Scam warning for distressed homeowners
SolutionWorks Homes (www.mysolutionworks.com) is a private real estate company that has been providing an informative, dignified and productive experience to homeowners throughout the metro St. Louis area since 2003 by buying distressed or special needs properties. The company’s expertise lies in solving difficult real estate problems for sellers, one of which is purchasing properties from owners who can no longer afford to keep them, such as in many foreclosure situations.
Whether the owner’s financial situation is due to predatory lending practices, lack of budgeting and financing literary, or a personal tragedy such as loss of employment or illness in the family, the result is the same- a threat to home ownership and personal credit.
Two common scams
By the time a financially stressed homeowner wakes up and realizes their lender has set a sale date for their home, they are often at their wit’s end and desperate for someone to help them. This makes them vulnerable to a plethora of scam artists who have cropped up, offering miraculous solutions for the frantic homeowners.
Two of the most common scams seen in St. Louis, according to Aufiero, involve complicated scenarios in which “investors” offer to temporarily refinance the house in exchange for the deed or to purchase the home and then sell it back to the owner. SolutionWorks Homes gets calls daily from homeowners who have fallen prey to these two schemes.
“We’ve seen a tremendous increase in this sort of scam recently,” said SolutionWorks Vice President, co-owner Caya Aufiero. “Homeowners often call us after the fact, hoping we can help, but by then it’s too late. It’s unfortunate, but a little bit of research in the beginning might have prevented the problem. When I hear these folks’ stories I could just cry.”
Both scenarios were recently detailed in a story published in the New York Times (July 3, 2007). In each case, the homeowner is told they will be able to keep, or stay, in their home, but they almost always end up losing it. The monthly payments suddenly become incredibly high. Or the “straw buyer” who purchased the home -and may also have borrowed against any equity in it- agreeing to rent or sell back to the original owner, stops paying the mortgage and the homeowner ends up being evicted when the house is eventually foreclosed. This particular practice is called “equity stripping”, but there are an infinite number of subtle variations on the basic scam.
The first step
SolutionWorks Homes advises homeowners who are experiencing difficulty paying their mortgage to first educate themselves about their options, as soon as they see they are heading toward trouble. If the owner’s goal is to keep the home they should speak to their lender as early as possible. In 2005, Roper Public Affairs and Media found an astounding statistic in a survey conducted for Freddie Mac with more than 2,000 homeowners: more than 50% of borrowers in danger of foreclosure never contact the lender for help, and in fact, avoid the lender's efforts to contact them to discuss the situation. Freddie Mac is one of the nation's largest residential mortgage investors.
Many people bury their heads in the sand and hope that things will somehow right themselves, but that’s typical avoidance behavior and usually produces the opposite of the result desired. Call your lender earlier if your goal is to keep the house, since you might be eligible for their “loan modification” and “forbearance” programs.
If a homeowner chooses to work with someone outside of the lender offering a solution to his financial problem, there are several steps the careful homeowner should take to protect himself or herself.
SolutionWorks Homes recommends the homeowner use extreme caution and research their selection as they would, for example, when hiring a contractor. “There are some good, honest companies out there. But there are many people in the market today calling themselves ”foreclosure consultants” or “private investors”, who are in fact scam artists and thieves in disguise. And just because someone holds a license – such as a real estate license or is a practicing attorney, doesn’t mean they are automatically reliable. As in any industry, there are some who are reputable and some who are not. It’s ultimately incumbent upon the consumer to protect herself. ” said Aufiero.
While the increasing number of mortgage defaults in the current real estate market presents a genuine and legitimate business opportunity, the emotional nature of a foreclosure opens the door wide to exploitation by unscrupulous scammers, or just plain incompetence. Socially responsible, for-profit businesses can fill a much needed void in the foreclosure avoidance solution, since they have access to resources that many non-profits may not have.
SolutionWorks suggests that homeowners check a prospective company’s track record with the Eastern Missouri Better Business Bureau (www.stlouis.bbb.org/) and also ask to speak to some previous clients. Do your due diligence to determine if the company is trustworthy or not. A company’s business ethics and experience are critical.
