While it can take different forms, what we are seeing most often in Maryland these days involves 5 players: 1) a victim in foreclosure who has lots of equity in their home, usually between $100,000 and $300,000; 2) a mastermind con artist who swoops in and promises the help the homeowner “save their home” by arranging a refinacing loan; 3) an “investor” also known as a “straw purchaser” who is recruited by the master con artist and promised that they will be paid $10,000 or more for doing no work; 4) a title company which is either actively involved in the fraud or at a minimum negligent in performing its duties; 5) a new mortgage lender which is often negligent and sometimes complicit in the fraud.
Here is how it works:
1) You are a distressed homeowner who is behind in your mortgage payments. Suddenly, the house is “docketed for foreclosure.” Because Maryland is a “non-judicial foreclosure state” this means that your house could be sold on the auction block in as little as 15 days from when your lender “dockets” it for foreclosure.
2) Using the power of the internet, the mastermind con artist gets your name from a computerized listing of the foreclosure docket. Then, the mastermind goes to a different website to determine a) what your property is worth, and b) how much your mortgage is. The difference between what the property is worth and the balance on your mortgage is the “equity.” So, if you owe $100,000 on your mortgage, but the house is worth $300,000, then you have $200,000 in equity. The con artist now has his or her mark: you. You are feeling very stressed and very vulnerable and the con artist now comes in and promises to “rescue” you from foreclosure and allow you to keep your home. This angel is going to get you a loan or some other form of creative financing which is going to allow you to avoid foreclosure and once again be able to sleep easily at night.
3) The con artist also recruits “investors”. The job of the investor is to show up at the “refinancing” table. What really happens at the “refinance” is that you sign the Deed to your house over to the “investor.” You also sign a “lease-back” agreement whereby you get to stay in the house, make “rental” payments to the investor and have the option to buy the house back after a year. But as part of the “refinancing” the “investor” takes out a NEW MORTGAGE for the full value of the property, and agrees to pay all but $10,000 of it to the master con artist. So your house, which had a value of $300,000 and a mortgage of $100,000 before the “refinance” now has a value of $300,000 and a NEW MORTGAGE of $300,000. So, your equity of $200,000 has been “stripped” away by the con artists. Even if you were able to buy the house back after a year, it would be a house in which there is NO MORE EQUITY.
4) You never actually get to buy the house back, because the “rental” payments you “agreed” to are much higher than the mortage payment was. Typically, the “rent” is between 2 and 3 times what your mortgage payment was. Instead, you default on the “rental” payments, and the “investor” goes into Landlord-Tenant court and tries to have you evicted from the house, thus completing the fraud. First they take your title, then they take your equity, then they take the house. A variation on this theme is that the “investor” simply never pays the NEW MORTGAGE and therefore the new mortgage company starts an entirely new foreclosure proceeding, and you are eventually forced to leave by the new mortgage company.
So, according to this scam which is taking place across Maryland and indeed across the country, the foreclosure “rescue” does not save your house. You still lose the house. The only difference is, if you had simply let it go to foreclosure, you would have walked away with the equity in your house. But under the foreclosure rescue scam, the con artists get your equity.
To combat this problem, the Maryland Legislature enacted emergency legislation effective in May of 2005, called the Protection of Homeowners in Foreclosure Act. This imperfect statute is at least a first step toward curbing these fraudulent, illegal and immoral practices.
How Widespread is this problem? The problem Foreclosure Rescue Scams is very widespread, and stretches all across this country.
Questions? Contact us.