Where there’s trouble, there’s trouble. As a growing number of homeowners have defaulted or neared default on their mortgages, numerous schemes have cropped up taking advantage of their willingness to do whatever it takes to save their homes.
The Court in State v. Cicerchi, 2009 Ohio 2249 (Ohio Ct. App. 2009) took the time to explain one of the more common plots:
One all-too common scam occurs when an individual or company identifies an at risk homeowner and misleads the homeowner into a "temporary" transfer of the deed to a third party with good credit. The third party then purchases the property and "leases" it back to the homeowner. The scammer convinces the homeowners that they can "refinance" their home using the third party’s good credit. The homeowners are led to believe that they will pay "rent" on the home and once their credit is rehabilitated, they will get the title to their house back. The homeowners then lose title to their homes, while the perpetrator profits by remortgaging the property or pocketing fees paid by the homeowner. Rarely do the homeowners ever regain title or receive any benefit from the sale, and often lose any equity that may have been in their home.
In Cicerchi, the defendant perpetrated a similar fraud and was convicted of misdemeanor theft, securing writings by deception, and telecommunications fraud. On appeal, the Court overturned the securing writings by deception conviction due to insufficient evidence.
Earlier this year, the U.S. Department of the Treasury announced a partnership with several state and federal agencies to combat these mortgage-rescue frauds. The focus of the partnership is to identify offending companies and disseminate information to potential victims. The Federal Trade Commission and Office of the Comptroller of the Currency have each published a helpful bulletin on the variety of scams that can occur.
The obvious victims are homeowners in a situation where they require assistance to perform under their loan or otherwise come to an amenable resolution with a lender. But fraudulent foreclose rescue companies are also an impediment to banks because they commonly tell borrowers not to contact their lender or not to enter workout discussions. Banks are left in the dark until it’s likely too late. Further, the “fees” borrowers pay to participate in the scam could otherwise be paid to the lender for amounts due on the loan. Mortgage lenders would be well advised to contact distressed borrowers as soon as possible to notify them of potential scams and initiate workout negotiations.