Mortgage scams are the Baskin-Robbin offerings—they come in 31 flavors. Here are three top choices of con artist and how to avoid them.. By Christopher Solomon
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If owning a home is the great American dream, then swindling people out their prized possession
Is one of the great, lucrative American scams. Mortgage fraud is on the rise, thanks to the tremendous value that’s locked up in real estate today and to the increasing number of people who are struggling to pay their mortgages.
“It’s kind of become the new get-rich-quick scheme out there,”says attorney Rachel Dollar, publisher of Mortgage Fraud Blog.
More than 323,000 properties entered some state of foreclosure in the first quarter of 2006 at 72% increase over the same period a year ago, according to Realty Trac. And things could get worse; Nationwide, more than one of three outstanding mortgages has an adjustable rate and interest rates have been rising. “Nobody really knows what’s going to happen,” says Realty Trac’s Rick, Sharga, vice president of marketing.
But scammers know that people in trouble make easy victims. They’re swooping in and offering to “help” beleaguered borrowers and ending up with their house keys. Victims sometimes spend years fighting to get their home back and some never succeed.
Meet Carl and Anthony
Carl and Anthony Calvagno of Deer Park, N.Y., on Long Island are in a hell like this right now.
In 2003, the Calvagnos were in trouble. Anthony Calvagno had health troubles and had lost his job. In order to pay their bills, the couple took out a home equity loan on the Cape Code style house that had been in the family for three generations. (At the time, the couple had a $125,000 mortgage on a house worth about $290,000 a high equity target.) But even the home equity loan wasn’t enough.
That ‘s when Mitchell Sims swooped in, offering to help, says the couple attorney, Arshad Majd.
Sims told the couple that he would arrange a ballout, and that hey should stop making mortgage payments, while he worked out the details. When foreclosure notices started showing up, he told the couple to ignore them, saying he’d take care of it.
Nearly eight weeks after Sims had entered their lives, and the day before their foreclosure was scheduled, Sims told the Calivagnos that the arrangement hadn’t worked. Instead, he said they’d have to file bankruptcy and enter a “special program” in which they’d sign over their house title to one of Sims employees and another of his business associates, who also happened to be Sims brother. They’d be allowed to live in their home as tenants, Sims told them, and their rent payments would be go toward buying their home back from him, says Majd. “They were put in the position where they didn’t have any choice” but to sell their deed, Majd says.
But , Sims never made any mortgage payments. He kept the Calvagnos rent money and about $50.00 of the couples’ money that remained after their creditors were paid
The Calvagnos had fallen victim to a scam known as equity stripping—just one of the many flavors of mortgage fraud. Their house was sold. Sims and another person have been put in prison for their crimes. The couple’s has successfully fought eviction so far but not everyone is so lucky. Here’s a quick look at three of the main ways scammers can steal the roof over your head.
Sacm No 1: The bailout, aka “equity stripping’
As the Calvagnos case shows, this scam is particularly ingenious—and humiliating for the victim. In theory, a person or company could help a homeowner keep his house via a process in which the homeowner sells the house very cheaply to them while the homeowner gets his finances in order. The new owner pays the mortgage, and the old homeowner pays to live in the home in the meantime, buying back the home (with interest) in a fixed amount of time. If the financial setbacks are temporary, and the co pa y is above-board, everybody can win: The homeowner keeps the house and the company earns a profit for its role as rescuer.
But “reconveyance,” as it’s sometimes known, is ripe for abuse.
Attorney leach Weaver, who focuses on fighting the scams as an Equal Justice Works Fellow at the Legal Aid Society of Minneapolis, explains how scammers work this fraud:
Suppose you’ve got a $200,000 home, with $100,000 of equity in it. A divorce and medical bills have you facing foreclosure. Suddenly, the phone rings with a ballout proposal.
So you sell your home, for $120,000 not much more than what’s owned on mortgage. Why sell for so little? “Because it’s never intended to be a true sale, “Weaver explains; remember, you don’t think you‘re selling the house permanently, but buying it back in a short period, right?
The new purchaser, meanwhile, take out a $120,000—wipes out any liens on your property and even gets house a little cash back; and you get a two-year lease with a purchase option at the end.
But soon you realize ;you’re in trouble. Why? Because scammers aren’t about to let you get your home back. Often, the lease terms desperate homeowners agree to turn out to be as onerous as their previous mortgage payments that helped get them into trouble. Con artists also manipulate victims when facing cruicul deadlines.
“One of my clients was told that payments were going to be under $1,000 a month,” Weaver recalls. But the criminals dragged out the process until the foreclosure was imminent and she was backed into a corner. “When she got to the closing. They were like, “Oh, no, the payments are going to be $1,150.
“Inevitably,” she says, “ you’re going to default.”
And default isn’t pretty. The new purchaser evicts you as soon as possible, sells ;your $200,000 loan and pockets about $80,000—all for a few month’ work, says Weaver, Some people don’t even fight back because they don’t know they have options—such as calling a lawyer, says attorney Dollar.
