Last month, we discussed how self proclaimed foreclosure “rescuers” use deception to fleece homeowners in distress out of their property. This month we’ll take a look at how the scammers team up with predatory lenders to put a homeowner in financial trouble in an even worse bind instead of helping them. (Please Read “Prohibit Predatory Lending” to learn more about this problem.)
Although many states have passed legislation aimed at curbing abusive lending practices, these bandits continue to take advantage of people under great emotional strain from being in danger of losing their homes. Many of their victims are elderly or ill. Most are not knowledgeable about real estate finance or aware of options available from their existing lenders that could resolve their problems.
Common techniques used by fraudsters intent on committing grand theft house is to have the unwitting homeowners sign blank contracts and loan documents or telling them outright lies about what kind of transaction they’re getting into. These lowlifes are no better then carjackers who put a gun into a driver’s face, steal the car, and leave him standing in the street.
Here are a few case histories from the western regional office of the Consumers’ Union:
GENEVA B. of San Francisco is 58 years old. In 1989, due to illness, Ms. B. fell behind in payments with a major bank. In January of 1990, the bank started foreclosure proceedings and notified her that she needed to pay $3,478.37 to cure the default. Ms. B. received a mailing from a mortgage company saying they could give her a loan to get her out of foreclosure. Ms. B. called the mortgage company and told the loan officer she needed about $7,000 to cure the default and pay utility liens. According to Ms. B., she was persuaded to take out a larger loan and sign a note and deed of trust that were blank; only after the loan was approved and she received all the documents did she discover that the full amount of the loan was $77,000 and that she was paying $12,320 (16 points) in loan origination fees.
In addition, the mortgage company held onto $43,000 to cover 30 months of payments to the company and two years of payments on the bank loan. Ms. B. had arranged to receive $15,490 in cash from the mortgage company loan to improve her home, but it took 16 months and the help of an attorney before she received $13,565 payment during the first 36 months. As she struggles to make the payments, Ms. B.’s attorneys have succeeded in obtaining an injunction against the sale of her home, allowing her to stay in her home of 15 years. Nevertheless, she is still threatened with the loss of her home if she cannot keep current on the loan.
FRED W. is a 79-year-old Berkeley resident who has owned his home since 1964. After his wife’s death, Mr. W. suffered a series of strokes and deteriorated mentally and physically. His son contacted an East Bay legal services agency after Mr. W. received letters from a mortgage servicing company for another lender, threatening him with foreclosure. Mr. W. had fallen behind on two monthly payments of $982.87, not surprising since his total monthly income consisted of a Supplemental Security Income check for $602.40.
According to his attorneys, closer examination through the recorder’s office revealed that six loans had been taken out on the property from April, 1992 to December of 1993. (Mr. W. did not have any documents.) During that time a loan broker had appeared at Mr. W.’s home and befriended this disabled minister of questionable capacity, then proceeded to arrange a succession of small to larger loans that presently total more than $100,000.
Mr. W.’s attorneys are attempting to piece together which loans were used to pay off a former $30,000 loan and how much money Mr. W. actually saw (about $500, according to Mr. W.). This case is currently under investigation by his attorneys who will continue to examine each of the loan disclosure statements for excessive fees and to determine if Mr. W.’s brother’s income was used by the lender to pad Mr. W.’s monthly income. No resolution has been reached in the matter.
RACHAEL X. is an elderly disabled woman who lives on a fixed income. She has lived in her Los Angeles home since 1975 and presently is the guardian of five grandchildren. According to Ms. X.’s attorney, she was in default on a $10,000 loan in June, 1993 when she was approached by a man who said he represented a wealthy investor who wanted to give something back to his community by helping people in foreclosure. Ms. X. said the man made many promises and had Ms. X. sign a typewritten contract that he said would “help save the home and keep the grandchildren from being homeless.”
In August of 1993, Ms. X. said she received a notice of foreclosure from a bank she had never heard of. She investigated and discovered that someone else owned her home, and the person had taken out an $80,000 loan and defaulted. She found a deed with her signature forged on it — certified by a notary public who also certified the trust deed for $80,000.
Ms. X filed a notice of rescission and eventually reached a settlement against the mortgage company which had sold the loan on the secondary market to investors.
While some cases obviously predate predatory lending legislation, we have gotten reports of similar abuses occurring today. The fraudsters obviously have no regard for the law and must be regarded as criminals. Some have been successfully prosecuted and sent to jail, but others are still active.
A favorite trick of some is to include a blank quitclaim deed in a stack of documents purportedly being signed for the purpose of getting new financing. The hapless homeowner actually gives his house away, and then learns that he or she could not qualify for a new loan. Worse yet, the victim is still on the original defaulted loan secured by a property they no longer own.
Next month, we’ll take a look at the regulatory climate and see what is being done to stop these thieves.
