PHOENIX, AZ — They offer struggling homeowners kind words and, most of all, help.
The calls come quickly, sometimes less than an hour after foreclosure proceedings are filed. Fliers and handwritten letters promising assistance fill homeowners’ mailboxes.
For those on the verge of losing their home, foreclosure-rescue groups seem like their only hope. But many so-called rescuers aren’t helping at all.
Instead, their offers are thinly veiled schemes to take control of a struggling homeowner’s house and strip any equity left in it.
As the number of people falling behind on their mortgages in metropolitan Phoenix has soared, so too has the number of schemes that cost homeowners their houses. Regulators are cracking down on these supposed foreclosure-rescue groups, and state legislation is in the works to make it easier to prosecute those who prey on homeowners.
“Foreclosure rescue sounds like something good, but it isn’t. There are some sharks out there,” Arizona Attorney General Terry Goddard said. “They are taking advantage of desperate homeowners and need to be stopped.”
The Valley’s housing market is ripe for these schemes. Groups are going after the 50 percent jumps in equity that homeowners gained during the price run-ups of a few years ago.
The schemes have increased because more Valley homeowners are behind on their mortgages. Because of rapidly rising prices in 2004 and 2005, many buyers had to get adjustable-rate loans with initial low payments to afford homes. But interest rates on those loans are now climbing, and some of those loans are subprime with even higher rates and prepayment penalties. Now they can’t keep up with the rising payments and are facing foreclosure even if they have equity left in their homes. Foreclosures have climbed tenfold in metropolitan Phoenix during the past year.
There are legitimate companies and non-profit housing groups that can and want to help people, but they don’t deluge the homeowner, experts say.
Mary D’Amico was in the middle of a divorce last fall and was struggling to make the payment on the Queen Creek home she and her husband bought in late 2004.
After she fell a few months behind, the calls from her lender started. Then came the calls offering help.
“I didn’t know how they got my name, my phone number or so much information on how much money I owed,” D’Amico said. “I needed about $6,000 to catch up on my payments, and people were offering to lend or even give me exactly that much.”
D’Amico wasn’t suspicious of the foreclosure-rescue group she worked with. It had ties to her friend’s church.
She got the $6,000 she needed. And she started making payments to the group that was supposedly helping her catch up. Her monthly payments were a little higher, so she thought her mortgage had been refinanced to include the $6,000. She didn’t know she had signed over her house in the process. She found out when the group sold the house out from under her.
Felecia Rotellini, superintendent of the state Department of Financial Institutions, said complaints from people losing their home after they signed documents they didn’t know about or understand are on the rise.
“The foreclosure-rescue groups are getting creative in how they try to befriend the homeowner,” she said. “But ultimately, it’s financial exploitation.”
Stealing homes
Foreclosure scams have been around for a while. They are increasing because subprime loans are putting more homeowners in precarious positions as their interest rates climb.
Now, the typical foreclosure-rescue scheme plays out like D’Amico’s story. After an Arizona homeowner is at least three months behind, the lender can file a notice of trustee sale with the courts. That starts the foreclosure process and makes the homeowner’s problem public.
The calls, knocks at the door and letters of help begin. The typical Valley homeowner facing foreclosure gets at least 300 pieces of mail from groups offering some type of help, real estate attorneys say.
“If someone knocks at your door and offers help, assume they are out to help themselves,” said Diane Drain, a Valley attorney specializing in foreclosures and bankruptcies.
Homeowners are typically offered some money and told they can refinance. Then the supposed rescue plan will help them clean up their credit so they can get a better loan with a lower rate in a few years.
The homeowners are so relieved, believing they will be able to keep their home, that they sign blank documents or documents they don’t understand. The documents, however, turn the home over to the foreclosure group. A quitclaim deed can do that in Arizona.
The monthly payments they are making become rent payments, though they don’t usually know that until either the home is sold or they are evicted.
Another scam offers to help struggling homeowners by charging them fees to file basic paperwork to stave off foreclosures. But then the group paid to help drops the ball days before the actual foreclosure auction of the home. The home is often bought at auction by the group the homeowners paid to help them.
“We called a 1-800 number at the bottom of a flier we got in the mail,” said Kelli Olson, who refinanced into an adjustable-rate loan in 2005 but thought she was getting a fixed-rate loan with a lower payment. “Some guy from the group came out and took half our paperwork and said he would help. Then he didn’t return our phone calls.”
Their Youngtown home sold at foreclosure auction right after Christmas.
“These homeowners are emotionally overwhelmed, and these so-called rescue groups call or show up at their door offering sympathy and what looks like help,” said Bettina Franco, a real estate agent with Home Smart Real Estate. “Homeowners are signing over their houses for a few thousand dollars. It’s sickening.”
Recently, some groups have started using short sales to scam not only the homeowner but also the lender. Short sales are a well-used method for lenders to work out foreclosures in a slowing housing market, but now scam artists are taking advantage of the workout solution.
A deal is made with the lender to find a buyer for a house for what it will appraise and sell for in the current market. The sale is short because it will not cover all the lender is owed.
“No one was talking about short sales in Phoenix a few years ago because there was so much equity in homes,” said Valley real estate attorney Christopher Perry. “But now that the market has slowed and people are struggling, these are going to be a much bigger deal. He said lenders need to get their own appraisals to make sure the deals are right.”
Regulators say Valley investor groups are finding homeowners in trouble, negotiating with the lender to buy the house for less than is owed and then turning around and flipping the house within days for tens of thousands of dollars more.
Illegal and unethical
It’s been difficult to go after foreclosure-rescue groups, regulators say.
Some people behind the schemes say they are operating as investors instead of mortgage lenders, so they don’t have to be licensed.
When an investor or lender preys on homeowners, charging them outrageous fees and interest rates for a loan, it’s called predatory lending. It’s an unethical practice but difficult to prosecute because there isn’t a specific law making it illegal in Arizona.
But if regulators can prove groups are operating illegally as lenders, they have more leverage to stop them.
“If these groups are making a lot of loans, they are in the mortgage business,” Rotellini said. “They wrongly think they have found a loophole.”
The mortgage fraud task force formed by regulators and law enforcement to thwart cash-back deals also is targeting foreclosure-rescue scams and illegal short sales.
Cash-back deals involve getting a mortgage for more than a home is worth and pocketing the extra money in cash. The deals inflate home values and leave some homeowners stuck with overpriced mortgages.
Legislation to deter foreclosure-rescue fraud was introduced in Arizona this year but dropped because some don’t think more laws are the answer. At least 10 states, including California, have laws to deter foreclosure-rescue fraud. A task force is being formed to draft new Arizona legislation.
“I am waiting for regulators to combine legislation for both the subprime and predatory problems. There are Valley homeowners who got taken advantage of when they bought homes,” said Jay Butler, director of realty studies at Arizona State University Polytechnic. “Now they are getting taken advantage of and losing those homes.”
Found here.
Sphere: Related Content
