Beware of Mortgage Foreclosure Rescue Scams

April 15, 2008 — -- Dorothy Galbreath lived in a house her husband of 43 years built for her in University Park, Ill., but after his death, she struggled financially to keep up with the mortgage payments. Facing foreclosure, Galbreath accepted the offer of a company that she said contacted her to help with her mortgage difficulties.

"'Mrs. Galbreath, don't you worry. We're going to save your home,'" Galbreath said Alternative Options, the company offering aid, told her.

Now Galbreath is without her beloved home, and she believes Alternative Options took advantage of her.

"I still can't put it into words. It's like a feeling of being crushed," the former homeowner said. "This is 43 years just wiped away, just like it was never there. All my life [was] wiped away like it never existed."

The Illinois attorney general's office said Galbreath's deal showed all the signs of a mortgage rescue scheme. Usually, there are two versions of foreclosure rescue scams. In one, a business approaches you and offers to negotiate with your lender to get you payments you can afford. It charges a hefty upfront fee, does nothing and disappears.

The second version is more dramatic. A business promises to save a home from foreclosure, but the owner ends up signing it over to the company, which is what Galbreath suspects happened to her.

Her Struggle to Stay Afloat

When Alternative Options initially approached Galbreath, she believed it would help her refinance her home, but after waiting more than a month for aid, Galbreath, a school bus driver, got further behind in her mortgage payments. Then she said she learned the company had a different form of mortgage rescue in mind.

Galbreath said she was unaware that she was actually selling her home until she got to the bargaining table in May. She claimed Alternative Options never told her before the meeting that she was selling her house.

"So right then and there, it was either sign the papers or go ahead into the foreclosure," she said.

She did sign the paperwork, and by the time everything was completed, Galbreath had sold her home to Alternative Options for less than its market value. The company then leased it back to her for more than she could afford — her old mortgage payment. She also had the option of buying her home back, but the price was $37,000 more than her selling charge.

Predictably, Galbreath fell behind on her rent and Alternative Options went to court to evict her. A mere week before Christmas, her belongings were put outside in the snow.

"I came home on my break and practically my whole house is out here," Galbreath said.

Galbreath now lives in her daughter's house in Monee, Ill., where her boxes are in the basement. Alternative Options has put her former house up for sale.

Alternative Options Response

Alternative Options told ABC News in a written statement that its purchase of Galbreath's home "prevented the foreclosure" and it took several steps to help her buy her home back. The company added it regretted that she couldn't buy back her home and said it has "had significant success with other homeowners."

ABC News went to visit Alternative Options corporate headquarters and found it was P.O. Box 1043 in Deerfield, Ill.

Reviewing the Case

ABC News asked the Illinois attorney general to review Galbreath's case.

"We are subpoenaing this company to find out their business practices and to make sure that there are not other people similarly situated to Dorothy who have ended up losing their homes due to fraud," said Illinois Attorney General Lisa Madigan. "For so many people in the United States, their home is really their bank account. And so in addition to the devastation they face when they lose their home, they're also losing … their life savings."

Illinois is one of only 12 states that have passed legislation making abusive foreclosure rescue offers illegal. It's a law that came too late for Galbreath.

The Better Business Bureau has received complaints about foreclosure rescue schemes in 44 states.

"We've seen in many of our markets across the United States sometimes a doubling, and in some cases even a tripling, of complaints," said Steve Cox at the Better Business Bureau.

Tips on Avoiding Mortgage Rescue Scams

If you're facing foreclosure there are ways to protect youself from scams.

Approach your own lender for help first. Your lender is motivated to help you because banks lose money on foreclosures.

Never hire a company that approaches you. Only go to a second, outside company if you have to do so and never hire one that approaches you because authorities said those businesses consult lists of people facing foreclosure and go after them.

Before hiring any company to help you, check its reputation with the Better Business Bureau at www.bbb.org. For that matter, if you are wronged by a mortgage rescue company, be sure to report your experience to the BBB to help other consumers who might fall prey to a scheme.

If a company tells you to stop paying your current mortgage because its rescue package is "about to come through," that should set off alarm bells. The company may be trying to put you even further behind so you feel you have no choice but to hire it.

Also, if you get to a big meeting and learn you are selling your home when you don't want to, walk away. You have no obligation. In fact, many states give you a couple days to cancel the sale even after you have signed the paperwork.

Finally, consult a HUD-approved housing counselor. Click here to visit its Web site. It's important to note not all branches offer foreclosure counseling. So ask.