Just when we think we’ve seen it all, something new shows up. This story was reported recently in the Houston Chronicle.
The Whites, a couple from Mesquite, Texas, filed a chapter 13 case in 2006. They had been unable to keep up the payments on their adjustable-rate mortgage. The chapter 13 plan was designed to allow them to satisfy the arrearage. Unfortunately, they were still unable to keep up their plan payments.
HomEq, the servicer, obtained relief from the automatic stay, and the Whites’ house was posted for sale. On the day of the foreclosure sale, HomEq learned that Chaka Casey had filed bankruptcy in California, pro se, and that the Whites had conveyed a 1 percent interest in their home to her, thereby giving rise to a new automatic stay.
The Whites did not know Chaka and Chaka does not know the Whites. But the Whites did know of a company called North American Foreclosure, all of whose numbers now have been disconnected. The Whites had agreed to pay North American $650 per month until they “bought back” Chaka’s 1 percent interest in their house. Some of the money was supposed to have gone to HomEq, but as it turned out, not surprisingly, HomEq received absolutely nothing. Bankruptcy Judge Jernigan naturally was dismayed. She referred the case to the Texas Attorney General, who is investigating.
Here’s what the court found:
The Whites testified (similar to other debtors this court has heard on a few occasions in other cases) that, starting in mid-December 2006 (around the time that they defaulted under the agreed order and their homestead was posted for foreclosure), they began receiving numerous letters/solicitations from companies in the mail regarding ways to prevent the upcoming foreclosure on their Homestead. Sometimes they would receive 8 to 12 of these solicitations per day (e.g., from “foreclosure specialists” offering to stop foreclosure without bankruptcy). Mr. White estimated he probably received solicitations from 40 such companies. The debtors, assuming that these were legitimate companies with possible solutions, called the phone numbers shown on various of these mailings (Mr. White estimated calling 5 to 6 companies, all of which charged large fees for their “services”—some as high as $2,000 per month). The Whites proceeded to deal with a company called North American Foreclosure (whose literature they had received in the mail).
The Court went on to describe how North American representatives came to the Whites’ home, told them that the 1 percent deed was completely legal and that it would buy the Whites enough time to save their home. Obviously, it could not. This “fractional interest scheme” was repeated with some regularity in Texas with pro se filings later made in California in more than a few cases.
Judge Jernigan wrote: "The Whites have been naively duped in this matter and have not themselves knowingly or fraudulently participated in acts that might be described as a bankruptcy crime." Sadly, the Whites will not only lose their home but also the $1,500 they paid to North American. Judge Jernigan’s complete opinion is available at http://www.txnb.uscourts.gov/opinions/sgj/06-32324_20071207.pdf
Mortgage rescue fraud is a scourge throughout the nation. Debtors’ attorneys must be alert to fraudulent offers that may have been made to their clients. Almost always, these schemes are illegal or otherwise avoidable. Mortgage rescue frauds in the form of supposed “sale and lease back transactions” often can be recharacterized as equitable mortgages. The “investor” almost always is introduced through an intermediary. As a result, the “investor” is a lender within the meaning of the Home Owners Equity Protection Act (HOEPA) provisions of the Truth in Lending Act (TILA). Such “investors” almost never comply with TILA or HOEPA giving rise to opportunities to avoid such transactions under the HOEPA provisions of the Truth in Lending Act.