West Lindsey District Council has stressed that the letters have nothing to do with the authority.
Director of Strategy and Regeneration, Mrs. Rachel North, said:
"We are extremely concerned letters claiming to be from the council are being circulated but we would like to reassure residents that this is a scam.The letters, which appear to be on council headed paper, claim to be from the Housing Team.
"We are working closely with Lincolnshire Police on this issue. West Lindsey District Council will not tolerate this kind of behaviour and will not hesitate to prosecute those involved.
"We would urge anyone who received a letter or knows where they originated from to contact us or the police with information."
They state that due to an increasing number of homeless people the council has arranged for a family to move in with them.
It also claims they will be paid and they need to collect the homeless people from the train station in Lincoln.
The council stress that the information is not true.
Cllr. Mrs. Irmgard Parrott, Conservative (Cherry Willingham Ward) was alerted by a letter circulating in Cherry Willingham. She said:
"I was horrified to hear these letters were being circulated causing unnecessary distress to residents.Residents can contact the council by calling (01427) 676676.
"I want to reassure people and tell them not to worry as the letters are not true. If anyone does receive a letter they are asked to contact the council and the police. "