One of the newest and most repugnant features of the mortgage foreclosure crisis is the rise of “foreclosure rescue” scams. Imagine if you will a vulture picking at the bones of an almost-but-not-quite-dead rabbit. Also imagine that the vulture tells everyone (including himself) that he’s “helping” the rabbit, and you get the picture.
As a fair housing attorney, I deal mostly with discrimination cases but have been peripherally involved in predatory lending issues and only somewhat aware of foreclosure rescue programs. Then I answered the phone yesterday morning.
The caller was a guy whose employee (we’ll call her Jane) had fallen behind on payments on a home equity loan she took out a couple of years ago. The payments had been manageable until she got a cancer diagnosis. Foreclosure proceedings had begun, which in Tennessee means that the foreclosure had been advertised and a sale was to be scheduled. The employer wanted to pay the lender almost $3,000 to bring the loan current and cancel the foreclosure.
That was all well and good, except that Jane had already signed a contract to sell her house to a real estate agent. The agent was then going to find an investor with the understanding that the investor would allow Jane and her family to stay in the house as tenants, paying a rental rate roughly twice what her payment on the loan had been.
As for the sale itself, Jane had bought the house for about $90,000 cash a few years ago, but the agent was only going to give her about $33,000. Of that, she would get $4,000 in cash (that was to help her pay the rent, the agent explained to me). The rest would go to pay off her home equity loan.
But was Jane out in the cold? No! Not only would she get to live in the house as a tenant, she’d have two years to re-purchase the house. At what price, you ask? Well, at the rock-bottom price of $128,000! What a deal! The agent helpfully explained that the house had a current tax assessment of $106,000, so $128,000 in two years was perfectly fair. He was unable to explain how giving her $33K now and charging her $128K later could both be defensible. One or the other, maybe, but not both.
Obviously we had to get her out of this deal. She and her husband had signed a document granting power of attorney to an employee of the title company that was working the deal, so they could have closed the loan without her. Obviously, the first thing I and my fellow attorney did was revoke the power of attorney so that the closing couldn’t go forward. (It was a close call - the closing could have happened on the 13th but for a cloud on the title.)
At this point, Jane can choose not to go to the closing, which has been rescheduled to the end of the month. The agent can then sue her for damages or to force her to go through with the sale. He won’t dare, though, because then the utter unconsionability of the contract would come to light, along with the fact that about 75% of the contract is illegible. Below is a thumbnail to a small excerpt of the contract. Seriously, if you can figure out what it says, let me know, okay?
When I spoke with the agent earlier today, my question to him was this: “If your mother or your sister were offered this deal, would you recommend that she take it?” He didn’t answer other than to mouth some words about “it depends on the situation.”
I also have a question for the title company’s attorney, who told me yesterday that he represents both parties in the transaction: How can one attorney represent two parties knowing that one is so flamboyantly screwing the other? How is that even remotely consistent with the ethics rules he and I both are supposed to follow?
The House has passed a far less than satisfactory bill on predatory lending. But eventually we are going to have to deal with these rescue scams. It’s been my experience that no matter how much education you do on issues like this, it is no match for those clever souls who feed off the misery of others.
For further reading: NCLC’s Dreams Foreclosed: The Rampant Theft of Americans’ Homes Through Equity-Stripping Foreclosure ‘Rescue’ Scams,” June 2005
Things like this will, I suppose, keep us busy until February, when my agency will probably close for the most part unless our appeal of our HUD grant score goes through. Non-profit work rocks!
Posted by Tracey under National & Regional | No Comments »
