Fair Housing Lawsuit Settled Last Week for $280,000 + Retrofitting Costs

Here is another example of a recent settlement of a Fair Housing Act lawsuit brought by the United States Department of Justice (“DOJ”). I try to post case summaries in order to provide timely updates to real estate agents and brokers about the "dos and don'ts" under the Fair Housing Act, since fair housing is such an important issue.

On April 14, 2009, the DOJ settled a Fair Housing Act lawsuit that was brought against twenty-five defendants (individuals involved in the design and construction of various multi-family housing complexes) for failing to provide required accessible features for persons with disabilities at eleven multi-family housing developments in Kentucky. The lawsuit alleged that the individuals involved in the design and construction of twelve multifamily housing complexes discriminated on the basis of disability.

According to the lawsuit, the public and common use areas of those housing developments had steps leading to covered dwelling units, lacked walkway connections to covered dwelling units, lacked accessible parking, and had routes leading to covered dwelling units that were too steeply sloped to be accessible to persons who use mobility assistance devices. Inside the dwelling units, doors and hallways were insufficiently wide, thermostats were mounted too high, and bathrooms and kitchens lacked sufficient clear floor space for people who use wheelchairs.

The lawsuit arose as a result of a complaint to the DOJ by the Fair Housing Council, then a local Louisville, Kentucky non-profit organization that received funding from HUD.

Under the terms of the settlement, the defendants were required to pay all costs related to making the apartment complexes accessible to persons with disabilities and pay $255,000 to compensate individuals harmed by the inaccessible housing. The defendants were also filed $25,000 as a civil penalty to vindicate the public interest and undergo training on the requirements of the Fair Housing Act.

The retrofitting of the apartment complexes includes modifying walkways, removing steps, providing accessible curb ramps and parking, and providing accessible walks to site amenities, such as the clubhouses, pools, mailboxes and trash facilities. It also requires the defendants to replace inaccessible knob door hardware with levers, lower thermostats to accessible heights, and reconfigure bathrooms and kitchens.

Fair housing laws require equal access to housing, including equal access for persons with disabilities. The Fair Housing Act prohibits discrimination in housing based on race, color, religion, national origin, sex, disability and familial status.

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To learn more about fair housing issues (and many other real estate topics), please visit us at www.123ConEd.com. We are the leading online provider of Michigan real estate continuing education. All of our courses are fully approved and properly certified by the State of Michigan, and are offered online.

Discrimination in Housing Based Upon Sex, Including Sexual Harassment

Every real estate agent and broker should already know that the Fair Housing Act makes it unlawful to discriminate in housing on the basis of sex (among other things). What many real estate professionals do not realize, though, is that the Fair Housing Act's prohibition extends to sexual harassment.

In recent years, the United States Department of Justice ("DOJ") has been looking closely at sexual harassment in housing in its Fair Housing enforcement efforts. Women, particularly those who are poor, and with limited housing options, often have little recourse but to tolerate the humiliation and degradation of sexual harassment or risk having their families and themselves removed from their homes. The DOJ's enforcement program is aimed at landlords who create an untenable living environment by demanding sexual favors from tenants or by creating a sexually hostile environment for them. By this, the DOJ is seeking both to obtain relief (usually large monetary fines) for tenants who have been treated unfairly by a landlord because of sex and also deter other potential abusers by making it clear that they cannot continue their conduct without facing repercussions.

In addition, pricing discrimination in mortgage lending may also adversely affect women, particularly minority women. This type of discrimination is unlawful under both the Fair Housing Act and Equal Credit Opportunity Act.

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To learn more about fair housing issues (and many other topics affecting real estate professionals), please stop by our website at www.123ConEd.com. We are the leading online provider of continuing education courses to Michigan real estate agents and brokers. All of our courses are fully approved and properly certified by the State of Michigan.

Fair Housing Testing Program

As a real estate professionals, you need to be aware that there are "secret shoppers" scouting open houses and rental vacancies trying to catch real estate agents in a fair housing violation. Those "secret shoppers" are fair housing testers.

