This time, senior homeowners are not in the forefront.
Typically, real estate scams target persons with significant equity in their homes, often elders who have resided in the same primary residence for decades. Seniors have been in the crosshairs of equity-skimming deals, outrageous refinance pitches and bogus life insurance plans.
The latest scheme, known as “mortgage elimination,” seems to lure younger couples with larger mortgages. The process, along with some others, can definitely be listed under the consumer beware label “if it sounds too good to be true, it probably is.”
In a capsule, 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 and heavily camouflaged rules and false conditions.
The net result is that homeowners can suddenly find themselves taking an active role in real estate fraud – plus the prospect of selling their home to pay for legal fees and other costs they have created.
“I would say that most of the time the target customers are young couples looking for some sort of magical relief from large monthly mortgage payments,” said Dwight Bickel, senior vice president and legal counsel for LandAmerica Financial Group, the parent company of Transnation, Commonwealth and Lawyers title insurance companies.
“It’s not necessarily seniors in these cases. Maybe that’s wisdom that comes with age but they also usually don’t have the large outstanding mortgage debt of younger couples.”
In the mortgage elimination pitch, the homeowner is persuaded not to be concerned about that fee because the plan is to clear the title, then refinance to get money to pay the fee. When the program reaches its likely 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 Rob Sargeant, former national counsel for Stewart Title and now a private title insurance attorney, the program sold to the homeowner is prefaced by an inaccurate assumption that money never really changes hands in the mortgage lending market.
“The program sponsor and its materials go to great lengths to argue that because the primary and secondary residential loan markets do not fund with cash, the loan process is really a sham,” Sargeant said.
Sargeant 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.
“How the sponsor makes that argument with a straight face I just can’t picture,” Sargeant said. “Nonetheless, people are so mesmerized by the description of the loan market process that they usually just accept it. Greed, or the ability to get a quick fix to problems facing the borrower, seems to play a role as well.”
Tim Krell, legal counsel for First American Title, said the program planners probably are relying on title companies “to bite” on fraudulent documents and ultimately insure papers that should not be recorded.
“These schemes definitely are on the rise,” Krell said. “We have a trustees sale unit that deals with properties that are being foreclosed and a number of major lenders are being hit by this illegitimate practice. Many of these deals are refinances just waiting for the cards to fall.”
Phil Jenkins, legal counsel for Chicago Title, said some of the problem is the complexity of the mortgage banking system and the home-loan process.
“The average person does not purchase or refinance a home very often,” Jenkins said. “The mortgage lending process is not all that clear to average person. They are asked to sign a bunch of documents and they are not always sure of what they are signing.”
According to Bickel, 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 title as unmarketable.
“Title insurance companies will also probably decline to insure a subsequent mortgage from that borrower, due to the risks associated with the attempted mortgage elimination procedure,” Bickel said. “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.”
Don’t be misled by fancy language and complex documents. Don’t fool yourself into thinking that you can walk away from your mortgage without paying the consequences. It’s your debt, your loan, and no magic wands can whisk it away.
Tom Kelly’s new book “How a Second Home Can Be Your Best Investment” (McGraw-Hill, $16.95) was co-written with John Tuccillo, former chief economist for the National Association of Realtors and is now available in local bookstores and on Amazon.com. He can be reached at firstname.lastname@example.org.
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