Short Sale Scams & Foreclosure Scams

If you have fallen behind on payments and you are considering a short sale or foreclosure, you need to be diligent in researching and hiring the right agent to help you. The change in the market over the years has unfortunately increased the number of unscrupulous people who, under the guise of offering assistance, seek to take advantage of homeowners in distress. If you find yourself in default, this article is to assist you in what to be careful of and what to look for when hiring someone to assist you.


What is a foreclosure-related scam?

A foreclosure-related scam is a loose term for fraud, deceit, or trickery perpetrated against homeowners facing foreclosure or others involved in the foreclosure process. With the rise in foreclosures in the mid-2000s, foreclosure-related scams have exploded onto the real estate scene. Some con artists offer to help homeowners in foreclosure, but in truth, merely intend to dupe the distressed homeowners out of their money or property (see, more specifically, Question 5). Other scams target real estate agents, investors, buyers, lenders, tenants, or other people involved in the foreclosure process.

How could someone fall victim to a foreclosure-related scam?

A scam artist generally knows which victims to target and which buttons to push. Homeowners facing foreclosure are highly vulnerable to scams. They are often unable to comprehend or get help for the complicated legal, financial, and tax issues surrounding foreclosures, short sales, loan modifications, and bankruptcies. Moreover, they often experience difficulty handling the stress and stigma of possibly losing their homes through foreclosure. Because homeowners are likely to consider purchasing a home as one of the most important things that they have ever done, the anxiety from possibly losing that home may cause them to make bad decisions. Some homeowners are specifically targeted by scam artists because they are perceived as easy prey, such as people who are elderly, have language barriers, have limited resources, or lack knowledge. Given all these circumstances, homeowners in foreclosure can easily succumb to a scam artist’s lure of a quick fix. As a victim of the Community Home Savers scam discussed in Question 6 said, “When you’re down and out you’ll believe anything.”

Is there a simple way to detect if someone is a scam artist?

No. Outwardly, scam artists do not act or appear dastardly. On the contrary, the typical scam artists look nice and clean-cut, and they seem kind, helpful, patient, and trustworthy. Their purported companies or organizations often have names that sound altruistic, such as Community Home Savers or Housing Assistance Services (see Question 6).

Scam artists commonly engage in “affinity marketing” tactics which means they attempt to lure people by being, or pretending to be, members of the same racial, religious, social, or other group as their victims. For example, a scam artist may claim to be in the military and use military terms and mannerisms in an attempt to befriend someone in the military. Or another scammer may join a church to gain the trust of other members of that church before attempting to defraud them. Scam artists may also use many other tactics, such as claiming to be conducting official business for a government entity, claiming to be a non-profit organization, or offering a money-back guarantee, just to name a few.

When dealing with someone, what are the red flags of a foreclosure-related scam to watch out for?

Homeowners in foreclosure and their real estate agents should be wary when dealing with someone who does any of the following:

  • Asks for money upfront before providing any service
  • Asks for payment only in the form of cash, cashier’scheck, or wire transfer
  • Asks for a transfer of title or an interest in the property
  • Gives an unqualified promise to stop foreclosure or other assurances
  • Offers to buy a home for a price above its market value
  • Asks for something to be done immediately without delay
  • Asks for the homeowner to give a power of attorney
  • Asks for signatures on a grant deed or deed of trust
  • Asks for signatures without giving homeowner a lot of time to review the documents
  • Asks for signatures on a document that has lines left blank
  • Fails to provide copies of documents signed
  • Refuses or fails to provide an oral promise in writing
  • Instructs a homeowner to make mortgage payments to someone other than the lender
  • Instructs a homeowner not to discuss the situation with the lender, housing counselor, accountant, attorney, family, friends, or others.

How does a foreclosure scam work?

