Mortgage Rescue Scams

With the mortgage foreclosure crisis hitting more people, scammers are out in force.  One of the newer scams involves fraudulently attaching a mortgage to someone else's bankruptcy.  Here's how it works.

Scammers know that one of the most powerful tools in the bankruptcy tool box is the automatic stay that prevents a creditor from taking any action against the debtor or property of the debtor's bankruptcy estate.  The scammer approaches a borrower facing foreclosure and gives them the pitch that for a small fee, say $300-$500 per month, they scammer will "work with" the lender to prevent bankruptcy.  The scammer tells the borrower that she needs to convey a small percentage, even 1%, of her house to another person.  This other person is someone in bankruptcy, usually in another state, and has nothing to do with the scammer or the borrwer.  In fact, this person is completely unaware of the scammer.  But by transferring a small portion of the borrower's property to the bankrupt debtor, the borrower's property is now "property of the estate" of the innocent debtor.  The scammer uses this to claim the protection of the automatic stay against the bank trying to foreclose on the borrower.

Sometimes the debtor becomes aware of this sudden new interest in real property that he never had before when the bankruptcy trustee accuses him of failing to disclose all his property.  This usually happens when the bank asks for relief from the automatic stay so it can commence foreclosure against the borrower.  If this happens, the scammer tells the borrower she needs to convey another fractional interest to another unknowing debtor somewhere else and the process starts again.

The bottom line is this for borrowers:  It's unlikely that any of these so-called "rescue firms" can really legitimately help you.  Beware of anyone who tells you that for a monthly fee they can stave off foreclosure.