Feds Gain Conviction In Bankruptcy Fraud "Equity Skimming" Case

A California man was sentenced to serve 24 months in custody by a federal judge in San Diego on 12 counts of bankruptcy fraud and eight counts of knowing disregard of bankruptcy rules and procedure, according to this News Release from the U.S. Attorney's Office.

He was charged with defrauding homeowners and their creditors in a complex scheme which used bankruptcy law protections against foreclosure sales in a corrupt manner.

The evidence at trial proved that he:

• found and solicited homeowners in severe financial debt who were on the verge of losing their home through a foreclosure sale,

• made a number of false representations and promises to the homeowners to get them to pay him a monthly fee for his purported services,

• falsely claimed that he would (1) save the property from foreclosure by legal means, (2) contact lenders to renegotiate the mortgage, (3) assist in arranging refinancing, and (4) take a portion of the monthly fee he received from the homeowners for his services, to be paid to the lender and applied to the mortgage, which he claimed would keep foreclosure from occurring,

• merely kept the homeowners' money, made no contact with the homeowners' creditors, and did not arrange refinancing, nor use the money to pay down the mortgage to prevent foreclosure.

The only "service" he provided was to prepare and cause to be prepared "bare bones" federal bankruptcy petitions for the homeowners to sign to declare bankruptcy in an effort to illegally stall the foreclosure proceedings.

Washington State Man Suing Company On "Lease-Buyback" Foreclosure Rescue Deal

seattlepi.com reports (Seattle Post Intelligencer) that a Washigton State man filed a civil lawsuit against a local "foreclosure rescue" company for alleged misrepresentations that resulted in the loss of his home to the company through the use of a "lease/buyback" arrangement.

The homeowner's complaint reportedly details the "rescue" company's alleged conduct, and is described in this article.

Reportedly, Washington state and local prosecutors have had successful prosecutions in several cases involving criminal violations regarding this type of scam, and are currently pursuing several more investigations.

This case is being pursued by the homeowner through a private attorney in civil court.

What Is A "Foreclosure Rescue" Scam ?

Jay MacDonald wrote an interesting article for Bankrate.com that provides an interesting discussion on what "foreclosue rescue" is all about and can be read here.

He also lists seven tips to avoid foreclosure scams, which can be read here.

Minnesota attorney Mike Kallas has also written an article appearing on articlerich.com describing the some of the standard "foreclosure rescue" scams, which can be read here.

Ten States Now Have "Foreclosure Rescue" Legislation

This Associated Press article by Lingling Wei of Dow Jones Newswires, and reported in the Houston Chronicle, tells the tale of a Chicago couple who unknowingly signed away the ownership of their home to a "foreclosure rescue" company, under the apparent belief that the company was going to help them get a loan.

The article also reports that "a total of 10 states have legislation in place to deter foreclosure-rescue fraud, including California, Georgia, Missouri, Minnesota, Maryland, Colorado, Rhode Island, New York, Ohio and Illinois, according to Creola Johnson, an associate law professor at Ohio State University."


Click here for the full story.

Chicago Couple Unwittingly Deeds Home to "Foreclosure Rescuer"

chicagotribune.com (Chicago Tribune) reports on an Illinois case involving a "foreclosure rescuer" who reportedly obtained ownership of the home of a financially strapped couple without their knowledge.

The Illinois Attorney General's Office has previously released information on this case in this News Release from their office.

"Foreclosure Rescue" Operators Abusing the Federal Bankruptcy Courts

"Equity Skimming" is one type of fraud commonly utilized by a "foreclosure rescue" scammer, particularly when working with a financially distressed homeowner facing foreclosure who doesn't have a significant amount of equity in their home. It refers to the process by which the scammer collects rent from a property without making the neceesary mortgage payments and the bank or other mortgage holder ultimately forecloses on the home.

Logically, it stands to reason that the longer the "rescue" scammer can delay the foreclosure legal process, the longer he can continue to collect money from the property without making the mortgage payments, thereby increasing the money he makes.

In an effort to extend the period of time that money can be collected from a property that is going through the foreclosure process, some "rescue" scammers have resorted to an abuse of the Federal Bankruptcy system to extend that time period by filing "last minute" bankruptcy petitions, multiple petitions, and by engaging in other conduct constituting abuse of the Bankruptcy Courts.

Beacuse of the rampant abuses of the bankruptcy system, the Bankruptcy Foreclosure Scam Task Force of the United States Bankruptcy Court for the Central District of California had a study done and prepared a report on the findings.

