Lawsuit feared when mortgage rescue goes awry

Q: My younger brother spent a year working as an employee in a mortgage company that helped people who were in foreclosure. He ended up putting 10 houses in his name with the hopes that these individuals would pay him and then buy back their houses after a year.

This hasn't happened and my brother had to leave the business due to financial problems. He figures that the owner of the business has stopped paying the investors who own the loans, and they are now calling my brother because they can't reach the real owner of the property.

My brother is very fearful of a lawsuit. We own a cottage together. The cottage is in his name and we split the payment and upkeep 50/50.

We're afraid that these investors may try to take our cottage. My brother mentioned doing a "quitclaim deed" that would put the cottage in our name; however, the mortgage would be in his name alone.

Would this protect our cottage? Have I given you enough information to help us?

A: You have given me probably too much information. Your brother should have known better than to take title to property that he did not own in his own name.

If the owner of the mortgage business wanted to have the title to the homes, the title should have been in the owner's name or the owner's company's name.

There are people in the marketplace who claim to help homeowners with their financial troubles but are really only out to make money for themselves at the expense of these distressed owners.

Some companies claim that if a homeowner is in financial trouble, the homeowner can transfer title to the home to the company and when they get back on their feet, the company will, for a small fee, transfer the title back to them.

But in practice, the homeowners are wiped out of any interest they have in the home, and the so-called "helpful mortgage company" either resells the property or refinances it, taking all the equity out of it.

There's a common name for this scam: It's called "mortgage rescue fraud," and the Federal Trade Commission and the FBI are very concerned about the proliferation of this scam in the current real estate marketplace.

It certainly seems that your brother might have participated in that type of venture. A legitimate business would never place title to homes in the name of an employee. Your brother's bigger issue is, perhaps, having participated in a fraud and having the authorities come after him.

He should seek the help of an attorney immediately.

With respect to the cottage, the quitclaim deed transfer likely will not work. If your brother has creditors coming after him, the cottage is at risk. If he transfers title to you, the creditors will have some time to unwind the transfer to you. When a debtor tries to get rid of assets right before a creditor has as right to those assets, the transfer itself is a fraud against creditors.

If you assist your brother in taking title to the cottage, you may find yourself in hot water for helping himself and you out. Because the cottage is in his name, the cottage will be presumed to be his. The fact that you share expenses is irrelevant and was a poor planning move on both of your parts.

For more details, and to learn about other options that may be available to you, please talk to a real estate attorney.

Q: Can you live in one state and claim residency in another? Our home is one mile inside the state line, but we want to claim residency in the other state.

A: The short answer is no. If you live in one state, you can't claim residency in another. You can split the time you reside in one state or another. But if you own a home, vote in your district, have a driver's license from the state, receive mail at your home, send your children to school and consider one state your home, you can't simply "claim" residency in another state -- even if that state is one mile away.

Your question answers itself. You live in one state. That is the state of your residency. Residency is made up of many elements, including where you spend most of your time, where your home is located, where you vote, where you have mail sent, where your children go to school, where you file your tax returns, where your car is registered. The list of items proving residency is quite substantial.

To claim residency in another state, you'd basically have to move and live there.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

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