Bankruptcy-Based Foreclosure Rescue, Fractional Interest Deed Transfer Scams Finding Their Way Across The Country

In Kansas City, Kansas, The Kansas City Star reports:

• Federal investigators in Kansas are trying to derail a foreclosure scam that began in California and is sweeping the United States using bogus bankruptcies to dupe homeowners and lenders. The scams take advantage of the fact that a bankruptcy automatically delays home foreclosures, which are at record levels.

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• The Department of Justice is investigating at least nine suspicious bankruptcies filed recently in bankruptcy courts in Kansas City, Kan., Topeka and Wichita, The Kansas City Star has learned. Kansas officials confirmed the federal investigation but declined to discuss it in detail. Bankruptcy officials in Missouri said they were aware of the scam and were reviewing court filings carefully. So far, they have not seen signs of the fraud. But legal experts said the phony filings also are turning up in Maryland, Nevada and Texas. They suspect it is just a matter of time before more are discovered in other states.

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• Generally, the fraud works like this: Scammers approach people facing foreclosure and offer to save their property for an upfront or monthly fee. They persuade the homeowner to assign them a legal interest in the property. Then the scammers — often without the homeowner’s knowledge — transfer fractional shares in the property, often 5 percent or less, to third parties. These third parties are usually fictional, investigators say, although in some cases the scam artists have recruited homeless individuals. They then file bankruptcy petitions in the names of these third parties. Sometimes, as in the Kansas cases, it is in courts thousands of miles from where the property is located.

For more, see Foreclosure rescue scam makes its way to Kansas.

For a 1998 report issued by a California Federal Bankruptcy Court task force that details the types of foreclosure scams involving the abuse of the bankruptcy courts, see Final Report Of The Bankruptcy Foreclosure Scam Task Force.

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