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October 2007

Scammers Take Advantage of Predatory Lending Fallout

For more than 15 years, low interest rates and soaring real estate prices encouraged some mortgage lenders to engage in "predatory" practices - something that's come back to haunt both the lenders and millions of homeowners. According to the New York Times, more than one million mortgages taken out by "less credit-worthy consumers" are now delinquent by more than 30 days or in foreclosure.

Desperate to avoid losing everything, these homeowners are prime targets for a new type of predator intent on stealing their homes, or as much of the equity as possible. They often target the elderly and non-English-speaking consumers with piles of paperwork and confusing terms. Internet Scambusters (ScamBusters.org) identifies three prevailing mortgage scams:

1. Equity Stripping. The con artist offers to "rescue" the homeowner by helping her get rid of the house. The scammer convinces (or tricks) the homeowner into surrendering the title to the house by promising that she can stay on as a renter and then buy back the house once things have been "fixed." In the end, the homeowner can't afford to buy back the house and the so-called rescuers bleed the house of most (or all of) the equity.
2. Phantom Help. A supposed rescuer charges very high fees for basic phone calls and paperwork that the homeowner could have done himself. Often, the scammer promises to represent the homeowner to his lenders in an effort to "work things out," but never follows through. Even worse, the scammer will insist that the homeowner ignore notices and phone calls from the lender or its agents, almost guaranteeing that the house will enter foreclosure.
3. Bait and Switch. In this scheme, the scammers masquerade as legitimate housing counselors, armed with mounds of legal documents - often for new loans that supposedly can "solve" the homeowner's problems. In reality, the owner signs forged documents that give the scammers ownership of the home, leaving the victim stuck with the mortgage, but without the asset.

Once a homeowner is caught in the web of one of these scams, it is often very difficult to get out and still retain the home. Fraudguides.com offers this advice to avoid mortgage scams in the first place.

• Speak with your lender and ask about ways to restructure the payments or refinance the loan. Consider contacting a counseling agency, but be sure the counselor is certified by the Department of Housing and Urban Development (HUD).
• Never sign a contract under duress. Request time to review documents by yourself or with the help of an attorney or trusted advisor.
• Never enter into oral agreements. Get offers in writing and tell whoever is making the offer that you or your representative will review them.
• Do not make any payments to a party other than the lender, nor should you sign a home-sale contract that does not release you from your existing mortgage.
• Do not agree to any deal that allows you to rent the property and then buy it back at a later date.
• Consider selling your home, but only if there are no other options. Selling a home and receiving the equity is much better than having your home stolen.

Believe it or not, most banks and other mortgage lenders are not eager to foreclose on your property, because they're not in the business of maintaining or selling real estate. They're in the business of lending money. And, most will work with their customers to avoid foreclosure. If you suspect you or someone you know may be a victim of a mortgage scam, contact an attorney as soon as possible.

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