In 2012 I have been seeing increasing incidents of real estate agents scamming homeowners in distress. Often this is an agent thinking they are doing legitimate work for a fee. As homeowner distress continues and lenders are still carrying defaulted mortgages on their books with those mortgages either not in foreclosure or forgotten in the courts, scammers seem to be getting into full bloom again. This article will give an overview of Agent involved scams we most often see. The key is to take in the big picture of any offer made to you or in which you are involved.
A history of articles I have written on these and related deceptive scams include:
FLIPPING FORECLOSURE DECEPTION - FLORIDA FIRM BUSTED;
SHORT SALE RESCUE FRAUD ON DESPERATE HOMEOWNERS;
TITLE AGENT AND MORTGAGE BROKERS CAUGHT IN LOAN FRAUD = 30 YEARS;
FORECLOSURE DEFENSE FALLACY;FLORIDA FORECLOSURE FRAUD BILL - UPDATE;
Let me start with a caveat - many real estate agents work with clients that they believe are legitimate business people. The agent becomes a clog in the wheel of a business enterprise. Sometimes that business enterprise is a predator on distressed homeowners. In such cases the agent can be a conspirator in criminal activity, even if they did not know the extent of the misdealing or illegal activity that was occurring.
There are many examples of the distressed homeowner real estate scam. In every case the end result is too good to be true. The reason these scammers find willing victims is not one reason, but many. People in distress, by human nature, are either optimists or pessimists. Many times the scammer says they need to have the deed of the property in their name so they can negotiate with the bank. These scams are the next evolutionary stage after the running of the short sale flip promotions. See SHORT SALE FLIP - QUESTIONABLE METHODS. Many of the scams still include the option by the scammer to move into a short sale flip if the opportunity presents itself.
For optimists there is a hope of some way to resolve the default with the bank. This can be by loan reinstatement, a loan modification, refinance, short sale without a deficiency or with a small affordable cost, or a deed in lieu of foreclosure.
For pessimists there is desperation and the willingness to try any solution that may be better than the present situation. Many pessimists also fall into the category of putting one’s head in the sand and doing nothing, allowing a foreclosure to take the home and a looming deficiency money judgment to reside in the future. Some ultimately (or prematurely) choose bankruptcy.
Both optimists and pessimists can be victims of these scams. The reason both are susceptible is almost entirely lack of knowledge of the complex law of real estate and the judicial procedures of a foreclosure. Any lawyer with a firm real estate background can see right through the smoke and mirror veil of legitimacy of these scams – unless of course the lawyer is part of the scam. The distressed homeowner is looking for a “plan” or “strategy”. A magic wand held high by a white knight can seem like a lifesaver with the distressed homeowner lucky to have found to white knight, or more likely the white knight having found the homeowner.
Unfortunately we cannot sit back and rely on mortgage foreclosure rescue service laws written by most states and even the Federal government. Government enforcement is inadequate in most jurisdictions because there are too many problems and not enough staff to handle the volume of complaints. The homeowner must be at least alert to being taken advantage of! Here are a few broad examples:
1. Quit Claim Deed –
Last week I got a call from a homeowner whose home was in foreclosure and had been sent a letter from a local real estate agent aligned with a desk fee a well known la carte real estate brokerage firm. The letter stated that the homeowner was about to lose the home in a foreclosure and the agent could prevent the homeowner from having a foreclosure deficiency judgment if the attached quit claim deed was signed by the homeowner and picked up by the agent. Generally the homeowner is not being offered any money for this transfer – only the promise of not having to be responsible for the mortgage.
The homeowner was not living in this home anymore and frankly had not seen the home in several months as her estranged husband, who passed away a few months ago, was the previous sole occupant. In the front yard was a sign by the same agent who sent the letter, advertising the home for rent.
The essence of this scam has 2 red flags. First, neither the agent nor anyone else can legitimately say that they are going to be able to avoid a deficiency judgment from being obtained by the lender. Second, transferring a property (by any type of deed or trust) to a stranger creates no solution to a mortgage or promissory note liability by the persons that signed the promissory note.
The strategy of this scam is to get the deed to show the new renter an entitlement to get the rent, and then milk from the property whatever rental income can be obtained before the lender obtains title through foreclosure. The Quit Claim Deed is one method. This works just as well with a Warranty Deed or Special Warranty Deed. The homeowner needs to recognize that once signed, you have delivered title to the property to the "white knight" and the home is no longer yours - but the liability for the mortgage and promissory note is still your responsibility.
Scammers scout out properties that have a likelihood of having at least 6 months of potential rental income. Often the person renting the property also is a victim to the scam because they are convinced to pay at least 6 months and sometimes a year of rent in advance in return for a deeply discounted rent amount.
In the case of this person, our research showed that unbeknownst to the property owner and contrary to the warning of the real estate agent, the foreclosure suit filed in 2008 was dismissed by the lender in 2011 and there had been no further action refilled against it. There was no threat of imminent foreclosure and there was a likelihood of at least a year of rents to be obtained on this property.
At the end of the day, under the scammer’s plan this borrower would have given the rights to the income from the property to the agent and her client (who has a history of this type of conduct) and the borrower would have ended up with the financial obligation to the lender. Expected income to the scammer = $12,000 or more.
[Note: The happy ending to this is the property owner (who makes about $35,000 yearly as a private health-care nurse) is going to rent out the home herself to perhaps raise funds for a loan workout solution with the lender, and at worse to supplement her income so she can buy a new home in the future.]
