Foreclosure Scams: Foreclosure "Mediators"

Foreclosure "mediation" is one of the most common scams, and this particular scam grates on my nerves more than most. This group of vultures gives the business a bad name, and the way they take advantage of the homeowner in distress is truly inexcusable.

Foreclosure Mediators make promises of negotiation and home salvage, but are really in it for the money you pay up front. The scam follows this trail:

You contact a Foreclosure Mediation service and submit an application.
They “review your file” (usually within 24-48 hours).
They inform you that, for an upfront fee, they can assist you by structuring a forbearance agreement with your lender or negotiating a smaller payment, no matter what your foreclosure situation is.
You submit paperwork and your NON-REFUNDABLE fee... and wait.

In this case, they have what they want from you – the upfront payment. If you attempt to follow up with them and actually get someone on the phone, they will tell you that the fee you paid was enough to get the ball rolling, but it’s a hard process filled with lots of red tape. They may say that your bank refused their workout proposal, and that’s the end of it. They MAY say that the process will take longer than expected, and more money is needed to finish the negotiations. Whether you pay more money or give up at this point, the money that you have paid to the company is gone.

DID YOU KNOW THAT YOU CAN NEGOTIATE A WORKOUT AGREEMENT ON YOUR OWN? It may seem complicated – even scary, because you’ll be dealing with creditors that you may have avoided up until this point – but it is not a difficult process. Patience, persistence, clarity, and The Foreclosure Workbook are all you need to face your situation head on!

Foreclosure Scams: Equity Stripping

Have you ever heard of Equity Stripping? It can be done in two ways – both very scary, both leaving you, the homeowner, with little to none of the equity you’ve worked so hard to build.

The first technique involves an investor and an unlawful appraiser:

Unscrupulous appraiser creates a report stating that you house is worth more than its current value.
Investor gets you to refinance.
Cash is paid to the investor at closing.
The process is repeated.

Initially, your payments may drop, but your loan balance increases due to high fees and repeated refinancing. The equity you had built up is being paid out in cash during each closing. This scam is primarily for homeowners who have a large amount of equity in their homes.

The second technique works similar to a Leaseback:

You deed your home to an investor.
You sign a rental agreement.
The investor may offer you an option of buying the house back in the future (for a higher price than you sold it to them).
The investor pockets the rent you pay.
THE INVESTOR NEVER MAKES A PAYMENT...

... and you have no idea until you receive another threatening letter from the mortgage company asking for their money. The investor has been cashing your rent checks, and has not made a payment on your mortgage loan.

At this point, I want to mention again that, even though we use the term “vultures” and are painting some very scary scenarios, not all investors, mortgage brokers, realtors, or foreclosure consultants are deceitful. Not everyone who comes to you offering assistance is unscrupulous. It IS important, however, to be informed of the scams that are out there so you can protect your home.

Forewarned is forearmed!

Foreclosure Scams: Trust Agreements

The Trust Agreement scam is similar in nature to the Escrow scenario.

What is a Trust? Wikipedia.com defines a trust as an arrangement whereby money or property is owned and managed by one person (or persons, or organizations) for the benefit of another. A trust is created by a Settlor, who entrusts some or all of his property to people of his choice (the Trustees). The trustees are the legal owners of the trust property, but they are obliged to hold the property for the benefit of one or more individuals or organizations (the Beneficiary), usually specified by the settlor.

Here’s how the scam works:

Investor offers to bring your loan current.
Investor charges $1000 (or a similar amount) to pay all legal fees for setting up a trust.
The trust is set up as “66 Lincoln Street Jones Family Trust” (assuming your name is “Jones”, and you live at 66 Lincoln Street).
The deed names the investor’s company (ABC Investments, Inc.) as the Trustee.
The deal is structured so that once the loan is repaid (plus a management fee), the trust will then deed the house back to you.

Can you see the scam working?

In this scenario, it is very easy for an investor to put you at ease and use “trust” to con you out of your home. You assume that because the trust is named for your home and family, you have a controlling interest. In truth, ABC Investments, Inc, controls the trust, and THE TRUST NOW OWNS THE HOME. You have just given your property away, but you are still obligated to pay for it. Miss a loan payment? You are evicted, and you have no legal ramification, because you no longer own the home.

Foreclosure Scams: The Equity Loan

When you think of “escrow”, you think “safety” and “security”, correct?

Wikipedia.com defines escrow as a legal arrangement in which an asset (often money, but sometimes other property such as a deed of title) is delivered to a third party (called an escrow agent) to be held in trust pending a contingency or the fulfillment of a condition or conditions in a contract, such as payment of a purchase price. Upon that event occurring, the escrow agent will deliver the asset to the proper recipient, otherwise the escrow agent is bound by his or her fiduciary duty to maintain the escrow account.

