The increase in foreclosures nationwide has lead to a new scam -- “foreclosure prevention” or “foreclosure rescue” companies.

Foreclosure related scams are very lucrative for the scammers and are expected to increase along with the number of foreclosures in 2008.

A previous Common Law addressed the general problems with foreclosure prevention and rescue companies.

The following outlines several specific foreclosure rescue scams.

Refinance scam: The lender claims it can rescue a homeowner that is on the brink of foreclosure by refinancing the loan with lower mortgage payments.

Initially, the mortgage payments are low (usually because the homeowner is only paying interest), but are followed by a large balloon payment. Lenders sometimes target homeowners with large amounts of accrued equity, because when the homeowner defaults on the high payments, the lender forecloses and strips the homeowner of all equity.

Phantom counseling: A foreclosure "rescue" company claims to stop foreclosure proceedings by negotiating a repayment plan or organizing a pre-foreclosure sale.

In truth these companies charge very high fees for basic phone calls and paperwork that the homeowner can accomplish.

Repetitive refinancing: A lender temps a homeowner to refinance multiple times by offering extra cash, money for home renovations or vacation packages.

The lender fails to explain to the homeowner all the consequences of a refinance, including higher interest rates and additional fees and costs. The repetitive refinancing puts the homeowner in debt and leads to foreclosure.

The bailout: The scammer “bails out” the homeowner by convincing the homeowner to surrender title to the house on the promise that the homeowner can stay on as a renter and buy the house back in the future.

The deal is arranged in a way that makes it virtually impossible for the homeowner to regain legal ownership of the house and the scammers end up with the home, including its equity.