Your Mortgage : Con Artists Talk Fast in Slower Market : Fraud: Swindlers have various schemes to separate homeowners from their money, counting on gullibility or inability to read.
While some lenders are getting out of the home loan business, more crooks appear to be getting in.
You and your mortgage could be their next target.
“Fraud has always been around, but I think it’s starting to spread as more parts of the country see their real estate markets turn soft,” said Joan Ferenczy, manager of the Federal Home Loan Mortgage Corp.’s fraud-investigation unit.
Swindlers often thrive in soft markets--like the one that’s gripping many parts of Southern California, the Southwest and Northeast--because sellers are more anxious to unload their properties.
Desperate sellers are more willing to accept shaky deals and less inclined to go over the terms of the purchase offer with a fine-tooth comb.
One common scheme is aimed at homeowners who have lots of built-up equity and are thinking of making repairs or home improvements. Many of these people--known as “fish” or “marks” to con artists--are elderly folks who paid off their home loan years ago.
It’s a simple but lucrative scam. The con man peruses records readily available through the assessor’s office to determine which owners are most likely to have lots of equity, and then visits the homeowner or sends a neatly typed letter.
The con man offers to fix the home up or make other home improvements, sometimes at a bargain-basement price. It’s often an easy sale: The owners are usually equity-rich but cash-poor and don’t have the money to make needed repairs.
“The catch is that the con artist doesn’t make it clear that the loan is secured by the owner’s home,” said attorney Julias Butler of Bet Tzedek Legal Services in Los Angeles.
“If homeowners can’t keep up with the payments--and they usually can’t--the hustler forecloses and evicts them,” Butler said.
Butler estimates that 1,000 or so homeowners have recently fallen victim to the scam in Los Angeles alone.
Many of the victims are illiterate and couldn’t read the loan documents that they signed, Butler said.
But even savvy homeowners can be victimized because the legal documents are usually difficult to understand.
“You might think that you understand what you’re signing, but you really don’t,” Butler said.
Lawmakers in California and several other states are considering proposals that would make it tougher for con men to pull off such scams.
In the meantime, Butler said, “you need to read and understand every single line of any contract” that you are asked to sign.
Most cities also have nonprofit legal groups, such as Bet Tzedek, that will look over documents and provide legal advice for free or for a nominal fee.
You can usually find these groups under the heading of “legal clinics” or “legal aid services” in the Yellow Pages of your local phone book.
An alternative is to call the local chapter of the state Bar Assn.. Most state bars offer low-cost counseling programs or can refer you to an agency that provides legal advice at little or no charge.
Another growing scam involves hustlers who set up bogus loan-processing companies or financial institutions. Here’s how it typically works:
The company--let’s call it “Bogus Financial”--sends a letter on fancy stationery to the borrower. The letter states that the company has bought the borrower’s loan and that the monthly mortgage payments should be sent to Bogus instead of the original lender.
Or, the letter might say that Bogus is now in charge of “processing” the borrower’s loan and that payments should be sent to Bogus instead of the bank. Many of these firms even send along a book of new payment coupons.
Some homeowners fall for the scam and start sending their monthly checks to the bogus firm. Not surprisingly, the check is quickly cashed.
Meantime, the honest but unwitting borrower is falling behind on his monthly payments to the real lender and putting black marks on his credit record that can be hard to remove.
After a month or two has passed, the borrower gets a letter or phone call from the original lender asking why loan payments aren’t being made.
Even though the borrower quickly realizes that he has been duped, he has to make back payments to the rightful lender. By then, the crooks at Bogus Financial have either left town or set up shop using another name.
It’s not uncommon for lenders to sell their loans to other financial institutions. Nor is it unusual for them to hire loan-servicing companies to handle all the paper work involved in processing your monthly payments.
So if you get an official-looking letter telling you to start making your payments to a new company, how do you make sure it’s legitimate?
“The first thing to do is to call your current lender to verify whether the loan has really been sold or turned over to a loan-processing company,” said fraud investigator Ferenczy.
“I’d also try to independently verify the new company’s phone number and address by looking them up in the phone book or by calling directory assistance,” Ferenczy said.
“If you really are dealing with a bogus company and simply call the phone number that’s listed on the letterhead, your call will probably ring straight through to a swindler who’ll know just what to say.”
And then there’s “equity skimming.”
Equity-skimming cheats typically target homeowners with loans that can be easily assumed, such as those backed by the Federal Housing Administration or Veterans Administration.
They especially like owners who are desperate to sell because distressed owners are more willing to make concessions.
In the typical set-up, the skimmer agrees to buy your house and take over your loan payments. He makes a small down payment or gets you to “carry back” your equity in the form of a second mortgage.
He might also suggest that you simply quitclaim your house to him to avoid escrow fees and other closing costs.
“If you agree to this kind of deal, you’ve probably cooked your own goose,” said Thomas J. Lucier, a veteran investor and author of “The Smart Investor’s Guide to Distressed Property” ($29.95, Real Estate Publications Inc., P.O. Box 20027, Tampa, Fla. 33622).
Once the quitclaim is signed and you move out, the skimmer rents the home to someone else. Although he’s pocketing several hundred dollars a month in rent, he doesn’t make the monthly mortgage payments to the financial institution that made the loan on the property.
“It could take months, maybe even more than a year, before you find out what’s going on,” Lucier said.
Even worse, you’re the one who’s liable for the missed mortgage payments because the loan assumption was never approved by the lender on the property.
To avoid falling prey to an equity skimmer, Lucier says it’s a good idea to always use an escrow officer or closing attorney to handle all the documentation involved in the sale.
“Be a little cautious if the buyer insists on one particular escrow firm or lawyer,” Lucier said. “There’s always a chance that the escrow agent is in cahoots with the skimmer.”
Equally important, insist that the buyer formally assume the loan. The lender, FHA or VA will send all the required documents to your escrow officer.
When the assumption is approved, you’ll no longer be liable for the loan payments.
AVERAGE RATES FOR RESIDENTIAL MORTGAGES Average rates for residential mortgages as of Aug. 17, 1990.
Survey Conventional Mortgages Adjustable Mortgages Area 15 Year 30 Year Composite 1 Year Composite National 9.81% 10.14% 9.99% 8.19% 8.48% California 10.06 10.37 10.22 8.27 8.30 Connecticut 9.89 10.17 10.06 8.31 8.51 Wash. D.C. 9.64 10.01 9.85 7.91 8.22 Florida 9.83 10.23 10.04 8.19 8.34 Mass. 9.85 10.18 10.03 8.33 8.61 New Jersey 9.81 10.12 9.99 8.09 8.52 N.Y. Metro 9.90 10.21 10.07 8.26 8.59 New York 9.99 10.31 10.17 8.39 8.68 N.Y. Co-ops 10.20 10.51 10.40 8.55 8.84 Pa. 9.63 9.96 9.81 7.89 8.03 Texas 9.58 9.95 9.78 8.23 8.36
SOURCE: HSH Associates, Butler, N.J.