In a foreclosure scam, however, a “deed in escrow loan” provides the exact opposite of safety and security.

Here’s how the scam works:

An investor offers to provide you with a loan to bring your loan current.
You sign over the deed to your home.
The deed is held in escrow (the investor will explain that this protects his investment and keeps their costs low).
You begin to make payments on the loan.

If you’re a day late with the payment, the investor will record the deed and evict you. You may not have documentation to prove that you were lent any money, but the investor CERTAINLY has a deed – signed by you – that proves you sold them your home.

If someone wants to lend you money to bring your loan current, sign a promissory note and give them weekly or monthly payments that you can afford. Any other lending scenario is probably presented by someone who does not have a license to lend money and is trying to get around state and/or federal lending practices. Are you willing to trust your most valuable asset – your home – to someone like this?

Think about that.

Foreclosure Scams: The Leaseback

A few weeks ago, I submitted a post about foreclosure scams that was a RE-post from an earlier series. Now, with the government attempting to crack down on foreclosure con-artists, I thought it might be helpful to repost the whole series! You MUST know what to look for when it comes to scams... I had a woman contact me the other day because she was approached by a "service" that would help her apply for the new Obama housing plan for $2800. She asked me if that was a good deal.

*heavy sigh*

EVERYWHERE ON THE NEW HOUSING PLAN WEBSITE... EVERYWHERE... IT STATES THAT IT IS FREE TO APPLY FOR THE PLAN AND THAT ANYONE ASKING YOU FOR A FEE FOR THEIR SERVICES IS PROBABLY A FRAUD.

Now, I am not one to use capital letters excessively, but I really need that point to be driven home. Scam artists are making money hand over fist in this panicked environment. Do not - DO NOT - be a victim!

So, here's the first scam we will review in the series: The Leaseback

Unfortunately, the Leaseback is one of the most popular of the foreclosure scams, because it fills the most common need of the homeowner in distress – the desire to stay in the home they have built.

The Leaseback is also referred to as “selling your home and renting it back” or just “a rent-back option”. The scam works like this:

You deed your home to an investor.
You sign a rental agreement.
The investor may offer you an option of buying the house back in the future (for a higher price than you sold it to them).
The investor takes over the payments – they may even bring your loan current.
The investor pockets the rent you pay.
The investor waits for you to make a mistake.

The slightest mistake, and you are evicted IMMEDIATELY. If you fail to pay your rent on time, or are one penny off the agreed-upon payment amount, you are evicted. If the lease says you cannot hang pictures on the wall, and you hang a photo of your beloved pet, Skippy, you are evicted. If the rental agreement says you need to hand-deliver the rental payment, but you decide to mail it, you are evicted. Any diversion from the lease, you are out on the street. You are legally obligated to leave.

A leaseback, while not always advantageous to the homeowner, is not illegal. There are some states (Maryland, Colorado, Illinois, and Minnesota to name four), however, who have strict regulations to how a leaseback must be structured and documented. Any violation of those regulations, and the vulture is caught!

We'll talk about those regulations in a later post. First, we'll continue reviewing the common foreclosure scams!

No Justice for Foreclosure Con Artists

Reprinted from a recent Associated Press article:

Cons Working Foreclosure Scams Rarely Go To Jail
By Marlon A. Walker and Kathleen Hennessy

LAS VEGAS (AP) — They call themselves loan modification consultants, negotiators or specialists. Some are legitimate, but many are simple con artists looking for desperate marks facing foreclosure amid the wreckage of the nation's housing market.

It's a good business, too, since in most states, there's not much of a chance they'll ever end up before a judge facing any time in jail.

"It's difficult for us to get prosecutors to do the investigations on misdemeanors," said North Carolina Attorney General Roy Cooper.

While some states have recently toughened penalties for perpetrating the booming business of foreclosure scams, and some prosecutors have used existing fraud statutes to bring criminal charges, the reaction of many state prosecutors in places where foreclosure scams are common are civil actions designed to recover a victim's money.

Only in a few states are attorneys general offices — which tend to be a focal point of consumer protection efforts — willing and able to seek criminal charges and jail time against such con artists. While consumers might be helped financially by the civil cases, advocates say criminal prosecutions would do more to stop these scams.

"You've got to do something to get their attention," said Tom Bartholemy, president of a Better Business Bureau office in southern North Carolina. "Because what's being done — these civil actions — isn't."

The fake foreclosure fixers are operating in a target-rich environment. More than 2 million homeowners faced foreclosure proceedings last year, and the number is expected to rise this year.

