There are certain foreclosure rescue operators who must be relishing all the bad news coming out of the subprime mortgage market. It is the subprime market that, among other things, allowed many less than credit worthy people buy homes with very little downpayment. It is the subprime market that allowed themselves to be victimized by the mortgage fraud groups who scammed mortgage lenders with straw buyers, fraudulent stated income (liars' loans) mortgage applications, and bogus appraisals. With the increase in delinquency rates, and the possibility that those rates will be sustained (or be even increased) in the indefinite future, there appears to be ample opportunity for generating new business for one branch of the foreclosure rescue industry.
Inasmuch as it appears that an increasing number of the current delinquencies (and I anticipate even more in the future) are occurring in connection with property where the property owner has little or no equity in their homes (in fact, they may owe more to the mortgage lender than what the property value is), the operators that I'm referring to are not those who seek out high equity, distressed property who offer financially strapped homeowners sale leaseback arrangements that are coupled with a buy back option.
The operators I'm referring to are the "upfront fee" type of operators and the "equity skimmers", neither of whom needs to find "high equity" homeowners in financial distress in order to do business.
Upfront Fee Operators
The "upfront fee" operators, often calling themselves "mortgage consultants", "mortgage workout specialists", and others who use self-styled titles, promise to provide "consulting services" to homeowners facing foreclosure in dealing with mortgage lenders in exchange for fees that are paid at the outset of the relationship.
See, for example:
1) Madigan, Lawmakers Take On Mortgage Foreclosure "Rescuers", (Illinois) which, among other things, describes one case where an operator charged financially distressed homeowners between $350 and $900 for services in negotiating with their mortgage lender.
2) Owner of “My House Saver” Ordered to Make Refunds at Attorney General Request (Indiana)
3) AG Cooper shuts down foreclosure fraudsters (North Carolina) Click here for
WCNC-TV news report4) Former appraiser convicted of defrauding 30 people (Utah)
5) Womans court appearance in Debt Consildation case (Pennsylvania)
6) Get Gephardt: Equity Skimming Crooks Sentenced (Utah) Click here for
Channel 2 TV Report7) $250,000 Fine Levied Against Fraudulent Foreclosure "Rescue" Business (Illinois)
The Equity Skimmers
The equity skimmers, generally, are those who convince the homeowner to sign over their home, promising them that they will pay off the existing mortgage, and then proceed to either
(A) rent out the property and pocket the rental proceeds and tenant security deposits, or
(B) resell the property on an installment payment
"land contract" (aka installment sale contract, contract for deed, wrap around mortgage, etc., depending on the part of the country you are in) and pocket the monthly payments received from his/her buyer. In either case, the operator fails making the existing house payments until the mortgage lender ultimately takes ownership of the property after a foreclosure sale.
Combination of Upfront Fee and Equity Skimmer Operator
Some operators have actually combined the "upfront fee" approach with a form of "equity skimming" where, in addition to taking an upfront fee, they convince the homeowner to remit monthly payments to them under the false pretense that those monies are being applied to a "payment plan" designed to cure or reinstate the defaulted mortgage (without the need to actually talk the homeowner into signing over the title to their home). In some of the cases listed below, the operators actually filed multiple, false bankruptcy petitions in the Federal Bankruptcy Court for the purpose of stalling the ultimate foreclosure sale of the property so that the operator can continue collecting the monthly payments from the homeowners for as long as possible.
See, for example:
1) Detroit Man Gets 3 Years in Foreclosure Scam (Michigan), which also involved the abuse of the Federal Bankruptcy Court system.
2) Press Release - U.S. Attorney, (S.D. Cal.), (California), another bankruptcy fraud case.
3) Springboro Man Indicted In "Operation Truth Or Consequences" National Action Bankruptcy Fraud (Ohio), also involved bankruptcy fraud.
4) Mortgage Scam Puts Dozens of Dallas Homeowners on the Streets (Texas)
Conclusion
Over the last few years, given the high rates of property appreciation, the upfront fee and the equity skimming operator scams have not been as prevalent since it was preferable for an operator to just position itself to get most or all of the equity appreciation in the property from a homeowner facing foreclosure by offering a sale leaseback program that I have referred to in other posts.
But because of the general downturn in real estate values, and the increase in delinquencies in mortgages secured by property with little or no equity, it seems clear to me that the use of the sale leaseback programs will diminish somewhat in the next couple of years and, instead, the "upfront fee" operators and the "equity skimmers" will be "coming out of the woodwork."
So, the next time you hear a story about the troubles in the subprime mortgage market, don't think that there isn't any connection between it and the foreclosure rescue industry. (Also, don't be surprised if you begin noticing some of the mortgage brokers and loan officers who were once fraudlently peddling subprime mortgage loans "drift" into the foreclosure rescue business as "mortgage consultants", "mortgage workout specialists", or equity skimmers.)
By the way, for another story on the subprime mortgage disaster, see Mortgage Crisis Spirals, and Casualties Mount, reported in yesterday's New York Times.
and Lenders take beating in subprime fallout, reporting that New Century Financial Corporation lost 60% of its market value yesterday.
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