Foreclosure rescue deals bring homeowners the promise of keeping their homes and avoiding financial ruin. For investors, foreclosure rescues can be a way to both profit and help someone get back on their feet, but lately the practice has seen a sharp rise in fraudulent use, leading Massachusetts to become the first state to ban it altogether.
Foreclosures in Massachusetts were up to 19,487 in 2006, a 70 percent increase from 2005. The ban on for-profit foreclosure rescue companies was made permanent after an Aug. 30 public hearing, according to Reuters and Mass.Gov, the official website of the Commonwealth of Massachusetts.
Three other states have also begun legal action against foreclosure rescue companies. Illinois, Washington and Ohio have all filed civil suits concerning the practice, while Maryland has prosecuted an individual on a foreclosure rescue scam, according to The Wall Street Journal.
Foreclosure rescue deals can easily become fraudulent because of the complex paperwork and the amount of stress put on the homeowner. Some unscrupulous people, unfortunately, prey on distressed homeowners in these situations.
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Examples of shoddy deals include overwhelming homeowners with high monthly payments; specific contract language allowing the deal to be easily voided; or simply taking money without fulfilling promises.
As more states consider legal action against fraudulent practices, bans could become more widespread, which would adversely affect businesses operating ethically. Unfortunately for investors who operate legitimate for-profit foreclosure rescue companies, many people have abused the system.
Homeowners in foreclosure and investors alike stand to suffer from these rulings. In some cases, the best solution for a homeowner in foreclosure involves working with a foreclosure rescue company; in some areas, that will no longer be an option. That will require homeowners in foreclosure to find alternate solutions.
Lease options are undergoing a similar quandary: A program which was created to be a win-win situation was abused by some people, and as a result the practice in general is being called into question.
Little is mentioned in the news about the numerous homeowners who were helped by investors who provide legitimate foreclosure rescue services. In fact, some homeowners have been able to take advantage of such investors by not making payments, squatting in properties and successfully suing to retain any initial equity.
Now that Massachusetts has decided to permanently ban for-profit foreclosure rescues, other states that are fed up with the abuse homeowners are suffering at the hands of illegitimate companies could follow.