DREAMS FORECLOSED: The Rampant Theft of Americans’ Homes Through Equity-stripping Foreclosure “Rescue” Scams DREAMS FORECLOSED: The Rampant Theft of Americans’ Homes A Report by Through Equity-Stripping National Consumer Law Center Foreclosure “Rescue” Scams June 2005 Written and researched by: Steve Tripoli, Consumer Advocate, National Consumer Law Center Elizabeth Renuart, Staff Attorney, National Consumer Law Center ACKNOWLEDGMENTS National Consumer Law Center attorneys Will Ogburn, John Rao and Margot Saunders provided legal guidance and editorial assistance in the preparation of this report. NCLC’s Svetlana Ladan formatted the report and its graphics. We also wish to thank the dozens of consumer lawyers, advocates, their clients and others named in this report for their unstinting devotion to seeing this information come to light and their substantial efforts to provide that information. Cover art courtesy of Benenson Janson Advertising, Studio City, CA. National Consumer Law Center is a non-profit organization with 37 years of working experience in consumer issues, especially those affecting low-income consumers. NCLC works with and offers training to thousands of legal- service, government and private attorneys, as well as community groups and organizations representing low-income and elderly people. Our legal manuals and consumer guides are standards of the field and can be ordered directly at www.consumerlaw.org or by calling our Publications Department at 617-542-9595. National Consumer Law Center 77 Summer St. 10th Floor Boston, MA 02110 Phone: 617-542-8010 http://www.consumerlaw.org Copies of this report are available by mail for $35 each paid in advance (checks only), or by downloading from NCLC’s website TABLE OF CONTENTS INTRODUCTION: THE BLIND SPOT 100,000 HOMES WIDE..................................................5 PART 1: STEALING WHATEVER IS NAILED DOWN...............................................................7 l. What’s a Foreclosure “Rescue” Scam? .............................................................................................8 ll. Why Do Homeowners Fall for These Scams?................................................................................10 CALIFORNIA SCHEMIN’: TWO STORIES ...................................................................................11 “I Said, ‘The House is Still in My Name!’ And She Said, ‘You’re in Trouble’”...........................12 “...and I Still Didn’t Feel Like They Were Lying to Me” ..............................................................13 LOOPHOLES GALORE: OLIVIA ORTIZ’ CONTRACT WITH H.A.S ..........................................14 PART 2: THE HIDING-IN-PLAIN-SIGHT PANDEMIC ............................................................15 l. CALIFORNIA: "An explosion...like I've never seen before" ........................................................15 ll. COLORADO: "We're struggling to get our arms around it".........................................................17 lll. DISTRICT OF COLUMBIA: Renting your own house back......................................................19 lV. FLORIDA: "More prevalent than even high-risk....loans”..........................................................20 V. GEORGIA: "The guy who lies the most gets the most deals"......................................................23 Vl. ILLINOIS: "We're seeing outright forgeries"..............................................................................24 Vll. MARYLAND: "There are clearly violations out there".............................................................24 Vlll. MASSACHUSETTS: "They're getting...more entrepreneurial" ...............................................27 lX. MICHIGAN: "This is not just a bunch of small fish" .................................................................29 X. MINNESOTA: High-profile cases spawn a new state law...........................................................30 Xl. NEVADA: "People in distress....don't exercise their rights".......................................................32 Xll. NEW YORK: "The homeowners never see any of this money" ................................................33 Xlll. NORTH CAROLINA: "We've yet to see one....actually work"................................................34 XlV. OHIO: Scammers' mode of operation: Take a lot, do a little....................................................34 XV. OKLAHOMA: "Guess what, you need a Chapter 13!" .............................................................36 XVl. TEXAS: Notorious Colorado figure gets back in business.......................................................36 XVll. VIRGINIA: “My client is paralyzed with fear”........................................................................38 XVlll. WASHINGTON: "The whole thing was set up to fail"..........................................................39 PART 3. DO-IT-YOURSELF EQUITY STRIPPING: THE INFORMAL INDUSTRY TEACHING “RESCUE” TACTICS................................................................................................40 "Stay unassociated with the end results. Caring costs money. ".........................................................44 PART 4. FIGHTING BACK: WHAT REGULATORS, THE LAW, ENFORCEMENT, AND CONSUMERS CAN DO ...................................................................................................................45 l: Can Homeowners Fight Back Effectively? ....................................................................................45 ll: Recommendations to States: Beef Up Your Laws or Witness a Mounting Loss of Home Ownership ......................................................................................46 III. What Consumers Can Do .............................................................................................................50 IV. One Response That May Be a Useful Model ...............................................................................53 APPENDIX A: EXHIBITS ..............................................................................................................54 “I SAW THAT THERE WAS A SEAL. IT LOOKED LIKE A GOVERNMENT SEAL. AND WE THOUGHT THEY’D HELP US.” .............................................................................................55 “PLEASE CALL ASAP ABOUT THE ENCLOSED CHECK!”..........................................................56 A BUNDLE OF TACTICS CONSUMERS SHOULD VIEW WARILY................................................57 “ALL CALLS THE CLIENTS COULD HAVE MADE THEMSELVES” ............................................58 A SAMPLER OF APPEALS FROM ONE STATE ..............................................................................59 PROMISES OF MILLIONS – BUT FOR WHO?................................................................................60 $10,000 A MONTH, GRAMMAR CHECK NOT INCLUDED............................................................62 APPENDIX B: OVERVIEW OF EXISTING STATE LAWS ......................................................63 I. Types of Activities Covered...........................................................................................................64 II. Scope of the Laws ..........................................................................................................................64 III. Notice and Cancellation Rights ....................................................................................................64 IV. Substantive Protections.................................................................................................................65 V. Remedies........................................................................................................................................66 DREAMS FORECLOSED: The Rampant Theft of Americans’ Homes Through Equity-stripping Foreclosure “Rescue” Scams INTRODUCTION: THE BLIND SPOT 100,000 HOMES WIDE If a tsunami were to sweep across America, selectively taking with it thousands upon thousands of people’s homes, would the news media cover it? What if many thousands of people awoke one morning to find their retirement savings suddenly missing? Would the Congress take note? Well, something quite similar is going on. Homes are literally being stolen from their owners all over the country. In this report you'll read about those who target many thousands of good people, people often under serious stress, and shake all or most of the value out of what’s often their only major asset. The wrecked lives the predators leave behind are not their concern. It's hard for most Americans, and even watchdogs like the news media, to grasp that a small-but-significant slice of society is composed of those who coldly prey on others. Most of us don't see this because we can’t believe, as the predators do, that duping and scamming our neighbors or taking advantage of their trust is a good way to live. But these predators aren’t just “a few bad apples,” as their apologists are often quick to claim. And their impact reaches far beyond their relatively-small numbers. Such predators are a big reason why we've always needed consumer protection laws in America. Now, the modern collision of a deregulated economy with the “middle-class squeeze” of stagnating wages and rising costs for many life necessities makes new and stronger laws all the more vital. When a family’s hard-earned home equity is pillaged even those who've worked very hard and played by the rules are often left just one bad break away from ruin -- with all its attendant stress, heartache and family unraveling.