NEW LAW TO STOP “FORECLOSURE RESCUE” SCAMS
TOOK EFFECT ON FEBRUARY 1ST
Vulnerable Homeowners Being Targeted By Con Artists
Increasing numbers of homeowners are falling behind on their mortgage payments and face the prospect of foreclosure. With the rising tide of foreclosures has come a wave of con artists who promise to “rescue” the homeowner, but who actually run scams designed to strip the property’s built-up equity or to steal the title outright.
Foreclosure rescue scams, also known as home equity thefts or deed thefts, target vulnerable homeowners who are short of money and fear losing their homes. Desperate for assistance, many of these homeowners are easy prey for so-called “foreclosure rescue specialists” who claim they can “stop the foreclosure” or “save your house.”
Foreclosure rescue scams have been described as a “serious epidemic” in New York. The scammers market their services by plastering signs and posters on telephone poles and bus stops in low- and moderate-income neighborhoods. They also contact homeowners directly by phone, a personal visit, or leaving a flyer at the door.
The “rescuers” promise a “fresh start” that will allow homeowners to pay off mortgage arrears and keep their homes. But the reality is that these con artists are out to steal titles, not to provide assistance.
Help is on the way in the form of New York’s Home Equity Theft Prevention Act, which takes effect on February 1, 2007. The protections provided by this new law, and tips on how to avoid the foreclosure rescue scam, are set forth below.
How the Foreclosure Rescue Scam Works
While there are several variations on the foreclosure rescue scam, most fall into one of the following three categories:
Bailout” or “Lease/buyback” - The scammer
tells the homeowner that title must be transferred to someone else with
better credit, so that new financing can be obtained. The scammer also
assures the homeowner that they can remain as a renter, make “lease”
payments, and buy back the house at a later date. The problem: after the
deed is signed away, the scammer evicts the homeowner, and the homeowner
permanently loses possession and title.
“Bait and switch” - The scammer tells the
homeowner that their loan will be refinanced. Hidden amidst the loan
documents which the scammer instructs the homeowner to sign is a deed which
transfers title to the scammer. Title is literally stolen out from under
the homeowner.
“Phantom help” - The scammer offers consultation services to the homeowner and makes grandiose promises about how he can prevent foreclosure. The scammer charges outrageously high fees but provides few if any services. The scammer gets paid, while the homeowner ends up in even worse shape than he started.
Summary of the New Law
The Home Equity Theft Prevention Act seeks to combat these scams as follows:
Gives the homeowner the absolute right to
cancel the deal within five days of signing the contract.
Prohibits making false statements with intent
to defraud the homeowner.
Requires a written contract which includes
disclosure regarding the terms of the title transfer.
Provides a two year right extended right to
cancel the deal for violations of the law.
Requires that, if a company which leases a
home back to the homeowner ultimately ends up acquiring title to the
property, it must pay the owner at least 82% of the property’s fair market
value.
Establishes civil and criminal penalties for
violating the law.
Requires that a consumer education notice be sent to all homeowners in foreclosure warning them about mortgage foreclosure scams.
Tips to Avoid Being Scammed
If you’re behind on your
mortgage payments and are facing foreclosure, consider the following:
DO contact your lender and try to refinance
the loan or work out a payment plan.
DON’T ignore warning letters from your bank or
lender. The problem will not go away, and will only get worse if you ignore
it.
DO contact an attorney.
DO contact a reputable counseling agency.
DON’T sign contract a under duress.
DON’T sign any documents without consulting
with an attorney or counseling agency.
DON’T sign any agreement with blank lines or
spaces.
DON’T enter into oral agreements.
DO get everything in writing.
DON’T sign over your deed to a third-party or
agree to any deal that supposedly allows you to rent the property and buy it
back later.
DON’T sign any documents without reading them
first.
DON’T make your mortgage payments to someone
other than the lender.
DON’T make a deal with someone who solicits
you uninvited by mail, telephone, flyer or in person.
DON’T fall for promises that sound too good to be true. That’s a tell-tale sign of a scam.
If You’ve Been Scammed
If you’re caught up in a foreclosure rescue scam, you should contact an attorney immediately. If you’re low income, you may qualify for free legal services. See www.lawhelp.org/ny for further information about free legal services.
A not-for-profit counseling agency may also be able to help. A list of counseling agencies that are approved by the Department of Housing and Urban Development (HUD) is available at www.hud.gov. HUD can also be reached by telephone at 1-800-569-4287 or TDD 1-800-877-8339.