Mortgage Rescue Scams Increasing
Scammers find vulnerable people through marketing, public records or churches and community organizations. Our offices have seen an increase in criminal scams as homeowners facing higher mortgage payments and possible foreclosure are becoming easy targets.
Susan Bissitt-Whornham, an escrow closer and limited practice officer with Chicago Title in Everett, Wash. opened a $480,000 sale transaction on behalf of RS. RS was acting in the capacity of a loan broker and submitted a nonconforming purchase and sale agreement. No real estate agents were involved in the transaction.
The purchase and sale agreement called for a seller credit to the buyer for closing costs in the amount of $13,000. The title report revealed the owner as being very delinquent on everything – existing loans, taxes, homeowner's association dues, etc. The owner called and said that he was going to be out of the country for some time and wanted to know if we could prepare a power of attorney for his wife to use in this transaction. He appeared in Susan's office with valid identification and signed the power of attorney.
A month went by when the RS representative submitted a new purchase and sale agreement for the same property with another buyer. In the new agreement the sale price was increased to $485,000 and called for the seller to pay all closing costs. No earnest money was required and the loan was the exact amount of the purchase price.
Next, a loan package arrived from Washington Mutual in the new buyer's name at Susan's office. As the documents were prepared for closing, Susan noticed there were no mortgage broker fees to be paid to RS. She contacted RS to find out the nature of their involvement and how they were to be compensated. The RS representative in-turn faxed Susan a "Letter of Demand" for the entire amount of the seller's proceeds.
Following Company policy, Susan informed RS she would not be able to pay proceeds to anyone other than the owner-of-record. In turn, RS sent an unsigned addendum to the purchase and sale agreement stating all proceeds from the sale were to be paid to RS.
Susan contacted the seller for more information, only to find out the seller had approached RS after hearing that they could "help" couples that were in dire financial predicaments. Susan asked her if there were other agreements she and her husband had signed with RS that had not been deposited into escrow. The wife admitted there were other contracts but said she could not provide copies to Susan.
The seller almost begged Susan to close the transaction, stating that she did not want to lose her house, and did not want to move and this was her only option to stay in the home she loved so much. Susan's curiosity grew. She asked the seller how it would be possible to sell her home and still occupy it. The seller said that RS was taking her proceeds to pay for rent for the next year so she could stay in the home and not have to move. The seller continued to say that RS said they would help her build her credit back up with a special program and then at the end of the year she could refinance her home and get it back – and get all of her proceeds back too.
Susan could not figure out how the sellers would be able to qualify for a loan to buy back their property and at a price that would net all their proceeds back that they assigned to RS. She reiterated the details back to the seller.
Susan said, "Let me get this straight – You sell your property for $485,000, use the proceeds to pay off your existing loan and give the balance of $116,000 to RS? Then, in a year, they sell the property back to you and you get your $485,000 and $116,000 back? So, the sales price you will be buying it back at will be more than $600,000?"
The seller answered affirmatively, stating she wasn't sure how RS would do it, but that she knew she will get her money back. Susan again asked her if there were other rental agreements and contracts to buy back the property at a future date. The seller confirmed the existence of the underlying agreements but said she could not give them to Susan.
Susan told her she could not close the transaction, because not everything had been disclosed to the new lender, Washington Mutual. Plus, Susan wasn't sure the seller's husband was aware of all the terms and if he knew about the future contracts or what his comprehension of the details were. He might not even be aware that he may never get his home back!
Susan was confident that she had tried to close the file in the manner with which Company employees have been trained, with full disclosure to all parties. However, she took the file to her advisory title officer for a second opinion. With Susan in his office, the advisory title officer called RS and spoke to a manager. The manager was aware of the sale as Susan outlined, but he said they never claimed to give the impression to the sellers that they could definitely refinance and definitely have their house back. He also indicated he could not guarantee that they could even qualify in a year. He stated he never told the seller that she could have all her proceeds back. Instead he said he told the seller she only earned a portion of the house back if she actually qualified for the loan in a year to help with her down payment. Susan said the seller made it very clear that she thought that was how it worked and was very adamant that in the future she would get her house back. The manager did not seem too concerned with what the seller's expectations were.
After the conversation, the advisory title officer came to the same conclusion as Susan – that the Company had no business closing the transaction. Susan advised all parties to the transaction of the Company's election to resign as escrow holder and title insurer. Susan thought that would be the end of the story – not quite!
About a week after resigning from the transaction, the RS manager called and requested Susan send the power of attorney document the husband previously signed. Susan would not honor his request because the document was prepared for her transaction.
A few days transpired when Susan received a call from another escrow company. They asked her to forward the payoff statements and other pertinent information from her file. They even went as far as to tell her that since they were the new escrow company, she should just give them the power of attorney to use since it was for the "same transaction." Susan again refused, explaining that as a licensed limited practice officer, she was uncomfortable letting some other company use a document she had prepared. Particularly because the documents were to be used out of the context for which they were created. Susan requested back-up from her manager, who confirmed the Company would not release a power of attorney to be used in another transaction.
Much to Susan's dismay, the property did eventually transfer to the RS investor, but at least not through one of FNF's direct or agency operations. The Company has rewarded Susan for her detection of real estate fraud and her investigative efforts with a letter of recognition, as well as a check in the amount of $1,000.
Moral of the Story
RS, a company out of Orange County, Calif. advertises "Your Future is Secure." They offer services to homeowners facing foreclosure, by promising to payoff the seller's existing loan and allow the seller to stay in their home for 12 months – rent free.
What's the catch? The homeowner has to have at least 25 percent equity in the property AND they have to agree to sell their property to an RSI arranged investor.
The investor puts down a small down payment (if any) and the costs are all deducted from the seller's proceeds at closing.
The balance of the seller proceeds are assigned to RS at closing, as advance payment of rent for 12 months. During the 12-month period, RS promises to help the homeowner build their credit back up with a special program, at the end of which, the homeowner "refinances" their home and receives all the proceeds back.
Does this sound too good to be true? It is!
- How can the property owner "refinance" when they have conveyed their interest to an RS arranged investor?
- How does the property owner know the investor (or investor's estate) would be willing to sell the property at the end of the 12-month period?
- How does RS know what the property value will be at the end of the 12-month period?
- Will the borrower be able to obtain financing in an amount to cover the previous sale price in order to payoff the new financing and receive their initial proceeds?
Why Are We Concerned?
The escrow holder is not provided with the initial agreement between the property owner and RS. When the escrow is opened, the escrow holder receives the purchase contract with an addendum and demand statement directing the proceeds to RS. More importantly, the investor's lender is not aware of the arrangements between RS and the property owner.
The property owner stands to lose their home and their equity. We do not want to facilitate this type of deal. Does this break any rules? YES! Tech Memo 43-2005 Disbursement of Seller Proceeds specifically states that our settlement employees can not pay proceeds to anyone other than the owner of record.