With an estimated 81,000 foreclosures filed in California for the month of February, homeowners — many of whom are newly unemployed or have experienced steep mortgage rate hikes — are growing desperate to save their homes.
|Rep. Maxine Waters conducted a congressional hearing last Saturday at Southwest Los Angeles College on the foreclosure crisis and schemes that are being used to defraud the public. (Photo by Gary McCarthy)
This despair has led many into the path of scam artists who charge exorbitant fees while making empty promises of rescuing distressed homeowners, a practice that was the topic of a congressional hearing convened by Rep. Maxine Waters Saturday.
“Families need stable housing during times of economic downturn,” said Waters during the hearing, held in an auditorium at L.A. Southwest College.
“Many people feel particularly vulnerable and anxious about their housing.”
Foreclosure scammers are specifically seeking those individuals out and gathering information about their histories through public information sites.
“Scammers actively victimize homeowners made vulnerable by the current economic crisis by trolling through free, publicly available databases where they find the names and addresses of people who have received default notices,” said Christian Abasto, managing attorney of the housing and eviction defense units at the Legal Aid Foundation of Los Angeles. “They then contact the homeowners and make them false promises to save their homes.
“These scammers also lure homeowners into contacting them by advertising their ‘foreclosure prevention services’ in the local print, television and radio media,” he added. “With all the coverage of President Obama’s recently announced loan modification program, homeowners are more hopeful than ever that they can save their houses. The scammers manipulate this hope to lure the vulnerable homeowners into the rescue scam by making elaborate promises to contact lenders and to negotiate loan modifications for the homeowners that they promise will save them from foreclosure.”
Victims, Abasto said, are more likely to be scammed this way because their messages are carried by trusted media outlets. “Unknowingly they fall victim to a fraud that will cost them their homes and life savings,” Abasto said. “Once the scammers get the money, they disappear. They do nothing for the homeowner [but] rob them of their last dollars and leave them in a more precarious situation than they were originally in.”
Scammers, he said, have charged homeowners upfront fees of between $1,500 and $2,500.
“No one should ever pay a dollar for consulting,” said Heather Peters, deputy secretary for business regulation for the state Department of Business, Transportation, and Housing. “This is available through the government.”
In addition, California law requires that licensed lawyers or real estate brokers provide the services most scams claim to offer.
Violating the Mortgage Foreclosure Consultants Act is a misdemeanor punishable by a year in prison or a $10,000 fine. Those providing services without a license are also in violation. That, too, is a misdemeanor and is punishable by six months in jail or a $20,000 fine for an individual and a $60,000 fine for a corporation.
Bringing scammers to justice, however, is difficult according to chief investigator Armando Fraga of the District Attorney’s Office of Fraud Division.
Currently there are only six real estate fraud investigators in Los Angeles County who handle thousands of fraud allegations. Often, by the time investigators get to each complaint, homeowners have already been evicted or wiped out their entire life savings trying to get additional help elsewhere.
In addition, mounds of paper work that must be filed separately slow down the process, as does the routine practice of scammers destroying all documents that might tie them to a crime.
In 2008, the Legal Aid Foundation’s consumer unit handled roughly 786 foreclosure, homeownership fraud and predatory lending calls and provided legal assistance to 373 homeowners at risk of losing their homes.
The firm has been using the bankruptcy courts to stop foreclosures.
“By filing an adversary proceeding in a bankruptcy case,” Abasto said, “LAFLA can bring in claims of truth-in-lending violations, forgery, fraud and other claims, that if successful, can greatly reduce, if not eliminate, the amount that our clients owe on the outstanding mortgage debt.”
Over the past three months, Beyond Shelter, a nonprofit agency dedicated to finding ways to combat homelessness, has seen a significant increase in the number of requests for emergency shelter.
“Caseworkers are seeing applications from many more couples with children, employees of real estate brokerages, and the recently unemployed trying to avoid foreclosures on their homes,” said Tanya Tull, president and CEO of Beyond Shelter. “The agency is currently receiving an average of 50 calls a day requesting eviction prevention funds.”
“In tracking the causes for requesting assistance, the agency noted that 47 percent are due to job losses, 19 percent are due to foreclosure of rental property,” she added. “And 33 percent are due to other reasons such as domestic violence, victims of a crime, exhausted benefits and/or savings, family and friends could no longer help, problems with landlords and unaffordable housing.”
Renters, both in rent-controlled and non-rent controlled units, are also victims.
Instead of being scammed by con artists, they are pressured by banks, landlords, real estate agents and lawyers to move.
Tenants in non-rent controlled units are given a 30- to 60-day notice before they have to move out or are evicted, while those in rent-controlled units cannot be evicted without just cause.
“Some financial institutions, their real estate agents and their attorneys, attempt to coerce tenants in rent controlled units into leaving their units by serving them with illegal notices, refusing to accept their rent, causing the interruption of utilities, and filing improper unlawful detainers,” Abasto said.
He added that families living in Section 8 housing are often the first to be targeted because their rent is subsidized by the government. Without those tenants, rent can be raised substantially.
An ordinance passed in December by the city of Los Angeles extends just cause eviction protections to all rentals, even those where ownership was obtained through foreclosure.
According to the County of Los Angeles Department of Consumer Affairs, “renters in the city of Los Angeles cannot be evicted solely because of a foreclosure, even if their rental unit is not under rent control.”
Larry Gross, executive director of the Coalition for Economic Survival, viewed the coercion as despicable and at the very least “contradictory.”
“Banks are unfairly evicting [tenants] solely by virtue of their misfortune of living in a foreclosed upon rental property,” Gross said. “Yet these same banks had no problem begging Congress for hundreds of billions of dollars in bailout funds — a bailout paid for by these same tenants and other taxpayers.”