It seems that no matter what kind of disaster befalls people, there is always someone waiting in the wings to take advantage of the situation. The mortgage crisis is no different. Recently, the federal government made a move to stop foreclosure scams in California and around the country.

California had the highest rate of foreclosures in the nation when the mortgage crisis was at its peak. Thousands of people got behind on their mortgages and had to sit by helplessly as their family home was foreclosed and sold at auction. It is at these auctions where opportunistic bidders were running their scam.

When a home was up for auction, all of the bidders would get together and have just one person bid on a property. This would mean the house sold for as little as possible. As soon as the “public auction” was over, bidders would gather for the “real auction” which is when the house would be auctioned off at closer to its actual market value. This scam isn’t new, but with the incredible influx of foreclosed properties during the housing crisis, many people made a lot of money.

Many California homeowners who were already in an untenable situation then became unwitting victims of this scam. Many homeowners spent months and even years trying to stop foreclosure just to lose their home anyway and end up in even worse financial shape when their houses sold under market value at auction. The less the house sold for at auction, the more the homeowner still owed to the lender. Fortunately, many people were able to turn to the bankruptcy courts for protection and had that residual balance discharged along with their other debts.

Source: FresnoBee.com, “Feds crack down on foreclosure auction scams,” Paul Elias, June 1, 2013