There are many different types of foreclosure-related scams, and new types of scams sprout up every day. These foreclosure-related scams can be loosely categorized as follows:

  • Phantom Help: In this type of scam, the scam artist offers to negotiate with the lender or perform other foreclosure-related services for the homeowner in exchange for a fee. However, in reality, the scammer performs little or no service at all and eventually absconds with the money. Whatever services the scam artist does provide, the homeowner could have probably done on his or her own. The homeowner ends up not only losing the money, but often loses valuable time to make other arrangements to save his or her home from foreclosure.
  • Bail-Out: This scam involves a con artist who offers some sort of plan or scheme to get the homeowner out of his or her predicament. One common example is the rent-to-buy scheme where the scam artist promises to take title to the property, cure the default, and rent the property back to the homeowners until they get back on their feet again and buy back the property. What in fact happens is that the scam artist reneges on these promises by, for example, not curing the default, not honoring the rent-back agreement, or selling the property to an unsuspecting buyer.
  • Bait-and-Switch: This is another common type of scam where, for example, the scam artist tells the homeowner to sign one thing, but the homeowner ends up signing something else altogether, such as the grant deed to the property.

In addition to the above categories, there are many other types of foreclosure-related scams, including forgeries, theft, identity theft, property flipping scams, loan fraud, predatory lending practices, pyramid schemes, ponzi schemes, bankruptcy fraud, landlord-tenant fraud, short sale consulting fraud, and bank-owned property or REO fraud. A scam can be a highly elaborate scheme or as crude and simple as a “We Buy Homes” or “Stop Foreclosure Now” sign on a telephone pole at the side of a road. For real-life examples of foreclosure scams, see below.

What are some real-life examples of foreclosure-related scams that target homeowners?

Here are some real-life examples of foreclosure-related scams perpetrated in California:

  • Housing Assistance Services in Garden Grove, California: Marc Sheckler’s company, Housing Assistance Services, Inc. (HAS), targeted homeowners in Orange County when they received notices of default. HAS mass marketed official-looking “Fresh Start Program” letters in the mail offering to provide counseling on the options for avoiding foreclosure and to negotiate loan modifications with the lenders. To sign up, a homeowner paid an upfront basic fee of $750 to $1,250 and agreed to pay additional fees for credit reports, “docusave” services, processing reinstatements, monitoring repayment plans, and financial education materials. HAS representatives instructed homeowners not to talk to their mortgage lenders. Whenever homeowners voiced concern about the impending foreclosure sale, HAS reassured the homeowners that things would be worked out. The California Attorney General’s Office received numerous complaints from consumers who paid the fees, but claimed that HAS never provided the services as promised. In 2004, California Attorney General Bill Lockyer filed a $2 million lawsuit against HAS and obtained a court order freezing HAS’s assets.
  • Rodriguez in Downey, California: From 2003 to 2005, Martha Rodriguez and others ran a foreclosure rescue scam in Southern California. They located their victims using computerized lists of properties going into foreclosure. The defrauders promised to help homeowners refinance their loans and save their credit, but what they did in reality was arrange for straw buyers to buy the homes. By the time the defrauders were finally caught by the authorities, they had victimized over 100 homeowners and amassed over $12 million. Rodriguez ran this scam while awaiting sentencing on another loan fraud scheme. In February 2007, she pleaded guilty to criminal charges for the foreclosure rescue scam and faces a possible sentence of 40 years in federal prison.
  • Rice in Orange County, California: In 1990, Evelyn Onofrio’s home was in foreclosure when Marshall Rice paid her a house call. He offered to help her but did not give her a written foreclosure consultant contract. He arranged a secured loan for her, but at 35% interest payable to Rice’s own wife. When Onofrio defaulted on the loan, Rice and his wife commenced foreclosure proceedings and acquired the property at the trustee’s sale. Onofrio sued Rice for, among other things, violating the foreclosure consultant law and breaching his fiduciary duties as a real estate broker. Rice violated the foreclosure consultant law by, among other things, acquiring an interest in the property and failing to provide a written foreclosure consultant contract. The court awarded Onofrio monetary damages, attorneys’ fees, and costs, and cancelled not only the transfer of title to Rice, but the relevant deeds of trust as well. This case is Onofrio v. Rice (1997) 55 Cal .App. 4th 413.
  • Alburez and Silva in Alameda, California: Sonia Alburez and Verena Silva went by several names, such as Community Home Savers and California Home Saver Program. They used lists of homes in default from the county recorder’s office to send out mailers to homeowners in foreclosure. They allegedly told homeowners that, for an upfront fee plus additional monthly payments, they could save their homes from foreclosure. In reality, Alburez and Silva merely transferred a fractional interest of a home to a sham corporation. The sham corporation would then file bankruptcy, but as soon as the foreclosing lender challenged the bankruptcy, the sham would be uncovered and the foreclosure would resume. Alburez and Silva were arrested in Alameda County in March 2008.
  • Hutchings in San Diego, California: William Hutchings and his cohorts ran a foreclosure rescue scam in San Diego for over two years, and duped hundreds of homeowners out of their homes and money. Targeting mostly non-English-speaking homeowners, Hutchings held seminars on how he could help homeowners stop foreclosures by transferring title to their homes to his company. He claimed he could file a governmental land grant on their behalf which would extinguish their mortgages in four years, at which time the homeowners could reacquire their homes from Hutchings free and clear. He bolstered his claims by using visual aids, such as antiquated maps and land surveys. In reality, the last legitimate use of a land grant was in 1848 when Mexico ceded property to the U.S. at the end of the Mexican-American War. Yet, someone who attended one of Hutchings’ seminars observed that, when the seminar concluded, the homeowners would flood to the back of the room to stand in line to sign up for the program by signing over their properties and paying up to $10,000 upfront. Hutchings and the others were arrested in May 2008 and face over 100 felony charges.

