New Year, New Scams

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New Year, New Scams
By ALEKSANDRA TODOROVA

It's been a tough year for consumers. With housing prices falling and the subprime-mortgage mess raging on, we won't blame you if you're looking forward to a fresh start in 2008.

Better watch out: The financial woes and natural disasters of 2007 have armed scammers with plenty of new tricks -- or resourceful spins on old ones -- aimed at separating you from your cash. Here the five most treacherous scams to watch out for in 2008.

1. Fake foreclosure rescue

As foreclosures plague communities throughout the country, scammers are jumping at the opportunity to squeeze money out of troubled homeowners. The problem has become so widespread in some states, like Nevada, that the attorney general's office recently issued an official warning that homeowners anywhere in the country should consider.

The most common foreclosure rescue scam entails approaching homeowners in default — notices of default are public record, easily accessible at the county clerk's office or local court — with an offer to help them avoid foreclosure by negotiating with their lender. Some even offer to lend them the money needed to become current on the mortgage. The problem: They charge hefty upfront fees, do nothing in return and the property is foreclosed anyway. Minnesota's attorney general recently filed suit against two out-of-state companies — Florida-based Foreclosure Assistance Solutions and Nevada-based American Housing Authority — for allegedly charging $1,200 and $1,395 fees upfront, respectively, and delivering no services in return.

Many homeowners are afraid of contacting their lender when they fall behind on mortgage payments, explains Mark Huffman, an editor at consumer web site ConsumerAffairs.com. In reality, it is in their best interest to contact the lender at first sign of mortgage trouble — even if they haven't fallen behind on payments yet. Some homeowners may be eligible for a rate freeze under the Bush administration's new plan to help subprime-mortgage holders. Even those not eligible could negotiate another solution with the help of the Hope Now alliance, a group that brings together housing counseling agencies, lenders and mortgage servicers. Call them at 1-888-995-HOPE. Foreclosure assistance received from legitimate sources should be free of charge.

2. Foreclosure rental scams

Even more perilous is a scheme to trick homeowners threatened by foreclosure into signing over the title to their home. The scammers typically target those who have some home equity left, with the goal to pocket that equity and disappear.

How it works: The scammers approach you with an offer to buy your house for the total amount you owe, plus a small amount of cash. You can then continue to rent the home, with the idea of buying it back later when your financial circumstances improve. The problem is, as soon as you sign over the deed to the house the new "owner" stops making the payments and collects your rent until the house is foreclosed. They may also refinance the property to take whatever equity is left. Eventually, the home goes into foreclosure and the tenants are evicted.

The only protection against this scam is vigilance. "The chances of someone good knocking on your door offering to help you save your house is very slim," says Ralph Roberts, author of "Protect Yourself From Real Estate and Mortgage Fraud."

3. Disaster-related schemes

Floods in the Northwest, wildfires in California. Scams proliferate whenever and wherever a disaster hits.

Residents in the affected zones should be particularly wary of offers for cheap home repair and clean-up. Earlier this month, the Washington State attorney general issued a warning against such scams, cautioning residents that the con artists typically demand payment upfront and "never do the work, do a shady job or require additional money once the job starts." To protect yourself, be sure to check up on your contractor: They must be registered with the state's department of labor and carry liability insurance coverage.

Even more treacherous are scammers who prey on people's goodwill, soliciting donations for charitable organizations that don't exist — or aren't really charitable. "If there's something in the news that's on people's minds and is likely to have them open up their wallets, scammers will make a pitch," says Nat Wood, assistant director for consumer and business education at the Federal Trade Commission. "But while giving in times of crisis is great, people should give to legitimate charities." To make sure your money is going to the right place, check that your solicitor is from a registered 501(c)(3) tax-exempt organization. A good place to verify that a nonprofit is legitimate is GuideStar.org.

4. Aggressive car warranty pitches

Senior citizens are often targeted by scammers and the extended car warranty scam is one of their latest tricks. It typically starts with the victim receiving a letter, postcard or prerecorded phone call informing them that their car warranty has expired and they have to purchase a new one. After an aggressive sales pitch, the victim agrees to buy an expensive extended warranty that they don't really need. Alternatively, the scammers could be simply "phishing" for personal information, such as the victim's Social Security number, address and date of birth, which can later be used for identity theft.

Several weeks ago, North Carolina's attorney general issued a warning against the scam after receiving an average of 30 calls a week from targeted consumers. Consumers should always verify mailings that appear to come from their car manufacturer with the manufacturer itself, and should never give out personal information over the phone. (Keep in mind, extended warranties — even if offered legitimately — are rarely necessary.

5. "Red Cross" military scams

A particularly repulsive twist on the "phishing" scam (where the victim is tricked into giving out personal information later used by identity thieves) is one targeting military spouses.

How it works: Someone claiming to be with the American Red Cross calls a military spouse to inform her that her husband has been hurt while on duty in Iraq and has been transported to a hospital in Germany. To complete the necessary paperwork and proceed with treatment, the caller asks for verification of the husband's Social Security number and date of birth. The information is then used by identity thieves to obtain credit in the victim's name.

Military spouses beware: In a statement issued earlier this year, the Red Cross said its representatives do not contact military members or dependents directly, but rather do that through a commander or first sergeant. Meanwhile, pretending to be a member of the American Red Cross is a federal crime, punishable by up to five years in prison.

Frightened as you might be by a phone call about your spouse, be sure you are speaking with legitimate sources. "Scammers are very ingenious, and although they sound nice and interested, they can be heartless as well," says the FTC's Wood.