CNNMoney.com
Mortgage mess fallout: foreclosure rescue scams
http://biz.yahoo.com/cnnm/070907/082207_foreclosure_rescue_scams.html?.v=6&.pf=real-estate&printer=1
Friday September 7, 6:52 pm ET
By Les Christie, CNNMoney.com staff writer
Jennifer Falke and her family had been in their
Columbus, Ohio, home for nearly 12 years when they hit a rough patch in
2006. Falke was out of work and fell behind on the mortgage.
Falke
said a flood of mailings and flyers then arrived at her door promising
help from foreclosure rescue companies claiming to act as an
intermediary between her and her lender to keep her from losing her
home.
According to Falke, the company she contacted simply took
her money and did nothing for her [SEE CORRECTION BELOW]. And by
delaying a workout with her lender, it made getting back on track
harder and more expensive.
"I called the company, thinking it was
the best thing I could do," she said. "They told me they could help.
But one of the first things they said was, 'Don't call your mortgage
company. If you do they'll tack on fees.'"
For a $1,200 payment,
according to Falke, the company claimed it would handle everything,
including calls to the lender, but she charges it did nothing.
"Every
time I got enough together to pay off the arrears, they would say the
amount had increased." Falke received an income tax refund that she
wanted to put toward a payment. But according to her, the company said
her mortgage company said it wasn't enough.
"Then they stopped
answering my calls. I would leave a message every day," Falke said.
"One day, they told me, 'We're dropping your case' and hung up on me."
Only
then did she call her lender. Falke found out the payoff was less than
what the rescue company had told her - $2,600 instead of $3,500. And
then she learned that the bank had dealt with many cases like hers.
"To
prey on people at one of the most vulnerable points in their lives is
despicable," said Ohio Attorney General Mark Dann, who filed suit
earlier this month against six foreclosure rescue companies.
As
foreclosure rates rise, evidence from other parts of the country
indicates the number of rescue scams may be increasing. According to
Alison Preszler, a spokeswoman for the Council of Better Business
Bureaus, the BBB for Clearwater, Florida, received 508 complaints about
local foreclosure rescue companies in the past three years with 322
coming just within the last 12 months.
Charlotte, North
Carolina's BBB office reported last year that two foreclosure rescue
companies were operating; today the count is 15 and six have already
had legal actions taken against them. Twenty-one new companies began
operations this year in Cleveland.
According to Dann, the most
common form of foreclosure rescue scam in Ohio is like the one Falke
claims was used on her. A scammer takes an up-front fee, usually $1,000
or more, to solve the victim's foreclosure problems, and then does
little or nothing, pocketing the money.
Dann said victims are often low-income minorities, the elderly or immigrants in poor neighborhoods, but anyone can be targeted.
The
most vulnerable members of society often make the easiest marks. A
client of Jessica Attie of South Brooklyn Legal Services, was a
mentally ill woman with a $60,000 mortgage balance that carried an
interest rate of more than 10 percent. She was falling behind on
payments, had few other resources and wanted to reduce her payments.
Attie
said a scam artist convinced her client to sign over her title while he
cleared up the arrears. She could rent the home for six months, and
then he would sell it back to her. Instead, according to Attie, the
scammer resold the house and absconded with more than $400,000.
Michael
Sichenzia knows mortgage rescue scams from the inside out; in 2002, he
was convicted and served hard time for mortgage fraud at the Attica
Correctional Facility in New York State. Today he's an investigator for
the Deerfield Beach, Florida law firm, Glinn Somera & Silva and
chief operating officer of Dynamic Consulting Services, specializing in
financial fraud.
According to Sichenzia, the most common foreclosure rescue scam has always been "equity stripping."
"The
scammer promises to save the home by taking title," he said, "renting
it to the owner and selling it back sometime later. Instead, he strips
the equity by charging excessive fees, doing phony renovations and not
making the mortgage payments."
Sometimes the home owner is fully
aware that the title is changing hands, counting on the promise to be
able to redeem it later. But other times the scammer tricks the owner.
"The signing over of title is buried in an avalanche of paperwork or in the language of the contracts," said Sichenzia.
Duane
Legate, who runs Housebuyernetwork.com, which arranges short sales for
homeowners in trouble and also offers foreclosure prevention advice,
said, "There's only a handful of legitimate companies out there, ones
that really do try to help clients. The rest are just looking for a
quick payoff."
According to Legate, the scammers are multiplying
so rapidly that there's even a company that sells foreclosure rescue
Web sites, complete with testimonials from smiling, satisfied clients.
Here are some of the tactics that scammers are known to use:
Saturation
marketing: They learn of mortgage delinquencies through published
reports and proceed to bombard the owners with phone calls, flyers and
posters.
Exploiting trust: Scammers build trust by acting
sympathetic and solicitous; many owners can't believe they would lie to
their faces.
Isolating owners: Scammers assure victims that
they'll handle everything. They tell them not to call their lenders nor
seek legal advice.
Outright fraud: Scammers have homeowners sign
blank papers and fill them in afterward or they sneak the paperwork
through without telling victims what they're signing.
Affinity
marketing: Especially among minorities and sometimes evangelical church
congregations, a scammer builds trust based on a common ethnicity or
religion.
According to Dann, you should never trust anyone who
has contacted you, unsolicited, offering to help. "There are no
boundaries to entry for any entrepreneurial criminal to get into these
scams."
The best thing to do is to call your lender and try to work out a plan.
If in doubt, get in touch with your state attorney general's office. It
can put you in touch with a Housing and Urban Development-approved free
credit counseling service that will do you a lot more good than
fee-based rescue services.
Jennifer Falke was able to work out a
settlement with her bank. She's back to work and current with her
mortgage payments, but she is out the $1,200 she paid to the
foreclosure rescue company.
"The ingenuity of people who would rather cheat than work hard is unending," said Dann.
CORRECTION:
In an earlier version of this story, we incorrectly identified the
company that had been hired by Jennifer Falke. The company we
incorrectly identified was Foreclosure Assistance Solutions (FAS). We
apologize for the error.
Public warning announcement
Kenneth R Sword Jr