Foreclosure Sharks

With the housing bust in full force and millions of Baby Boomer homeowners facing foreclosure, the sharks within the real estate industry are being spotted.

Although there are legitimate, mostly nonprofit, operations that help distressed homeowners, there's also a growing army of deceptive outfits that prey on and profit from this troubled group.  While statistics on these schemes are hard to come by, law enforcement authorities confirm that foreclosure scams are rising sharply.  Ten states have recently enacted laws aimed at protecting homeowners.

In most states, it's not illegal for one person to persuade another to sign his or her home over.  And proving it was done through deceptive means can be tricky if the promises to help the owner were made verbally, as is often the case.   So many victims have little recourse except through civil proceedings.  But with the number of foreclosures estimated to soar to more than 2 million over the next couple of years, more policymakers are scrambling to keep the situation from turning into an epidemic by enacting tougher penalties for such practices.

While the schemes vary in their mechanics, all follow a similar pattern. 

An individual or group, in the guise of helping a homeowner avoid losing his or her house, persuades the owner to transfer the title to the rescuer or another designated buyer.  Most commonly, the rescuers present what they say is a refinancing through a designated investor, or they arrange a deed transfer with a rent-to-own plan that will supposedly allow the owners to buy back their homes down the road.  But usually buried within the stack of closing documents is a so-called quit claim, or deed of gift, in which the homeowners effectively sign their houses over to the investor.   At that point, the rescuers charge the former owners rent high enough to ensure they can evict them and pocket the equity built up in the property.

Boomer homeowners in distress should remind themselves, "If the refinancing plan sounds too good to be true, it probably isn't."

Source: BusinessWeek, June 25, 2007