Texas Non-Profit Heads Task Force In Probe Into Wrap Around Mortgage Scams; Some Real Estate Investors Allegedly Target Naive Homebuyers With Crappy Credit By Offering Them "Creative" Seller Financing When Peddling Property Encumbered By Existing Loans, Then Skimming Their Monthly House Payments Meant To Cover Obligations On Prior Liens, Sending Homes Into Foreclosure

In El Paso, Texas, El Paso Inc. reports:

• Santa Martinez was home with her 6-year-old daughter when the doorbell rang. It was a hot June day, and they were putting a plastic pool together in the backyard.
  
  Martinez stood behind her daughter as she opened the door. A woman was there to say the bank was foreclosing on the home and her family was being evicted. They had three days to leave.
  
  “My daughter started crying, apologizing and saying it was her fault because she opened the door. She just kept blaming herself,” Martinez told El Paso Inc. in an interview last week.
  
  Martinez, 31, had lived in the home with her husband and three children for eight months. They say they always made their loan payments, so they suspected something was wrong and called a lawyer. Promised the American dream of homeownership, some borrowers in El Paso are instead losing their homes to foreclosure and their savings to bankruptcy.
  
  They are victims of schemes involving so-called wraparound mortgages, a type of creative seller financing that is legal in Texas. But critics say they are too risky and invite fraud and theft. Lawyers representing local victims say many of their clients have had their credit ruined and their savings wiped out.
  
  “Wraparounds are huge in El Paso. It’s a lacuna – a gap. It’s just been overlooked, and nobody has thought to pay attention to these,” says K-Sue Park, an attorney with Texas RioGrande Legal Aid, which took Martinez’s case.
  
  The nonprofit, which provides free legal services to the poor, is a member of a new task force formed last month to investigate financial crimes in El Paso, particularly those involving wraparound mortgages. The task force includes the FBI, Fort Bliss, Better Business Bureau and the county attorney.
  
  “These are people looking for the American dream and to provide a better life for their families, and they are falling prey to a scam and their savings are being destroyed,” says state Sen. Jose Rodriguez, who is working with the task force and wants to tighten regulations at the state level.
  
  Texas RioGrande Legal Aid claims that one scheme involving wraparound mortgages, led by brothers Geoffrey and Thomas Schober, has ensnared at least 200 families in El Paso. The nonprofit is representing more than 12 of them. Park says 85 to 90 percent of the homes involved were lost to foreclosure.
  
  To understand how Martinez could be threatened with foreclosure even though she was making monthly payments, you have to go back to October 2015, when she saw a phone number on a sign and called it.
  
  “Driving around we’d always see the signs at every intersection: ‘house for sale,’ ‘no credit,’ or ‘$10,000 down,’” Martinez says.
  
  She and her husband had saved $10,000 and wanted to buy a house, but had been unable to qualify for a loan. So they were renting a house when they received notice that their landlord was returning from the oilfields in Midland and would move in. They had 20 days to move out.
  
  “We panicked,” Martinez says. She called the number on one of the signs she had seen and looked at the house the same day. A few days later she met the seller, Victor Dennis, at a post office on the Westside to close on the house – a process that took 10 minutes, Martinez says.
  
  The couple says they knew the deal involved seller financing but did not know it involved a wraparound mortgage. They’d never even heard of a wraparound mortgage.
  
  Basically the wraparound deal worked like this: The couple made monthly payments to Dennis, a middleman, who was then supposed to pay the original mortgage. Texas RioGrande Legal Aid alleges that Dennis did not pay the bank. Unknown to Martinez, the bank moved to foreclose on the house.
  
  “We lost about $22,000,” says Michael Moreno, Martinez’s husband.
  
  The couple doesn’t know how much longer they will be allowed to stay in the house. Moreno says he quit his landscaping job so he could attend school and recently earned a commercial driver’s license. Now he’s looking for work, hoping that will help them qualify for a loan to buy a house.
  
  Neither Dennis and nor Thomas Schober could be reached for comment.
  
  Park with Texas RioGrande Legal Aid calls wraparound mortgages the new subprime mortgage.
  
  “There are new restrictions on subprime mortgages, but we are seeing a whole new market develop for real estate investors to market to people with no access to credit,” Park says. “There’s been a huge surge in wraparounds since the foreclosure crisis.”
  
  According to Park, certain groups are targeted more than others: soldiers, immigrants and first-time homebuyers.
  
  Sen. Rodriguez says he is working on legislation aimed at protecting consumers from wraparound mortgages and making it easier for regulators to police them. “We are going to try to put some teeth into (the law),” he says.

For more, see Scam alert: Wraparound mortgages (Borrowers can face foreclosure, bankruptcy).