Keeping the homeIf it’s all too overwhelming, there are many non-profit resources that may help the homeowner connectand negotiate with their lender. The Homeownership Preservation Foundation (www.995hope.org) and ACORN (www.acorn.org) both offer help to homeowners wishing to keep their homes. Their assistance is usually in the form of negotiating a repayment plan with the lender if the borrower is capable, not as a cash loan. But be prepared, there is a huge number of people needing these services and the non-profits have limited resources. Time is very important in Missouri since state law requires only a 21 day publication notice by the lender prior to selling the house at public auction.If it’s all too overwhelming, there are many non-profit resources that may help the homeowner connect If the goal is to keep the home, you might be eligible for “forbearance” or “loan modification” programs offered by your lender. It’s critical to call the lender early on, because even if the borrower might qualify, any delay in applying could mean the lender just doesn’t have enough time before the auction to review the plan. However, dealing with lenders can be frustrating and time consuming, even if you are the borrower. It means spending hours navigating the lender’s complex phone system and cumbersome departmental structure, filling out financial forms in a tight timeline, understanding the Missouri foreclosure process and possibly dealing with the lender’s foreclosing attorney.
When selling the home is the best option
If a homeowner truly cannot afford to keep the home, there are several options he can explore that will be preferable to losing it to the lender’s foreclosure auction. Foreclosure has several long lasting consequences, including loss of credit, and the possibility of a deficiency judgment, that can be devastating to a homeowner. To avoid such outcomes, one effective option is a pre-foreclosure sale, often involving a discounted payoff of the mortgage loan. This can be done through listing the home with a real estate agent and hoping for a buyer to come along in time, or selling directly to an end buyer. “In 95% of these transactions the house is upside down on value versus loan amount, so that means negotiating discounts with the lender and any other lien holders to complete the transaction,” said Aufiero.
SolutionWorks, as an end buyer, deals daily with homeowners choosing this option. As the principal involved in the purchase, the company is not a real estate brokerage: it doesn’t list other people’s homes for sale and wait for a qualified buyer to materialize. SolutionWorks purchases homes directly from the sellers and their lenders, in an all-cash transaction. With 10 years of combined experience in structuring these transactions to meet all parties’ needs, the company and their staff are proud of the quality and efficacy of their efforts. “We think this is the best business in the world. We create win-win-win results and can make a living doing it. Our clients- the sellers we buy from- are the nicest people. They have found themselves in crushing circumstances. It’s very satisfying for us all to make a living doing something that also makes a big difference in people’s lives.” said Aufiero.
Often a successful purchase involves negotiating or paying city or county liens, judgments, IRS liens, and second or third mortgages. It may also mean coordinating the purchase process with a Chapter 7 or 13 bankruptcy the borrower may be in. “It requires a great deal of knowledge, expertise and a high degree of professionalism on our part in dealing with all these entities. Especially if a company wants to continue doing business with these lenders and in the St. Louis area over time“ said Aufiero.
There is never a guarantee that a lender will agree to a pre-foreclosure sale, but it is often the best option for the borrower and the lender. There are tremendous costs involved for a lender to foreclose. If they can recoup a similar amount of the debt by selling quickly, especially to an all cash buyer, it’s a smart financial decision for them.
While SolutionWorks does not give legal advice, based on their specialized experience with more than 20 national lenders, the company tries to determine the potential for success of the borrower’s stated goal on the first call. It’s a part of ascertaining whether the company will be able to purchase the house. SolutionWorks also works closely with reputable area bankruptcy attorneys and local non profit agencies when those routes seem they might be more appropriate for the borrower’s goals and needs. Any of these solutions may have associated consequences, which the homeowner should discuss with their financial advisor who will have the best overview of their financial picture.
Wrapping it all up
In summary, if a homeowner is not able to pay their mortgage, it’s important to do several things immediately, at the first sign of a possible problem. This will help avoid falling prey-out of desperation- to unrealistic solutions such as the equity stripping scams. Realistically assess your financial situation. Educate yourself about your options, talk to your lender early on and thoroughly research any third party company with whom you are considering working.