It’s the antithesis of nice guys finish last. It’s right up there with kicking someone when he or she is down.
What makes the practice of bogus foreclosure rescue plans so cruel is that it typically happens to people who are at the end of their rope — and takes away their last hope of retaining any equity in their home.
Foreclosure rescue scammers approach homeowners promising to help them keep their homes by giving them options to buy or lease back the property once they get on their feet financially. The unsuspecting owner, desperate for a solution, often deeds the title of the property over to the con artist who sells the property to a third party, leaving the original owner with nothing.
Early last year, Rebecca Jacobsen, Washington State assistant attorney general, reported that foreclosure rescue scams had overtaken illegal property flipping as the most common real estate scam.
The department had settled a foreclosure rescue case against three Washington-based businesses and their owners accused of taking unfair advantage of homeowners facing foreclosure. Unlike consumers who had fallen behind on their mortgages, these homeowners were targeted because they were in arrears on their property taxes.
The number of foreclosure scam complaints continues to rise with the number of consumers challenged by rising mortgage payments. The Attorney General’s Consumer Protection Division recently mailed more than 14,000 letters to homeowners facing foreclosure because of missed mortgage payments. The letters contained warnings about two specific approaches con artists are using, some of the fake offerings arriving on very official looking stationary:
Equity skimming or rent skimming. This type of scam involves a “buyer” approaching an owner and offering to pay off their mortgage or give them a sum of money when the property is sold. The buyer may suggest that the owner move out quickly and deed the property to the buyer. The buyer then collects rent for a time, doesn’t make any mortgage payments, and allows the lender to foreclose. Since signing over the deed to the buyer doesn’t necessarily relieve the original owner of the loan obligation, the owner remains on the hook to the lender and pays the consequences of foreclosure and subsequent credit erosion.
Phony counseling agencies. Some groups calling themselves “counseling agencies” may approach owners and offer to perform certain services for a fee. These could well be services consumers could do themselves for free, such as negotiating a new payment plan with a lender or pursuing a pre-foreclosure sale.
One of the problems with equity skimming and other forms of criminal fraud is that it is difficult to prove in court. While a new law has helped, in most cases, intent to defraud must be proven at the time the deal was made. Securities fraud is regulated somewhat differently than criminal fraud and contains exemptions. However, prosecutors believe securities violations are easier to prove because a person does not have to affirmatively lie in order to be criminally liable for his actions. Simply not providing full disclosure could be a violation.
Most local lenders will say that foreclosures historically occur only when a major problem has hit the borrower — serious injury, divorce, loss of job, etc. Credit checks and qualification procedures were designed to sort out those capable of assuming the responsibilities of a home loan. In recent years, more homebuyers knowingly bought a more expensive home than they could afford and then found themselves in trouble when their low interest rate mortgage began to adjust. Lenders were complicit, too, approving attractive loans that were too good to be true.
Some foreclosures, however, are products of deliberate actions by fast-talking sales people not associated with established banks, savings and loans or insurance companies. Typically, their aim is to take the equity out of a seller’s home — a residence owned free and clear by an older person.
One of the first popular equity skimming schemes had nothing to do with foreclosure rescue — although a genuine rescue option would have been helpful to some consumers in all cases. For years, Federal Housing Administration and Veterans Administration loans were not only easy to assume but they were also targeted because the loans were insured.
Usually, a crafty crook assumed the mortgage, then rented the property to three, four … sometimes more than 10 applicants. The crooked “landlord” deliberately failed to make the monthly mortgage payments and then fled with the first and last month’s rent, plus deposits.
Times change, but some sharks are always circling.
Tom Kelly’s book “Cashing In on a Second Home in Mexico: How to Buy, Rent and Profit from Property South of the Border” was written with Mitch Creekmore, senior vice president of Houston-based Stewart International. The book is available in retail stores, on Amazon.com and on tomkelly.com.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
