If you are facing Foreclosure you can be inundated by phone calls. Please keep in mind that foreclosures are running rampant across the US and so are Foreclosure and real estate scams. There are literally thousands of people that are looking to get you to sell your home and your precious memories. DO NOT BE A VICTIM.

In a previous article titled “Homeowners Beware” I listed a few things to be on the lookout for and ways you can eliminate copanies that may be lying to you or trying to force your hand into a sale.

A company that truly wants to help will offer their terms in writing and offer a 100% guarantee BEFORE any money is paid or papers are signed.

Some interesting scams I heard on the wire was Lease Option scams. What happens in these cases is an investor will offer to get you out of debt by buying the home from you and catching the mortgage up. At the end of this lease term, usually a year or two, you have an option to buy the home at an agreed upon price. There are three different scenarios here that should alert you of a scam or an unethical practice:

1. There will be a clause in the lease contract that states if the homeowner is 24 hours late on their payments then the Lessor has the right to take posession of the property immediately.
2. The investor will make promises that they will pay all mortgage payments. The mortgage payments are not made and the house will slip into Foreclosure yet again but there is nothing you can do because the home is not in your name.
3. The last, and probably the most borderline, is the amount of the purchase price. Some investors, especially if the home has a decent LTV (Loan To Value) ratio, will inflate the price to almost 100% of the actual home value thereby sucking out any equity at all. A typical lease option will add some fees and closing costs in addition to a reasonable % of the loan balance.

Now another scam you should be extremely warey of involves short sales. This is where an investor will approach you and ask for permission to negotiate directly with the lender to purchase the home. Now this in itself is not unethical and can sometimes be a solution when a home value has dropped close to or under the loan balance.

Most times, if they are taking advantage, they will not disclose any out of pocket costs. In fact, they will tell you quite the opposite. If they are legitimate they will explain (depending on your state law) what defficiencies you will be responsible for and how they will be collected.

In some states, an IRS Form 1099 is issued in the amount of the deficiency, which will be titled Forgiveness of Debt. This 1099 will have to be reported as income and you will then be responsible for paying taxes on this amount. In other states the lender will actually send you a bill for this amount.

Let me briefly explain an example. If you own a home that has a value of $110,000 and the loan balance is $100,000, the investor will offer the lender an amount below the loan balance amount. Let’s assume that the amount the lendor offers the investor is $80,000. The deficiency would be the difference between the offer from the investor and the loan balance. Depending on your state laws you will be responsible for this $20,000 in some form or another.

The key here is disclosure. Now in all fairness there is an option to submit a waiver request to the lender when submitting the short sale proposal. For example, in a state that does allow a deficiency judgement, instead of getting a judgement placed on you for the total deficiency, you will receive a 1099 which you will report as income on your income tax return for the appropriate year.

My point with short sales is not to discount their ability to assist, but rather warn you that there will be out of pocket expenses at some point or another.

This whole article was written to encourage homeowners to do their homework. Do not just go with the first company that sweeps you off your feet with empty promises. Foreclosure is not pretty, but being taken advantage of when in a Foreclosure or preforeclosure situation is even worse.

By: Donna Atwater (cfreedom) for more information about your options please visit our website and fill in our brief application and one of our experienced consultants will contact you within 24 hours.