That's the audience for roadside billboards around places like Las Vegas that scream "Save my property!" and radio ads that promise "expert help." Some companies comb property records and send mail designed to look like it's from the homeowner's lender: "We have reviewed your property information and determined that you may be eligible for a loan modification."

After Hugo Malara lost his job at a neon sign company and fell behind on his home loan, he called Derric Robinson, a loan modification specialist who advertises a "money back guarantee."

Malara and his fiancee Maria Sorto paid Robinson an $800 fee, but say they rarely heard from Robinson again. In fact, the bank had already sold their neat stucco bungalow when they handed Robinson the check.

"He was recommended by a friend. He said he could fix the problem," said Malara, a 48-year-old immigrant from El Salvador, who said he does not plan file a lawsuit.

Robinson said he made calls to the home's new owners on Malara's behalf. And he blamed Malara for not cooperating and said the fee was compensation for his time.

"That's how much my time was worth," he said, adding that the work was done outside his job as a loan modification specialist for a California company.

Some of those making the offers to help are former brokers, agents and appraisers who've seen their previous business evaporate. But it's difficult to gauge if even the legitimate offers to help are more effective than nonprofit credit counselors who also work with lenders at no charge.

"There are plenty of HUD-approved nonprofits who will do this work for free and that's what we recommend," said Rick Simon, a spokesman for Calabasas, Calif.-based Countrywide Financial Corp., once the nation's largest mortgage lender.

But federal loan modification programs, as well as lender-designed programs, are complicated and time consuming. The Obama administration's new housing recovery plan aims to change this by standardizing the process for modifying loans and offering lenders financial incentives. Cooperation remains voluntary on the part of lenders.

Homeowners who have gotten mixed up with scammers are flooding Better Business Bureau chapters, state attorney generals and consumer protection offices with complaints. Bartholemy said his office in Charlotte, N.C., received about 1,700 last year, while the Bureau of Consumer Protection in Nevada takes in more than 100 a month.

The response from state prosecutors so far, according to a national Associated Press survey, has largely come on the civil side of the court docket. Florida Attorney General Bill McCollum has filed several civil lawsuits, including one against a company with an estimated 600 clients. So have attorneys general in at least a dozen states.

In Maryland, state criminal prosecutors have filed no charges under that state's new foreclosure rescue statute. Ditto in Massachusetts, which recently barred for-profit mortgage foreclosure rescues entirely.

"We found these cases are more appropriately brought in civil court, where we can get better remedies for the victims," said Amie Breton, a spokeswoman for Massachusetts Attorney General Martha Coakley.

Officials in North Carolina say just one person has been convicted since 2004 for such a crime.

In Alabama, the attorney general's office usually reaches out to the foreclosure relief firms first to find out if there is any money to recover before seeking criminal charges, said Rushing Payne, chief of the office's Consumer Protection Division.

"It depends on the nature (of the allegations) and what we're able to prove," Payne said, adding there had been no convictions for foreclosure rescue scams in the past year.

In several states, attorneys general can only bring a criminal case when asked by a local district attorney. In others, they lack the jurisdiction entirely.

"We set out to try to shut these companies down so they can't harm anyone else, and we try to get people's money back as much as we can," said Ben Wogsland, a spokesman for the Minnesota Attorney General.

There are some attorneys general making criminal cases. In Arizona, Attorney General Terry Goddard has brought three cases this year on felony theft, fraud or money laundering charges. Two defendants pleaded guilty, and the third case is pending.

In California, the attorney general's office busted a fraud ring last November that had collected upfront fees ranging from $1,500 to $5,000, stealing more than $700,000 from homeowners in all. Three people have pleaded guilty to grand theft charges and received sentences ranging from probation to 6 years in prison.

Lawmakers in Nevada, which has one of the highest rates of foreclosure rates in the country, took steps last fall to make foreclosure fraud a criminal offense. So far, five people have been charged under the new statute, none have yet gone to trial.
The new law there makes defrauding a homeowner in foreclosure a felony punishable by up to 20 years in prison and a $50,000 fine.

"I think the tide is turning," said John Kelleher, a deputy attorney general in Nevada. "A lot of these mortgage scams are so large scale and affect so many people, the judges are more willing to give prison time."

Associated Press writers Mary Esch in Albany, N.Y., Schuyler Dixon in Dallas, Ben Greene in Baltimore, Dave Dishneau in Hagerstown, Md., Catherine Tsai in Denver, and Kathleen E. Miller in Annapolis, Md. contributed to this report.

Over 9200 FHA Loans in Default After No or Only One Payment

There is something severely wrong with this picture, and I cannot wrap my mind around a solution. I am not usually one to spread panic... it's not in my nature. However, it may take me few days to work through a way to solve (or at least give my two cents) this latest report.

