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Upfront fees on creative mortgage plans still a problem

Tom Kelly

Real estate scams often target persons with significant equity in their homes, historically elders who have resided in the same primary residence for decades. Seniors are in the crosshairs of equity skimming deals, outrageous refinance pitches and bogus life insurance plans.

Two of today’s most popular schemes, however, known as mortgage elimination and mortgage modification, seem to lure younger couples with larger mortgages. Both processes, along with some others, are delivered by smooth operators who can make some deals sound like magic.

“Borrowers have to be realistic,” said Hugo Torres, an attorney who investigates fraud. “If a bank lends you $300,000, why would it want to eliminate that debt and not expect you to pay it back? Why would anybody think that all of a sudden there’s going to be some magical relief?”

In a nutshell, some internet sites have been promoting the idea that borrowers can get out of their mortgages without repaying their debt. The program sellers, who charge outlandish up-front fees of $6,000-$20,000 then disappear before the mud begins to fly, base their case on old common-law terms, heavily camouflaged rules and false conditions.

Part of the problem is the complexity of the mortgage banking system and the home-loan process. Plus, the average person does not purchase or refinance a home very often. They are asked to sign a bunch of documents and are not always sure what they are signing.

The net result is that homeowners suddenly can find themselves taking an active role in real estate fraud – plus the prospect of needing to sell their home to pay legal fees and other costs they have created.

In the mortgage elimination pitch, the homeowner is persuaded not to be concerned about any upfront fee because the plan is to clear the title, then refinance to get money to pay the fee. When the program reaches its ending, the promoters have vanished. The homeowners are likely to lose their home and end up with a significant judgment against them that cannot be discharged in bankruptcy because it is the result of fraud.

According to Stewart Title, the program sold to the homeowner is prefaced by an inaccurate assumption that money never really changes hands in the mortgage lending market. A Stewart Title spokesman said the program sponsors typically contend that Fannie Mae funds loans with only wire transfers and a system of credits, as does the wholesale loan market. These sponsors then make the leap that a consumer’s credit should be just as good as any lender’s system.

The usual result of a homeowner’s attempt to eliminate their existing mortgage liens via a mortgage elimination plan will be that the prior mortgage lender will commence foreclosure. A title search will reveal many unusual documents that are recorded as part of the mortgage elimination procedure, leading some insurers to reject the title as unmarketable. In the end, some homeowners will lose the property at the mortgage foreclosure sale. Others will sell the home quickly to stop that foreclosure and extract any remaining equity after paying the prior mortgage lender significant extra fees and costs.

Charles Clark, who fields consumer fraud complaints for a state agency, said he’s received 450 in the past few years involving more than 50 companies.

“The first thing to look for is a company asking for that upfront fee,” Clark said.

Clark said the latest in upfront requests occurred in the past two weeks when fraudsters contacted consumers and announced they had been awarded a grant from the Department of Housing and Urban Development, provided the consumer paid an upfront fee to start the grant process.

In one example, a woman was a victim of an attempted scam when a person called her, claiming she had been awarded a $48,450 federal grant. All she needed to do was send a $350 wire or certified check to cover fees. The caller went by Richard Johnson, gave his number as (315) 675-4146 and reportedly had a foreign accent. The woman did not follow through.

“HUD will never email or call to award you money,” Clark said.

Don’t be misled by fancy language and complex documents. And, if there’s an upfront fee, start asking questions.

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