Rising foreclosures fuel fraudulent offers of aid

updated 9:58 a.m. ET Jan. 30, 2007

OMAHA, Neb. - After Ivan Eicher lost his job, he and wife Delores fell several months behind on their house payments. Facing foreclosure, they accepted an offer from a company that promised to help them keep the home where they’d lived for more than 20 years.

Without realizing what they were doing, the couple ended up surrendering ownership of their home.

“It was just a really nice song and dance,” Delores Eicher said.

The Eichers are among the thousands of people who fall each year for offers that promise to help them avoid foreclosure but that leave them with none of the equity they had built up in their property. Their situation matches one of the three common models of foreclosure fraud the National Consumer Law Center has described in a report on the growing problem.

The number of foreclosures reported nationwide soared 42 percent in 2006 to 1.26 million, according to RealtyTrac, an Irvine, Calif.-based company that tracks foreclosures. That creates opportunities for more foreclosure fraud, although the exact number of cases is difficult to determine because they are generally lumped in with other kinds of fraud in crime reports.

The Eichers thought they were taking out a $1,700 loan to help them pay the roughly $4,700 in back payments they owed on their mortgage. They learned too late they had signed their house over to Mid-America Financial Investment Corp. and agreed to lease their home from Mid-America when they accepted that loan.

Although the couple no longer owned their home, the mortgage remained in their names, so they made their $554 payments on the loan through Mid-America, along with monthly fees of at least $100.

Elizabeth Renuart, a staff attorney at the National Consumer Law Center who co-wrote the report on foreclosure fraud, said such schemes are popular in areas of the country where home values have soared, but any homeowner who has been paying down a mortgage for many years will have significant equity and can become a target.

A second scheme described in the report involves consultants charging high fees to help homeowners out of trouble but never delivering the promised services. A third involves an agreement in which a homeowner knowingly signs over the home and agrees to buy it back over time, but the terms of the agreement make it nearly impossible for the homeowner to succeed.

The Eichers became part of a lawsuit against Mid-America in 2001. They eventually won the title to their home back after the Nebraska Supreme Court ruled in 2005 that Mid-America had defrauded them and 12 other homeowners in the Omaha area.

TIPS FOR AVOIDING FORECLOSURE FRAUD Foreclosure fraud is becoming a common problem in the United States, according to experts and law enforcement officials. Homeowners can lose all the equity in their homes or their homes as part of these scams, which are sometimes called “foreclosure rescue scams.” Here are some tips on how to avoid these scams: — Try contacting the mortgage lender to work out a payment plan if you are having trouble meeting your mortgage. — Don’t sign any documents before reviewing them carefully. — Be aware that signing any kind of deed, such as a warranty deed or quit claim deed, means you are selling your home. — Contact a private attorney or housing counselor approved by the U.S. Department of Housing and Urban Development to help review any documents before signing. Information about foreclosure and approved housing counselors is available at www.hud.gov/foreclosure or by phone at 800-569-4287. — Be suspicious of anyone who contacts you first or offers “bargain loans” or “easy credit.” Colorado Attorney General’s office

Scott Bloemer and Elaina Hollingshead, who run Mid-America, did not respond to The Associated Press’ requests for comment. Bloemer and Hollingshead defended their business practices in court and argued that the paperwork the Eichers and others signed spelled out what was involved in the deals. But the courts ruled that Bloemer’s and Hollingshead’s testimony wasn’t credible.

Renuart said foreclosure rescue agreements can be difficult to decipher — even for an attorney.

“It’s hard to make heads or tails of these agreements,” she said.

That’s one reason why at least eight states have adopted laws designed to help protect consumers from the questionable practices some foreclosure consultants use. Nebraska’s legislature is considering adopting such legislation this year.

The laws vary, but generally all require the terms of these agreements to be spelled out in writing and offer homeowners a chance to cancel the agreements within a few days of signing them.

Nebraska’s proposed law is based on a Colorado law passed last year.

For most of 2006, Colorado was the state with the highest residential foreclosure rate in the nation, according to RealtyTrac. Colorado had one new foreclosure filing for every 376 households in December.

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