Fair housing testing is an invaluable tool used in measuring the practices of housing providers relating to the Fair Housing Act. Some unlawful housing discrimination practices can only be discovered through fair housing testing. Information gathered through fair housing testing can be used as evidence to support a client's administrative housing discrimination complaint with the Department of Housing and Urban Development ("HUD") or a private lawsuit against a housing provider. The United States Supreme Court has recognized and affirmed the important of fair housing testing in fighting housing discrimination.

In order to enforce fair housing laws, the Housing and Civil Enforcement Section of the Civil Rights Division of the United States Department of Justice ("DOJ"), brings suit to enforce the Fair Housing Act, which prohibits discrimination on the basis of race, color, religion, national origin, sex, disability, and familial status. The Fair Housing Act authorizes the DOJ to bring suits where investigations yield evidence of a pattern or practice of illegal housing discrimination.

In 1991, the DOJ's Civil Rights Division established a fair housing testing program and commenced testing in 1992. Testing refers to the use of individuals who, without any bona fide intent to rent or purchase a home, apartment, or other dwelling, pose as prospective buyers or renters of real estate for the purpose of gathering information, which may indicate whether a housing provider is complying with fair housing laws. The primary focus of the fair housing testing program has been to identify unlawful housing discrimination based on race, national origin, disability, or familial status.

The DOJ's Housing and Civil Enforcement Section employs various means to accomplish testing in local communities, including contracts with private fair housing organizations, contracts with individuals, and by using non-attorney DOJ employees throughout the country. The DOJ employees are volunteers who have been trained to participate as testers. Since 1992, the testing program has recruited and trained over 1,000 employees from various DOJ components throughout the nation to participate as testers. These are in addition to the numerous individuals retained by private fair housing organizations. The Housing and Civil Enforcement Section conducts numerous investigations simultaneously at any given time.

Testing is a method to determine whether or not a home seeker is treated differently in his or her search for housing. A person's race or national origin, for example, would be impermissible factors upon which to base a denial of an opportunity to purchase a home. Testing for housing discrimination involves individual testers posing as prospective home buyers or renters. Testers are paired and assigned profiles so that they are equally qualified to rent or purchase an apartment or home in question. They are similar in all respects except for one of the protected classes, such as race, color, religion, sex, handicap, familial status, national origin, age, or marital status. The experiences of testers are used to compare the treatment of one home seeker (protected class) to another (non-protected class). In this context, testing measures the difference in treatment afforded a home seeker as determined by the information and services provided by real estate firms, property management firms, Realtors, rental agents and others.

If differences are found that relate to race, color, religion, sex, handicap, familial status, national origin, age, or marital status, a housing discrimination is filed. Over the past thirteen years, the DOJ has filed 79 pattern and practice testing cases with evidence directly generated from the fair housing testing program. The vast majority of testing cases filed to date are based on testing evidence that involved allegations of agents misrepresenting the availability of rental units or offering different terms and conditions based on race, and/or national origin, and/or familial status. Of the 79 suits filed, 78 have been resolved. Of the 78 resolved cases, the Department has recovered more than $12 million, including over $2 million in civil penalties and over $10.3 million in other damages.

Don't be surprised if your next customer is actually a fair housing tester. And, don't be confident that you'll be able to spot a fair housing tester "from a mile away" as many agents think. As the fair housing testing program matures, the on-the-ground testers are better trained than ever and even more difficult to detect.

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To learn more about fair housing (and many other topics affecting Michigan real estate professionals), please visit us at www.123ConEd.com. We are the leading provider of online Michigan continuing education courses to real estate professionals.

List of Activities that Assistants (Who are Not Licensed Real Estate Salespersons) Can Perform in Michigan

Each year, Michigan real estate professionals make dozens of phone calls to the Michigan Department of Labor & Economic Growth ("DLEG") requesting information about activities that an unlicensed individual may perform. In an effort to provide guidance and to help reduce a broker's exposure to potential risk in the utilization of unlicensed assistants, the DLEG published a list of guidelines, which were modeled after an article written by Tom Kotzian (Macomb County Association of Realtors) and approved by Ann Millben (Licensing Administrator for Real Estate for the DLEG).