Sunday, the Washington Post's story, "The Next Hit: Quick Defaults: More FHA-Backed Mortgages Go Bad Without a Single Payment" told a grim story about the failure of the Federal Housing Authority's mortgage system.

"... the subprime mortgage market has crashed and borrowers are flocking back to the FHA, which has become the only option for those who lack hefty down payments or stellar credit. The agency's historic role in backing mortgages is more crucial now than at any time since its founding.

With the surge in new loans, however, comes a new threat. Many borrowers are defaulting as quickly as they take out the loans. In the past year alone, the number of borrowers who failed to make more than a single payment before defaulting on FHA-backed mortgages has nearly tripled, far outpacing the agency's overall growth in new loans, according to a Washington Post analysis of federal data.

Many industry experts attribute the jump in these instant defaults to factors that include the weak economy, lax scrutiny of prospective borrowers and most notably, foul play among unscrupulous lenders looking to make a quick buck.

If a loan "is going into default immediately, it clearly suggests impropriety and fraudulent activity," said Kenneth Donohue, the inspector general of the Department of Housing and Urban Development, which includes the FHA.

The spike in quick defaults follows the pattern that preceded the collapse of the subprime market as some of the same flawed lending practices that contributed to the mortgage crisis are now eroding one of the main federal agencies charged with addressing it. During the subprime lending boom, many mortgage brokers and small lenders milked the market for commissions and fees by making as many loans as possible with little regard for whether they could be repaid.

Once again, thousands of borrowers are getting loans they do not stand a chance of repaying. Only now, unlike in the subprime meltdown, Congress would have to bail out the lenders if the FHA cannot make good on guarantees from its existing reserves. And those once-robust reserves are showing signs of stress, raising the possibility that taxpayers may have to pick up the tab for the first time since the agency was established in 1934.

More than 9,200 of the loans insured by the FHA in the past two years have gone into default after no or only one payment, according to the Post analysis. The pace of these instant defaults has tripled in one year. By last fall, more than two dozen FHA home loans on average were defaulting this way every day, seven days a week."

That is one of the scariest things I have read in years.

The article goes on to talk about how there is an instant presumption of fraud of loans immediately go into default, but, due to the rise in FHA mortgages, the agency is unable to pursue predatory lenders with haste, if at all. Meanwhile, these lenders or brokers are targeting homeowners with direct mail and phone solicitation, enticing them to refinance over and over again with advertised low rates. The constant refinancing means that a homeowner can take cash out without having to make a payment on the loan.

"The broker makes money on every transaction," said Carr, a former executive at mortgage financier Freddie Mac. "They're not going to turn away an application if they can get it through. There have been situations where people refinance and refinance to avoid making payments and the broker just keeps getting the fees. What do they care?"

This whole thing makes my head hurt.

Foreclosure Scams Up: Advice Worth Reposting

ABC News has just posted a new story about the rise in foreclosure scams. Because of the tanking housing market and rise in unemployment, more homeowners are being targeted by and falling victim to foreclosure scam artists, and are losing their homes at an alarming rate.

I had published a series of blogs a few months ago about some common scams and how to protect yourself from them. This week on Foreclosure Exposure Radio, we will go over scams in detail for the entire hour, but in the meantime, I am reposting the following entry:

As soon as news of your foreclosure is made public, the flood of letters and phone calls begin, and the vultures are on the hunt. Some of them are less polished with their approach: you may receive a sloppy letter offering to help out by buying your home. Others may call you on the phone (ignoring the “Do Not Call List” rules and regulations) or even knock on the door and offer their services. These are the amateurs – probably fresh out of a beginning real estate investor class. They can be safely disregarded.

The dangerous ones are the Vultures in Sheep’s Clothing.

These are the slick, polished “professionals” who offer to assist you. They will hand you a savvy business card, listen intently and console you over a cup of coffee or glass of water at your kitchen table, all the while assuring you that they’ll stop your foreclosure regardless of your situation. Heck, they’ll even promise to let you stay in your home! All you have to do is sign on the dotted line...

Does that sound familiar? Unfortunately, this promise, in some instances, is too good to be true. Don’t ignore your inner sense of protection – if it sounds too good to be true, it could be a scam designed to steal your equity.

While some of the solutions presented are valid options in certain instances, some investors have no intention of letting you stay in the property – at least, not for very long. Read the contracts they present – they are heavily weighed in their favor, and the slightest infraction on your part will let them evict you and walk away with your property and your equity (especially in landlord-friendly states!).

Carefully investigate all offers presented to you. Solutions that sound too simple or too good to be true usually are.

If you're selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial situation. Financially or emotionally distressed homeowners often become the unwitting victims of unethical practitioners who seek to exploit the misfortune of others.

There are several precautions you can take to avoid being taken advantage of:

• Don't sign any papers you don't fully understand.

