Foreclosure Scams and Fraud, and Loan Mods Oregon Department of Justice Financial Fraud/Consumer Protection 503 934 4400

1. Foreclosure Scams and Fraud, and Loan Mods Oregon Department of Justice Financial Fraud/Consumer Protection 503 934 4400 www.doj.state.or.us Simon Whang, Asst. Attorney General simon.c.whang@doj.state.or.us jermaine.f.brown@doj.state.or.us

2. DOJ Financial Fraud/Consumer Protection Section • Enforces Oregon's Unlawful Trade Practices Act, ORS 646.605 – 646.658. • Consumer education and outreach, hotline • Business activity by Oregon-based company or with Oregon consumer • Common UTPA violations: • failure to deliver goods/ services or refund money • deceptive or misleading advertising • unconscionable tactics • misrepresentation of goods/services • Have consumer file a complaint w/ DOJ. www.doj.state.or.us/finfraud/index.shtml • (New feature! Searchable complaint database)

3. “Traditional” mortgage fraud • Simple: Lie on application to get loan • Complex: Conspiracy among agent, broker, appraiser, straw buyers to over-borrow, avoid repayment, strip equity, manipulate housing prices

4. “New Wave” mortgage fraud • Not so many mortgages • Changes: stricter underwriting standards, unknown pinch-appraiser • Many mortgage brokers left industry • Industry shift: foreclosure rescue, loan mods, other products

5. COMMON “FORECLOSURE RESCUE” SCENARIOS

6. The Advance Pay Scam AKA: “Facing foreclosure?Give us your money,and we’ll get you a loan mod.”

7. “Foreclosure Consultants” 646A.700 • Advance fee: violation of law for “foreclosure consultants” to collect money in advance • Other HB 3630 requirements: written contract, refund when requested, explicit disclosures • Provides UTPA, criminal penalties • OR-licensed lawyers, mortgage brokers, real estate agents, escrow agents“acting within the scope of license” exempt

8. Debt Management Service Providers • Advance fee prohibition ($50 initial consult) • Must get bond • Must register with Division Finance & Corp Securities • http://dfcs.oregon.gov/debt_mgmt.html • Exemptions: Oregon mortgage brokers or OR lawyers acting “incidental to practice of law” • Third party short sellers NOT exempt • http://www.doj.state.or.us/finfraud/pdf/short_sale_faqs.pdf

9. “Forensic Loan Analysis”:AKA “We’re really, really, really not offering loan mods. Really.” • Attempt to avoid state registration, bonding requirements and advance-fee prohibitions • The product: a review of loan documents for “irregularities”, e.g., RESPA, TILA • If an irregularity is found, will refer to someone to do the loan mod. • How much would you pay for this valuable service? • Possible problems: unconscionable lack of disclosure of services, deceptive advertising

11. The Lease-Buyback ScamAKA: “Facing foreclosure?Let me hold onto your house for a while.” • The Pitch: • Homeowner signs over title of house to “White Knight” • W.K. responsible for mortgage payments, tenant pays rent to W.K. • Tenant has option to buy back property in X years after credit or financial situation improves • Benefit to homeowner? Stays in home, “retains” home, no foreclosure, hope.

12. The Lease-Buyback Scam • The Problem: • Rent payments may be as onerous as mortgage payments. Late payment = eviction = loss of home. • Passing on of costs, sometimes hidden, e.g., insurance, taxes, maintenance/repairs • W.K. blocks the option: homeowner “fails to qualify for credit” • The Scam: • equity strip (re-fi, 2nd mortgage) • sometimes out-and-out theft (W.K. collects rents, doesn’t pay mortgage) • Homeowner loses home, may still get foreclosure

13. Short Sale Issues #1 Question by Real Estate Brokers: Can I negotiate a short sale on behalf of my client? • A: Depends. Make sure to fully disclose to all parties, seek proper legal advice, not violate real estate regs or other laws • Problems with Short Sales: • Third-party short sales: illegal collection of fees, unauthorized practice of law, unlicensed real estate activity • RESPA or violations for failing to disclose fee • Straw buyer, property transfer situations

14. Robo-signing, MERS,“Find-the-Note” We seen a rise in Media and Internet reports of flaws in the foreclosure process. Here’s what’s described: • Robosigners. Improper affidavits by bank employees who do not read or know what they sign • MERS. Mortgage Electronic Registration System is not a proper party in foreclosure. • Find-the-Note. Bank cannot produce the note on the house, so it can’t foreclose. Problem? • Not settled law. These foreclosure “defenses” are not guaranteed to succeed, and success only delays, not stops, foreclosure. • Scammers promising results will take your money, but will not produce results. • Time towards these defenses may make your situation worse.

15. Senate Bill 628, (and 3130) • Homeowner has right to Loan Modification “Meeting” upon Notice of Foreclosure • Homeowner MUST return form asking for Loan Modification Meeting—even if already in loan mod consideration • Trustee must file Affidavit of Compliance with County Recorder 5 days prior to sale • (No enforcement mechanism)

16. My Bank Won’t Listen! Banks won’t help homeowners with Loan Modifications • Losing documents • Temporarily mod won’t convert to permanent mod • Foreclosing during open loan modification consideration • Giving conflicting information • No response • When dealing with a bank, always: • Keep precise records of Who you spoke with, When you talked, What was said • Never send originals, always keep copies • Be persistent • Point out specific regulations/laws violated • Use Escalation Contacts: HAMP, the Bank itself, Freddie/Fannie. File complaint with DOJ, DOJ has bank escalation contacts. • General Foreclosure info: http://foreclosurehelp.oregon.gov/ • Use Qualified Written Request for information. • http://www.hud.gov/offices/hsg/ramh/res/reslettr.cfm

17. File a Complaint • Oregon Department of Justice • Hotline: 877 877 9392 • www.doj.state.or.us • Division of Finance and Corporate Securities 350 Winter St. NE, Rm. 410 Salem, OR 97301-3881 Phone: 503-378-4140 or 503-378-4387 http://www.cbs.state.or.us/dfcs/