Here are the guidelines provided by the DLEG:

Unlicensed Assistants MAY:

• Assist licensees during an open house, performing the following functions as a "host" or "hostess"
  • Open the door and greet prospects as they arrive at the open house
  • Hand out prepared printed material
  • Have prospects sign a register (guest book) to record names, addresses and phone numbers for the listing
  • Accompany prospects through the home for security purposes (only the licensee should answer any questions pertaining to the material aspects of the house or its price and terms)
• Perform strictly clerical tasks
• Function as a courier in picking up or delivering documents on behalf of the employing licensee
• Note: Keys should not be given to unlicensed persons for the purpose of showing a listed property. Brokers are responsible for the properties in their listing inventory and should only give a key to a licensee who is able to show proper I.D. (e.g., valid pocket card and driver's license with photo)

Unlicensed Assistants MAY NOT:

• Independently show or demonstrate property to prospective buyers
• Make cold calls by telephone or in person to potential listers, purchasers, tenants or landlords
• Answer any questions on title insurance, financing or closings
• Independently hold open houses for brokers, or staff booths in home shows or fairs
• Solicit business through telephone prospecting
• Give additional information not included in prepared written promotional material that has been distributed to the public (e.g., newspaper ads, flyers, brochures)
• Represent themselves as an agent for a real estate broker or the owner/seller of property
• Have their name printed on business cards or stationery that would imply they are an agent for the real estate broker
• Conduct telephone solicitation calls. For example, if John Doe, an unlicensed assistant, calls and indicates he represents ABC Realty, one is led to believe the purpose of the call is to engage in real estate activities. The definition of broker and salesperson in the Occupational Code includes one who "lists or attempts to list." Therefore, a call by an unlicensed assistant identifying him or herself as a "representative" of a real estate company is an attempt to list even if specific terms are not discussed at that time.
• Perform any of the acts for which a license is required under Michigan Real Estate License Law. See M.C.L.A. 339.2501 et seq.)

Licensees who violate State license law by allowing unlicensed assistants to practice real estate on their behalf subject themselves to one or more of the following penalties:

• Placement of a limitation on the license
• Suspension of license
• Denial of license renewal
• Revocation of license
• A civil fine not to exceed $10,000 per offense
• Censure
• Probation
• Restitution.

(M.C.L.A. 339.602)

Brokers and managers must also be aware of their liability in allowing licensees to employ unlicensed assistants. Factors such as worker's compensation laws, agency law, income tax reporting and withholding requirements, sexual harassment, employment discrimination and a myriad of state and federal employment statutes must be carefully reviewed when allowing licensees to hire unlicensed assistants.

Brokers need to remember that they are responsible for the acts of their licensed salespersons and associate brokers and "shall not contract with an individual who is licensed to the broker so as to lose the authority to supervise the licensee." M.C.L.A. 339.22325. It is, therefore, the broker's responsibility to supervise all personnel acting under the scope of the broker's authority.

Brokers need to consider these issues when writing independent contracts with their salespersons and associate brokers. It is recommended that, prior to drafting any independent contract section on this subject, brokers consult with an attorney who is knowledgeable in employment discrimination and related employment laws. Good research and preparation will help avoid many of the problems addressed in this posting.

For more information or answers to specific questions, you should contact the DLEG directly by calling (517) 241-9288.

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Please visit us at www.123ConEd.com for all of your Michigan real estate continuing education needs. We are a leading online provider of continuing education courses to Michigan real estate agents and brokers.

Participants in Mortgage Fraud Scheme Sentenced to Prison

On February 4, 2009, four people were sentenced for their roles in schemes that fraudulently secured more than $2.6 million in mortgage loans in 2003, 2004 and 2005.

• Donald F. Green was sentenced to 36 months in prison, followed by five years of supervised release, and ordered to pay $1,282,514 in restitution to Stillwater Capital Partners and 23 victim banks, jointly with his co-conspirators, and ordered to pay $230,376 in restitution to the Internal Revenue Service (IRS). Mr. Green plead guilty to one count each of conspiracy, income tax evasion, and bank fraud.

