As mortgage delinquencies remain somewhat out of control, those looking to capitalize on California’s 2,500,000 struggling underwater homeowners are emerging from the woodworks. They hold in their hands a promise many have been waiting for:  to prevent home foreclosure. However, behind their sweet-tasting words is a serpent’s tongue casting about for financially wounded homeowners’ money.

Scam artists are growing rich on unsuspecting homeowners searching for hope. Be wary of anybody who promises to be an “expert” in foreclosure prevention – or short sales for that matter. This is not to say in any way that all claiming to be experts have ill intentions, but rather a call to keep your eyes open for the obvious warning signs:

  • Request for upfront fees:

As soon as these guys wrap their fingers around your cash, they pocket it and move on to the next victim as they answer your future concerns with lies and promises that they are “working on it.”

  • Guarantees to prevent your foreclosure:

It is impossible to guarantee such a thing, especially before the “specialist” knows anything about an individual homeowner’s situation.

  • Instructions to stop paying your mortgage, and instead pay them for their services:

The strategy employed here tries to milk a homeowner for as much as possible before the property is inevitably foreclosed upon.

first tuesday take: Warn negative-equity clients to avoid scammers like these.  Those individuals advertising as short sale experts are occasionally using this front as a guise for attracting desperate homeowners, then pulling a bait-and-switch routine and taking on the role of a foreclosure prevention specialist. [For more information on scams that seek to prey on insolvent homeowner’s, see the March 2010 first tuesday article, Loan modification scams continue under a new name: loan audits.]

Loan modifications should be pursued only by the homeowner.  The United States Department of Housing and Urban Development (HUD) has free advisors that actually give advice on what your options are. [For a list of nonprofit housing counseling agencies approved by HUD, visit HUD’s Talk to a Housing Counselor page, or call (800) 569-4287.]

Any scammers who demand money upfront are obviously not confident in their “guarantee” or else they wouldn’t mind being paid upon delivering a desirable result.  A contingency fee, due upon closing a deal, is a tradition in the real estate brokerage business which has essentially banned the practice of using advance fees.

Insisting you stop paying your mortgage may be sound advice, however, if a homeowner decides to take that route they need to pocket that money themselves, saving it for a future down payment instead of giving it to someone else.

Re: Avoid foreclosure-prevention scams: 3 tips from