Foreclosure Rescuers Preying on Homeowners

 

By Andrea Coombes
MarketWatch
June 2, 2005

SAN FRANCISCO (MarketWatch) -- For homeowners facing foreclosure, there's nothing like the relief of a knock at the door from a friendly face promising to help.

But anecdotal evidence suggests an increasing number of those faces are anything but friendly, and more homeowners are paying steep fees for no help at all, or in the worst cases, losing their homes entirely.

Billboards plastered to light posts in hot housing markets nationwide tout this help as foreclosure "rescue."

But it's more like a nightmare and evidence suggests more homeowners are experiencing it, according to a report released Thursday by the National Consumer Law Center, a consumer advocacy group, that detailed such scams.

Lawyers nationwide cite a growing number of calls from homeowners who paid steep fees or lost their homes after foreclosure scammers roped them in, according to the report.

One popular ruse has the homeowner signing his house over to the scam artist, with the promise of being able to stay on as a renter and buy the house back in a few years. But that buy-back is usually at an undisclosed and exorbitant price.

"It's a growing problem," said Steve Tripoli, a consumer-fraud investigator with the National Consumer Law Center and principal author of the report. A "collision of circumstances" is contributing to the rise in such scams, he said.

First, he said, fraudsters are eager to tap the growing mound of home equity as home values continue to rise at double-digit rates in communities nationwide.

Meanwhile, salaries are stagnant, homeowners are carrying heavy debt loads and, increasingly, they've used high-risk loans to get in their homes. That means more homeowners face a precarious situation where one unexpected financial emergency could mean falling behind on mortgage payments.

"If an adverse event comes along -- a divorce, a medical crisis -- all of a sudden you're facing being behind in your mortgage and now scam artists move in and now they have a lot of equity to grab," he said.

Generally, homeowners in that situation would ask their lender for help refinancing the loan or perhaps take out a second mortgage, or they might consider tapping a real estate agent to sell the house.

But for those who fall behind in payments and face the threat of foreclosure, that helpful salesman at the door may seem an easier solution to the problem of late mortgage payments. A common promise made by the "rescuers:" You won't need to leave the house.

In the report, "we have several homeowners saying they didn't realize they'd turned over homeownership of the house until weeks or months after the fact. Someone is lying to them or the deal is disguised," Tripoli said.

 

A widow loses her home

Their timing is perfect: The fraudsters scan public notices of foreclosure proceedings, or buy lists from companies detailing foreclosures county by county. Then they go knock on doors, and the theatrics being.

"Several who are 'ministers,' they've gotten down on their knees and prayed with the homeowner," said Doyle Niemann, an assistant state attorney in Prince George's County, Md., and a state legislator.

As attorney, Niemann has handled some of these cases, and as state legislator he sponsored a bill addressing the problem, which became a Maryland law in May.

"They have stories like 'well, I've got a whole bunch of investors, anonymous, unnamed investors, who want to make these private investments because they help people," he said.

One woman, a middle-class professional in a government job, a mother of two teenage girls and a recent widower, thought she was getting a new $10,000 loan to make good on her mortgage.

" She had fallen behind" after her husband died, Niemann said. "Turns out she signed a quit-claim deed without realizing it ... she thought she was just borrowing money. She ended up losing her house and $100,000 or more in equity," he said.

The widow disputes that she ever signed the quit-claim deed (a form which relinquishes ownership). And in some cases, attorneys say, it appears scammers are forging documents.

 

Rising home values connected to more complaints

Attorneys nationwide say they're seeing more cases, and some note that increase is closely tied to the growing levels of equity homeowners are sitting on.

"This is a get-rich-quick scheme," Niemann said. "People are taking advantage of folks who get into a foreclosure situation but who own property that is more valuable than what they owe.

"In the past it was uncommon for a property in foreclosure to be worth more than the loan to any significant degree," he said.

"But you now have properties that are worth hundreds of thousands of dollars more than what the mortgage might be on it, so there's a great deal of hidden equity. That's what these people are going after. They call it equity stripping."
Niemann and others cited anecdotal evidence to suggest a rise in such cases.

"We're getting more calls from people about this issue," said James Brady, a senior attorney with the Legal Assistance Foundation of Metropolitan Chicago, a nonprofit legal-aid center.

"When we see an increase in calls, it's usually not just a coincidence. It's a trend that's going on," Brady said.
Frequently, he said, the situation entails a small outstanding mortgage and a lot of home equity.

"For example, we have one case where the homeowner owed $10,000 on their loan. That loan went into foreclosure. The rescuer said 'I can help you. You'll be able to stay in your house,'" Brady said, noting that the value of the house was about $80,000.

"The house ends up being deeded over to a third person ... who then gets a mortgage for $40,000 and the homeowner gets no cash," he said. The homeowner has "essentially lost that $70,000 of equity, and the house is now legally in someone else's name."

Some scams are far more complex, involving two or three different companies and trusts, said Kimberly Breger, a clinical instructor and attorney in the consumer protection unit of Harvard University's Legal Services Center in Boston.

"You've got these multiple parties who are all working in collusion to basically perpetuate the scam," Breger said.
In one Massachusetts case, she said, one company draws in homeowners and another acts as a trustee.

"The consumer deeds their home in the trust and then becomes a tenant in their own home," she said. "Theoretically, if they make payments they would be able to buy back their house two years later after paying out a large amount. But the trustee [who is also the landlord] evicts the renter."

For homeowners, the key is to get everything in writing, and keep talking to your lender and possibly a bankruptcy attorney, even if your friendly salesman insists you don't.

"The scammers will say 'we're taking care of your case so don't talk to your lender and don't talk to your lawyer," Tripoli said. "Those are exactly the people you need to talk to. Get with your lender and see if there's a way to restructure your payments, to refinance your house."

Also consider talking to a consumer or bankruptcy attorney, he said. Find out exactly how much time your state allots for foreclosure proceedings.

"You need to understand as soon as you get that notice how much time your state allows you to solve this problem," he said. "The scammers will come in as soon as they see your delinquency notice in the public record. They'll say you don't have time, you don't have time!"

 

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