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09/21/10: Beware Foreclosure Rescue Scams

HOUSING COUNSEL

By: Benny L. Kass

Vincent Abell has been sued by the District of Columbia for violation of the District's Consumer Protection Act. The complaint, recently filed in the DC Superior Court, alleges that Abell has engaged in a series of unconscionable transactions with District homeowners desperate to save their homes from threatened foreclosure.

The lawsuit alleges that Abell - and his company Modern Management - has homeowners sign documents transferring their property to him, but instead of paying off the outstanding mortgage, he only pays the amounts needed to prevent the threatened foreclosures. The District further alleges that Abell profits by renting the house back to their former owners, usually at a rental amount that Abell knows the homeowner cannot pay. Ultimately, the homeowner is evicted, and Abell unconscionably profits by selling the house for a large profit.

The District of Columbia Court of Appeals - the highest court in the city - recently decided another case involving Abell and his management company. The facts in that case parallel the allegations raised in the District's lawsuit. Maria-Theresa Wilson suffered from health problems and was facing foreclosure. Calvin Baltimore - an independent contractor who works with Abell - approached Ms. Wilson and convinced her to transfer her house to Abell. In return, Wilson was allowed to rent back the house, but at an amount that actually exceeded the monthly mortgage that she was unable to pay in the first place.

Ultimately, Abell arranged to evict Ms. Wilson.

Wilson - through the assistance of pro-bono lawyers arranged by AARP's Legal Counsel for the Elderly - filed suit against Abell, Baltimore and Modern Management. A trial by jury awarded Wilson $60,000 in compensatory damages for common law fraud and for violations of the consumer protection act. The Judge - pursuant to that law - trebled that amount. The jury also awarded Ms. Wilson $2 million in punitive damages against Abell, $1.1 million against Modern Management and $200,000 against Baltimore.

On appeal, the Court of Appeals affirmed the judgments. In a 53 page decision, the Court provided a comprehensive analysis of the law on punitive damages. According to the Court, a key factor in upholding the large judgment "is the degree of reprehensibility of the defendant's conduct". In the Wilson case, "clearly the conduct involved here - a scheme to dupe Wilson out of the title to the home she owned for twenty-two years and fought desperately to keep - was reprehensible." (Modern Management Company v Wilson, decided June 3, 2010)

The column is not about Mr. Abell. The District's Attorney General and the Court will ultimately deal with him. I want readers to beware of foreclosure scams. According to the Maryland Office of the Commissioner of Financial Regulation, in addition to the Abell "lease buy back" situation, there are other types of "foreclosure rescue scams":

- the phantom helper. You are approached by a stranger who promises that for a fee, he will arrange to stop your foreclosure and renegotiate your loan. You are advise not to contact your lender. However, the scammer pockets your money and you never hear from him again.

- bait and switch. This is a variation on the Abell actions. A homeowner transfers title to the "rescuer" in an effort to stop the foreclosure. The homeowner has the right to buy back the house at a later date, but before this can happen, the home has already been sold to a third party, The scammer keeps the profit.

The Office of the Comptroller of the Currency (OCC) reports on other scam operations:

- fake "government" modification programs. You will be asked to pay a high up-front fee to qualify for one of the various State or Federal mortgage modification programs. However, there is no payment required for any of the legitimate governmental programs.

- bankruptcy. While it is true that filing for bankruptcy relief will stop a foreclosure, this does not necessarily mean that you have permanent relief. According to the OCC, eventually "you must start paying your mortgage lender, or the lender will be able to foreclose., Bankruptcy is rarely, if ever, a permanent solution..."

- debt elimination schemes: there are scammers who will provide you - again for a fee - with false claims that you can avoid paying your mortgage. There are no "secret laws" to eliminate debt. The OCC warns that homeowners should not stop making payments on your mortgage based on these false statements.

If you are facing foreclosure, how do you protect yourself?

First, ignore the "bird-dog". This is the person - such as Calvin Baltimore - who learns that you are in desperate need to save your home, and convinces you that he will help you, using one or more of the foreclosure scams discussed above.

Never give any money up-front to anyone, especially the stranger who knocks on your door.

If you are in financial difficult, do not bury your head in the sand. Immediately contact your lender - or the organization that services your loan. Most legitimate lenders now have loan modification programs in place that may be able to assist you. However, it is often difficult to contact your lender, and if your lender does not respond promptly, contact your local Attorney General's office. If the lender is a national bank, you should also send a complaint letter to the Office of the Comptroller of the Currency here in Washington. Lenders are required to respond to the OCC within ten days of receipt of the complaint.

The Federal government has a number of programs that may be of assistance. The Home Affordable Modification Program (HAMP) was instituted by the Treasury Department. For mortgages originated on or prior to January 1, 2009, loan servicers are required to solicit eligible borrowers who are 31 or more days delinquent for a modification under HAMP, but cannot solicit borrowers for this program who are current or less than 31 days delinquent.

In Maryland, as of July 1 of this year, there is a new law requiring mediation in many cases prior to foreclosure. Lenders are required to notify homeowners facing foreclosure about loan modification programs such as HAMP. Servicers must give homeowners a 45-day notice of "intent to foreclose" before initiating the process.

During that 45-day period, the loan servicer must look into loss mitigation options. It must also file a court affidavit stating a reason for any denial of such programs. Homeowners who disagree with the affidavit now have a right to court-supervised mediation by paying $50, according to the new law. Lenders pay $300 for the mediation.

In Virginia, there is the Mortgage Clinic, that can be found at www.virginiaforeclosureprevention.com.

Unfortunately, the District of Columbia has lagged behind in providing assistance to its homeowners. You can, however, find on the internet a number of private organizations that offer assistance. Type "District of Columbia mortgage assistance" on your favorite search engine.

Hopefully, however, when members of the DC City Council begin to recognize the large number of foreclosures still taking place in the city, legislation - such as enacted in Maryland - will become the law in our nation's capital.

- Boilerplate -

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