Foreclosure rescue scam exposed by mortgage fraud expert
Nationally, and locally, real estate and mortgage fraud is rising to unprecedented levels - according to Richard Hagar, a nationally-known expert on real estate and mortgage fraud, at an East Portland meeting a few weeks ago.
'This crime is affecting our local economy, and consumers need to be aware of its impact on home values in their neighborhoods,' said Portland Police Bureau Detective Liz Cruthers, as she introduced Hagar. 'Fraudulent transactions by real estate professionals are also fueling foreclosure rates and the sub-prime meltdown.'
Hagar's presentation exposed the seedy world of fraudulent real estate transactions, including foreclosure rescue and mortgage elimination schemes, predatory lending, adjustable rate mortgages with huge balloon payments, and other scams.
'People who run 'foreclosure rescue' operations are the lowest of the low,' Hagar stated. 'They offer an individual in dire circumstances false hope - and then shaft them.'
Here's how it works: A homeowner gets behind on mortgage payments. A 'helpful' person comes along, claiming to be able to help them eliminate the foreclosure problem.
The 'rescuer', Hagar said, tells the homeowner that the only remedy is for them to sign a 'Quit-Claim Deed' over to them. The rescuer gives the homeowner $5,000, offers to rent the house back to the homeowner, and 'gives them the option' to purchase the home back later. However, if the homeowner misses one rent payment, they're evicted.
'The rescuer - the scammer - now has title to the home, for pennies on the dollar and a promise,' explained Hagar. 'And, it is usually an oral - not written - promise.'
Hagar told of a local widow who was emotionally distraught following the death of her husband. Because her late husband always had taken care of the bills, the widow didn't make any payments for a couple of months; her mortgage payments fell behind, and the bank started foreclosure procedures.
'One of these slimy stinkers got wind of the situation,' said Hagar, as he told the horror story. 'He offered to refinance the widow's home for her, but never took an application. He then offered to sell the widow's house for her; but he didn't. He said he'd stop the foreclosure process himself; and then he did nothing.'
On the courthouse steps, Hagar explained, this scam artist purchased the property for the amount remaining on the mortgage - a mere $10,000. Out of the 'kindness of his heart', he gave the widow $5,000 'moving money'. Within two months, he sold her house for $300,000 and pocketed the money.
When Hagar asked if anyone in the audience had personal experience with this kind of fraud, a woman in the back of the room timidly raised her hand. She said her mother, who had a home in Sellwood, had just lost her nearly-paid-off home to such a 'foreclosure predator'.
Spotting the scam
Hagar said he's been to classes taught by traveling promoters who instruct people how to become a 'foreclosure rescue' expert. 'I personally think this is evil behavior. It isn't illegal, but it is evil.'
Common instructions for the 'deals' which foreclosure-rescue promoters teach, Hagar said, include:
· Check foreclosure listings frequently - perhaps daily - to find 'fresh' prospects;
· Look for homes with high equities (value of a home over the mortgage);
· Approach the victim homeowner early in the foreclosure process;
· Delay the homeowner from taking any action until the very week of the foreclosure auction;
· Describe the transaction terms orally - not in writing - to the homeowner;
· Prepare documents to favor the 'rescuer', regardless of what was told to the homeowner; and
· Induce the homeowner to sign incomplete or blank documents.
'These crooks take care to make sure that no specific step they take in their process is illegal,' stated Hagar. 'Some foreclosure rescuers seem actually to think they are helping people. The real question is, at the end of the day, who gets the equity? The homeowner or the rescuer?'
Addressing the flood of offers nowadays seen on yard signs and Internet sites that offer to 'eliminate your mortgage' - Hagar advised considering this concept carefully before taking any action. 'Realistically, there is only one way to eliminate a mortgage,' Hagar said, 'and that is to pay it off. If you sell your home to pay off your mortgage, you can't live there.'
'There's good flipping, and bad flipping,' Hagar continued. 'A good flip is when you research and buy an undervalued house, fix it up, and sell it for an increased value.'
But, even instructions for 'good flipping' - as glamorized by TV shows such as 'Flip That House' - don't mention, Hagar said, that flippers often get stuck holding the house and losing money.
But worse, Hagar informed his audience, is the 'bad flip.'
'A scammer buys a house at or below property value. They may make some cosmetic improvements, but don't substantially improve the property. Then, they jack the price way up.'
With the help of shady real estate agent and mortgage loan originator - and an appraiser bullied into 'passing' the home by the bank - the 'flipped' home is sold to an unsuspecting buyer, typically one with a poor credit history. 'Buyers get stuck with a bad house, their credit is wrecked, and usually the bank gets stuck with a foreclosure.' (All this may help you understand some of the current 'subprime mortgage meltdown'!)
'People do tell lies to get a place to live,' Hagar stated. 'People do commit fraud because they want property or cash.'
The biggest lie a cheating consumer will tell is overstating their income. 'Don't do it, even if originators tell you to do it. You're the one breaking a federal law by lying; you're the one who will face the consequences. More than losing your home and equity, you can go to jail.'
Other forms of dishonesty perpetrated by those trying to get a mortgage include providing false statement of assets or source of down payment, and inflating sales prices to cover non-real-estate items.
Hagar summed up his presentation: 'Deals that seem too good to be true usually are! Read your documents, ask questions, and get legal help with real estate transactions when you need it.'