Scott C. Borison, a lawyer in Frederick, said he has heard recently from a number of homeowners who say they were tricked into signing over their houses to foreclosure rescue specialists.
Doyle L. Niemann, an assistant state's attorney in Prince George's County, said he also has seen an increase in such complaints, especially in Prince George's, Baltimore and the Eastern Shore, where there are many poorer residents whose property taxes are going up as the value of their homes rise.
"I have been approached on a number of cases where people have lost their homes and the equity in them," Niemann said. The Prince George's County state's attorney's office is investigating a half-dozen such complaints, he said.
Niemann, who is also a Democratic Maryland state delegate, and state Sen. Brian E. Frosh (D-Montgomery), chairman of the Senate's Judicial Proceedings Committee, have proposed legislation to stop the practice. The Senate committee is scheduled to hold hearings on March 2 on the bill, which mirrors a law passed in Minnesota last year.
This week, Niemann met with Borison and other Maryland lawyers, real estate brokers, bankers and community activists to discuss the issue. In most cases, foreclosure rescue specialists offer to help struggling homeowners by purchasing their homes and then leasing them back, with an option for the loan recipient to repurchase. Foreclosure specialists sometimes raise the rent, and when homeowners can't pay, evict them and sell the houses. In other cases, homeowners lose the houses because they can't repurchase them in a given amount of time.
The legislation would give homeowners 10 days to back out of any agreement signed with a foreclosure specialist. If a foreclosure specialist sells the property within 18 months, the original owner would be entitled to 82 percent of the money obtained from the sale.
After the meeting, brokers and bankers said they agreed that the practice -- known as "equity stripping" -- is a problem that should be addressed but worried that the bill might inadvertently hurt their groups.
John J. Harrison, a real estate broker based in Upper Marlboro and past president of the Maryland Association of Realtors, said real estate agents should be exempted from the bill. Seth M. Rotenberg, a commercial real estate lawyer representing the Maryland Bankers Association, said some of the wording could inhibit reputable lenders from refinancing mortgages for homeowners facing foreclosure. Niemann said he would consider changes to address those concerns.
Borison, arguing for the legislation, cited a number of the cases he is handling, including that of Allan DeLeon and his wife, Virginia, who filed a case last month in the Circuit Court for Prince George's County. The DeLeons came to Prince George's County from Trinidad in the late 1970s. About 15 years later, the couple bought a four-bedroom house in Hyattsville for $110,900.
In 2003, their daughter became ill and the family had a hard time keeping up with the cost of her medical care. Soon they fell $15,521 behind on their mortgage payments and faced foreclosure, according to court documents. Letters began to arrive from foreclosure rescue specialists who had obtained the family's address because foreclosure notices are public filings.
The DeLeons said they picked a sincere-seeming letter out of the pile and called Conrad Singh of Guardian Express LLC, who lent them the money they needed to make their mortgage payments. They also signed a pile of documents, including one turning over the deed to their home to Singh, and another saying they would lease the home and could repurchase it in a year, according to court documents.
A year later, when they were unable to get a loan to repurchase their house, they lost it, something the DeLeons said they did not realize could happen. "I spent 10 years in this house," Virginia DeLeon said. "I would not sell it for $15,000."
In court filings, Singh has denied wrongdoing and is suing to evict the DeLeons. Singh's lawyer, Steven B. Preller, said the DeLeons signed the sale and repurchase contracts, but when they could not find financing to buy back their home, "they decided to file a lawsuit saying they didn't understand what they signed."
After Minnesota passed a law last year to discourage equity stripping, the number of such cases fell significantly, state Attorney General Mike Hatch said.
"Our complaints have gone way down. That doesn't mean it is not still going on," Hatch said, but "it certainly has raised the bar in terms of what is legal and illegal activity."
Staff writer Sandra Fleishman contributed to this report.
