Arizona Home Mortgage Scams On the Rise

They offer struggling homeowners kind words and, most of all, help. The calls come quick, sometimes an hour after foreclosure proceedings are filed. Fliers and letters promising assistance fill mailboxes.

For those on the verge of losing their home, foreclosure-rescue groups seem like their only hope. But many so-called rescuers aren’t helping at all.

Instead, their offers are thinly veiled schemes to take control of a struggling homeowner’s house and strip any equity left in it.

As the number of people falling behind on their loans in the metropolitan Phoenix housing market has soared, so too has the number of scams that cost homeowners their houses.

Regulators are cracking down on these supposed foreclosure-rescue groups, and state legislation is in the works to make it easier to prosecute those who prey on homeowners.

“Foreclosure rescue sounds like something good, but it isn’t. There are some sharks out there,” Arizona Attorney General Terry Goddard said. “They are taking advantage of desperate homeowners and need to be stopped.”

The Valley’s housing market is ripe for these schemes. Groups are going after the 50 percent jumps in equity that homeowners gained during the price run-ups of a few years ago.

The schemes have increased because more Valley homeowners are behind on their Arizona mortgage payments. Because of rapidly rising prices in 2004 and 2005, many buyers had to get adjustable-rate loans with initial low payments to afford homes.

But mortgage rates on those loans are now climbing, and some of those loans are subprime (bad credit mortgage) loans with even higher interest rates and are often subjected to prepayment penalties.

Now they can’t keep up with the rising payments and are facing foreclosure even if they have equity left in their homes. Home mortgage foreclosures have climbed tenfold in metropolitan Phoenix during the past year.

There are legitimate companies and non-profit housing groups that can and want to help people, but they don’t deluge the homeowner, experts say.

Mary D’Amico was in the middle of a divorce last fall and was struggling to make the payment on the Queen Creek home she and her husband bought in late 2004.  After she fell a few months behind, the calls from her home loan lender started. Then came the calls offering help.

“I didn’t know how they got my name, my phone number or so much information on how much money I owed,” D’Amico said.

“I needed about $6,000 to catch up on my payments, and people were offering to lend or even give me exactly that much.”

D’Amico wasn’t suspicious of the foreclosure-rescue group she worked with. It had ties to her friend’s church. She got the $6,000 she needed. And she started making payments to the group that was supposedly helping her catch up.

Her monthly payments were a little higher, so she thought her home loan had been subject to a mortgage refinance to include the $6,000. She didn’t know that she had signed over her house in the process. She found out when the group sold the house out from under her.

Felecia Rotellini, superintendent of the state Department of Financial Institutions, said complaints from people losing their home after they signed documents they didn’t know about or understand are on the rise.

“The foreclosure-rescue groups are getting creative in how they try to befriend the homeowner,” she said.

“But ultimately, it’s financial exploitation.”

Foreclosure scams have been around for a long time. They are increasing because subprime loans are putting more homeowners in precarious positions as their mortgage rates climb.

The typical mortgage foreclosure-rescue scheme plays out like D’Amico’s story.

After the Arizona home loan holder in question is three months behind, the lender can file a notice of trustee sale with the courts. That starts the foreclosure process and makes the homeowner’s problem public.

Continue reading in the Arizona Republic …