• George T. Jordan was sentenced to 12 months and one day in prison, followed by three years of supervised release, 416 hours of community service, and ordered to pay $1,182,691 in restitution to ABN Amro. Mr. Jordan plead guilty to one count of conspiracy and one count of money laundering.

• Aryeh M. Schottenstein was sentenced to 42 months in prison, followed by three years of supervised release, 416 hours of community service, and ordered to pay $3,740,173 in restitution to the victim financial institutions. Mr. Schottenstein plead guilty to one count each of conspiracy and money laundering.

• Jeffrey M. Lieberman was sentenced to 16 months in prison, followed by three years of supervised release, and ordered to pay $400,000 in restitution to Stillwater Capital Partners. Mr. Lieberman plead guilty to one count each of conspiracy and money laundering.

Mr. Jordan was a real estate agent who generated a mortgage fraud scheme, selling houses at inflated prices and splitting the excess funds received from the mortgage lender with his co-conspirator, Mr. Griffin. Mr. Schottenstein and Mr. Lieberman solicited funds from private investors interested in renovating houses in distressed neighborhoods. A substantial amount of those funds was used to purchase houses from Mr. Green, who owned hundreds of houses in distressed areas of Columbus, Ohio, at prices well in excess of their true values. Mr. Griffin helped locate “straw buyers” for those houses and also received funds for renovation purposes.

Mr. Schottenstein and Mr. Lieberman owned a company called Parkview Bank. One of Parkview Bank’s business purposes was to locate financing for real estate investors seeking to buy and renovate houses in Columbus. Parkview Bank needed a source for the financing for this venture. In 2003, Mr. Schottenstein and Mr. Lieberman met with the managing partners for Stillwater Asset Backed Fund to convince them to provide the funding. They were successful. Parkview Bank and Stillwater Asset Back Fund entered into an agreement whereby Stillwater Asset Bank Fund would provide the funding for Parkview Bank’s deals

Rather than abide by the agreement and locate legitimate investors, Mr. Schottenstein used Mr. Griffin to recruit straw-buyers to pose as real estate investors. Using straw-buyers was quicker and easier than locating legitimate real estate investors thereby making it easier to generate more loan origination fees. The straw-buyers were told by Mr. Griffin they did not need to renovate the houses or make monthly interest payments. Mr. Griffin assured them he would take care of all the details.

Mr. Griffin also recruited straw buyers in 2002 and 2003 for Jeff Pearson, now deceased. Mr. Pearson bought dozens of low-income distressed houses in Columbus for amounts at or near their fair market value. The houses were in need of renovation. Very little if any renovation was done to the houses. The houses were sold to Mr. Griffin’s straw-buyers for two to three times the amounts Mr. Pearson had paid only a few weeks or months earlier. Despite having good credit, the straw-buyers usually had little income. At the closing on the straw-buyers’ purchases of the houses, the title companies issued large checks payable to Mr. Pearson as proceeds from the sales.

All four men we sentenced to lengthy prison terms for their involvement in this complex mortgage fraud case.

Kansas Real Estate Agent Gets 12+ Years in Federal Mortgage Fraud Case

Here is yet another example of a mortgage fraud scheme.

On January 10, 2009, David Kostelec, a Kansas real estate agent, was sentenced to 154 months (that's 12.8 years) in federal prison and ordered to pay $1.3 million in restitution for leading a scheme to fraudulently acquire $12 million in home loans.

Mr. Kostelec plead guilty in October 2008, to one count of conspiracy to commit wire fraud and money laundering, one count of wire fraud, one count of providing false information to lenders and one count of aggravated identity theft.

In his plea, Mr. Kostelec admitted that, from 2002 through 2005, he and others conspired to defraud lenders by submitting fraudulent loan applications and false real estate appraisals and attempted to conceal the crimes by laundering the money through accounts at various banks.

Mr. Kostelec submitted false and fraudulent appraisal reports to lenders containing inflated property values and forged signatures of licensed appraisers. Conspirators stole the identities of licensed appraisers by searching the Internet for information including the appraisers’ state license numbers.

After closing, the conspirators used straw entities including Alexandra Enterprises and Hyde Park Development to receive the money from escrow companies. Then they moved the money to personal accounts.