• Make sure you get all "promises" in writing.

• Beware of any loan assumption where you are not formally released from liability for your mortgage debt.

• Check with a lawyer or your mortgage company before entering into any deal involving your home.

• If you are selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer. You can contact your state's Attorney General, the State Real Estate Commission, or the local District Attorney's Consumer Fraud Unit for this type of information.

Again, read any contracts presented to you. An upstanding investor should not have a problem allowing you take a day or two to review the documentation with a professional. If they are pushing you to sign right now, it could be a scam.

Foreclosure Crisis: The Role of Illegal Aliens and Sub-Prime Loans

I do research daily on the foreclosure crisis to report back via this blog and my radio show on Voice America Business. Yesterday, as I was reading various blog comments, I came across this SHOCKING interview done with an industry insider about the role illegal aliens have played in the foreclosure/sub-prime crisis.

Read the article here: http://americandaily.com/index.php/article/431

This is a crime, on both the parts of the people who participated and the mortgage giants who allowed it to happen. Now, I have said before that I'm not big on pointing fingers - I am much more interested in creating solutions - but consider the finger pointed on this issue.

This also prompts me to do a series of discussions on how identity theft and foreclosure are linked. Stay tuned!

The Subprime Debacle - The Greed At the Core of It All

Last week, I attended the Congressional Black Caucus in Washington, DC. The caucus is an opportunity for the government, business leaders, and citizens to discuss the state of Black America and brainstorm solutions and next steps. Of course, foreclosure and the current economic crisis were a huge topic of discussion.

At a foreclosure forum attended by hundreds, several industry leaders and government officials debated the origins of the crisis and provided insight on how to move through. One of the most interesting points that I heard, however, was something that I think all of America needs to understand and absorb.

25-50% of people who received sub-prime loans could have qualified for prime loans.

That is a HUGE revelation.

I was being interviewed by a radio host yesterday who, when I repeated that fact, asked me to further explain. I explained that, in short, a sub-prime mortgage costs more than a prime mortgage. A sub-prime mortgage was created for individuals who could not qualify (through credit score, income level, debt-to-income ratio, etc.) for a prime loan, therefore there are increased percentages, fees, and repercussions for non-payment or pre-payment. For example, a $200,000 loan may cost a prime customer 6%, while a sub-prime customer may have to pay 9%, plus 5 points at the loan closing, AND carry a pre-payment penalty, which means that more money is due if a person decides to refinance to a better rate.

Basically, a sub-prime loan provides MORE PROFIT for a lender and mortgage broker. What the fact above shows is that people who could have qualified for a prime loan were steered in the direction of a product that provided more cash for a lender and mortgage broker, but cost the homeowner more money.

That is greed, plain and simple.

For people who blame the sub-prime homeowner for the current economic state, remember the above fact.

Foreclosure Consultants vs. Housing Counselors... Which Way Should Homeowner's Go?

A recent blog posting in the Baltimore Sun has me thinking.

Jamie Smith Hopkins – writer of the Real Estate Wonk – posted a story about the dangers of paying foreclosure consultants to create workout solutions. In her opinion, homeowners should reach out to certified, non-profit housing counselors to get free advice and assistance instead of paying for help. In the story, Bill Gruhn, chief of the attorney general's consumer protection division, says, "We have several suits currently pending against people who were purporting to offer foreclosure rescue and in fact took the houses," He also states that homeowners should list their property on the market with a Realtor instead of entertaining an investor proposition.

It is imperative in these days and times that homeowners have the most education and information possible to make the correct decision about their property. Although housing counselors provide a great resource for pre-foreclosure families, not all housing counselors are trained well enough to provide the information homeowners need to weigh all the options they have available. In addition, we are all hearing about the lack of counselors available to those in need due to the increase in pre-foreclosures.

I agree that there are foreclosure consultants who are not working in the homeowner’s interest. There are also “consultants” that have agency with investors and only work to feed properties to those interests. However, this is against the law – SB761 was initiated to regulate foreclosure consultants and provide structure to investor sales and protection for the property owners. This is the information homeowners need more education about – the rights and protections they have under the law.

There are also investors whose sole purpose is to scam a homeowner out of their property. However, this is not always the case. When Mr. Gruhn says that homeowners are better off selling their home on the market, this is not always an option. There are investors who will buy a property in as-is condition and provide a solution that a market sale would not.

It is important that homeowners have the education necessary to empower them to face their foreclosure situation. When this is in place, a homeowner can utilize the services of a housing counselor more effectively and create a plan that will truly help. They will also have the savvy to deal with any third party that offers services or assistance. If not, then going to a housing counselor, sufficiently trained or not, will be a waste of time.

