foreclosure scams and fraud, and loan mods oregon department of justice financial fraud/consumer...

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Foreclosure Scams and Fraud, and Loan Mods Oregon Department of Justice Financial Fraud/Consumer Protection 503 934 4400 www.doj.state.or.us Simon Whang, Asst. Attorney Simon Whang, Asst. Attorney General General

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Foreclosure Scams and Fraud, and Loan Mods

Oregon Department of JusticeFinancial Fraud/Consumer Protection503 934 4400www.doj.state.or.us

Simon Whang, Asst. Attorney GeneralSimon Whang, Asst. Attorney [email protected]@doj.state.or.us

DOJ Financial Fraud/Consumer DOJ Financial Fraud/Consumer Protection SectionProtection Section

Enforces Oregon's Unlawful Trade Practices Act, Enforces Oregon's Unlawful Trade Practices Act, ORS 646.605 – 646.658.ORS 646.605 – 646.658.

Consumer education and outreach, hotlineConsumer education and outreach, hotline Business activity by Oregon-based company Business activity by Oregon-based company oror with with

Oregon consumerOregon consumer Common UTPA violations:Common UTPA violations:

failure to deliver goods/ services or refund moneyfailure to deliver goods/ services or refund money deceptive or deceptive or misleadingmisleading advertising advertising unconscionable tacticsunconscionable tactics misrepresentation of goods/servicesmisrepresentation of goods/services

Have consumer file a complaint w/ DOJ. Have consumer file a complaint w/ DOJ. www.doj.state.or.us/finfraud/index.shtmlwww.doj.state.or.us/finfraud/index.shtml

(New feature! Searchable complaint database)(New feature! Searchable complaint database)

““Traditional” mortgage fraudTraditional” mortgage fraud

Simple: Lie on application to get Simple: Lie on application to get loanloan

Complex: Conspiracy among Complex: Conspiracy among agent, broker, appraiser, straw agent, broker, appraiser, straw buyers to over-borrow, avoid buyers to over-borrow, avoid repayment, strip equity, repayment, strip equity, manipulate housing pricesmanipulate housing prices

““New Wave” mortgage fraudNew Wave” mortgage fraud

Not so many mortgagesNot so many mortgages Changes: stricter underwriting Changes: stricter underwriting

standards, unknown pinch-appraiser standards, unknown pinch-appraiser Many mortgage brokers left industryMany mortgage brokers left industry Industry shift: foreclosure rescue, Industry shift: foreclosure rescue,

loan mods, other productsloan mods, other products

COMMON COMMON

“FORECLOSURE RESCUE”“FORECLOSURE RESCUE”

SCENARIOS SCENARIOS

AKA: “Facing foreclosure?AKA: “Facing foreclosure?Give us your money,Give us your money,

and we’ll get you a loan mod.”and we’ll get you a loan mod.”

The Advance Pay ScamThe Advance Pay Scam

““Foreclosure Consultants” 646A.700Foreclosure Consultants” 646A.700

Advance fee: violation of law for Advance fee: violation of law for “foreclosure consultants” to collect “foreclosure consultants” to collect money in advancemoney in advance

Other HB 3630 requirements: written Other HB 3630 requirements: written contract, refund when requested, contract, refund when requested, explicit disclosuresexplicit disclosures

Provides UTPA, criminal penaltiesProvides UTPA, criminal penalties OR-licensed lawyers, mortgage brokers, OR-licensed lawyers, mortgage brokers,

real estate agents, escrow real estate agents, escrow agentsagents“acting within the scope of “acting within the scope of license” exemptlicense” exempt

Debt Management Service ProvidersDebt Management Service Providers

Advance fee prohibition ($50 initial consult)Advance fee prohibition ($50 initial consult) Must get bondMust get bond Must Must registerregister with Division Finance & Corp with Division Finance & Corp

