Philly U.S. Attorney Warns Against Sale Leaseback, Foreclosure Rescue Scams

In Philadelphia, Pennsylvania, Michael L. Levy, U.S. Attorney for the Eastern District of Pennsylvania writes in the Philadelphia Daily News, warning financially strapped homeowners and investors alike against sale leaseback, foreclosure rescue scams:

• SOMETIMES it begins as a telephone call or mailing that offers help. Even though it may be an obvious solicitation, to the homeowner desperate to avoid foreclosure, it sounds like a hopeful way out. The caller may be offering to have an "investor" buy the home so the current owner can remain and perhaps even buy it back.

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• This type of foreclosure rescue scam is perpetrated far too frequently. Our office has prosecuted a wide range of scammers, including lawyers, mortgage brokers and authority figures we normally trust.(1)

Levy gives the following examples of how unwitting individuals get sucked into this type of scam:

• David is one victim. He lost his job in the economic downturn. When he found work, the pay wasn't enough to afford his $742 monthly mortgage. He fell behind. Foreclosure notices soon followed, as did fliers offering to help distressed homeowners. He called. The mortgage "rescue" company told him the only way out was to sell his house and rent it back. David's rental payments started at $1,000, but kept increasing with no explanation. He was soon evicted and now lives in a motel.

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• Sally's troubles began with her divorce. She had to take a second mortgage and it wasn't long before the foreclosure notice came. Because she fell behind on her payments, her credit suffered and no bank would help her refinance. She sought help from a "foreclosure relief specialist" who told her that investors would buy her house for half the equity and use the other half for her down payment to help her eventually buy back the house. But at settlement, Sally received nothing despite having $150,000 in equity in the home, and her monthly payments went from $1,800 a month to $2,800.

• Investors also fall victim to these scams. The victims are led to believe they're making an investment in real estate and that they're helping to save someone's home.
  They are recruited as worthy investors because of their good credit and steady income. Tom and his wife are just one example. They purchased three homes believing they would help the former homeowner remain while making a small profit. The mortgage broker told them that some of the equity in the house would be put aside as a cushion in the event that the tenant couldn't make a payment. But the broker lied, the money wasn't put aside, the adjustable-rate mortgages kept adjusting upward, and the original owner couldn't afford to buy back the house. Tom and his wife are now in bankruptcy and are likely to lose their own home as a result of trying to help someone in need through a crooked broker.

For the column, see Warning: Mortgage Fraud Ahead.

(1) For an example, see:

• Philly Feds: Two Lawyers Among Five Who Ran Bogus Sale Leaseback, Equity Stripping Racket Clipping 35 Homeowners Of $14.6M; Civil Suit Pending,

• 2nd Pa. Attorney To Go Down In Alleged Scam That Peddled Bogus Sale Leasebacks That Purported To Save Homeowners From Foreclosure.