As interest rates rise, many people with adjustable-rate mortgages find their payments too high to manage. That has paved the way for con artists offering relief. WASHINGTON – As home foreclosures increase across the country, scam artists promise struggling homeowners a quick bailout, but they end up stripping the properties of their value or owning the homes outright.

So-called “foreclosure rescue” and equity-skimming scams have been around for years, but they’ve proliferated over the last five years as the U.S. housing boom took off, experts said. Now, as the market cools, tens of thousands of homeowners with shaky credit are reeling after interest on their subprime adjustable-rate mortgages increased, requiring higher payments. Many are turning to foreclosures, giving con artists an even larger audience.

State officials urge cash-strapped property owners – particularly the elderly, immigrants, minorities and low-income – to be wary of mailings, phone calls and visitors offering to help “save your home” and “avoid foreclosure.”

The Washington State Attorney General’s Office recently settled a suit against three businesses that claimed to save the homes of people who were facing foreclosure for unpaid property taxes. The companies – Fiscal Dynamics Inc. and Cumulative LLC, of Tacoma, and Northwest Assets of Seattle – allegedly broke promises to pay the back taxes and instead tried to sell the houses at auction and keep the owners’ rightful proceeds, according to the complaint.

The state claims that the companies inundated homeowners with paperwork, including some documents that gave the companies power of attorney and others that allowed them to keep excess proceeds from the auction sales. Company officials admitted no wrongdoing but agreed to pay a total of $290,000 in restitution to possibly more than 100 homeowners, state officials said.

The settlement consent decree said company officials had denied the allegations and had agreed to the settlement to “avoid costly and protracted litigation.”

More than 1.6 million foreclosures are expected to be filed this year, up 33 percent from 2006, according to RealtyTrac, an Internet listing of foreclosed properties.

“These offers of help and money may seem like a godsend, but it is the con artist who ultimately benefits,” New Jersey Attorney General Stuart Rabner said recently. “Homeowners facing the loss of their homes are understandably concerned, and con artists seize on their fears to perpetrate scams.”

Some of the worst offenders are found on billboards and roadside signs that proclaim, “we buy houses,” “cash for houses” and “refinance your home.”

“I personally take down those signs every day,” said William Kostrzewski, an assistant state attorney in Miami-Dade County, Fla., who prosecutes foreclosure scams and other economic crimes. “If there’s no sign, there’s no victim, there’s no investigation, there’s no money lost and there’s no prosecution. I like it that way.”

Kostrzewski said many scam artists learned their techniques, in part, from real estate seminars such as those advertised on late-night television. Participants are taught to peruse county records to find properties that face foreclosure for nonpayment of mortgages or taxes. Real estate agents or loan originators then approach the owners of properties that are worth more than the outstanding debts, offering to help them avoid foreclosure.

Typically, the homeowners are referred to investors who offer to pay the back taxes or delinquent mortgages, buy the properties and lease them to the original owners for a year or so until they’re financially sound. At that time, the new owners promise, the properties will be sold back to the original owners. But the contracts are full of provisions, hidden penalties and other stipulations that make it nearly impossible for the owners to regain their properties.

When they try, they usually find that their equity has been depleted, leaving them with no collateral to get refinanced loans to repurchase the homes. The contracts often call for a lump-sum payment of the mortgage balance. When the original homeowners can’t make those payments, they’re evicted and the properties are sold, providing a handsome profit for the new owners, who paid only a small fraction of the homes’ market values.

In Bellevue, Vila Pace-Knapp was coming off a divorce and had lost her job because of frequent absences to care for her sick son when she fell behind on her mortgage in 2002.

Her father could have loaned her the money, but she was too embarrassed to ask for help. So when Dick Pelascini and Thomas Boboth called her time and again, offering to save her home, Pace-Knapp gave in. She said she ultimately was persuaded to sign documents that transferred title of her property while allowing her to remain there and pay rent for several years.

As she signed, Pace-Knapp got a funny feeling. “I was becoming aware that during the whole time, Dick hadn’t looked me in the eye,” she said.

After two years, the contract allowed her to buy back the property. But the rent was $1,400 and her monthly income was $1,600.

“The whole thing was set up to fail, because they knew she couldn’t pay $1,400 a month, which is what they’re counting on so that they could get her out within the first couple of months, so they could keep all of the equity in the home,” said Pace-Knapp’s attorney, Melissa Huelsman of Seattle, who sued to get the home back.

“They were just waiting until I wore myself out because they wanted to take my house. They didn’t care if I lived or died. I knew they would evict me,” Pace-Knapp said. She was right. She was evicted in 2004.

At trial last year, Boboth, Pelascini and Pelascini’s wife, Cecelia, were found to have committed fraud and violated the state consumer-protection act by engaging in unfair or deceptive business practices. They were ordered to transfer title of the home back to Pace-Knapp, reimburse her for the estimated $35,000 she paid in rent and pay her the rent that other tenants had paid on the property since she’d been evicted.

The case is under appeal. Pace-Knapp is living with relatives until the matter is resolved.

Bernard Lanz, the attorney for the Pelascinis and Boboth, wouldn’t comment about the case while the appeal is pending. He did say that he thought the accusations had never been proved and the judge’s orders for restitution had no basis in law. “The bottom line is my clients didn’t do anything wrong,” Lanz said.

Richard Hagar, a Seattle real estate appraiser who trains law enforcement, banking and mortgage professionals to spot foreclosure scams, said the problem would worsen before it improved. An estimated 2.2 million homeowners with subprime loans could face foreclosure over the next five years, according to The Center for American Progress, a research organization in Washington, D.C..

“I believe you are going to see an absolute skyrocketing of these scams over the next three years. My guess is a tenfold increase,” Hagar said.

What to do if you’re facing foreclosure

STEPS TO TAKE

Contact your mortgage company first to see if a new payment plan can be worked out or the loan can be refinanced. If that doesn’t work, consider selling the house or contact a credible housing counselor.

 • Find housing counselors approved by the Department of Housing and Urban Development at www.hud.gov or by calling HUD’s interactive voice-response system at 1-800-569-4287.

 • ACORN Housing offers a Home Equity Loss Prevention program with counselors who can intervene to help homeowners who face foreclosures. Call toll-free 888-409-3557 or e-mail help@acornhousing.org.

THINGS TO AVOID

Stay away from ads, mailings, billboards and people offering to help you save your home at terms that sound too good to be true. Be leery of people who offer help but discourage you from contacting your mortgage company or attorney.

IF YOU’VE BEEN SCAMMED

 • Contact your state’s financial regulatory agency. For a list of agencies, go to www.fraudproblem.com and click on “where to complain.”

 • Your state attorney general’s office also can conduct a criminal investigation. In Washington, go to www.atg.wa.gov.

 • Private attorneys can file civil suits against suspected scam artists. The National Association of Consumer Advocates lists lawyers in each state who specialize in consumer-fraud cases. They can be reached at www.naca.net.

 • Legal Services offices can assist those who can’t afford lawyers. For a list of state offices, go to www.lsc.gov.