Trying To Recover A Home After A Foreclosure Rescue, "Equity Stripping" Transaction

It is quite common for a financially distressed homeowner (for purposes of this post, I am only considering a homeowner with a "significant" amount of equity in their home) to be approached by, and subsequently do business with, someone promising to help the homeowner "rescue" his/her home from foreclosure. In doing so, the homeowner's title to the home quite commonly ends up in the "home rescuer's" name, or possibly, in the name of some third party stranger.

Sometimes, the homeowner is fully aware that they are signing over their home title; other times, they sign it over unwittingly. Sometimes, the "home rescuer" procures the title either through fraud or forgery. The transaction typically also involves an oral or written understanding that leaves the homeowner believing that they will be entitled to buy back their home within a certain time period.

There are times when the "home rescuer", either after or simultaneously with taking title to the property of a financially strapped homeowner, proceeds to "strip the equity" from the property either:

(A) by getting a mortgage on the property for more than what is currently owed and where the rescuer pockets the difference, or

(B) by selling the property to a third party (who may finance the purchase with a mortgage) and where, again, the rescuer pockets the excess proceeds,

in either case, while the homeowner maintains possession of the home, both before and after the equity stripping.

See, for example:

1) Homeowner gets hard lesson in foreclosure rescue plans (Texas)
2) Madigan Sues Another Mortgage Foreclosure "Rescuer" (Illinois)
3) Attorney General Abbott Files Emergency Action Halting Bogus Foreclosure Rescue Operation (Texas)
4) Three Defendants Added To Federal Indictment In Foreclosure Scam Targeting Homeowners In Default (California)
5) Mortgage fraud cases multiply, hit more homeowners (California)
6) False Hopes - Inland homeowners facing foreclosure encounter scams under guise of refinancing (California)
7) State sues mortgage companies in homeowners scam (Illinois)


For those attorneys who represent homeowners in situations like this and who are trying to find an approach to undo the legal mess that their clients might find themselves in, see Exercising Options To Buy, Rights Of Intervening Interests, Notice, Bona Fide Purchaser, Duty Of Inquiry, & Other Stuff, which attempts to raise some legal issues that may be of some value in formulating such an approach.

I am not suggesting that there is some "magic trick" in getting back the homeowner's property in this type of situation. However, I am clearly suggesting (as I think I have suggested in my posts on the "equitable mortgage doctrine") that, in some but not all cases, there are certain issues of real property law that could potentially benefit the homeowner in getting their home back in certain situations that, probably because the financially strapped homeowner cannot afford legal counsel, appear to be going unaddressed. I say this based on the numerous media reports that I have seen (and on some of which I have posted blog entries throughout this blog).

Further, even if the legal mess can't be completely undone, the financially strapped homeowner's legal rights under local real estate law might create enough leverage to negotiate a satisfactory financial settlement by and among (A) the homeowner, (B) the rescue operator, (C) the subsequent purchaser and/or encumbrancer, and (D) possibly also the title insurance company who may have insured the title to the home for the subsequent purchaser and encumbrancer when they acquired their interests in the home from the rescue operator. equitable mortgage zebra