Foreclosure
Fraud
For $800 and
the Deed To Your Home--
Bankruptcy Foreclosure
Scams
Target Distressed Home
Owners
Written by:
Jane Limprecht
Executive Office for
United States Trustees
"Attention Home Owner: Save your
homes--Stop foreclosure now! Before you file bankruptcy call me
first. We refinance mortgages regardless of your credit
history!" Unless your home has been listed for foreclosure,
you've probably never received an advertisement like this in
your mailbox, but you may have seen similar solicitations
printed in the local newspaper or posted on the grocery store
bulletin board. These solicitations may signal that a lucrative
type of fraud--the bankruptcy foreclosure scam--has established
a foothold in your community.
In May 1998, the Bankruptcy Foreclosure Scam Task
Force of the United States Bankruptcy Court for the Central
District of California issued its final report describing
several bankruptcy foreclosure scams operating in the region;
explaining how they hurt bankruptcy courts, lenders, and
homeowners; and recommending ways to combat them in the Central
District of California.
But bankruptcy foreclosure scams should not be
dismissed as solely "an L.A. problem." The most complex and
lucrative bankruptcy foreclosure scams have arisen in major
metropolitan areas on the West Coast; in August 1998, one Los
Angeles-area perpetrator was sentenced to 71 months in prison
and ordered to pay more than $72,000 in restitution for running
a scam involving more than 200 fraudulent bankruptcy filings.
However, Mom-and-Pop operations are appearing even in mid-size
Midwestern cities. And some perpetrators are not only reaching
across state lines to recruit local "customer representatives,"
but are also seeking referral affiliations with local consumer
bankruptcy attorneys.
Reports from United States Trustee Program personnel
around the country make clear that bankruptcy foreclosure scams
are geographically widespread, as well as varied in their
methodology.
Types of Foreclosure Scams
"For the cost of a bankruptcy filing fee, a debtor
can immediately obtain one of the most powerful injunctions
available under American law: the automatic stay," the
foreclosure scam task force pointed out. The task force report
described bankruptcy foreclosure fraud as the practice of
filing for bankruptcy to delay or defraud creditors, without
intending to comply with the requirements for obtaining a
bankruptcy discharge or completing a repayment plan.
The foreclosure scam most commonly associated with
the West Coast is the fractional interest transfer. Typically,
a partial interest--perhaps 5 percent or 10 percent--in
property held by a homeowner facing foreclosure is transferred
to a real or fictional entity already in bankruptcy. Because
the property interest is then held by a bankruptcy debtor, the
original owner's creditor cannot foreclose until the bankruptcy
court lifts the automatic stay.
Some scams involve fractional interests transferred
with the knowledge of the original property owner. Often,
however, the original owner first transfers the property to the
perpetrator of a foreclosure scam, who then transfers the
fractional interest without the original owner's knowledge.
Sometimes a property is moved from case to case as the stay is
lifted; one residential property was linked to 24 different
bankruptcy cases
(3).
The task force report explained how one homeowner
facing foreclosure was persuaded by a scam perpetrator to sign
deeds of trust and grant deeds transferring fractional
interests in her property. The homeowner paid the foreclosure
consultant several hundred dollars per month so she could stay
in her home. The fractional interest recipients included
apparently fictitious individuals as well as homeless persons
recruited for a fee to participate; eight recipients filed for
bankruptcy one after the other. Each filing stayed foreclosure
on the property, causing a 10-month delay between the first
filing and the completed foreclosure.
The Foreclosure
Fraud Alert Website http://www.foreclosurefraudalert.com/
The
Foreclosure Fraud Alert
Blog
http://www.foreclosurefraudalert.com/fraudblog
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