What are some real-life examples of foreclosure-related scams that target people other than homeowners?

Many people other than homeowners may be victimized by foreclosure-related scams, including real estate agents, investors, buyers, lenders, tenants, and others. Some real-life examples of this type of foreclosure-related scams in California are as follows:

  • Standefor in Pasadena, California: Jeanetta Standefor of Accelerated Funding Group operated a fraudulent foreclosure reinstatement scheme for over two years. She convinced over 600 people to invest a total of $18 million by claiming the funds would be used to cure defaults for distressed properties and promising a return of 50 percent in one month. What Standefor was actually doing was operating a ponzi-like scheme using the money from new investors to pay previous investors. She also used $1.9 million of the funds for her own lavish wedding, cars, jewelry, and other personal expenses. In 2008, Standefor was charged with both civil and criminal fraud and securities violations, and faces a statutory maximum sentence of 180 years in federal prison.
  • Davis of Tiburon, California: Mark Allen Davis placed over 100 newspaper ads around the country from 2004 to 2007 offering callers a list of government foreclosures in their areas for a one-time fee of $83 to $93. Customers were told to call a toll-free phone number, and then instructed to leave their names and bank account information for verification purposes. Davis never sent the lists. Instead, he withdrew $126 to $185 from the accounts of 800 people, totaling over $400,000. When caught, Davis was fined over $328,000 and sentenced to 81 months in federal prison for identity theft, mail fraud, and wire fraud.

What are the legal remedies for a victim of foreclosure-related scams?

In theory, there are various legal remedies for a victim of foreclosure-related scams, but in reality, the legal remedies may leave a lot to be desired. As in the real-life examples mentioned above, one legal remedy for a foreclosure-related scam is criminal prosecution. A fraud victim may pursue criminal prosecution by reporting the offense to local, state, and federal law enforcement authorities. However, law enforcement authorities have a broad discretion for which crimes to investigate and prosecute, and they often devote their limited resources towards pursuing other crimes, such as murder, robbery, and drug violations.