Do’s and don’ts:
Don’t fall for promises like “well save our credit,”; We’ll buy your house as is’; or We’ll get you a new mortgage with low monthly payments.”
Don’t sign away ownership of your property (sometimes called a “quit claim deed) to anyone without the advice of lawyer you trust. “When people get behind on their loan payments, they get a bit desperate, but the answer is not putting someone else on your title, says Oakland real-estate attorney James Hand.
Because of any home sale contract where you aren’t formally released from liability for your mortgage, Also, make sure you know what rights you‘re giving up and that you agree to giving them up and that you agree to giving them up.
Sca No. 2. Phantom help
This scheme is fairly simple; Lets say you’re way behind on your home payments and facing foreclosure. An individaul or grop approaches and offers to help—then charges you thousands of dollars for various administrative duties like filing forms and phone calls, or else keeps simply promising a big rescue later. You can probably guess what’s really going on: The “helper:” isn’t really doing anything at all to stop your foreclosure despite collecting thousands from you. By the time you figure out you’ve been hoodwinked, it’s often too late to stop the loss of your house.
How did the scammer know to target you, anyway? That’s easy: When a lender schedules the home for public auction, the matter becomes public record. In just more than half of the states, a lawsuit must be filed in order to spur a sale. Anyone can check the court documents to find the list of lawsuits, says Elizabeth Renuart, an attorney with the National Consumer Law Center and co-author of a major report last year on mortgage fraud called ”dreams Foreclosed.” Soon, a letter or phone call comes like something from a guardian angel—only it’s a vulture.
In the other states (including California and Massachusetts, for example) the process doesn’t go through the courts; foreclosure sales simply must be advertised publicly, as in the local newspaper. This latter process usually moves faster—and makes already stressed homeowner even more vulnerable to a scam, says Renuart.
Do’s and don’ts:
Do call your mortgage company or lender if you’re in trouble. Ask for the loss mitigation department. Contrary to popular perception, lenders don’t want to steal your house, says attorney Dollar. They want to work with you. Why? “Lenders always lose money on foreclosures, even in a rising market:” Dollar says. Scammers, on the other hand, will try to keep you from communicating with your lender.
Don’t call for assistance form one of those ubiquitous signs on telephone poles that advertise help. Chances are, that’s not where help lies.
Do proceed with caution, if a company or person:
Describes itself as s “Mortgage consultant,” “foreclosure service,” or something similar
Collects a fee before giving any services;
Advertises to people whose homes are listed for foreclosure, including anyone who sends flyers or solicits door-to door; and
Says you should make home mortgage payments directly to them or to their company instead of your mortgage lender
Don’t panic. Get full information on the foreclosure process in your state. Make sure you know All deadline—for court, for document filings, etc. State usually have associations that can offer free advice. Minnesota, for example, has the Minnesota Housing Finance Agency as well as the Minnesota Mortgage Foreclosure Prevention Association, which has federal Housing and Urban Development counselors available. For who to turn to for advice, click on your state here.
Scam Now 3” The bait-and-switch
In this scam, which NCLC calls the bait-and switch,” con artists actually trick a homeowner into signing over the deed to a home without his knowledge.
How could somebody fall for this?
Attorney Hand gives an example. Hand is dealing with 10 cases involving th same real estate broker, Kaseem Mohammad of Union City, Calif., who has been charged with 12 counts of real estate fraud. One of Mohammad’s strategies, Hand say, was to visit his alleged victims armed with a load of document on a clipboard and place marked with Posit notes indicating where to sign. His victims some of whom were elderly, or didn’t speak English well –were usually overwhelmed by the documents and also couldn’t exactly see what they were signing thanks to the clipboard. And one of the things Mohammad allegedly got them to sign was a “grant deed” that passed their home’s title to a third party.
You don’t have to be old or anon-English speaker to be stymied by the legalese. Attorney Renuart says she has seen shysters get their victims to sign incredibly complicated legal documents that resulted in their property being transferred to entities such as trust. “These trust agreements, I can’t understand them—and I’m a lawyer.
And if a criminal can’t get the signature? Forgery goes a long way in real estate these days, experts say.
Don’ts and don’t’s
Don’t sign anything that has any blank spaces. Information could be added later that you didn’t agree to (Yes, it happens)
Never sign a contract under pressure. Always know exactly what you’re signing. Take your time to review the paperwork thoroughly ideally with a lawyer who only represents your interests.
Never make a verbal agreement. Get all promises in writing and get full copies.
Cast a jaundiced eye at deals that sound too good to be true. Lately, some scam artists promise they’ll wipe out or pay off your home’s debt for you (“so called “debt elimination”) Some flustered ;homeowners bite. Just remember the free lunch rule: There isn’t one.
A final thought: Remember, if you can’t fix ;your finances, selling your house )on the normal market, that is) may not be the end of the world. Sure, you’ll be a renter again. But given how much homes areound the country have appreciated in the last several years, chances are you’ve made some money, which you can use to get back on your feet.
Source of tips. National Consumer Law Center: U. S. Department of Justice ‘s U.S. Trustee Program, Attorney Rachel Dollar.