The Attorney General provides Consumer Alerts to inform the public of unfair, misleading, or deceptive business practices, and to provide information and guidance on other issues of concern. Consumer Alerts are not legal advice, legal authority, or a binding legal opinion from the Department of Attorney General.
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Home lending and foreclosure rescue scams are a serious problem in Michigan. These scams have cost people thousands of dollars and, in many cases, their homes. Scam artists often target people who are at risk of losing their homes or who have a lot of home equity but little cash. Older adults, people with low incomes, and those with poor credit are especially vulnerable. These scams aren’t just happening in Michigan. This alert explains common tactics used by con artists, ways to protect yourself, and what to do if you fall victim.
If you are in foreclosure and desperate to save your home, you need to be extremely cautious of any claim offering to lower your monthly mortgage payment while also promising that in a short time you can own your home free and clear of any debt. The scammer will offer or claim to arrange a new loan but instead tricks the homeowner into selling the home to the scammer or a third party and agreeing to either lease the home or purchase it back on a land contract. The scammer or third party will pay off the existing mortgage or take out a loan. If the scammed homeowner lived in the home for a number of years, he or she likely built up and is surrendering significant equity. Equity is the market value of the home minus the value of all mortgages and other liens on the home. The scammer now owns the home and has stripped or taken the consumer's equity.
When scammers get hold of a home, its taxable value “uncaps.” This means its value for tax purposes rises to match its fair market value. This can cause property taxes to increase significantly. The home will also lose its principal residence tax exemption (PRE), adding to the tax burden. If it’s treated as a rental property, rental licensing fees and code enforcement rules may apply.
The former homeowner's resulting lease or land contract payments may be lower for a few months. But careful inspection of the agreement is likely to uncover an unaffordable balloon (a large lump sum) payment due at the end of a short period of time. Sometimes it is due in only 13 months! This means the entire remainder of the agreement must be paid off.
Few can afford the huge cost in such a short time. In the end, foreclosure “rescue” victims find themselves being evicted. And the scammer cashes in on the sale of the home! The home is then transferred to the scammer or third parties. The former homeowners may become ineligible for legitimate programs and assistance designed to help those facing foreclosure.
This scheme is a form of “equity stripping.” Equity stripping occurs when the loan is made on the basis of the property’s equity rather than the borrower's ability to repay the loan. This allows the borrower to benefit temporarily but, in the long run, only adds to his or her debt upon foreclosure.
Information disclosing the homeowner's name and the property description for a home in foreclosure is readily available. The con artist obtains the legal description of a property in foreclosure and matches a street address. Then they solicit the distressed homeowner with promises of an alternative to foreclosure. Homeowners are contacts by letter, a home visit, a telephone call, a road sign, an advertising flyer, or radio and newspaper ads.
Seniors often live in homes for many years and the mortgage balance owed is very low or the home is paid off. Scam artists check public records to find out how much someone owes on their home. They then try to convince the homeowner to use their equity to get cash or risk losing their home.
In a foreclosure situation, an individual or a company may offer to contact the lender. They may offer to get another lender to refinance and save the home from foreclosure. But the scammer does little or nothing to help a homeowner out of foreclosure.
Any services actually performed could have easily been performed by for free. When the homeowner learns the scam artist has failed, valuable time and money have been lost. The homeowner is now forced into accepting the scammer’s “rescue” program.
The scammer may promise to complete home repairs promising that cost the homeowner nothing because they will be paid for with the homeowner’s equity in the home. However, the scammer does little or shoddy work while and still takes the money the homeowner took out for the repair or renovation. The homeowner ends up owing money on the new loan likely secured by a second mortgage and may even need to hire a reputable company to correct the substandard work. For information on picking a reputable contractor, see the Consumer Alert entitled "Building and Remodeling - Advice for Homeowners."
Be very cautious of claims offering to quickly get you out of debt by refinancing your home. Cash now and lower monthly payments means you will be paying off your mortgage over a longer period of time. Getting a few thousand dollars at the closing means your slightly lower mortgage cost may continue for 30 years. This is instead of the few years you had left on the original mortgage. Additionally, lenders and brokers may add unnecessary closing costs and excessive fees.
Some organizations have targeted vulnerable homeowners with a too-good-to-be-true offer of cash for their home. These offers are often pitched as a quick solution and are commonly for less than the market-value of the home. Others may attempt to sell financial products they claim will “save” homes from foreclosure. Both use predatory methods to sway people who may be in hard times. That includes repeated phone calls and high-pressure language. They also use a sales process that prevents consumers from fully reviewing and understanding documents before signing. The companies then take the homes they purchased and flip them for a profit. Homeowners should use caution and get a second offer before falling victim to these greedy schemes. Homeowners should also insist on time to fully review and understand all documents before signing.
Refinancing to obtain cash necessarily means a larger loan. It can also mean a higher interest rate and high refinancing fees. Loan flipping is when a mortgage company or broker places a borrower in a high-rate, high-cost loan. The company then tries to have the borrower refinance the transaction within a short period – often only six months to a year – after signing the original loan. The enticement is usually a slightly lower interest rate or monthly payment. However, the loan term becomes longer and the total cost of the loan increases. And, because various fees, such as loan origination fees and points, inevitably were financed the first time the loan was made, any refinancing where these fees are refinanced results in the consumer borrowing and owing more without any corresponding benefit.
Homeowners may find they are a victim of a forgery when they begin to get mail with an unfamiliar name. Or they may receive mail in their name but for unfamiliar bills. These may be clues that the homeowner's signature was forged. The forgery may be on a quit claim deed that hands the property to the scammer. The scammer then takes out a new loan that provides for a substantial cash payment and disappears. The homeowner victim is left with the burden of clearing title and his or her good name.
Crooks may not even bother with a quit claim deed. Instead, they may steal your identity and taking out loans in your name. By the time you get the bills in your mailbox, the thief has made off with thousands of dollars. And the lender by be unaware of any wrongdoing. The lender may even begin foreclosing on your home before you are aware anything is wrong. It can be very costly for the rightful homeowner to quiet title and reinstate proper ownership of the property.
The Consumer Mortgage Protection Act provides a Borrower's Bill of Rights which includes, in part, the right to:
To find out if a company or individual is a licensee or registrant and therefore authorized to sell mortgages in Michigan, you may contact the Department of Insurance and Financial Services (DIFS) at 877-999-6442. You may also check the DIFS Consumer Finance Licensees page. Complaints regarding a licensed mortgage broker or lender should be sent to:
Department of Insurance and Financial Services
P.O. Box 30020
Lansing, Michigan 48909
DIFS Online complaint form (PDF)
Consumers may contact the Attorney General's Consumer Protection Team about lending and home foreclosure "rescue" scams:
Consumer Protection Team
P.O. Box 30213
Lansing, MI 48909
517-335-7599
Fax: 517-241-3771
Toll free: 877-765-8388
Online complaint form