As a trial lawyer and a former real estate fraud prosecutor, I have battled foreclosure con artists for over two decades and have seen innumerable examples of foreclosure fraud. TitleShield™ is here to ensure you’re getting the most accurate foreclosure fraud news.
As I describe in detail below, foreclosure fraud is not what you think it is. It is NOT when the bank erroneously forecloses on your house while you are trying to obtain a loan modification. You may still have a lawsuit, but it probably isn’t for fraud. Foreclosure fraud is when con artists prey on homeowners who are in financial distress and squeeze their last dollars out of them. Read on to learn more about this pernicious crime.
First, what is Fraud?
When something goes wrong in a business transaction or a real estate deal, the party who ismost negatively impacted often claims that the other party committed fraud. Sometimes this is true, but most of the time it is not. Usually it is simply breach of contract.
The easiest way to conceptualize fraud is: Theft by Lie. Did someone lie to you to get you to give them money or property or to get you to refrain from doing something? If you had known the truth, would you have taken a different course of action? If the answer to both of these questions is Yes, then you are a victim of fraud.
If a big bank unlawfully forecloses on your house during the loan modification process because different departments in the bank didn’t communicate with each other (i.e., one hand didn’t know what the other hand was doing), this is not fraud. You might have other causes of action against the bank, but fraud probably isn’t one of them. Only once in my two decades of fighting fraud as a lawyerhave I come across a situation, in which a bank employee committed fraud. In that case, the employee was getting paid kickbacks by a con artist to overlook fraudulent mortgage applications.
Nonetheless, there is a very common type of fraud that occurs in the foreclosure context: It is called Foreclosure Rescue Fraud.
What is foreclosure fraud?
The most common type of fraud in the foreclosure context is called Foreclosure Rescue Fraud. Homeowners who have a pending foreclosure sale are – needless to say – financially desperate, which makes them prime targets for con artists who pretend to be their saviors.
Who are the victims of foreclosure rescue fraud?
Real estate fraudster prowl real estate data looking for homeowners whose mortgages are newly in default, and then they swoop in and pretend to be the homeowners’ guardian angels. They promise to delay the foreclosure while helping the homeowner refinance their loan, obtain a loan modification, negotiate with the bank, or find some other solution to their financial troubles.
Then they negotiate a monthly fee that the homeowner can afford and instruct the homeowner not to worry about paying their mortgage. They can say whatever it takes to lock in this client because all of it is a lie anyway.
How do con artists use bankruptcy fraud to commit foreclosure rescue fraud?
In order to delay the foreclosure as promised, the fraudster needs to connect the house to an active bankruptcy case because, when a person is in bankruptcy, the creditors are prohibited from taking action against the debtor’s property. This is called an “automatic stay.” Once the house is attached to a bankruptcy, then the foreclosure process stops until the bank can persuade the bankruptcy judge to allow the foreclosure to continue, or to “lift the stay.”
Even if the bank moves very quickly, the process will still take several months. Once the judge lifts the stay, then the fraudster attaches the house to another bankruptcy, which forces the bank to ask another judge to lift the stay. The fraudster can use bankruptcies in any one of the 94 bankruptcy courts in the United States to trigger the automatic stay.
How do con artists attach homes to bankruptcies?
The cleverest con artist I have seen did it this way: He filed bankruptcies in the name of fictitious people, and on the fraudulent bankruptcy petitions, the con artist would list the names of a dozen non-existent businesses as DBAs (doing business as) of the fictitious debtor. He always maintained several active (albeit fraudulent) bankruptcies like this so that he had plenty of options to choose from.
Then the con artist would file fraudulent deeds that appeared to transfer a 1/8th or 1/10th share of the homeowner’s property to one of the DBAs, which would trigger the automatic stay and stop the foreclosure. Many fraudsters will simply forge the homeowner’s signature on the deed, and the homeowner has absolutely no idea that bank fraud and bankruptcy fraud is being committed in their name. However, the smarter con artists persuade the homeowner to sign at least one of the fraudulent deeds so that they become complicit in the crime. This gives the homeowner a strong reason never to report the matter to the police or to avoid cooperating with the police if the bank reports the crime.
How is the homeowner a victim?
The most important tool of the con artist is their ability to persuade good people to do things that – with 20-20 hindsight – they can’t believe they did. In the case of foreclosure fraud, most homeowners have no idea that their so-called savior committed bank fraud and bankruptcy fraud in their names.
And in the end, they are more in debt, and they lose their house to foreclosure any way.
CONCLUSION: Beware of Foreclosure Fraud Scammers
For criminals who don’t mind the risk of prison, foreclosure rescue fraud is a shockingly easy crime to commit. The master of this crime was recently sentenced to 20 years in prison (DOJ Press Release), but not until after a successful 45 year run committing this and other real estate crimes.
Homeowners who are facing foreclosure need to be aware of these fake saviors who will knock on their doors. If somebody offers to delay your foreclosure while helping you get out of financial troubles for low monthly fee, they are most likely a scammer. If it sounds too good to be true, it probably is. Consult a lawyer immediately.
– David Fleck, CEO