As part of his plea agreement, Mr. Kostelec admitted the following:

• In July 2002, he submitted a fraudulent appraisal inflating the value of a house in the 1800 block of Timber Valley Drive in Linn Valley, Kansas.

• In April 2003, he submitted a false loan application in his son’s name claiming his son was the owner of a house in the 1600 block of N. 24th Street in Kansas City, Kansas. In fact, Andrew Kostelec lived with David Kostelec at another address.

• In July 2004, he fraudulently caused a lender to deposit $57,101 into an escrow account in Kansas for the purchase of a house in the 2000 block of Cypress in Kansas City, Kansas.

• In October 2005, he submitted a loan application falsely stating that the borrower had an income $15,221 a month. In fact, the borrower made significantly less and lived mainly on Social Security retirement benefits.

• In January 2008 he falsely stated he had power of attorney to obtain a loan in his son’s name for $575,000 for the purchase of real estate properties in Kansas City, Missouri, and Miami, Florida.

Deceptive Mortgage Ads (What They Say and What They Leave Out)

As real estate professionals, we are often asked to help prospective home buyers find a mortgage broker to help them get financing in order to buy a home. We are also sometimes asked for recommendations when someone simply wants to refinance a current loan. Because of this, we need to be aware of the numerous mortgage scams out there right now so we do not inadvertently send an unwitting client (buyer) to a deceptive mortgage broker.

You may have seen or heard ads with offers of low rates or payments. Whether you see them on the Internet, on television or in the paper, or whether they come by fax or mail, some of these ads look like they’re from a mortgage company or a government agency. Regardless of where you see the ads, remember that while the offers are tempting, some are terribly flawed -- they don’t disclose the true terms of the deal as the law requires.

The Federal Trade Commission ("FTC") advises that when shopping for a home loan, it’s important to understand all the terms and conditions of a proposed loan. Always start with what is in the ad itself. Make sure to read what’s between the lines as well as what’s in front of your eyes.

What The Ads Say

To help you recognize an offer that may be less than complete, you need to know the ";buzz words"; that should trigger follow-up questions, as well as information to insist on after you’ve read an ad. Here are a few examples of buzz words (underlined) that should catch your attention:

• A Low “Fixed” Rate: Ads that tout a “fixed” rate may not tell you how long it will be “fixed.” The rate may be fixed for an introductory period only, and that can be as short as 30 days. When you shop for a mortgage, you need to know when and how your rate, and payments, can change.

• Very Low Rates: Are the ads talking about a “payment” rate or the interest rate? This important detail may be buried in the fine print, if it’s there at all. The interest rate is the rate used to calculate the amount of interest you will owe the lender each month. The payment rate is the rate used to calculate the amount of the payment you are obligated to make each month. Some offers advertise a low payment rate without telling you that it applies only during an introductory period. What’s more, if the payment rate is less than the interest rate, you won’t be covering the interest due. This is called “negative amortization.” It means that your loan balance is actually increasing because you’re not paying all the interest that comes due, and the lender is adding the unpaid interest to the balance you owe.

• Very Low Payment Amounts: Ads quoting a very low payment amount probably aren’t telling the whole story. For example, the offer might be for an Interest Only (I/O) loan, where you pay only the amount of interest accrued each month. While the low payment amount may be tempting, eventually, you will have to pay off the principal. Your payment may go up after an introductory period, so that you would be paying down some of the principal – or you may end up owing a “balloon” payment, a lump sum usually due at the end of a loan. You must come up with the money when a balloon payment is due. If you can’t, you may need another loan, which, in turn, means new closing costs, and potentially points and fees. And if housing prices are falling, you might not be able to refinance to lower your payments.

• Mortgage rates near 30-year lows! Rates as low as 1%! You are paying too much! Who doesn’t want to reduce their mortgage payments? Loan amount $300,000 - pay only $900 per month!: Ads with “teaser” short term rates or payments like these don’t often disclose that a rate or payment is for a very short introductory period. If you don’t nail down the details in advance about your rates and payments for every month of the life of your loan, expect payment shock when the rate and payment increase dramatically.

