It's an old scam. A con artist approaches an elderly widow, persuades her to borrow against her home to pay for a new roof, aluminum siding or similar improvements. She agrees to what she thinks is a small loan with modest payments. She actually signs for a huge loan, with a high interest rate and exorbitant fees and commissions. Unless she can make the high payments, she is, in effect, signing away her home.
As many as 1,000 elderly widows have lost their homes in South-Central Los Angeles, according to lawyers familiar with these scams. The problem is equally severe in East Los Angeles and other neighborhoods where runaway real-estate appreciation has boosted by tenfold or more the value of houses purchased and paid for decades ago.
In just one recent example, a Watts widow was scheduled to lose her house until Legal Aid lawyers got involved. She wanted to replace her windows because of drafts. She unknowingly agreed to a $40,000 loan at an interest rate higher than 25%--double the prevailing mortgage rate. She lacked the income to qualify for the loan, but according to the lawyers, the middlemen claimed she had income from rental property; she didn't. She was expected to make a loan payment that was more than double her meager monthly income. The deal included an $11,000 "finders fee" that was actually a commission; a $5,000 "title-cleansing" fee, and an additional $2,000 for points.
Legislation recently introduced by state Sen. Art Torres (D-Los Angeles) would help discourage such rip-offs. The measure, SB 2641, would require the salespeople who go after vulnerable widows to at least be bonded and licensed by the state.
The measure would also hold finance companies and investors, many of whom are wealthy, liable for any misrepresentations made by smooth-talking salespeople or so-called financial consultants who go door-to-door in search of the deals. By making the investors liable, according to the Legal Aid Foundation of Los Angeles, the proposed law would make it easier for courts to rule in favor of homeowners and prevent the loss of homes.
The Torres bill wouldn't protect every naive homeowner. Nor would it stop every con artist. But it would provide additional protections for the vulnerable, and put the greedy on notice.