2008: The Year in Rip-Offs

It hasn’t been an easy year to be a consumer. The stock market melted down, home equity shrank and strapped companies cut costs, leaving millions jobless. Conditions like those leave some people particularly vulnerable to bad deals, rip-offs and outright scams—of which there were plenty. (And as we learned with the recent allegations about Bernard Madoff’s hedge fund, not even the super-wealthy are immune.)

Here’s a look back at the year in rip-offs—and what you can do to avoid them:

Distressed homeowners were easy prey for con artists during 2008. Fearing foreclosure, folks were susceptible to pitches that promised them easy solutions to stay in their homes. Among the most popular cons were so-called equity-stripping scams. One common scenario involved con artists, who posed as mortgage brokers, would promise troubled homeowners they could stay in their homes while repairing their credit — if, that is, they temporarily signed over the deeds to their homes. Homeowners would be told they could rent their homes back for free, and then in a year buy back the property.

In the meantime, the fraudsters would borrow against the value in the home, stripping the property of any equity built up over the years. Because the illegitimate companies rarely kept up with mortgage payments, consumers targeted in these scams were likely to lose their homes altogether. Some of the other scams under this umbrella included mortgage-related bankruptcy schemes. In June, the Federal Bureau of Investigations announced the results of a massive investigation that included more than 400 defendants nationwide for crimes that accounted for $1 billion in losses.

A less publicized homeowner rip-off is the fraudulent loan modification scheme. So-called mortgage counselors promised to lower interest rates and sometimes even reduce the principal on a loan so consumers could afford to stay in their homes. Unlike legitimate loan-modification services, these rip-offs required the consumer to pay an upfront fee – usually in the range of $500 to $1,500. Once the fee is paid, the scammers take off, leaving the homeowner to deal with the original mortgage terms.

Legitimate loan-modification services exist, but they do not charge an upfront fee for negotiating with lenders. Instead they typically charge a percentage of the loan value upon successfully completing a negotiation for better terms with the lender. Homeowners can also seek to modify the terms on a mortgage for free by contacting the lender directly or reaching out to a legitimate housing counselor. The Hope Now Alliance (888-995-HOPE) provides referrals to counselors approved by the U.S. Department of Housing and Urban Development. Read our story for more on fake mortgage fixers.

During 2008 Uncle Sam sought to give the economy a boost by mailing out economic stimulus checks to taxpayers. Even before the tax rebates had been approved by the Senate, identity thieves had started calling consumers. The ploy: Posing as a representative from the IRS, the scammer insists that the consumer provide their Social Security numbers, bank account information and credit card numbers in order to receive the money. The goal, of course, is to clean out consumers’ bank accounts, run up charges on existing credit cards and apply for new loans and credit accounts under the victims’ names.

If you ever receive a phone call or email from someone claiming to represent the IRS, hang up. The IRS already has your personal information and only contacts taxpayers by mail. Click here to read more about this scam.