• Important Notice From Your Mortgage Company. Open Immediately - Important Financial Information Enclosed. Please do not discard - account information enclosed: Appearances can be deceiving. Mailers that have information about your mortgage and your lender may not be from your lender at all, but rather from another company that wants your business. Companies can legally get your information from public records. Before you respond to any offer, review it carefully to make sure you know who you’re dealing with.

• You are eligible to take part in an exclusive interest rate reduction program. This financial institution has been licensed to negotiate your existing adjustable mortgage to a new fixed rate mortgage. You must contact us immediately regarding this notice: Some businesses use official-looking stamps, envelopes, forms, and references to make you think their offer is from a government agency or program. If you’re concerned about a mailing you’ve received, contact the government agency mentioned in the letter. If it’s a legitimate agency – and not one that just sounds like a government agency – you’ll find the phone number in the Blue Pages of your telephone directory.

What the Ads Don’t Say

The APR: The Annual Percentage Rate is a critical factor in comparing mortgage offers from different lenders. It is the total cost of the credit expressed as a yearly interest rate. This rate is different than the simple interest rate on your loan note, because the APR includes all costs of the credit such as points and processing fees. Knowing the APR makes it easier to compare “apples to apples” when considering mortgage offers. Look for the APR for the loan. The amount may not be in the ad at all; it may be hidden in the fine print, or it may be available deep within a website after multiple clicks.

Important Payment Information: It’s hard to know what you don’t know, and often some of the most important information you need isn’t in the ad, is hidden in the fine print, or is available only at a website after many clicks. To make an informed judgment about any mortgage offer, you need to know (or ask):

• What will the monthly payment be for every month of the loan, and could it increase? When could it increase? What would your new payment be? Could your monthly payment increase more than once?

• Does the monthly payment include an escrow amount to pay for your property taxes and homeowners insurance? Or must you pay these costs on your own? If you have to pay on your own, ask your lender for an estimate so you can budget accordingly.

• What is the term of the loan (for example, 15 years? 30 years?)? How many payments will you have to make? Would the loan be paid off at the end or would you still owe a “balloon” payment?

• Will you have to pay prepayment penalties to refinance and pay off the loan early? If so, how much, and when would they apply? If the loan has an introductory or teaser rate, can you refinance, without penalties, before the rate resets and your payment increases?

For More Information

The Federal Reserve Board has several helpful publications and a mortgage comparison calculator at www.federalreserve.gov/consumers.htm. You can also contact your local attorney general office.

Denver Real Estate Agent Sentenced to Federal Prison for Mortgage Fraud Scheme

Here is yet another example of a mortgage fraud scheme.

On February 6, 2009, Colorado real estate agent Linda Edwards was sentenced to 41 months in prison, ordered to pay $646,521 in restitution, and forfeit $139,854 for wire fraud, false statements, and false use of a Social Security number. Ms. Edwards was indicted in February 2005 and found guilty following a jury trial in July 2008.

According to the criminal indictment, Ms. Edwards, aided and abetted by others, devised a scheme to defraud and to obtain money and property by means of fraudulent representations and promises from mortgage companies that funded federally insured loans. As part of the scheme, Ms. Edwards, and others working with her, located buyers to buy residences, but were unable to qualify for a mortgage using the buyers’ accurate credit history, income and employment, and/or other financial information.

Ms. Edwards, and others working with her, would assist the buyers who could not legitimately qualify for an FHA-insured mortgage by: (i) obtaining a false Social Security number for the buyer, which would conceal the buyer’s unfavorable credit history; (ii) creating false W-2s or other income documents, which would inflate or wholly create income that would purportedly be available for the buyer to make mortgage payments; (iii) creating false verifications of rent (“VOR”) or employment (“VOE”) to support false information about the buyer; (iv) creating false alternate credit letters, which would create an appearance that the buyer had a history of paying debts timely; and (v) creating false “gift letters,” which falsely stated that the buyer had an appropriate source of funds for the down payment, and/or other false financial information.

Some people never cease to amaze me with the lengths they will go to to make a few dollars.

Attorney Sentenced in Mortgage "Rescue" Scheme

On March 24, 2009, in Richmond, Virginia, attorney Colin C. Connelly was sentenced to 24 months in prison and ordered to pay $376,464 in restitution to the victims of his criminal conduct for a mortgage "rescue" scam.