Beware of Investors Using The Donald’s Techniques to Save Your Home from Foreclosure!

Even without the full details of the transaction being revealed, the news reports that Donald Trump is using a Leaseback strategy with Ed McMahon. As we have discussed on earlier posts, the Leaseback, or Rent Back, is an investment technique where a homeowner would sell a property to an investor, and then have the ability to rent the property from the investor for a specified period of time.

Be careful – just because this may work for Ed and The Donald doesn’t mean this is going to work for you.

The leaseback is a "save your home" strategy many pre-foreclosure victims are offered these days, but these rescues come hand in hand with real estate investor agendas attached. When homeowners are educated and empowered on how to execute this investor technique properly (with all of their rights protected and a clear exit strategy that allows them to save their equity and/or save the home), it is a strategy that can work.

BUT, if a homeowner agrees to do a rent back to stop foreclosure of their home WITHOUT the proper education, you can fall for one of the easiest cons designed. This scam is designed to make you feel comfortable – someone is promising you that you can stay in your home, and that will provide you with a false sense of security. At the same time, you sign away your ownership to someone who then has control of your property, and the right to do whatever they want with it.

Realize that even Donald Trump has an agenda. Get the education you need about the scams that are out there. Know who you are dealing with and what they are promising!

Foreclosure Fraud... It's Not Just Homeowners Who Need to Take Heed!

In this current environment of “foreclosure opportunities”, con artists aren’t just trying to scam pre-foreclosure homeowners – even prospective investors are being targeted. Those who are interested in “cashing in” on current market conditions need to be wary of the information they are purchasing!

California resident Mark Allen Davis was recently charged with identity theft, mail and wire fraud charges. His scheme was simple – he placed hundreds of advertisements in newspapers promising to mail customers updated government foreclosure property lists. He charged $80 for the data, asked for their bank account information to “verify their identity”, and then drafted their accounts for more. He will serve nearly 7 years in prison.

It’s not only homeowners who need to be cautious in this market. Con artists are on the rise, and their schemes become more complex by the day. Even the speculators need to be careful!

Not-So-New Foreclosure Scam... "Straw Buyers"

The Washington Post recently did an article on Joy Jackson and Metropolitan Money Store, Corp - a company in Maryland that allegedly used "straw buyers" to "help" customers in foreclosure save their homes. Why do I put the word "help" in quotations, you ask? Because if the Washington Post is doing an article on you and your company around the foreclosure issue, 8 out of 10 times, it's not to praise your and your efforts.

Yep, it's another scam. HUNDREDS of people lost hundreds of thousands of dollars, EACH. Read the article to find out how these homeowners' hard earned equity went to fund the lavish lifestyle of the owner and her family. It's crazy!

What is a Straw Buyer, you ask? The scam works like this:

If you have a large amount of equity in your home, a company will offer to assist you by having your house "refinanced" with SOMEONE ELSE'S CREDIT. The company will then say that you have the opportunity to buy back the house (or refinance out the straw buyer) after a certain amount of time, and you can live in the house "rent free" until your financial affairs are in order.

Of course, there are several other details that go into the arrangement, but those are the basics. What's wrong with this picture?

This basic fact: if you use someone else's credit to "refinance", their name is on the deed. That means that THEY, not YOU, own the house. That's why the term "straw BUYER" is used... it is another person who comes in and BUYS your home. It is a sophisticated form of the Leaseback scam - but there is a person (straw) between you and the company that offers a solution. That person is paid to use their credit.

How are they paid? OUT OF YOUR EQUITY.

In the case of Joy Jackson/Metropolitan Money Store, it is alleged that after a homeowner signed up under her program and was "saved", she pulled the equity out of the home by borrowing against the home, which increases the resale cost of the property. This price is often way too high for the person who is living in the property, and they cannot purchase the home back from the new owner.

Again I say... if it sounds too good to be true, investigate carefully. This is your HOME you are gambling with, and you should be as informed as possible when it comes to foreclosure scams and fraudulent practices.

Common Foreclosure Scams - Final Thoughts

We have discussed a variety of diabolical schemes in this report. At this point, I have just two more words for you – DON’T PANIC!

Most vultures prey on your confusion, miseducation, and high stress level. They are waiting to take advantage of your lack of time, money, patience, and knowledge of the system – at your greatest point of confusion, they will present an offer that looks great on the surface, but had a hidden agenda underneath.

Thankfully, there’s plenty of good news to consider.