The report states that, in recent years, "some people in the Central District of California 'have apparently created whole businesses out of the delay possibilities provided by the automatic stay.' These entities often advertise as 'foreclosure services' or 'mortgage consultants.' "

The report identifies the following five different kinds of bankruptcy foreclosure scams, which have been taken from the Fact Sheet on Final Report of Bankruptcy Foreclosure Scam Task Force:

• The fractional interest transfer scam. A bankruptcy debtor receives a 5 percent or 10 percent interest in property that is held by another borrower who faces foreclosure. Because the interest is then held by a bankruptcy debtor, the original borrower's creditors cannot foreclose until the bankruptcy judge lifts the automatic stay.

One San Bernardino, Calif., homeowner facing imminent foreclosure was approached by a scam perpetrator, and agreed to sign deeds of trust and grant deeds transferring fractional interests in her property, according to the report. The homeowner paid the foreclosure consultant a few hundred dollars per month. The recipients of the fractional interests included homeless individuals and apparently fictitious people. Eight of them filed for bankruptcy one after the other. Each filing stayed foreclosure on the homeowner's home, causing a 10-month delay between the first filing and the completed foreclosure.

• Serial filings by related debtors. The same individual or related individuals file several bankruptcy cases in a row to delay foreclosure.
• Voluntary dismissals of serial Chapter 13 cases. The debtor asks the court to dismiss the case. When a bankruptcy trustee obtains dismissal of a case for failure to appear or make required mortgage payments, the dismissal order usually prohibits the debtor from refiling for bankruptcy within 180 days. A voluntary dismissal avoids this prohibition. The debtor can immediately refile, renewing the automatic stay.
• Involuntary petition scams. Under certain circumstances, the Bankruptcy Code permits creditors to file "involuntary petitions" against borrowers. In this scam, an entity will file--for a fee--a bankruptcy petition against an individual facing foreclosure, causing the automatic stay to take effect on the individual's behalf.
• Phony alias amendments to petitions. The bankruptcy petition is amended to add an alias name of the debtor. The alias is actually the name of an unrelated person. The amended petition is recorded or otherwise used to stop eviction or foreclosure proceedings against the unrelated person.

To view the full report, see Final Report Of The Bankruptcy Foreclosure Scam Task Force, United States Bankruptcy Court - Central District Of California; May 1998.

Foreclosure Scammer Guilty of Federal Charges

As reported in suntimes.com (Chicago Sun-Times), an Illinois man pleaded guilty to a scam involving the abuse of the bankruptcy court system as part of a scheme to delay the foreclosures of homes belonging to financially strapped residents. The scam reportedly victimized thirty local homeowners to the tune of approximately $200,000.

As part of the plan to "help" the homeowners and in conjunction with bankruptcy filings, the culprit succeeded at having the homeowners direct their mortgage payments to him. The victims still ended up losing their homes.

This is an example of "equity skimming" that invloves the use of the "automatic stay" provision of the Federal Bankruptcy law to delay the ultimate foreclosure sale of a victim's home. The longer the scammer can delay the foreclosure sale, the longer he can continue collecting the monthly payments from the homeowners/victims, payments that the victims have been duped into believing are being remitted to the proper officials involved in the bankruptcy proceeding.

Mass.Attorney General Tom Reilly Halts Attempted "Home Improvement" Theft

According to a December, 2005 Media Center Information Release from the Massachusettes Attorney General's Office, a Taunton man was stopped from conducting a mortgage foreclosure sale that would threaten the home of a 71-year-old Taunton woman.

According to the complaint, the man allegedly provided a mortgage loan to the woman with the intention of foreclosing on it and taking possession of her home. The loan was provided to the woman in order to bring her house up to city and state sanitary codes after the property was condemned by the Taunton Board of Health.

The complaint further alleges that the man took advantage of his position as a board member of a local a non-profit development organization that was aware that the woman would need to refurbish her home to comply with city and state law. Knowing her predicament, the man allegedly approached the elderly homeowner and offered her help in finding financing and contractors to rebuild her home. In the process, he steered her away from the services of the non-profit organization whose purpose it was to provide assistance in this type of case and of which he was a board member, according to the complaint.

The complaint further alleges that the man made it appear as if he was assisting the woman by obtaining a loan from an independent lender that, in fact, was his company. The complaint also alleges that the man made the loan to the elderly woman with the clear intention to foreclose on it and obtain her home, which she owned for 39 years.

