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Business Foreclosure editorial note :
A growing problem: foreclosure scam surplus funds rip-offs
homes in bankruptcySubprime market's decline puts thousands of Mass. homes at riskSunday, March 4, 2007 In what could best be described as kicking 'em when they're down, a growing number of North Jersey homeowners facing foreclosure on their homes are also being scammed out of tens of thousands of dollars. And, while they are immoral and unethical, most foreclosure scams may be perfectly legal. They are happening all over the United States as foreclosure rates rise, but Bergen County seems to be prime territory for the con artists, the New Jersey Division of Consumer Affairs says. "We first noticed some in late 2002 and 2003," said Ben Feldman, a spokesman for Bergen County Sheriff Leo McGuire. The scams typically target "surplus funds" to which homeowners may be entitled after their homes are sold at a sheriff's sale. Surplus funds are the monies remaining after a foreclosure sale takes place and mortgage and tax obligations have been paid. Neither the mortgage lender nor the sheriff's office are required to notify the homeowner if surplus funds exist, so the homeowner may not even be aware that the money is there. But con artists know the rules, and, using public records, they are poised to cash in. One favorite trick is to offer to take the property off the owner's hands before it goes on the selling block, paying a minimal amount for the deed. For example, on a $100,000 house with a $50,000 lien, the scammer might offer the owner $10,000 cash immediately, Feldman said. Then the scammer attempts to infiltrate the foreclosure sale process, attempting to bid up the price – without being the top bidder – and the profit margin. By transferring the deed, the homeowner signed away ownership and any claim to the extra money generated by the manipulated auction or any equity that built up. The homeowner may be told that the deed can be bought back if certain conditions are met, but the conditions are almost impossible to meet, or the scammer never intends to honor his promise. In other cases, the con artist offers to assist in obtaining any surplus funds that may be available, after telling the homeowner that he can't apply for the money on his own, or that the process is too complicated or costly. Then the con artist charges a fee that can range up to 75 percent of the total surplus fund; writes a fee in the contract with the homeowner that is higher than the fee verbally promised; pressures the homeowner to sign away his rights to the surplus funds through a quit claim deed; or forges the homeowner's name on a surplus funds application and keeps the surplus funds, state regulators say. Regardless of the method, the financially struggling consumer loses. What makes this frustrating for regulators is that homeowners can obtain the surplus funds by filing a simple form and paying less than $100. More information is available from the New Jersey Superior Court Trust Fund Unit at 609-292-3937. "These scams have the same goal: to enrich the con artist by taking money from a homeowner in trouble," said Stephen Nolan, acting director of Consumer Affairs. "It is unconscionable that con artists take advantage of good people who have fallen on hard times," he said. "We are working to educate and protect those facing foreclosure from these scams." We can use a lot of adjectives to describe this practice – unconscionable, immoral, unethical or downright rotten – but there is apparently nothing illegal about it unless the state's very elastic Consumer Fraud Act can be stretched even further than usual. The law forbids "unconscionable business practices," which might cover manipulating a bidding process. If the victim can prove that he was lied to or misled, that would also qualify. And forgery is obviously illegal. But many cases would fall into the area of a lousy business deal in which the victim did not heed the conventional wisdom of "buyer beware." To help homeowners avoid such rip-offs, Consumer Affairs has produced two new Consumers Briefs about the foreclosure process and surplus funds scams. The briefs are being distributed to sheriff's offices and are posted on the Consumer Affairs Web site: state.nj.us/lps/ca/brief/ sur plus.pdf and state.nj.us/lps/ca/ brief/foreclosure.pdf. Nationally, foreclosure filings rose 42 percent from 2005-06 to 1.2 million, Realty Trac Inc. reports. More than 40,000 were in New Jersey.
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