Thursday, Feb. 5, 2009 | midnight
The "mortgage crisis" is now familiar to all Nevadans.
As the mortgage crisis continues to unfold, record-breaking home foreclosures will be experienced and many homeowners will be forced to make tough choices.
Nevada is number one in the nation for foreclosures, and foreclosure scams are a statewide problem. Many people who never thought they would be faced with losing their homes now find themselves without resources to maintain their mortgages and are forced to relinquish their property to their bank. It is at this point the homeowner is most vulnerable to mortgage scams.
In response to these issues that were already developing, the 2007 Nevada Legislature passed legislation that:
- Makes it an unfair lending practice for a lender to make a loan without determining if a borrower can repay it.
- Restricts foreclosure consultants from collecting payment for services rendered until all services are performed.
- Prohibits foreclosure consultants from taking wage assignments, liens or equity as compensation.
However, citizens must take steps to protect themselves from these scams and should become aware of fraudulent foreclosure rescue schemes.
There are three variations on the foreclosure rescue scam:
Phantom Help: The "rescuer" charges outrageous fees for light-duty phone calls or paperwork that the homeowner could easily do, none of which results in saving the home. This predatory scam gives homeowners a false sense of hope and prevents them from seeking qualified and timely help elsewhere.
The Bailout: In this scam, homeowners are deceived into signing over their home title yet remain in it as a renter and believe they may eventually buy it back over time. The terms of these scams are so onerous that the buy-back may be impossible. The homeowner loses possession and the "rescuer" walks off with most or all of the equity in the house.
The Bait and Switch: In this scam, the homeowners believe they are signing documents to bring their mortgage current but instead actually surrender their ownership. They usually do not know they have been scammed until they are evicted.
Another method that has been used successfully in Nevada is a buyout scheme that leaves the owner with a foreclosed property. The scammer directly solicits victims through the mail or advertises on signs that might say, "I buy houses."
The scammer goes to the victim's house with a contract of sale, a transfer tax form and a notary public and tells the owner he/she does not like to use the services of a Realtor or escrow company because they add cost charges in the transaction. The scammer offers to buy the house for the sum of the total owed on the house and a small amount of cash.
The victim then signs the deed, the transfer tax form and the contract of sale. The deed usually shows that the seller (the victim) is selling to a named corporation. The contract of sale says the seller is selling to the named entity for the amount of the total owed on the mortgage(s) plus whatever amount of cash the scammer has agreed to pay — usually only a couple of hundred dollars. The scammer pays the cash to the victim and tells the owner that he will take care of paying off the mortgages.
The victims move out of the house and the scammer rents the house. However, the scammer does not pay the mortgage, which results in the initiation of foreclosure procedures. Prior to final foreclosure, the scammer collects rent on the house from a new set of victims, the unsuspecting renters.
The homeowner does not receive the rent collected from their house, which has been fraudulently obtained and the renters are kicked out of the house when the foreclosure happens, sometimes losing their rental deposit and, if paid in advance, last month's rent. The scammer makes his money through doing a volume business and working this deceptive practice on multiple homeowners.
The newest twist on the foreclosure rescue scams that we are seeing now, based on recent consumer complaints, are the "loan modification scams." The scammers, most or many of whom are not licensed brokers, offer to negotiate mortgage loan modifications for consumers to help them avoid foreclosure by modifying their high premium, adjustable rate mortgage and get the consumer into a 30-year fixed mortgage at a lower interest rate.
While this is possible in some instances, the scammers are deceptive in three ways:
- They collect up-front fees before they do any of the work, in violation of the new law.
- They advertise "guaranteed" loan modifications, which are simply impossible to guarantee and are advertised just to get the up-front fees.
- They charge, in some cases, thousands of dollars to do little or no work or work the consumer could have done themselves (phantom help). Many of these scammers set up shop for a few months, collect thousands in fees and close shop before the authorities are able stop them.
Warning signs for consumers to avoid mortgage fraud include:
- A company calling itself a "mortgage consultant," "foreclosure service" or something similar.
- A company that contacts or advertises to people whose homes are listed for foreclosure, including anyone who sends flyers or solicits door to door.
- A company that collects a fee before providing services.
- A company that tells the homeowner to make their home mortgage payments directly to the individual or company and not to the mortgage lender.
- A company that tells the homeowner to transfer their property deed or title to the company.
A list of don'ts include:
- Don't panic. Become informed and talk to your lender.
- Don't sign a contract under pressure.
- Don't sign away ownership of your property, often referred to as a "quit claim deed."
- Don't pay your mortgage payments to someone other than your lender, even if they promise to pass them on to the mortgage company.
- Don't sign anything with blank lines or spaces.
If you seek assistance from a licensed debt credit counselor, be sure they are a HUD approved agency or check with the Nevada Mortgage Lending Division.
If you are seeking foreclosure assistance, Nevada consumers can call Nevada 2-1-1 or call the National Foreclosure Prevention Line: (800) 995-4673.
Remember, if something sounds too good to be true, it usually is. This is especially true in these stressful economic times.
Catherine Cortez Masto is the attorney general of Nevada. Her office can be contacted through her Web site at http://ag.state.nv.us.