Scams Exploit Hard Times

Prime targets are the unemployed and homeowners behind on their mortgages.

When Nancy Dix received a letter promising to help her prevent foreclosure on her home in Ansted, W.Va., she jumped at the chance. The letter, from an organization called Mortgage Rescue, said all she had to do to save her home was send the company a check for $921. So she did.Then she didn't hear anything -- and got suspicious. The 67-year-old widow called the state attorney general's office, which referred her to Mountain State Justice, a nonprofit legal service. Turns out Mortgage Rescue was operating a scam, says Bren Pomponio, Dix's lawyer at Mountain State.

Fortunately, Dix hadn't signed over her deed when she sent the check -- an additional layer of some similar scams. She never got her money back, but the legal service worked with her lender to keep her in her home. "Before you start sending money, talk to an attorney or a consumer group, or you'll be in the same mess I was in," Dix says.

Over the past five years, the FBI's mortgage-fraud caseload has jumped by nearly 400%, to more than 2,100. The general rule still applies: If it sounds too good to be true, it is.

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If, for example, you receive a call from a firm that guarantees to stop a foreclosure but asks you not to contact your lender, it's a scam: Your lender is the only route to modifying your mortgage or preventing foreclosure. If you're having trouble making your payments, find a housing counselor approved by the U.S. Department of Housing and Urban Development at

Easy money

The sagging economy has inspired a number of schemes to watch for, from work-at-home ploys to tax and stimulus frauds (see Watch Out for Stimulus Scams). Shady operators take advantage of economic hard times, says Edward Johnson, president of the Better Business Bureau of Metro Washington and Eastern Pennsylvania. "If you don't have a job and are having trouble keeping up with your mortgage, you will let your guard down."

If you're looking for quick cash, be on the alert for job-related scams, such as an ad that promises you can earn money at home by stuffing envelopes -- it's likely to be a pyramid scheme. You pay a fee upfront, and to make money you place ads and wait for people to respond and pay you a fee. Before you participate, ask the company to spell out, in writing, exactly what the job entails and whether you'll be on salary or commission. Also run the company's name by the BBB and call the firm to make sure it's soliciting workers.

Another sneaky ploy involves bogus mystery-shopping firms that promise to pay shoppers to check out local stores. Scam operators may send out a letter with the company logo of an actual mystery-shopping service plus BBB certification, along with a check for several thousand dollars. The letter tells recipients to deposit the check, evaluate a money-wiring service, and then wire part of the money back to the firm to test the service -- often within seven days. The check bounces after you've wired the money back.

Now that credit is harder to get, the Federal Deposit Insurance Corp. has reported a jump in "advance-fee loan" scams. Someone calls you and says that if you simply pay a fee of $500 or $1,000 upfront, you'll be guaranteed a loan. But you never get the money.

Finally, watch out for "phishing" scams. You get a phony e-mail from a trusted institution that asks for your Social Security number or other information that could be used to tap into your financial accounts. One prevalent scheme is an e-mail promising you a tax refund from the IRS -- except the IRS never e-mails taxpayers. Phony Bank of America and Citibank messages are also common.

Associate Editor, Kiplinger's Personal Finance