A foreclosure-related scam is also a civil offense. In addition to pursuing a criminal offense, a fraud victim may file a civil lawsuit to obtain a monetary judgment for damages suffered or other relief as appropriate. However, the typical fraud victim’s obstacles to filing a lawsuit for fraud include, without limitation, locating the defrauder’s whereabouts, locating the defrauder’s assets, proving the elements of fraud, and having the resources to hire and pay for an attorney if needed.

Depending on the circumstances, a foreclosure-related scam may also be the subject matter of a complaint to a governmental agency, such as the California Department of Real Estate (DRE) or Department of Corporations (DOC). The DRE or DOC may issue an order to stop unlicensed activity. However, the function of the DRE, DOC, or even criminal prosecutors is to stop violations of the law, not necessarily to get fraud victims their money back or other relief sought. Nevertheless, the actions of the governmental agencies may occasionally result in recovery for the individual fraud victim as well.

What should homeowners and others do to protect themselves against foreclosure-related scams?

The basic rule is “if it sounds too good to be true, it probably is.” Other measures to take to protect against scams include, but are not limited to, the following:

  • Do not panic. Do not make any rash decisions. It’s precisely when our chips are down that we must keep a clear head.
  • Before entering into any agreement or other arrangement with anyone, understand every aspect of what it entails. Read documents carefully and thoroughly before signing. If you cannot understand a document, seek the advice of an attorney or other professional as appropriate. If you do not speak the same language as the person you’re negotiating with, don’t use that person’s interpreter or translator — bring your own instead.
  • Do not sign your name to any false statements or documents with spaces left blank, especially if you’re told that signing will be harmless or inconsequential.
  • Get as much information as you possibly can before making a decision. Ask questions. Conduct as much research and investigation as you can up front (see Question 10). Do your best to understand the legal, financial, and tax consequences of your situation. Look into different options. Ask for advice and help from trusted family, friends, and professionals if appropriate.
  • Always try to stay a step ahead of scam artists. As society comes to know to watch out for one type of scam, con artists attempt to catch their victims off guard by devising new schemes. For example, with greater public awareness that a “foreclosure consultant” representative must, among other things, be licensed and bonded (see Question 42), scam artists may start presenting themselves as something else, such as loan mediators, loan facilitators, legal officers, and so on.

How does someone check on the legitimacy of a foreclosure consultant or other foreclosure-related business?

There are many ways to check the legitimacy of a foreclosure consultant or other foreclosure-related business. Before doing business with anyone, ask for references, and check out those references. Also check someone’s background, credentials, and reputation. Check with licensing agencies, trade groups, friends, family, and other people you trust. However, even if someone has the proper credentials or comes highly recommended, the risk of a scam is less but is not eliminated entirely.

Some of the resources for checking licensing and registration include the following:

• To check whether a corporation or limited liability company (LLC) is registered with the California Secretary of State, go to its Web site at

• To check whether a fictitious business name is registered, check with the local county recorder’s office.

• For real estate licensed activities, to check whether someone has a real estate license, go to the California Department of Real Estate (DRE) Web site at To check whether someone is licensed with the DRE, the Office of Real Estate Appraisers, the Department of Corporations, or the Department of Financial Institutions, go to Short sale consultants and representatives of foreclosure consultants should generally be real estate licensees (see Question 43).

• For legal services, to check whether someone is licensed to practice law in California, go to the State Bar of California Web site at

Where can homeowners find legitimate help for foreclosure-related matters?

The conventional wisdom is for homeowners facing foreclosure to contact their lender immediately. Homeowners may also seek the advice of a reputable housing, financial or credit counselor, attorney, or other qualified professional. The U.S. Department of Housing and Urban Development (HUD) has a Guide to Avoiding Foreclosure on its Web site at For a list of HUD-approved housing counseling agencies in California, go to Also, the non-profit organization Homeownership Preservation Foundation has a 24/7 toll-free Homeowner’s HOPE Hotline at (999) 995-HOPE or visit its Web site at