Foreclosure Rescue Scams

Mortgage Crisis Gives Rise to New Types of Fraud

Clinic students represented a 75-year-old man who, when faced with foreclosure because he could not afford mortgage payments, was approached by two businesses holding themselves out as foreclosure rescue specialists and debt re-negotiators.

The business promised to represent his interests in saving his property from foreclosure and in particular, promised to “deal with” a large IRS tax lien – but required him simultaneously to transfer his property to a trust they controlled, and to transfer his beneficial interest in the trust to them, in order to facilitate their foreclosure rescue services.   The promised outcome was a market sale of the property with the proceeds to go the client, less their fees.

When a sales offer and proposed division of proceeds revealed to our client that 2/3’s of the proceeds were to be paid in fees, he objected and attempted to reverse the transfer. The property had by now, via several subsequent transfers by quit-claim deed, been titled in the name of the foreclosure business principal and she served a 3-day notice to quit and vacate and then filed an unlawful detainer action to evict the client from his own house.

The clinic filed a lawsuit for the client alleging violations of the Credit Services Organization Act (RCW 19.134), which provides for punitive damages; the Debt Adjusting Act – RCW 18.28; and the Consumer Protection Act (RCW 19.86.090) as well as tort claims for intentional infliction of emotional distress and breach of fiduciary duty.

The Clinic first successfully defended the eviction action based on the theory that our client was in occupancy under color of title; or alternatively that he was a tenant at will. We then negotiated a settlement of our statutory and common law claims.  The settlement included money damages and a lease-option that permitted the client to avail himself of the refinancing of the property while ultimately regaining title.

The mortgage financing crisis will place an increasing number of homeowners in the same kind of jeopardy faced by our client.  There is an entire industry of bottom-fishing “investors” who seek to acquire property at substantial discounts to fair market value. This is a legal activity, unless and until such “investors” cross the line by holding themselves out as advisors and fiduciaries, using a promise to help as a scheme acquire property.  In Washington, if you promise a man drowning in debt a financial life preserver, and subsequently throw him an anchor that takes him under, be prepared to pay the price.