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'Marketplace' Report: Home Equity Scams

MADELEINE BRAND, host:

Back now with DAY TO DAY. There's news this week of trouble in the so-called sub-prime lending market. These are mortgage loans for people with credit troubles, and they usually have much higher interest rates. As homeowners have trouble paying them off, and the loans go bad, well, con men are circling. They offer what's come to be known as the foreclosure rescue scam. Steve Tripoli from MARKETPLACE is here, and Steve, what is that scam? Tell us about it.

STEVE TRIPOLI: Well, you know, these scams are dangerous, Madeleine, for two reasons. First of all, they aim to strip the equity out of your home. That's any value above the amount you owe, and that can be a ton of money, especially after the recent housing price boom. And they're dangerous because scam artists exploit human psychology. The bankruptcy expert I spoke to, Elizabeth Warren at Harvard Law School, describes foreclose rescue scams this way.

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Ms. ELIZABETH WARREN (Harvard Law School): It's about taking people who are in financial trouble and who are desperate. They want to hang on to their homes, and they'll throw anything they can into doing that. And these folks comes in and figure out a way to make big promises and strip the last little bit of cash out of the hands of the homeowner.

BRAND: And Steve, what kind of promises do they make?

TRIPOLI: Well, as the name implies, they promise to rescue you and save your home or save your credit rating or maybe pay some of your refinancing costs. There are three ways these folks have been ripping people off, Madeleine.

First, they'll grab very high upfront fees while promising to negotiate you. Then they take the money and do very little. Second, they'll convince you to sign over title to your house. They claim this is temporary. They're supposedly using their good name to arrange financing. And then the financing doesn't come through but, you know, whoops, the scam artist already holds your title. He owns the place. And the third method is outright fraud, where they trick you into signing over your title.

BRAND: Well, how do they find people in distress, homeowners who are looking for some help?

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TRIPOLI: Very easy. You know, a lender's notice of default, which says you're behind on payments, is a public record, and in this case that public record is the scam artist's gold mine.

BRAND: Okay, so let's say you are in trouble. What should you do to watch out for these people?

TRIPOLI: Well, the first thing to watch for is someone who approaches you. That's a very big danger signal. If you're behind on your mortgage, you should approach your lender and ask about your options. One of the first things scam artists tell the homeowner is, oh no, avoid the lender. You know, that's another warning sign, someone who says that.

BRAND: And any other ways?

TRIPOLI: Yeah, a few, actually. Beware of anyone who calls themselves a mortgage consultant or a foreclosure service or something like that. Beware of anyone who wants their fees up front. Watch out for people who tell you to send your mortgage payments directly to them or their company while they work things out. And never take advice to sign away the title to your property unless a lawyer that you've chosen tells you to do it.

BRAND: Well, Steve, what's a way to get out of this in a legal way, in a way where you won't lose your home?

TRIPOLI: Well, not everyone can get out. Some folks are in too deep and they're going to lose that house. But I'll say this. If you've lived in your house for more than a few years, it could well be worth more than you owe, and that means you have a chance to sell or refinance, so look into those options.

So all this gloomy talk, Madeleine, let's do lunch. Coming up later today on MARKETPLACE, the sizzling battle over who created the hamburger, and the winner stands to make millions.

BRAND: Okay, well, thank you, Steve; Steve Tripoli of public radio's daily business show MARKETPLACE. It's produced by American Public Media. Transcript provided by NPR, Copyright NPR.