The second major category of mortgage frauds targets consumers. Foremost among these are foreclosure rescue and mortgage debt relief scams. These scams seek to take advantage of homeowners who are falling behind on their mortgages or property taxes and are afraid of losing their homes. These scams are of particular concern in a depressed economy when unemployment is rising.

Still other scams attempt to take advantage of consumers through fake investments and other schemes that use real estate and mortgages in an effort to separate them from their money and/or property. These are not necessarily aimed at consumers in financial difficulty, but those who fall for them do tend to end up poorer.

Here are some examples of scams related to mortgage modification and foreclosure rescue, followed by examples of other consumer mortgage frauds.

Foreclosure Rescue and Mortgage Debt Relief Scams

Foreclosure "rescue" and refinance frauds

The scam artist offers to help a homeowner in financial difficulty refinance their loan or obtain a mortgage modification to avoid foreclosure. The scammer charges hefty up-front fees for this service, but doesn't deliver in the end, leaving the homeowner in even worse financial shape than before. In a worst-case scenario, the scammer will claim to operate as the homeowner's agent, and direct the homeowner to send payments directly to him or her to be forwarded to the lender - but the scammer pockets the money instead. In some cases, the homeowner may not realize they've been scammed until the foreclosure notice is posted on their door.

Fake government programs

Some scammers will claim to be working in government-sponsored homeowner programs or even represent government agencies in an effort to fleece homeowners. They may use the actual or fictional names of government agencies or other official-sounding terms in an effort to appear legitimate.

The easiest way to recognize these scammers is when they ask for hefty up-front fees in return for their services. While there are a large number of nonprofit agencies that do offer homeowner assistance programs under government sponsorship (usually through HUD), they charge little or no fee for their services.

Leaseback/rent-to-buy scams

In this scenario, the scammer proposes a deal in which the owner deeds their property to the scammer in return for signing a rent-to-own agreement that will allow them to stay in the home and eventually reclaim the property. Once the deal is signed, however, the homeowner may find that the rent-to-own agreement is loaded with hidden fees and penalties that make it easy for the scammer to void the deal and evict the homeowners. In many cases, this is part of an equity skimming fraud (see previous chapter).

Debt-elimination schemes

Scammers sometimes claim to be able to eliminate a homeowner's debt through "secret laws" or other financial and legal wizardry. They claim they can free a homeowner from the obligation to make mortgage payments while retaining ownership of the home. Of course, they charge for this "advice" and the homeowner who heeds it and stops making their mortgage payments only ends up in deeper financial trouble than before.

One variation of this is to sell the homeowner an official-looking certificate, which resembles a cashier's check or other legitimate financial instrument, and which can supposedly be presented to the bank in satisfaction of the mortgage. But the piece of paper is worthless.

Other Consumer Mortgage and Real Estate Scams

Reverse mortgage scams

Reverse mortgage scams commonly target senior citizens. While a legitimate and well-planned reverse mortgage can provide revenue for persons on a limited income, there are also examples of fraudulent reverse mortgages that can cost seniors money or even end up causing them to lose their homes. Such scams often start with telemarketing efforts aimed at seniors. Warning signs include high-pressure sales tactics, being asked to sign incomplete documents, salespeople claiming to represent government or nonprofit agencies and charging fees for basic information.

Mortgage escrow schemes

A dishonest mortgage lender agrees to maintain an escrow account for the borrower to cover costs associated with the mortgage or home ownership itself. But rather than using the funds for their' intended purpose, the criminals skim them off a portion for themselves. This activity is often hidden within the details of financial statements that the homeowner finds too complex or time-consuming to check.

Equity stripping

An unscrupulous lender may lend an amount that is more than a borrower can afford, with the knowledge that default is likely. The lender can then foreclose and sell the house, stripping the borrower of any equity earned over the years.

Chunking

Chunking is a variation on property flipping that often starts as a seminar or program where the scam artist pitches real estate investments to an investor or group of investors. The scammer persuades the investor to purchase one or more properties, with the scammer as an intermediary, then uses the investor's personal information to obtain additional mortgages to purchase additional properties the investor is unaware of. In reality, the properties are being purchased from the scammer or accomplices at inflated values with the help of a corrupt appraiser. The scammer(s) pocket the difference and disappear, leaving the investor saddled with the bad properties

Insurance packing

Packing is the practice of adding unwanted extras to a loan without the full knowledge of a borrower. The most common product added to loans is credit life or disability insurance. Credit insurance is almost always overpriced and a poor value for consumers, but in mortgage loans, the cost can be enormous.