First, to be fair to the GOOD apples in the bunch, not all Investors, Mortgage Bankers, Foreclosure Consultants, or Realtors are vultures. Secondly, not all scenarios offered to you are illegal or immoral. For example:

• An investor CAN rent your house back to you – ensure the terms are beneficial and you fully understand the lease violations.
• A company CAN provide you with a sub-prime loan to refinance your home - not all sub-prime loans are predatory. Ensure that you are not pressured into a loan you cannot afford.
• A company CAN lend you money to bring your loan current – ensure that you are not signing a document you do not understand and receive legal counsel if you are unsure of the agreement.
• A third party CAN take over the payments for your house – ensure the penalties for a missed payment do not solely fall upon your shoulders.

There are many viable solutions that will be offered to you. As long as you review all the documentation and the benefit to you COMPLETELY and THOROUGHLY, vultures do not stand a chance with you and your property.

If you are facing foreclosure, it is imperative that you proceed forward armed with knowledge and a cool head. Forewarned is forearmed – now is the time to educate yourself on the options you have available to you and take action towards saving your home.

Common Foreclosure Scams - Predatory Lending

Predatory lenders promise loans that are "too good to be true" and pressure borrowers to take them on the spot. However, did you know that it is illegal to loan money to someone that you suspect cannot afford to repay the funds? Illegal or not, the goal for predatory lenders is not to receive the excessive payments you make – it’s the hope that you DON’T make the payment so they can take your home.

Here's a few things you should know about spotting and avoid predatory loans. The Center for Responsible Lending in Durham, North Carolina, has outlined the seven signs of predatory lending:

Excessive Fees: Points and fees are costs not directly reflected in interest rates. Because these costs can be financed, they are easy to disguise or downplay. On competitive loans, fees below 1% of the loan amount are typical. On predatory loans, fees totaling more than 5% of the loan amount are common.

Abusive Prepayment Penalties: Borrowers with higher-interest sub-prime loans have a strong incentive to refinance as soon as their credit improves. However, up to 80% of all sub-prime mortgages carry a prepayment penalty – a fee for paying off a loan early. An abusive prepayment penalty typically is effective more than three years and/or costs more than six months’ interest. In the prime market, only about 2% of home loans carry prepayment penalties of any length.

Kickbacks to Brokers (yield spread premiums): When brokers deliver a loan with an inflated interest rate (i.e., higher than the rate acceptable to the lender), the lender often pays a “yield spread premium" – a kickback for making the loan more costly to the borrower.

Loan Flipping: A lender "flips" a borrower by refinancing a loan to generate fee income without providing any net tangible benefit to the borrower. Flipping can quickly drain borrower equity and increase monthly payments – sometimes on homes that had previously been owned free of debt.

Unnecessary Products: Sometimes borrowers may pay more than necessary because lenders sell and finance unnecessary insurance or other products along with the loan.

Mandatory Arbitration: Some loan contracts require "mandatory arbitration," meaning that the borrowers are not allowed to seek legal remedies in a court if they find that their home is threatened by loans with illegal or abusive terms. Mandatory arbitration makes it much less likely that borrowers will receive fair and appropriate remedies in cases of wrongdoing.

Steering & Targeting: Predatory lenders may steer borrowers into sub-prime mortgages, even when the borrowers could qualify for a mainstream loan. Vulnerable borrowers may be subjected to aggressive sales tactics and sometimes outright fraud. Fannie Mae has estimated that up to half of borrowers with sub-prime mortgages could have qualified for loans with better terms.

How can you protect yourself from predatory lending?

1. Always shop around.
2. Ask questions.
3. If you don't understand the loan terms, talk to someone you trust to look at the documents for you.
4. Don't trust ads promising "No Credit? No Problem!"
5. Buy The Foreclosure Workbook.
6. Ignore high-pressure sales tactics.
7. Don't take the first loan you are offered.
8. Remember that a low monthly payment isn't always a 'deal.' Look at the TOTAL cost of the loan.
9. Be wary of promises to refinance the loan to a better rate in the future.
10. Never sign a blank document or anything the lender promised to fill in later.

Common Foreclosure Scams - Foreclosure "Mediators"

Because DFCS, Inc. is a Foreclosure Consulting service, this particular scam grates on our nerves more than most. This group of vultures gives the business a bad name, and the way they take advantage of the homeowner in distress is truly inexcusable.

Foreclosure Mediators make promises of negotiation and home salvage, but are really in it for the money you pay up front. The scam follows this trail:

You contact a Foreclosure Mediation service and submit an application.
They “review your file” (usually within 24-48 hours).
They inform you that, for an upfront fee, they can assist you by structuring a forbearance agreement with your lender or negotiating a smaller payment, no matter what your foreclosure situation is.
You submit paperwork and your NON-REFUNDABLE fee... and wait.

