3 Common Scams To Avoid When Investing In A Foreclosure

3 Common Scams To Avoid When Investing In A Foreclosure

Every year throughout the United States, lenders repossess thousands upon thousands of homes. This has become such a big problem that the government provides a variety of resources on preventing foreclosure.

Although there are many ways to fight foreclosure, some people don’t have what it takes to stop the process. For one reason or another, they lose their home to the bank and are forced to move on with their life in a different property.

While foreclosure is never a good thing, here’s something to remember: the banks that repossess the homes eventually sell them to interested buyers. If you find yourself in the market for a new home, if you’re open to purchasing a foreclosure, there are many benefits that could push you towards this type of property.

At the top of the list, a foreclosure can typically be purchased for less than a home that is owned and being sold by an individual. While this is a significant benefit, don’t let it cloud your judgment. Instead, keep this in mind: there are a variety of scams that come into play when investing in a foreclosure.

If you aren’t familiar with these scams, you could soon find yourself making a poor decision that has an adverse impact on your finances.

Watch for these Scams

Before you begin your search for the perfect foreclosure to buy, here are a few scams to be aware of:

1. Fraudulent Loan Origination

When purchasing a foreclosure, you may be interested in the use of an FHA-insured mortgage.

While this is a good idea for some people, here’s something to watch out for: some real estate and financial professionals will attempt to help unqualified buyers obtain money for the purchase.

In short, these professionals promise the buyer that they will qualify for a mortgage that is larger than his or her ability to repay. Taking this one step further, the use of falsified documents are common.

2. Not Really a Foreclosure

If you think you’re buying a foreclosed home, you want to be sure that this is the case.

While not as common as some other scams, there are instances in which a seller states that the home is a foreclosure with the idea that this will strengthen their position in some way, shape, or form.

If you’re buying a foreclosure, you may find yourself in direct contact with a real estate agent. Even so, you have the right to request additional information that shows which financial institution actually owns the property.

3. Predatory Lending

Although most people in the mortgage industry are 100 percent honest and reliable, there are some who don’t care about this. Instead, all they worry about is making money.

This is why predatory lending has become such a major problem over the past decade. As the buyer of a foreclosure, some of the things to watch out for include:

  • Lenders who are offering to lend you more money than you know you can repay.
  • Banks that try to sell foreclosed properties for more than they are worth, such as through the use of false appraisals.
  • Lending professionals who charge fees for unnecessary products or services, knowing that most people are unfamiliar with the process of buying a foreclosure.

This is one of the most common scams when buying a foreclosure, as many individuals don’t have the knowledge they need to pinpoint what’s going on. Instead, they get so excited about buying the home that they overlook the fact that the lender is pulling a fast one.

Take these Steps to Prevent Trouble

At this point, you may be a bit scared about investing in a foreclosure. Although there are scams around every corner, you can take a few steps that will help you prevent trouble:

  • Do your homework. Above all else, don’t make any decisions until you research the finer details of the transaction.
  • Get help. Rather than negotiate with the seller or lender on your own, get the assistance of a qualified real estate professional. If the person has experience helping clients buy foreclosures, he or she can help you avoid common scams and setbacks.
  • Know what you’re getting. The process of the purchase of a foreclosure is not the same as buying from an individual owner. For this reason, there is often a gray area as to what you’re getting and how the process will move forward.


In a perfect world, you’d never have to worry about a scam when investing in a foreclosure. In the real world, however, this is a definite concern.

When you avoid the scams detailed above, along with any others that may come about, you’ll find yourself in a position to make a confident purchase.

Anum Yoon is the founder and editor of Current on Currency. She loves all things personal finance, which is why you'll find her work all over the PF blogosphere.

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