According to criminal court records, Mr. Connelly was involved with others in a mortgage fraud conspiracy that spanned from February through November 2007. During that time period, Mr. Connelly owned and operated a law firm called Connelly & Associates, P.C. Acting through that business, Mr. Connelly assisted representatives from Walkwood Properties, Inc. in closing a number of housing transactions under Walkwood Properties’ real estate purchase program. This program offered various homeowners an opportunity to sell their home to someone associated with Walkwood Properties in an attempt to save the home from foreclosure.

As Mr. Connelly has admitted, however, the real estate purchase program was executed without full disclosure of how each transaction worked and a significant portion of the equity in the victim’s homes was skimmed to Walkwood Properties and other entities. In executing the scheme, Mr. Connelly assisted representatives from Walkwood Properties in making a number of false representations in connection with the transactions to allow the loans to go through. In connection with his guilty plea, Mr. Connelly agreed that if the true nature of the transactions had been revealed to the mortgage lenders, the loans would not have been approved.

Overall, Mr. Connelly agreed to his involvement in six different mortgage transactions resulting in a total loss of $376,464. He was sentenced to twenty-four months in prison.

Foreclosure rescue scams are a huge potential problem for vulnerable homeowners in distress. If a homeowner thinks that he/she has been a victim of foreclosure fraud, contact:

• Federal Trade Commission
• Your state Attorney General
• Your local Better Business Bureau

Beware of Foreclosure Rescue Scams – Help is Free!

Foreclosure rescue scams are yet another potential stress for homeowners in distress.

The possibility of someone losing a home to foreclosure can be terrifying. The reality that scam artists are preying on the vulnerability of desperate homeowners is equally frightening. Many so-called foreclosure rescue companies or foreclosure assistance firms claim they can help a homeowner save their home. Some are brazen enough to offer a money-back guarantee. Unfortunately, once most of these foreclosure fraudsters take the homeowner's money, they leave the homeowner much the worse for wear.

Fraudulent foreclosure “rescue” professionals use half truths and outright lies to sell services that promise relief and then fail to deliver. Their goal is to make a quick profit through fees or mortgage payments they collect from the homeowner, but do not pass on to the lender. Sometimes, they assume ownership of the homeowner's property by deceiving the homeowner. Then, when it’s too late to save the home, they take the property or siphon off the equity. The homeowner has then their home to foreclosure despite their best intentions.

How the Scams Work: Foreclosure rescue firms use a variety of tactics to find homeowners in distress: Some sift through public foreclosure notices in newspapers and on the Internet or through public files at local government offices, and then send personalized letters to homeowners. Others take a broader approach through ads on the Internet, on television, or in the newspaper, posters on telephone poles, median strips and at bus stops, or flyers or business cards at homeowners' front doors. The scam artists use simple and straight-forward messages, like:

• “Stop Foreclosure Now!”
• “We guarantee to stop your foreclosure.”
• “Keep Your Home. We know your home is scheduled to be sold. No Problem!”
• “We have special relationships within many banks that can speed up case approvals.”
• “We Can Save Your Home. Guaranteed. Free Consultation”
• “We stop foreclosures everyday. Our team of professionals can stop yours this week!”

Once they have the homeowner's attention, they use a variety of tactics to get the homeowner's money:

Phony Counseling or Phantom Help: The scam artist tells the homeowner that he can negotiate a deal with the homeowner's lender to save the house if the homeowner pays a fee first. The homeowner may be told not to contact his/her lender, lawyer, or credit counselor, and to let the scam artist handle all the details. Once the homeowner pays the fee, the scam artist takes off with the money.

Sometimes, the scam artist insists that the homeowner make all mortgage payments directly to him while he negotiates with the lender. In this instance, the scammer may collect a few months of payments before disappearing.

Bait-and-Switch: The homeowner thinks that he/she is signing documents for a new loan to make his/her existing mortgage current. This is a trick: the homeowner just signed documents that surrender the title of his/her house to the scam artist in exchange for a “rescue” loan.