SecuritiesSecurities http://http://dfcs.oregon.gov/debt_mgmt.htmldfcs.oregon.gov/debt_mgmt.html Exemptions: Oregon mortgage brokers or OR Exemptions: Oregon mortgage brokers or OR

lawyers acting “incidental to practice of law”lawyers acting “incidental to practice of law” Third party short sellers NOT exemptThird party short sellers NOT exempt http://www.doj.state.or.us/finfraud/pdf/http://www.doj.state.or.us/finfraud/pdf/

short_sale_faqs.pdfshort_sale_faqs.pdf

““Forensic Loan Analysis”:Forensic Loan Analysis”:AKA “We’re really, really, really not AKA “We’re really, really, really not

offering loan mods. Really.”offering loan mods. Really.”

Attempt to avoid state registration, bonding Attempt to avoid state registration, bonding requirements and advance-fee prohibitionsrequirements and advance-fee prohibitions

The productThe product: a review of loan documents for : a review of loan documents for “irregularities”, “irregularities”, e.g.e.g., RESPA, TILA, RESPA, TILA

If an irregularity is found, will refer to If an irregularity is found, will refer to someone to do the loan mod.someone to do the loan mod.

How much would you pay for this valuable How much would you pay for this valuable service?service?

Possible problems: unconscionable lack of Possible problems: unconscionable lack of disclosure of services, deceptive advertisingdisclosure of services, deceptive advertising

The Lease-Buyback ScamThe Lease-Buyback ScamAKA: “Facing foreclosure?AKA: “Facing foreclosure?

Let me hold onto your house for a while.”Let me hold onto your house for a while.”

The Pitch:The Pitch: Homeowner signs over title of house to “White Homeowner signs over title of house to “White

Knight”Knight” W.K. responsible for mortgage payments, tenant W.K. responsible for mortgage payments, tenant

pays rent to W.K.pays rent to W.K. Tenant has option to buy back property in X years Tenant has option to buy back property in X years

after credit or financial situation improvesafter credit or financial situation improves Benefit to homeowner? Stays in home, “retains” Benefit to homeowner? Stays in home, “retains”

home, no foreclosure, home, no foreclosure, hopehope..

The Lease-Buyback ScamThe Lease-Buyback Scam

The Problem:The Problem:Rent payments may be as onerous as mortgage Rent payments may be as onerous as mortgage payments. Late payment = eviction = loss of home.payments. Late payment = eviction = loss of home.Passing on of costs, sometimes hidden, e.g., Passing on of costs, sometimes hidden, e.g., insurance, taxes, maintenance/repairsinsurance, taxes, maintenance/repairsW.K. blocks the option: homeowner “fails to qualify W.K. blocks the option: homeowner “fails to qualify for credit”for credit”

The ScamThe Scam::equity strip (re-fi, 2equity strip (re-fi, 2ndnd mortgage) mortgage)sometimes out-and-out theft (W.K. collects rents, sometimes out-and-out theft (W.K. collects rents, doesn’t pay mortgage)doesn’t pay mortgage)Homeowner loses home, may still get foreclosureHomeowner loses home, may still get foreclosure

Short Sale IssuesShort Sale Issues

#1 #1 Question by Real Estate Brokers: Question by Real Estate Brokers: Can I negotiate a short sale on behalf of my Can I negotiate a short sale on behalf of my

client?client?

A: Depends. A: Depends. Make sure to fully disclose to all Make sure to fully disclose to all parties, seek proper legal advice, not violate real parties, seek proper legal advice, not violate real estate regs or other lawsestate regs or other laws

Problems with Short Sales:Problems with Short Sales: Third-party short sales: illegal collection of fees, Third-party short sales: illegal collection of fees,

unauthorized practice of law, unlicensed real estate unauthorized practice of law, unlicensed real estate activityactivity

RESPA or violations for failing to disclose feeRESPA or violations for failing to disclose fee Straw buyer, property transfer situationsStraw buyer, property transfer situations