2. Deed to a Trust with homeowner being the beneficiary – the Hostage Deed
Oh my God! This “trust deed scam” is still going strong – in fact I think it is having a resurgence with desperate homeowners still seeking some too good to be true solution. The trust deed scam convinces the homeowner because it is complicated maze of documents with a slick concept and as a result of a series of “if’s” that the scammer skims through, appears to work. The problem is that series of "if's" that were mentioned and forgotten. The issue was recently touched upon in the Palm Beach Post - Two Title Insurers Flag Land Trust Property Transactions.
The homeowner is convinced to sign the deed to the home over to a trust. The homeowner stays as the beneficiary of the trust. The homeowner is told that a beneficiary of a trust under law and under the trust agreement he/she is shown says that the Trustee of the trust must do whatever the beneficiary tells it to do. This is a true statement. Therefore the homeowner is not really losing control nor title to the home. But this retained control is illusory adn when you need that control back - it won't be there. Read on...
The Trustee is always a company, not a person. If it is a person then it is not a real person and it is a real person it is not a smart person.
The scammer promises to get the mortgage set aside and the title back into the name of the homeowner or some related family member with a new lower mortgage. To do that they need the homeowner to stop (if they have not already) paying the mortgage payments to the bank and instead pay the new reduced payments (that the scammer makes up based on the proposed new loan) paid to the scammer instead. Usually the payment goes to the “trustee” who now owns the property according to the deed the homeowner signed. Sometimes there is also a fee associated with putting this scam together.
The homeowner is sometimes also promised that the trustee’s lawyer will deal with the bank and any foreclosure action filed on the home. The homeowner is always told to not speak to the lender, as the trustee and the attorney will exclusively handle the matter.
Sometimes the trustee and the attorney actually negotiate a deal with the lender. I have never seen it, but I have been told it happens. I have been told this by the scammers, so I suppose it is true. I have never been told this by a former homeowner.
In any event, the incentive is the monthly payment by the homeowner to the trustee, whether or not the trustee is actually negotiating with the lender to modify the mortgage or buy the property via a short sale. The fees become huge compared to the amounts charged by legitimate attorneys to keep the property in the homeowner’s name and modify the mortgage or otherwise find a loan workout solution. In several cases that came into my office we saw total monies paid to the scammers of over $40,000 by trusting homeowners.
The typical result is after a year or so of paying the trustee, the homeowner finds out the lender has not heard from anyone to resolve the mortgage and decides this was a bad deal and they want to negotiate with the lender themselves or through an attorney. They discover that they cannot deal with the property to sell it or refinance it because they need the trustee (the “legal owner”) to cooperate. The trustee either cannot be found or won’t cooperate – or will but only for a payment of money. The deed to the house is now held hostage. The only way to resolve this situation is to have the homeowner file a Quiet Title Action in a court of law and possibly a lawsuit to set the trust aside based upon fraud or illegality.
Although this loss of title is a resolvable problem, it requires hiring an attorney and the costs of the lawsuit. Recovery of the money already paid will be far more challenging to succeed because the monies taken are long paid to buy cars or pay bogus salaries or moved out of the country.
3. The mortgage and note are illegal and unenforceable scam -
One of the more incredible scams is a seminar sold program that teaches the homeowner how to defeat the promissory note and mortgage because they have become or were never enforceable legal obligations to anyone. The concept deal with the separation of the promissory note from the mortgage in the securitization of the mortgage after the loan was initially made. The sales pitch actually uses case law from some legitimate foreclosure cases that supports parts of (but not the entire) structure of the concept.
There are many moving pieces here and a lot of preying on the high likelihood that the homeowner listening to the seminar won’t understand the concepts except that they are given convincingly and with authority with “examples” of its success.
One sales pitch is that when the loan was made the note and mortgage got separated and the mortgage cannot be enforced without the promissory note. Sometimes it goes on to say you need to file a quiet title action against the mortgage holder, usually MERS (Mortgage Electronic Registration Service) saying they don’t have the promissory note, or against the holder of the promissory note, saying they don’t have the mortgage.
When the scam includes the quiet title action concept it also supplies the attorney to do the action. The lawsuit is filed and the lender, because of the way they are served in the lawsuit (legally however), does not answer the lawsuit in a timely fashion and a default against them is immediately taken. Then since a default is essentially saying the allegations in the complaint are correct and the plaintiff is entitled to judgment of the relief requested, the mortgage gets set aside.
This procedure is currently being challenged by some lenders against whom it has been tried and succeeded. In other courts the concept has been thrown out.
The plan is expensive to the homeowner, with the cost upward of several thousands of dollars – sometimes ten thousand or more.
SO WHAT DO I DO?
If you are an agent working with a client to find prospective grantors of deeds to properties in foreclosure, be sure you are complying with state laws recently written regarding "foreclosure rescue" and any federal laws as well - notably the "MARS" laws. The examples above clearly come under those laws yet the agents and clients they work for are not in compliance with those laws. Some concepts are outside of the coverage of those laws, such as selling the package on how to avoid the mortgage, since no services are automatically included. If you suspect there is illegal activity, distance yourself from that client immediately.
If you are a homeowner in distress and you have already signed away your home, seek the advice of a trusted and knowledgeable real estate attorney. Check out the attorney online and with the local bar association for any issues and for specialized expertise, such as certification in real estate law. There may still be real solutions that can either save you from losing the home or save you from foreclosure.
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Copyright 2012 by Richard P. Zaretsky, Esq.
Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader. Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com New Website www.Florida-Counsel.com
See our easy to find articles at TABLE OF CONTENTS - SHORT SALE AND LOAN MODIFICATION ARTICLES
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