Foreclosure Rescue Schemes: What They Are and How to Avoid Them
Rescue schemes take various shapes but one of the most common is this: An investor offers to help you "save your home" by purchasing it on a land contract and leasing it back to you until you can re-purchase it. The investor is going to cover your mortgage for a year (or two) until you get back on your feet and then you can buy the home back (at an inflated price, of course.) You may pay a lower payment during that time but the investor is adding the difference to the balance you owe, raising the purchase price when you buy it back.
There are several flies in this ointment:
1. If the investor does not make the payments to the bank asÃ‚Â promised, you lose the house by foreclosure anyway. Instead, the investorÃ‚Â pocketsÃ‚Â the money you've paid and your past-due mortgage payments are neverÃ‚Â caught up. Simply put, this scheme is fraud and if it has happened to you, call an attorney orÃ‚Â the prosecutor's office.
2. Virtually all mortgages today have "Due-on-Sale" clauses. WhenÃ‚Â youÃ‚Â purchased your home and signed the mortgage, you agreed that when youÃ‚Â sold theÃ‚Â home you would pay off the underlying mortgage. That includes sellingÃ‚Â it on a land contract to an investor. Once your lender learns you've soldÃ‚Â theÃ‚Â home but not paid them their money, they will demand the full balanceÃ‚Â immediately. Since neither you nor the investor have that kind of cash onÃ‚Â hand,Ã‚Â the lender can take the property.
3. The new purchase price will be inflated beyond appraisable value. Let'sÃ‚Â pretend that you weather your financial storm, the investor actually does make theÃ‚Â payments and your bank doesn't find out you sold it. It is now two years later. The additional expense the investor has added to the cost of the home in deferredÃ‚Â payments and high-risk interest rates will have added at least 10% to the price of the home. In today's economy, real estate values are going down, not up,Ã‚Â andÃ‚Â especially not up 10%. Two years down the road, the home will not appraiseÃ‚Â for the price your investorÃ‚Â will sell it back to you and you will windÃ‚Â upÃ‚Â losing the home anyway.
If you consider, even for a moment, to get involved in a rescue scheme, do not pass GO, do not collect $200. Call your attorney immediately and make sure he or she reviews and approves every single word in any document you sign.
If you are facing foreclosure, have you considered a short sale?Ã‚Â To learn more about short sales, watch for my article "What is a "short sale" and is it right for me?"