If you were the victim of a mortgage- or housing-related fraud in the past year, you are not alone.
The FBI recently announced that its year-long Distressed Homeowner Initiative involved more than 73,000 victims suffering more than $1 billion in losses. The good news is that 530 alleged scammers were charged with criminal offenses.
Many of these crimes have similar characteristics:
●The perpetrators ask you to pay a fee in exchange for a guarantee that they can modify or cancel your delinquent loan. No one can guarantee such results as the final decisions are made ultimately by your lender.
●The perpetrators pressure you to sign papers immediately or try to convince you that they can “save” your home if you sign or transfer the deed to your house. Signing over your deed leaves you with no home and still on the hook for your debt.
●The perpetrators have you sign confusing paperwork that transfers your property to them or some third party, unaffiliated with your lender. Never sign a deed or grant a power of attorney to your property to any organization or individual unless you can confirm that they are working directly with your mortgage company to forgive your debt. While it is difficult to sometimes even identify who your lender is, it is critical that you only deal directly with your lender or its current service provider.
●The perpetrators often insist on making your mortgage payments directly to your lender. You should never allow anyone else to make your mortgage payments nor should you ever make payments to anyone other than your current lender.
These scams and schemes are quite easily accomplished for several reasons: First, there is an enormous amount of publicly available information on homeowners and their loans. Deeds of trust or mortgages are public record. Second, credit-reporting bureaus make millions by selling loan data. Third, notices of foreclosures are filed publicly and available online and in all courthouses. Fourth, legal notices of foreclosure auctions are published daily in local newspapers. These due process requirements provide scammers with a steady stream of distressed homeowner leads and a bounty of personal data about their delinquent loans. Also, loan documentation is exceedingly complex and voluminous, typical settlement documentation runs approximately 100 pages of legalese.
These factors, among others, make the loan process easily manipulated for fraudulent purposes. For example, legitimate deeds of trust contain a granting clause that provides that the borrower “grant” all rights to his home to a “trustee” for the lender’s benefit. Buried elsewhere in the legitimate deed of trust are clauses that say that the trustee cannot exercise any possessory rights to the home, unless the borrower is in default. These legitimate clauses look very similar to clauses used to perpetrate frauds on the borrowing public.
One of the most popular scams victimizes homeowners who think that they are refinancing. The “disguised sale” scam occurs when the homeowner, thinking he is refinancing, signs paperwork at settlement that is not a loan at all but a conveyance to a third-party, co-conspirator, buyer. From his perspective, it looks just like a loan transaction, except buried somewhere in the settlement paperwork is language deeding his property. His original mortgage gets paid off. What he does not realize is that he no longer owns his home.
Using a bogus purchase contract and seemingly valid deed, the fraudulent buyer borrows the maximum amount possible, based on the home’s appraised value. The fraudulent buyer then uses these funds to pay off the homeowner’s existing liens and pockets the rest. The perpetrator may initially make a few months’ mortgage payments. However, he will eventually stop making any mortgage payments.
Adding insult to injury, he will continue to collect mortgage payments from the homeowner who continues to live in the home unaware that he is in fact merely a “renter.” Ultimately, the resident discovers that he no longer owns his home when he receives an eviction notice from the perpetrator’s bank that has foreclosed.
Even when the resident discovers what happened, the perpetrator’s bank will not acknowledge him, provide him with any information or negotiate with him. On paper, he is not the owner or the borrower. Privacy laws prevent lenders from discussing any loans with anyone except its borrower or the borrower’s authorized agent.
Another common scheme called “equity stripping” victimizes distressed homeowners who have equity in their homes but not the monthly income to justify conventional refinancing.
Equity stripping schemes often start with predatory lenders contacting homeowners to inform them that they have been “pre-qualified” for loans that seemingly will allow them to refinance their existing debt at very favorable terms. The way these predatory lenders “qualify” these homeowners is by falsifying loan applications. False applications are prepared using inflated income via forged or doctored earnings statements, fake employment verifications and manufactured bank account statements.
Not coincidently, the loan fees for these cash-out loans are steep, often equal to the cash-out loan proceeds. Other times, the fraudulent lender keeps all the loan proceeds by claiming that the homeowner must establish escrow accounts. Those funds are never placed into an escrow. They are diverted to the scammer and the homeowner never sees those funds or receives any benefit from them. When the dust settles, the homeowner has a mortgage that he cannot afford and will likely face foreclosure on loan larger than when he started.
If you think you may have been a mortgage loan scam victim, you should contact a lawyer who handles loan fraud cases and also file an online complaint with the Consumer Financial Protection Bureau at help.consumerfinance.
Harvey S. Jacobs is a real estate lawyer in the Rockville office of Joseph, Greenwald & Laake. He is an active real estate investor, developer, landlord settlement attorney and lender. This column is not legal advice and should not be acted upon without obtaining legal counsel. Jacobs can be reached at firstname.lastname@example.org.