Foreclosure loopholes can be a sticky issue, and can sometimes enter into the realm of illegal activity. Let's look at the basic facts.
What Is Foreclosure
Foreclosure is relatively simple. If an individual fails to meet the terms of their agreement with their mortgage lender the borrower ends up in what's known as foreclosure. This usually involves removing the borrower's interest in the property in question and a forced sale of the property - often at a public auction by the lender. The money earned from the auction is applied to the home mortgage debt.
What Are Foreclosure Loopholes
Look up "loophole" in a dictionary and you'll see a definition resembling something akin to this: An ambiguity that makes it possible to evade an obligation. Often times this term is used in relation to a law or contract.
A foreclosure loophole is an attempt by the homeowner to avoid foreclosure in a way other than the most obvious solution: bringing the loan to current status. Sometimes foreclosure loopholes are perfectly on the up and up. For example, some homeowners may be able to avoid foreclosure by refinancing their home loan. Sometimes a foreclosure loophole is far less than legal, especially when unsolicted parties appear and offer quick solutions to foreclosure problems.
Foreclosure Loophole Scams
Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership by Ralph Roberts has a great explanation of a typical foreclosure loophole that seems like it may work well but is really just a scam on unsuspecting home owners:
The foreclosure scheme starts when one individual (the scammer) obtains foreclosure information about a home from legal notices or public records. This information usually has the homeowner's name, address, amounts owed and date of the lender auction.
The scammer then can go to the homeowners and offer to save his or her home if they sign a lease contract that allows them to sell the home to the scammer. This scheme is usually explained to the homeowner as a viable loophole for avoiding foreclosure. Plus the scammer tells the owner that this can rebuild their credit rating (it won't) so that they'll qualify for another loan later and can repurchase their property back from the scammer.
Once a homeowner signs over their home to a scammer that individual can take control of the property and refinance or just keep the homeowners payments.
Keep Yourself Protected
The U.S. Department of Justice offers the following tips to avoid illegal foreclosure loopholes.
Always proceed with care if an unsolicited individual or company:
- Contacts you at all after you've been listed as a foreclosure. To protect your home and yourself from scams you should seek lenders and services out, not the other way around.
- Tells you that they are a "mortgage consultant" or a "foreclosure service" or any other name that sounds similar.
- Asks for money up front before providing services.
- Wants you to make mortgage payments to them instead of your regular lender.
- Asks you to transfer any property rights, such as your deed to them.
For many more legal based articles and information about foreclosure loophole scams and how they can hurt you take a look at the The U.S. Department of Justice foreclosure scams page.
If You Really Can't Pay Your Mortgage
If you can't afford your mortgage payments and want to avoid foreclosure, try these tactics before it's too late and before you get caught up in a questionable foreclosure loophole:
- Call your lender. Let them in on what's going on in your life that's making it difficult for you to pay your mortgage. It's better to contact your lender early on before things slide out of control. Your lender will likely have some ideas for your situation such as a plan for refinancing a mortgage loan
- Contact the U.S. Department of Housing and Urban Development (HUD) and locate a real HUD-approved housing counseling agency. Call (800) 569-4287 or TDD (800) 877-8339 for the counseling agency nearest you.
- HUD recommends staying in your home while you work out the situation with your lender. HUD reports that if you abandon your home it can make you ineligible for counseling assistance.
Don't forget that finding affordable mortgage loans in the first place can save you from having to deal with foreclosure issue later.
Your lender and or a home counselor may be able to suggest some strategies that are loopholes, but legal, that may help you avoid foreclosure. These tactics include:
- Selling your property
- Home mortgage refinancing loans
- Adjusting your payments
- Modifying your loan.
- A partial claim
- Assistance from a private lender.
- Special forbearance
- Pre-closure home sale
- Deed-in-lieu of foreclosure
You can look at this useful article for financial help information: Financial Help to Stop Foreclosure
Visit or call HUD to learn more about your real options for avoiding foreclosure. Avoid loopholes that can get you out of foreclosure but may be scams or downright illegal.