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New mortgage scam emerges as housing market declines

With the housing market in decline, financial predators are finding yet another way to take advantage of people who fall behind on their payments.

The schemes take various forms and often involve promises to distressed homeowners of cash upfront, free monthly rent, and a chance to retain their houses in the long run. But in the process, someone else takes over the deed, borrows as much as possible against the value of the house, and pockets the cash.

There are no nationwide numbers on this common fraud, known as equity stripping, but it has turned up in almost every state. Seven states have passed laws to try and stop it. Still, with foreclosure rates rising rapidly, it will be a growing problem, consumer advocates say.

When a property enters foreclosure, it appears on a list at the county clerk's office. Individuals and companies in equity-stripping schemes monitor the lists closely, contacting troubled homeowners either by phone, by mail or by knocking on their doors.

Sam Finkelstein is a housing organizer at the National Training and Information Center, a nonprofit that supports housing groups around the country. He has encountered several variations of foreclosure rescue schemes. One program offered by RYM Technology Holdings, which is based in Birmingham, Mich., lured at least 20 struggling local homeowners and as many as 40 other people in Chicago, Finkelstein said.