Foreclosure ‘white knights’ targeted
OLYMPIA – Saying many so-called “foreclosure rescue” companies are unfairly preying on desperate homeowners who’ve fallen behind on their mortgages, some state lawmakers are trying to tighten the rules.
“We have an opportunity now to really nip this scam in the bud, and I think we ought to take that opportunity,” Jim Sugarman, a lawyer with the state Attorney General’s office, told lawmakers Friday.
Here’s how many of the deals work, according to state officials and others who testified Friday:
A family gets behind in their mortgage and gets a foreclosure notice. Many are too embarrassed or afraid to call their bank. Instead, they turn to a local firm that tells them, for example, that it will buy the home and allow them to lease it, eventually paying enough to get the home back.
In many cases, Sugarman said, the deals are set up so the person signs over the home but is still responsible for paying the mortgage. They lose much or all of the equity they’d built up with years of mortgage payments, and end up getting evicted by the “rescuer.”
“These foreclosure rescue ‘white knights’ aren’t in it for anything else than their own self-interest, and we should probably put them out of business,” said state Sen. Brian Weinstein, D-Mercer Island, chairman of the Senate consumer protection committee. Instead of trying to ban such schemes outright, he said, lawmakers are trying “to regulate it so much that it just doesn’t happen.”
It’s unclear what the businesses think of the proposal. None showed up to the hearing, and efforts to get comment on the proposal Friday were unsuccessful.
One of those calling for tighter rules is Attorney General Rob McKenna, whose office in March reached a settlement with three such rescue firms. Fiscal Dynamics Inc. and Cumulative LLC, both of Tacoma, and Northwest Assets, of Seattle, denied any wrongdoing but agreed to pay a total of $290,000 in consumer restitution.
McKenna alleged that the companies told homeowners they would solve their foreclosure woes, only to let the homes go into foreclosure anyway and keep the money that otherwise would have gone to the homeowner.
In some cases, McKenna said, homeowners were offered as little as $200 for the title or an interest in property.
In 2006, there were foreclosures on 18,527 homes in Washington, according to McKenna.
Among the bills lawmakers are considering this year:
• Senate Bill 6431, requested by McKenna, would require clear disclosure of the terms of the deal, allow the homeowner to back out within five days, and require the company to show that the homeowner can afford any lease payments and actually repurchase the home.
If the home is sold, the bill also requires that a homeowner get “at least 82 percent” of the property’s value once the mortgage is paid off.
• Senate Bill 6695 is similar, requiring full disclosures, a warning that the contract could mean losing a home, and a requirement – a high hurdle in a for-profit deal – that the rescuer put the homeowner’s best interests before any other consideration.
• Senate Bill 6383 would force anyone trying to evict someone from a home to tell the judge whether the occupant previously held title to the property and would require disclosure of the circumstances by which the title was transferred.
One key lawmaker said she’d like to see the bills combined into one, but she sounded optimistic about the proposal’s chances this year.
“I think this is one that there’s a lot of bipartisan support for,” said Sen. Mary Margaret Haugen, D-Camano Island.