The age-old tactic of preying upon the desperate has combined with escalating home prices to produce a fast-growing scam, legal aid attorneys report.
Homeowners, especially the elderly, who are going through foreclosure proceedings are being duped into deeding their homes to so-called “rescuers” who actually are scam artists, says Dan Lindsey, supervisory attorney of the homeownership preservation project of the Legal Assistance Foundation of Metropolitan Chicago.
And the victims are often homeowners who have fallen behind in mortgage payments but whose homes are worth more than they owe on them. In other words, they have equity.
A 69-year-old south suburban woman, who declined to be identified because she is seeking restitution from a scam artist, says that even though she had some $40,000 in equity when foreclosure proceedings were initiated, she never considered selling her home as a solution to her problems.
“I was afraid to sell, because I kept thinking, `Where would I go, where would I move to?'”
The scammers work this way, Lindsey says. An increasing number of homeowners are being “pressured to sign over title to their home. The fundamental pitch is: `This is the way to save your home. Sign over title and it’s like a loan where you can eventually get your house back. You can still live in the house as a renter. As soon as you get back on your feet, you can repurchase the house.'”
But, “it’s a deception,” Lindsey says. “Ninety-nine percent of the time, they won’t get their house back.”
“The buyback terms [from the scam artists] are impossible,” says Jean Constantine-Davis, an attorney for the AARP Foundation, which is pursuing litigation on behalf of several homeowners in the Washington, D.C., area. “They are charged an inflated purchase price, and the house isn’t worth that much.”
It’s an increasingly common scam that can contain many wrinkles of deception, says Kelli Dudley, a Chicago attorney in private practice who also works as a supervisory attorney of the Chancery Advice Desk at the Chicago Legal Clinic.
The foreclosure scammers scroll public records to find out when foreclosures are initiated, Lindsey explains, because it takes several months for the foreclosure to be completed. Also employing public records, they match impending foreclosures with properties where owners have some equity, he adds.
In one scenario, once the person or firm that promised to “rescue” the owner gets title, they may actually pay off the former owner’s mortgage debt. Then, perhaps working with an unscrupulous mortgage broker, they take a new, bigger mortgage on the property, pocketing the loan proceeds.
Meanwhile, the former owner is being charged rent to remain in the house. The rent is typically more than the previous mortgage bill, and more than the owner can realistically afford. The “rescuer” will start an eviction proceeding when the renter misses payment.
It was when Wilma Lowe, 68, was facing eviction that she came to Dudley.
The eviction proceeding was the latest of a string of events that Lowe was struggling to overcome in order to remain in her Chicago home, which she bought in the early 1990s for about $100,000 and which had since quadrupled in value.
Lowe says her trouble started when she became ill a few years earlier. When she took her mortgage, she bought special insurance from the lender that would pay the mortgage should she become ill and disabled. “I filed all the papers, and I thought they were paying [the mortgage], but later on I got a notice that there was going to be foreclosure.”
That notice sent her into a “panic,” Lowe says, and she went to an attorney because she had heard his advertisements touting bankruptcy as a way to stave off a foreclosure. After the Chapter 13 bankruptcy, she had trouble keeping current with her housing payments and the debt payoffs arranged through the bankruptcy.
She then received a call from a man representing a firm that would “refinance” her mortgage debt and pay off other bills if she signed over title of her home, which she could then buy back in a year. “I asked him, `Is this legal?’ and he told me it was,” Lowe recalls.
She soon suspected that the plan was anything but legal when a lender who held a second mortgage on the property began sending dunning letters. Then, when the “rescue” firm initiated eviction proceedings, Lowe contacted the Chicago Legal Clinic.
Now in litigation, Dudley says the eventual outcome will probably be that Lowe can keep her home, provided she can afford payments on a new, refinanced mortgage. If she can’t, at least a sale can be arranged and Lowe can take money left over after paying off the loans and use it for new housing, Dudley says.
That is one of the sensible ways to stave off an impending foreclosure. And, in some instances, an elderly owner may qualify for a reverse mortgage, in which another lending company pays off the existing debt on the house, and provides an income to the homeowner as long as he or she remains in the home, Lindsey says.
But frightened people who are desperate to stay in their home may ignore the sensible solutions.
Elderly homeowners are particularly vulnerable to these scams for many reasons, says Constantine-Davis.
The elderly can sometimes fall into foreclosure for other than strictly financial reasons, she explains. They may become confused, for instance, after losing a spouse.
Lindsey and Dudley say they are litigating several cases on behalf of homeowners taken by false rescue schemes.
Part of the challenge in going after the scammers, says Lindsey, is there is no specific law aimed at banning fraudulent foreclosure rescue schemes. Still, “there are a couple of different approaches” to bring suit against unscrupulous operators, Lindsey says.
Sometimes the scam artists, which legal advocates also term “bottom feeders,” falsify deeds to take possession of a house. Forgery “makes it easier on us” to have a legal basis to go after the scammer and possibly recover the home for the victim, Lindsey says.
In other instances, attorneys must construct a case based upon relevant aspects of existing law. Attorneys might employ the consumer fraud act, for example, comparing what the scammers promised a victim and what they actually did, Lindsey explains.
Tom James, an Illinois assistant attorney general, says that foreclosure-rescue fraud is “certainly emerging as a problem that we are recognizing.”
“We have taken a look at laws [recently passed by other states] around the country,” James said. And the Illinois attorney general’s office is studying the effectiveness of other laws to determine what provisions a state statute here should contain to combat the problem.
James said, for instance, that Minnesota has had some success with its recent law. Since August 2004, when that state’s law went into effect, the number of complaints about mortgage-rescue fraud has decreased significantly, says Minnesota Atty. Gen. Mike Hatch. Before that, his office had logged hundreds of complaints, Hatch said.
One of the principal features of the Minnesota statute is that it requires any firm or party offering any type of foreclosure assistance, advice or rescue services to use one standard contract form in any dealings with homeowners.
The contract forbids any transfer of the deed to the home as well as any advance payments from the homeowner, among other features, Hatch says.
The National Consumer Law Center, a non-profit based in Boston, recently issued a report called “Dreams Foreclosed: The Rampant Theft of Americans’ Homes Through Equity-Stripping Foreclosure `Rescue’ Scams.” It calls for more state laws to be enacted with specific provisions, such as tightening the legalities of home sale and repurchase agreements.
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Staving off foreclosure
– If you’re behind on payments, ask your lender if a repayment plan can be arranged based on your financial situation.
– Seek to refinance your mortgage or extend its term.
– Sell the home to raise funds to pay off the mortgage, and come away with your equity intact.
Avoiding the scam
– Don’t sign any papers you don’t fully understand.
– Make sure you get all “promises” in writing.
– Check with a lawyer or your mortgage company before entering into any deal involving your home.
Source: HUD
