This scam works because people do not want to lose their home and people are always willing to take a risk. Depending on who you ask this may be a valid deal, and that point depends on how much money the investor is trying to make. A little profit is acceptable, but a huge profit in a short period of time is predatory and thus a scam.
Let there be no mistake – whoever puts up the money wants to own the home, and hoping the almost- evicted homeowner gets into trouble again. Here is how the home buy back or foreclosure saving rescue idea actually works:
A homeowner is behind on the mortgage and is in foreclosure. A prince or princess shows up with an offer to rescue the homeowner. Putting up the money to get the home out of foreclosure, the investor becomes the homeowner. The people being rescued become renters.
At some point the renters want to own the home again. If they close the deal the rescuers make a hefty profit. If the homeowners get into trouble financially they can continue to rent or get evicted, but they do not buy the home.
The transaction was not just a sale with buyback option, but a “disguised loan” with an exorbitant interest rate. In one case, investors advanced $36,000 towards the mortgage and were repaid $79,000 a year later. That’s a 120 percent interest rate, and that is where the potential for legal problems comes into play.
The deal is also risky for the investor. Most people lose their homes a second time anyway. If home prices decline the investor makes less. If prices go up and the investor made some money from the rent, there is a potential for a nice profit.
Home buyback or foreclosure rescue is argued as legal, illegal, or a high interest rate scam, depending on who you talk to.