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Tuesday, January 30, 2007

AP Story About Fraud And Foreclosure Help

The Associated Press has a story about how rising foreclosure rates are leading to a rise in fraudulent foreclosure avoidance services. The story lists three of the most common scams. What caught my attention was the first one: A company loans or gives the property owner money in exchange for the owner signing over their house to them, money that comes from the built-up equity in their home. The former owners are now renters, but they get to stay in the house and, supposedly, the money they received from the company for their equity is used to pay off the delinquent bills. The fraud allegations arise when the former owners claim they did not know they were signing away their property.

This method is basically what Live Free Investment Group (as well as other companies) does here in Phoenix. As I discovered during my visit with them, they are in the process of adding some forms to their paperwork that make it abundantly clear to the owner that they are no longer going to own their home. This should go a long way towards preventing such situations as the AP story talks about.

It's a tough spot for the investor to be in. It's very easy for the homeowner to sign away his property, get some money and get out of debt, then turn around and claim he didn't know what he was doing. Even with signed documents that clearly acknowledge the owner is giving up his property, all it takes is one judge to agree that the poor, distraught owner was taken advantage of by the mean, fancy-talking investor. Nevermind that the investor has helped the owner avoid having a foreclosure on his credit report or that he has helped the owner get financially solvent again.

The news coverage will never be in favor of the investor. It is a much more heart-wrenching (and therefore higher ratings-getting) story when portrayed as some couple being swindled out of their home. Just look at the AP story. The couple profiled look to be in their 50s or 60s and have lived in the home for 20 years. The accompanying picture shows the man frowning, angry at the evil corporation that did this to him. Now, I don't know the details of their case and the Nebraska Supreme Court did rule that they were defrauded, but I can guarantee you that, even had the court sided with the loan company, the slant of the article would still be the same. Unfortunately, even with clearly spelled out contracts, people still expect to be protected from their own stupidity.

2 comments:

bogonflux said...

Things I wish the article had done:
* linked to the National Consumer Law Center report on foreclosure fraud
* discuss safe harbor approaches for how investors can approach people in trouble in a way that is mutually beneficial.

This is the NCLC site:
http://www.consumerlaw.org/

I could not find the referenced report.

Steve said...

Ironically, I was watching a news show before going to work this morning, where they had a segment that talked about new "loan scams". They didn't go into detail, but the reporter said that the scam involves people with a fake loan company asking new homeowners that have bad credit for $500-$1000 upfront, and they can get them a loan for a house. Of course, once the scum get their $500-$1000, they are never heard from again.

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