A number of people and organizations are weighing in on Illinois Senate Bill 2349, the state’s proposed ‘Mortgage Rescue’ Fraud Prevention Act. Here’s an overview of the proposed legislation, followed by links to commentary:

BACKGROUND: Due to the explosive growth of predatory mortgage
lending, home foreclosures are on the rise in Illinois, as they are in many other parts of the United States. According to the National Training and Information Center, mortgage foreclosure filings in Cook County, Illinois, jumped from 8,006 to 17,248 between 1996 and 2002. After dropping slightly in 2003 and 2004, filings were projected to hit a record high of 17,600 in 2005.

The self-styled “mortgage rescue” industry has grown in direct proportion to the number of homes that are at risk of foreclosure. Although ‘mortgage rescuers’ promise to save the homes of financially distressed homeowners, backers of the Illinois’ measure say they all too often add insult to injury, either by charging exorbitant fees for services never rendered or by stripping the equity from properties and leaving homeowners with nothing in return.

HOW DO ‘MORTGAGE RESCUE’ SCHEMES WORK?

Here are two of the most common ‘mortgage rescue’ schemes:

1. Distressed property consultants offer phantom help to homeowners in distress, typically promising to “buy them time” or “save the home” by negotiating with the homeowners’ creditors. In exchange for a fee that ranges from $1,000 to $2,500, the distressed property consultant does little or nothing, and essentially abandons the homeowner to a fate that might have been prevented with professional intervention.

2. Distressed property purchasers lead homeowners to sign over the deed to their property by telling them they can stay in their home and pay rent until they get back on their feet financially. Many homeowners do not realize they are selling their home to the “rescuer,” and most receive no financial benefit from the transaction, even when their equity in the property is greater than what they owe. Commonly, the homeowners’ rental payments are much higher than their mortgage payments. Using a variety of devices, the “rescuer” ultimately strips the home of its equity, often by selling it to a third party, and the homeowner ends up facing eviction.

WHAT WILL SENATE BILL 2349 DO?

Illinois’ ‘Mortgage Rescue’ Fraud Prevention Act will provide protections to homeowners under when dealing both with consultants and purchasers. Here’s how:

Distressed Property Consultant Protections

1. Distressed property consultants must provide homeowners with a written contract listing all services.

2. The consultant contract must contain a right to cancel at any time.
3. The consultant cannot receive any compensation until all services have been performed.

Distressed Property Purchaser Protections

1. Distressed property purchasers must provide homeowners with a written contract that lists the terms of the sale and makes it clear that the home is actually being sold.

2. The homeowner has the right to cancel the sales contract for five business days after it is signed.
3. Prior to sale, the purchaser must make a determination that the homeowner has the ability to make rental payments and to buy the home back.
4. The purchaser must pay the homeowner at least 82% of the fair market value of the home.
5. A homeowner who remains in the home under a rental agreement has the right to cancel the rental agreement at any time.
6. The purchaser must record the purchase contract with the county recorder of deeds, so that any subsequent purchaser is put on notice.
7. A violation of this Act is a violation of the Consumer Fraud Act. Distressed property purchasers in violation of the Act are subject to criminal penalties as well.

WHO’S COMMENTING ON THE PROPOSED LEGISLATION?

Illinois State Senator Jacqueline Y. Collins (D-Chicago): “These individuals claiming to be rescuers generally are not that at all. Often times they are preying on the most vulnerable targets they can find, and unfortunately those people frequently happen to be from low-income households. This is a practice that has to be stopped to save our communities.”

Since similar legislation is expected to hit lawmakers dockets in Texas, HoustonRealNews.com is weighing in.

And finally, the National Association of Responsible Home Rebuilders and Investors (NARHRI)–an association of individual home re-builders, investors, businesses, and related professionals dedicated what they call the improvement of the legislative and regulatory atmosphere governing the home re-building and investing industry is weighing in as well. Click here for NARHRI’s opinion.

The Illinois State Assembly is considering legislation that its sponsors say will target real estate-related fraud. SB2349, otherwise known as the Mortgage Rescue Fraud Prevention Act, was introduced by Illinois State Senator Jacqueline Collins (D-Chicago) and State Representative Marlow Colvin (D-Chicago), back on the 18th of January, and is aimed at helping consumers from falling prey to mortgage rescue scams and mortgage bailout consultants. If passed, the Mortgage Rescue Fraud Prevention Act would force bailout consultants to detail all of their services in a clearly written contract, and allow homeowners to cancel any time before all services have been performed.