Robo-signing, MERS,Robo-signing, MERS,“Find-the-Note”“Find-the-Note”

We seen a rise in Media and Internet reports of flaws in We seen a rise in Media and Internet reports of flaws in the foreclosure process. Here’s what’s described:the foreclosure process. Here’s what’s described:

Robosigners. Robosigners. Improper affidavits by bank employees who do Improper affidavits by bank employees who do not read or know what they signnot read or know what they sign

MERS. MERS. Mortgage Electronic Registration System is not a proper Mortgage Electronic Registration System is not a proper party in foreclosure.party in foreclosure.

Find-the-Note. Find-the-Note. Bank cannot produce the note on the house, Bank cannot produce the note on the house, so it can’t foreclose.so it can’t foreclose.

Problem?Problem? Not settled law. These foreclosure “defenses” are not Not settled law. These foreclosure “defenses” are not

guaranteed to succeed, and success only delays, not stops, guaranteed to succeed, and success only delays, not stops, foreclosure.foreclosure.

Scammers promising results will take your money, but will not Scammers promising results will take your money, but will not produce results.produce results.

Time towards these defenses may make your situation worse.Time towards these defenses may make your situation worse.

Senate Bill 628, (and 3130)Senate Bill 628, (and 3130)

Homeowner has right to Loan Homeowner has right to Loan Modification “Meeting” upon Notice of Modification “Meeting” upon Notice of ForeclosureForeclosure

Homeowner MUST return form asking Homeowner MUST return form asking for Loan Modification Meeting—even if for Loan Modification Meeting—even if already in loan mod considerationalready in loan mod consideration

Trustee must file Affidavit of Trustee must file Affidavit of Compliance with County Recorder 5 Compliance with County Recorder 5 days prior to saledays prior to sale

(No enforcement mechanism)(No enforcement mechanism)

My Bank Won’t Listen!My Bank Won’t Listen!Banks won’t help homeowners with Loan ModificationsBanks won’t help homeowners with Loan Modifications

Losing documentsLosing documents Temporarily mod won’t convert to permanent modTemporarily mod won’t convert to permanent mod Foreclosing during open loan modification considerationForeclosing during open loan modification consideration Giving conflicting informationGiving conflicting information No responseNo response

When dealing with a bank, always:When dealing with a bank, always: Keep precise records of Keep precise records of WhoWho you spoke with, you spoke with, WhenWhen you talked, you talked,WhatWhat was said was said Never send originals, always keep copiesNever send originals, always keep copies Be persistentBe persistent Point out specific regulations/laws violatedPoint out specific regulations/laws violated

Use Escalation Contacts: Use Escalation Contacts: HAMP, the Bank itself, Freddie/Fannie. HAMP, the Bank itself, Freddie/Fannie. File complaint with DOJ, DOJ has bank escalation contacts.File complaint with DOJ, DOJ has bank escalation contacts.

General Foreclosure info: http://foreclosurehelp.oregon.gov/General Foreclosure info: http://foreclosurehelp.oregon.gov/

Use Qualified Written RequestUse Qualified Written Request for information. for information. http://www.hud.gov/offices/hsg/ramh/res/reslettr.cfmhttp://www.hud.gov/offices/hsg/ramh/res/reslettr.cfm

File a ComplaintFile a Complaint

Oregon Department of JusticeOregon Department of Justice Hotline: 877 877 9392Hotline: 877 877 9392 www.doj.state.or.uswww.doj.state.or.us

Division of Finance and Corporate SecuritiesDivision of Finance and Corporate Securities350 Winter St. NE, Rm. 410 350 Winter St. NE, Rm. 410 Salem, OR 97301-3881 Salem, OR 97301-3881 Phone: 503-378-4140 or 503-378-4387Phone: 503-378-4140 or 503-378-4387http://http://www.cbs.state.or.us/dfcswww.cbs.state.or.us/dfcs//