Rescue Me

[January 30th, 2008]

As national foreclosure rates hit their highest levels ever, people calling themselves “foreclosure consultants,” are filling Craigslist, billboards and mailers with offers to “save your home.”

Detective Liz Cruthers, who investigates white-collar crimes for the Portland Police Bureau, says she’s spending much of her time learning the intricacies of what law enforcement officials term “mortgage rescue fraud” and chasing down the perpetrators.

Cruthers says many “foreclosure consultants” are, in fact, scammers trying to dupe panicked homeowners out of the equity in their homes.

“My contention is that ‘mortgage rescue’ is really aggravated theft,” says Cruthers. “What these people are doing is a crime.”

She has helped lawmakers prepare a bill for the upcoming legislative session that would shut down one of the most common scams—vultures who assume a delinquent home loan and rent the property back to the original homeowner.

But while waiting for the Legislature to take up that bill when it begins its monthlong session Feb. 4, Cruthers is pursuing two cases that illustrate how the increase in foreclosures has driven an increase in the number of people seeking to profit from homeowners’ mortgage troubles.

Cruthers says the perpetrators of rescue scams are often industry insiders, such as mortgage brokers or real-estate brokers.

Here’s how the scam works:

When borrowers fall far enough behind in their mortgage payments, lenders file foreclosure notices, which are a public record. From those notices, Cruthers says, it’s easy for scammers to compare the amount owed on a property to its value.

“A common trait with these scams is that there is large equity in the property,” says Richard Hagar, a Seattle real-estate appraiser who instructs law enforcement officers in Western states on how to detect various forms of real-estate fraud.

Hagar says once the scammer identifies a home with sufficient equity, he approaches the often-distraught owner with a “rescue” offer. The offer lets the borrower stay in the house, but often with the scammer buying the house, assuming the loan and renting it back to the occupant at a monthly payment similar to the original mortgage.

That might seem like a benefit to a homeowner facing foreclosure. In fact, Hagar explains, the homeowner is often tricked into surrendering equity cheaply and left even more vulnerable.

A bank-instituted foreclosure can take several months to resolve, during which the homeowner remains in place. But in a so-called foreclosure rescue, the “rescuer” can evict the previous owner-turned-renter in a matter of hours under Oregon law.

Of course, the rescue’s basic premise is somewhat illogical. State Rep. Suzanne Bonamici (D-Southwest Portland), who served on a gubernatorial task force on mortgage lending, points to one contradiction: “If homeowners couldn’t pay the mortgage, how are they supposed to pay a similar amount of rent to the ‘rescuer?’”

Bonamici, a former consumer-protection lawyer, says victims of rescue scams are often elderly or otherwise vulnerable.

“These are very complicated transactions,” says Bonamici, a member of the House Consumer Affairs Committee.. “The homeowners rely on the people they are dealing with to be honest.”

Next week, the Consumer Affairs Committee, will introduce legislation aimed at shutting down rescue scams. The bill defines a limited role for “rescue consultants,” and calls for transparent contracts that limit their activities to giving advice.

“We want to stop the consultants from also buying properties,” says committee chairman Paul Holvey (D-Eugene).

Shane Jackson, a lobbyist for the Oregon Coalition of Mortgage Originators, says his group and others in the lending industry favor the bill because it cracks down on rescue scams.

“It will provide a huge benefit to Oregonians,” Jackson says.

The bill comes too late, however, for Evelyn Allen, a 73-year-old Northeast Portlander. According to a civil lawsuit last year, Jason Larry Somera and Mark Caravia saw Allen’s name on a foreclosure list. Allen owed $26,000 against a property assessed at $156,000. They offered to “lend” her $40,000 against her property, with no payments due for two years.

But Allen—who is described by her attorney as “completely blind”—actually signed away her property for $40,000.

“Defendants knew Allen was blind and took advantage of her blindness to fraudulently obtain her signature signing the title of her home over to them,” Allen’s attorney, Erin Olson, wrote in the lawsuit.

Although the men refinanced the Allen’s house for $180,000 and sold it to a third party, Olson was able to get her client “made whole” as part of settling the lawsuit. Charlie Williamson, the attorney for Somera and Caravia, says his clients “could have done things better,” but adds “I don’t think they broke the law and I don’t think they defrauded this lady.” Olson disagrees.

“This was really egregious behavior and extremely stressful for my client,” Olson says. “I hope the Legislature will make it more difficult for this to happen.”