According to Illinois Attorney General Lisa Madigan, the Mortgage Rescue Fraud Prevention Act is narrowly tailored to target the two most common types of mortgage fraud rescue schemes. First, it targets “distressed property consultants” who offer phantom help to homeowners, usually promising to “buy them time” or “save the home” by negotiating with the homeowners’ creditors. In exchange for upfront fees, the consultants do nothing and abandon the homeowner to a fate that might have been prevented with legitimate professional intervention.

Madigan targeted these “distressed property consultants” through a lawsuit filed yesterday in Sangamon County Circuit Court against HomeSavers USA, Inc., and its CEO, David Moakler. HomeSavers USA, Inc., is a North Carolina-based company that advertises mortgage foreclosure assistance to Illinois consumers via the Internet. In her lawsuit, Madigan alleges that HomeSaversUSA promised to negotiate with consumers’ mortgage companies and guaranteed they would not lose their homes. According to Madigan, HomeSaversUSA demanded that consumers pay a non-refundable service fee before the company would begin any work. Illinois consumers paid fees ranging from $350 to $900, according to the lawsuit, to HomeSaversUSA. Madigan’s lawsuit alleges that HomeSaversUSA failed to engage in the promised negotiations and did nothing more than consumers could easily have done themselves.

Secondly, the bill targets “distressed property purchasers,” con artists who lead homeowners to sign over the deed to their property by telling them they can stay in their home and pay rent until they are back on their feet financially and can repurchase their home. Many homeowners who enter into these deals believe that they are getting help to catch up on their payments and do not realize they are selling their home to a third party. Most receive little financial benefit from the transaction. Commonly, the homeowners’ rental payments end up higher than the mortgage payments. Using a variety of devices, the “rescuer” ultimately strips the home of its equity and leaves the homeowner facing increasing financial distress, and eventually, eviction.

If passed, Illinois’ Mortgage Rescue Fraud Prevention Act would require that:

1. Distressed property purchasers must provide homeowners a written contract that lays out all the terms of the sale and makes it clear that the home is actually being sold.

2. The homeowner has the right to cancel the contract for five business days after all parties execute it.
3. Prior to sale of the property, the purchaser must make a determination that the homeowner has the ability to make rental payments and buy the house back.
4. The purchaser must pay the homeowner at least Eighty-two percent (82%) of the fair market value of the home at the time of the sale and may not include fees as part of the payment.
5. A homeowner who remains in the home under a rental agreement has the right to cancel the rental agreement at any time.
6. The purchaser must record the purchase contract with the county recorder of deeds so that any subsequent purchaser is put on notice.

While I applaud the State of Illinois’ attempts to regulate mortgage bailouts, the fact remains that until someone comes to table with a public awareness campaign aimed at educating consumers about real estate fraud, no additional amount of regulations will make any sort of measurable difference. Why? Because the scammers and bad guys will always find ways to navigate around the system to prey on unsuspecting homeowners. That’s it. It’s that simple. Regulations will only get us so far in the fight against fraud. We need education, and we need it now!

2006-01-29 07:25
Chicago Tribune columnist Dawn Turner Trice said it best back on November 14th of last year: “If you didn’t read last week’s Tribune investigation on mortgage fraud, titled “The New Street Hustle,” you missed a gem. David Jackson, the Tribune’s investigative reporter who led that project, is back with another enlightening article. From yesterday’s online edition of the Tribune:

Her arms were withered, her memory a fog. Bedridden and suffering from profound dementia, 91-year-old Lillie Densler was in a nursing home last year when she signed away her only remaining asset: a sturdy brick house on Chicago’s West Side.

Now, a well-known attorney, author and radio personality is at the center of fraud allegations stemming from the deal, which was part of a booming business in bailouts for struggling homeowners.

In Radio Host Tied to Home Scam, Jackson provides an overview of how ‘bailout deals’ have become a new breading ground for real estate-related fraud. Click here for the entire article… it’s well worth the 3-pages Jackson devotes to the case of Lillie Densler and her newphew, and Norton Helton, the man who now stands accused of swindling Densler out of her home.

And once you’re through with yesterday’s article, be sure to check out the Tribune’s online mortgage fraud education center and article archive. It’s of tremendous value to anyone who’s at all concerned about real estate fraud.