In addition to obtaining a temporary restraining order, the attorney general is seeking a preliminary inunction to stop the foreclosure on the home as well as a permanent injunction against the Taunton man and any of his associates from doing any further business with the homeowner and either void or reform the mortgage loan. Civil penalties and costs were also being sought.

Federal Judge Jails Pair in Home Improvement Scams

The Philadelphia Business Journal reported that two partners running a predatory lending home improvement scam, bilking low income homeowners, were sentenced to jail.

Both were convicted of mail and wire fraud targeting the local Latino community to take out high-interest loans for home improvements that were left uncompleted.

According to prosecutors, the scam artists were able to gain the trust of the victims by speaking their language and, once the victims agreed to go forward with the work on their homes, they were steered -- many of whom spoke only Spanish -- to funding sources which specialized in high interest-high cost loans designed for people with poor credit.

California AG Lockyer Announces Arrests In "Squatter" Scam Victimizing Elderly, Infirm

Following up on a prior post, Attorney General Bill Lockyer's announcement of felony arrests of two alleged scam artists in connection with a “squatter” scam in which the defendants victimized elderly and other homeowners by unlawfully taking possession of roughly 100 houses, and subsequently renting out the property and keeping the income for themselves can be found here.

Probable Cause and Arrest Affidavit available here.

Ohio Man Indicted in “Operation Truth Or Consequences” Involving "Foreclosure Rescue" Scheme

Federal authorities obtained an indictment an Ohio man, charging him with bankruptcy fraud in connection with a scheme that defrauded homeowners who were in danger of losing their homes through foreclosure.

The following is an excerpt from the Department of Justice News Release issued by U.S. Attorney Gregory G. Lockhart.

The indictment alleges that in February, 2004, (the "rescue" operator) began contacting homeowners in the Dayton and Cincinnati areas, typically by direct mail, offering to help them save their homes from foreclosures and sheriff’s sales. (He) met with homeowners who responded to his ads and promised to help them save their homes in exchange for a fee of between $500 and $800 that he collected up front. (He) promised that he would create new payment plans with the homeowners’ mortgage companies and make mortgage and arrearage payments on their home loans with money they would provide him.

(He) also instructed the homeowners not to talk to their mortgage companies anymore and promised that he would handle all of the communication for them. (He) never created new payment plans for any of the homeowners.

(He) also told some homeowners that they would not have to file bankruptcy while leading others to believe that the mere filing of bankruptcy would save their homes for them. (He) allegedly filed bankruptcy on behalf some homeowners without their knowledge then told them not to attend court proceedings when the bankruptcy court contacted them.

(He) is currently in state custody following conviction on fraud charges filed in Montgomery County.

(He) faces a punishment of up to five years imprisonment on each of the three bankruptcy fraud counts. The two charges of making false oaths carry the same potential penalties. The mail fraud count and each of the three charges of making false oaths carries penalties of up to 20 years. Each crime carries a potential fine of up to $250,000.

(His) indictment is part of Operation Truth or Consequences, a nationwide sweep that demonstrates the breadth of enforcement actions taken by the Department of Justice to combat bankruptcy fraud and protect the integrity of the bankruptcy system.

See also:

Prosecutors: Foreclosure help was a lie

Feds Charge 2 Lawyers With Stripping Clients' Home Equity

In separate cases, two Chicago bankruptcy attorneys were accused of running sale-and-leaseback programs for financially strapped homeowners that federal authorities claim were schemes allowing the lawyers to strip and keep the equity from their clients’ homes.

As reported by Crain's Chicago Business, these defendants were 2 of 11 defendants charged in Chicago as part of Operation Truth or Consequences, a nationwide sweep run by the U.S. Department of Justice designed to crack down on bankruptcy fraud and protect the integrity of the bankruptcy system. A total of 78 defendants were charged across the nation.

According to the Justice Department's Operation Truth or Consequences Case Summaries, one of the attorney's activities was described as offering a "mortgage bailout"
program to homeowners facing foreclosure. The program allegedly consisted of transferring the properties to investors, who would then hold the properties, with the homeowners being given the chance to repurchase their homes after a predetermined period of time. The attorney allegedly also offered this "service" himself directly to clients through a separate company that he owned.

In the other case, it is alleged that the lawyer, working with a confederate who was also indicted, convinced homeowners to sell their homes to "investors" while in bankruptcy or shortly before filing. Allegedly, with the use of phony paperwork, the closings took place, the sale proceeds disbursed to the confederate and not the homeowners, and the sale and existence of the sale proceeds were concealed from the court, trustees, and creditors. The approximate amount of this fraud was $500,000.

Click here for U.S. Justice Department News Release