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American Bar Association - Defending Liberty, Pursuing Justice


Vol. 16, No. 3 & 4

Did You Know?



The Lie Behind Foreclosure Rescue

Stop Foreclosure Now!
Special relationships with investors!
Stay in your home!

What do these four phrases have in common? A four-letter word—quite a few, actually—but one we can print is “SCAM.”

Foreclosure scams can be simple: A homeowner pays someone who guarantees positive results, but the scammer does no work and the homeowner has no money left to pursue other options. If a potential client wants to pursue a case against this type of scammer, be sure to gather your evidence before filing any cases. Major bank servicers almost always claim that they never received the paperwork. Get the file from the potential scammer and see for yourself what work was done.

Start with a letter to the business requesting a return of the client’s payments. The damages beyond the homeowner’s payments are tough to prove. You must show that the homeowner would have gotten the modification and saved the home if it were not for the unhelpful foreclosure rescue operation.

Scams can also be much more complex, with a common scheme that goes like this:

A “rescuer” persuades the homeowner to transfer title to a straw buyer, usually another consumer who has been told he or she is acting as an “investor” to help people save their homes. The homeowner is told to make payments for a year, after which the home’s title will “revert back” to the original holder.

The straw buyer has good credit and after the property is transferred, the rescuer gets a loan in the straw buyer’s name. Money from this new loan pays off the original mortgage. The straw buyer is paid a small stipend—$5,000 is common. The new mortgage is usually significantly larger then the original, and after the straw buyer is paid, the remainder of the money goes to the “rescue” operation.

The homeowner may pay the new mortgage directly but more likely will end up paying the rescuer. At some point, payments to the new mortgage cease and the lender forecloses. The original homeowner is now a mere renter in the property and may not even get notice!

And, the straw buyer now has a foreclosure on his or her credit report. Although some straw buyers may be a part of the con, usually these are decent folks whose excitement at easy money—wrapped in the guise of “helping” people—got the better of their common sense.

I’ve had a case where a homeowner saw a news special about foreclosure rescue scams, realized she was in one, quit making the payments and (no surprise) was foreclosed upon and evicted. By the time she came to my office, the house had been sold to a bona fide purchaser who razed it. Although we sought payment from the scammers, they are con artists. My client lost more than $100,000 in equity; she’ll be lucky to get a small percentage back.

This leads to the obvious question: What can you do to help such victims?

If clients approach you for advice about a housing opportunity, look for signs that they are being used as straw buyers. If you recognize an individual as a straw buyer, be careful; this person may not have fully understood the implications of the deal when it was first proposed, but this individual is now a part of the con and could potentially be held criminally liable.

Victims of foreclosure rescue scams have common-law fraud claims against the scammers—all elements are present: false promises, the scammer knew they were false, and the homeowner relied on these claims to his or her own detriment. However your state defines it, this is a fraud. The problem is twofold: proving the damages and collecting.

The easiest way to calculate damage is the sum of the money paid out to the rescuer plus the homeowner’s equity at the time of the transfer. If the homeowner had done a simple sale prior to foreclosure instead of being “rescued,” what would be the gain? Those are the damages.

Depending on your state law, actual damages can include emotional distress. Do not be misled by defense counsel arguing that a homeowner was already distressed. “Kicking ‘em when they’re down” is not a defense and jurors know the difference between feeling horrible because you are likely losing a home versus feeling horrible about it being stolen from you.

Collection is the major issue. Many of these rescuers are more skilled in conning than finance. They invested their own money in the real estate market and are as broke as your clients.

Client selection is also important if you are going to take on a big fight. Borrowers who have no ability to make a mortgage payment of any amount do not seem to play well to judges who often find a way to bounce these cases or minimize the claims. If you go to court for clients who have not paid their mortgage for a few months, make sure they have at least some of that money saved—because if you do save someone’s house from a scam, it would be rewarding to save it from the bank as well.

In the end, going after the con artists who prey on homeowners in their hour of desperation is both noble and righteous, but take on a foreclosure-rescue-scam case with an expectation that it will be pro (or low) bono. Nevertheless, if the world can be made a better place by each person righting the wrongs immediately before him or her (and I believe it can!) then representing a victim of a foreclosure rescue scam is a worthwhile battle and one that may provide benefit to both client and counsel.

Amy Clark Kleinpeter is a solo practitioner in Austin, TX, where she specializes in consumer and litigation law. Contact her at

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