing to do anything-to grab on to any ray of hope-that may enable them to keep their homes... So please be very, very careful and wary of anyone who promises to stop foreclosures for a fee,"

In April of this year Massachusetts Governor Deval Patrick called for the criminalization of foreclosure fraud, better tracking of foreclosures including a filing of a mandatory "pre-foreclosure notice" with the state, and a program to educate the public about foreclosures saying that addressing the problem requires a comprehensive approach.

The Governor also urged the state to offer legal help for homeowners facing foreclosure including a new hot line and referrals to reputable financial counselors and to crack down on all aspects of mortgage fraud.

Homeowners who are delinquent on their mortgages really are sitting ducks. Foreclosures are not done quietly or privately, and the embarrassment factor can be an important motivator to grasp at straws. First they are advertised in the local paper, sometimes for weeks before the actual auction. These legal notices contain all of the particulars of the mortgage - date, original amount, a legal description of the property. It doesn't take someone interested in the property - legitimately or not - long to arrive at a fairly accurate figure for the current mortgage balance and only a quick trip to the county assessor and the registry to determine what other secured liens may encumber the property. And there in a heartbeat is an approximate equity value - a number that can inform the scammer of the best way to proceed.

Also, as a matter of public record lists of delinquent homebuyers can be purchased for mass mailings. These are usually broken down by 30 day, 60 day, and 90 day delinquencies - some lists even come with mailing labels.

So finding and contacting a troubled borrower is pretty easy, but how do these foreclosure scams work and how are home owners so easily duped? Is there no way for a homeowner in active foreclosure to salvage something, if only the shreds of their dignity and their credit rating?

There are legitimate companies who counsel desperate homeowners and others who buy properties out of foreclosure on the up and up. The trick is separating the scammer from the investor who may be able to legitimately bail out the homeowner, probably through a short sale.

We will talk about the MO of each in a later article.