In this case, they have what they want from you – the upfront payment. If you attempt to follow up with them and actually get someone on the phone, they will tell you that the fee you paid was enough to get the ball rolling, but it’s a hard process filled with lots of red tape. They may say that your bank refused their workout proposal, and that’s the end of it. They MAY say that the process will take longer than expected, and more money is needed to finish the negotiations. Whether you pay more money or give up at this point, the money that you have paid to the company is gone.

DID YOU KNOW THAT YOU CAN NEGOTIATE A WORKOUT AGREEMENT ON YOUR OWN? It may seem complicated – even scary, because you’ll be dealing with creditors that you may have avoided up until this point – but it is not a difficult process. Patience, persistence, clarity, and The Foreclosure Workbook are all you need to face your situation head on!

Common Foreclosure Scams - Equity Stripping

Have you ever heard of Equity Stripping? It can be done in two ways – both very scary, both leaving you, the homeowner, with little to none of the equity you’ve worked so hard to build.

The first technique involves an investor and an unlawful appraiser:

Unscrupulous appraiser creates a report stating that you house is worth more than its current value.
Investor gets you to refinance.
Cash is paid to the investor at closing.
The process is repeated.

Initially, your payments may drop, but your loan balance increases due to high fees and repeated refinancing. The equity you had built up is being paid out in cash during each closing. This scam is primarily for homeowners who have a large amount of equity in their homes.

The second technique works similar to a Leaseback:

You deed your home to an investor.
You sign a rental agreement.
The investor may offer you an option of buying the house back in the future (for a higher price than you sold it to them).
The investor pockets the rent you pay.
THE INVESTOR NEVER MAKES A PAYMENT...

... and you have no idea until you receive another threatening letter from the mortgage company asking for their money. The investor has been cashing your rent checks, and has not made a payment on your mortgage loan.

At this point, I want to mention again that, even though we use the term “vultures” and are painting some very scary scenarios, not all investors, mortgage brokers, realtors, or foreclosure consultants are deceitful. Not everyone who comes to you offering assistance is unscrupulous. It IS important, however, to be informed of the scams that are out there so you can protect your home.

Forewarned is forearmed!

Common Foreclosure Scams - Trust Agreements

The Trust Agreement scam is similar in nature to the Escrow scenario.

What is a Trust? Wikipedia.com defines a trust as an arrangement whereby money or property is owned and managed by one person (or persons, or organizations) for the benefit of another. A trust is created by a Settlor, who entrusts some or all of his property to people of his choice (the Trustees). The trustees are the legal owners of the trust property, but they are obliged to hold the property for the benefit of one or more individuals or organizations (the Beneficiary), usually specified by the settlor.

Here’s how the scam works:

Investor offers to bring your loan current.
Investor charges $1000 (or a similar amount) to pay all legal fees for setting up a trust.
The trust is set up as “66 Lincoln Street Jones Family Trust” (assuming your name is “Jones”, and you live at 66 Lincoln Street).
The deed names the investor’s company (ABC Investments, Inc.) as the Trustee.
The deal is structured so that once the loan is repaid (plus a management fee), the trust will then deed the house back to you.

Can you see the scam working?

In this scenario, it is very easy for an investor to put you at ease and use “trust” to con you out of your home. You assume that because the trust is named for your home and family, you have a controlling interest. In truth, ABC Investments, Inc, controls the trust, and THE TRUST NOW OWNS THE HOME. You have just given your property away, but you are still obligated to pay for it. Miss a loan payment? You are evicted, and you have no legal ramification, because you no longer own the home.

Common Foreclosure Scams - The Escrow Loan

When you think of “escrow”, you think “safety” and “security”, correct?

Wikipedia.com defines escrow as a legal arrangement in which an asset (often money, but sometimes other property such as a deed of title) is delivered to a third party (called an escrow agent) to be held in trust pending a contingency or the fulfillment of a condition or conditions in a contract, such as payment of a purchase price. Upon that event occurring, the escrow agent will deliver the asset to the proper recipient, otherwise the escrow agent is bound by his or her fiduciary duty to maintain the escrow account.

In a foreclosure scam, however, a “deed in escrow loan” provides the exact opposite of safety and security.

Here’s how the scam works:

An investor offers to provide you with a loan to bring your loan current.
You sign over the deed to your home.
The deed is held in escrow (the investor will explain that this protects his investment and keeps their costs low).
You begin to make payments on the loan.

If you’re a day late with the payment, the investor will record the deed and evict you. You may not have documentation to prove that you were lent any money, but the investor CERTAINLY has a deed – signed by you – that proves you sold them your home.

If someone wants to lend you money to bring your loan current, sign a promissory note and give them weekly or monthly payments that you can afford. Any other lending scenario is probably presented by someone who does not have a license to lend money and is trying to get around state and/or federal lending practices. Are you willing to trust your most valuable asset – your home – to someone like this?

Think about that.