Rent-to-Buy Scheme: The homeowner is told to surrender the title as part of a deal that allows the homeowner to remain in his/her home as a renter, and to buy it back during the next few years. The homeowner may be told that surrendering the title will permit a borrower with a better credit rating to secure new financing – and prevent the loss of the home. But the terms of these deals usually are so burdensome that buying back the home becomes impossible. The homeowner loses the home, and the scam artist walks off with all or most of the home’s equity. Worse yet, when the new borrower defaults on the loan, the former homeowner is evicted.

In a variation, the scam artist raises the rent over time to the point that the former homeowner can’t afford it. After missing several rent payments, the renter – the former homeowner – is evicted, leaving the “rescuer” free to sell the house.

In a similar equity-skimming situation, the scam artist offers to find a buyer for the homeowner's home, but only if the homeowner signs over the deed and moves out. The scam artist promises to pay the homeowner a portion of the profit when the home sells. Once the homeowner transfers the deed, the scam artist simply rents out the home and pockets the proceeds while the homeowner's lender proceeds with the foreclosure. In the end, the homeowner loses his/her home (and is still responsible for the unpaid mortgage). That’s because transferring the deed does nothing to transfer your mortgage obligation.

Fraudulent foreclosure “rescue” professionals use half truths and outright lies to sell services that promise relief and then fail to deliver.

Bankruptcy Foreclosure: The scam artist may promise to negotiate with the homeowner's lender or to get refinancing on the homeowner's behalf if the homeowner pays a fee up front. Instead of contacting the lender or refinancing the loan, though, the scam artist pockets the fee and files a bankruptcy case in the homeowner's name – sometimes without the homeowner's knowledge.

A bankruptcy filing often stops a home foreclosure, but only temporarily. What’s more, the bankruptcy process is complicated, expensive, and unforgiving. For example, if the homeowner fails to attend the first meeting with the creditors, the bankruptcy judge will dismiss the case and the foreclosure proceedings will continue.

If this happens, the homeowner could lose the money he/she paid to the scam artist as well as his/her home. Worse yet, a bankruptcy stays on the homeowner's credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job.

Where to Find Legitimate Help: If a homeowner is having trouble paying his/her mortgage or has gotten a foreclosure notice, the homeowner should contact his/her lender immediately. The homeowner may be able to negotiate a new repayment schedule. Remember that lenders generally don’t want to foreclose; it costs them money.

Other foreclosure prevention options, including reinstatement and forbearance, are explained in Mortgage Payments Sending You Reeling? Here’s What to Do, a publication from the FTC. Find it at www.ftc.gov.

The homeowner may contact a credit counselor through the Homeownership Preservation Foundation (HPF), a nonprofit organization that operates the national 24/7 toll-free hotline (1.888.995.HOPE) with free, bilingual, personalized assistance to help at-risk homeowners avoid foreclosure. HPF is a member of the HOPE NOW Alliance of mortgage servicers, mortgage market participants and counselors. More information about HOPE NOW is at www.hopenow.com.

Red Flags: If a homeowner is looking for foreclosure prevention help, avoid any business that:

• guarantees to stop the foreclosure process – no matter what the circumstances
• instructs the homeowner not to contact his/her lender, lawyer, or credit or housing counselor
• collects a fee before providing the homeowner with any services
• accepts payment only by cashier’s check or wire transfer
• encourages the homeowner to lease his/her home so he/she can buy it back over time
• tells the homeowner to make his/her mortgage payments directly to it, rather than to the homeowner's lender
• tells the homeowner to transfer your property deed or title to it
• offers to buy the homeowner's house for cash at a fixed price that is not set by the housing market at the time of sale
• offers to fill out paperwork for the homeowner
• pressures the homeowner to sign paperwork that the homeowner hasn’t had a chance to read thoroughly or that the homeowner doesn't understand.

If a homeowner is having trouble paying his/her mortgage or has gotten a foreclosure notice, the homeowner should contact his/her lender immediately.

Report Fraud: If a homeowner thinks that he/she has been a victim of foreclosure fraud, contact:

• Federal Trade Commission
• Your state Attorney General
• Your local Better Business Bureau