Has the Distressed Conveyances law curtailed foreclosure rescue scams?

In this Sunday’s Seattle Times there was an article on “foreclosure rescue scams.” I found the timing interesting given the recent enactment of the Distressed Conveyances law effective in June of this year. This law was specifically enacted to curtail these practices and even provides a rather large “stick” to use in convincing people that they should not lure owners into such transactions (in the form of punitive damages of up to $100,000).

Does anyone have any insight into whether these scams continue unabated? Unfortunately, I have no direct personal insight into the issue. [CAUTION: Plug Ahead.] Although I offer a very affordable consultation that is well-suited for anyone who has been approached by a “rescuer,” I have yet to generate much business. So, I really have no idea whether the new law is having the desired effect. Unless the Seattle Times is behind the curve, it would seem that the new law has yet to achieve the desired impact (i.e., make this practice less common).

34 thoughts on “Has the Distressed Conveyances law curtailed foreclosure rescue scams?

  1. I don’t have any direct experience, but I have heard from other real estate agents of a new market for distressed home consultants to aid real estate agents. What I’ve heard hasn’t been good.

    One was a scam where you’d list the house with an agent, the DHC would offer to buy the house at a certain price, and put that through as a short sale. The house would continue to be marketed, and if they found a better buyer they’d close the first sale and then sell to the second buyer, pocketing the difference.

    That’s second hand, but it smacks of bank fraud to me, and the participants would be the seller, the agent and the DHC.

  2. Yes I have had experience with the new law.
    It’s a good law. There are scammers and maybe more now than before the law was enacted. It’s the distressed home consultants that are the worst. The scam is, as was discribed, by double escrowing a sale.
    Lenders are pretty hip to this trick, but it makes no difference today. Today lenders are holding out for the value of the Broker’s Price Opinion. Those opinions have become more resonable but are still tied to a Comparative Market Analysis.
    From talking with other people dealing with short sales and from a couple of my own transactions there is a prevailing opinion that the days of take what you can get, for the lender, are over. By selling for less than loan value the lender takes a write down. There are fewer ways for them to invest cash, today, for a better or quick return. In other words what we are seeing today is lenders have hit a brick wall. They have to get as much as they can from these short sale transactions or answer for it.
    In this process and less to do with Washington State’s law fewer consultants have the ability to make money.

  3. Craig,

    The interest in distressed homeowners has shifted to distressed banks. Some investors are purchasing the home at auction, some are waiting and purchasing the home directly from the bank’s REO department, bypassing the provisions of this particular law.

  4. I think Jillayne is correct, but she fails to mention they are also bypassing having to pay the owner of the house any money at all, and also bypassing allowing the owner to be able to avoid having a foreclosure on their record.

  5. Absolutely, the home owner is completely left out of the loop. No modifications, no shorts, just foreclose and hold. No, REOs are held more times than not for value. There are two times a year when inventory is cleared depending on each lenders calender. The beginning and end of the fiscal year.
    It is a good law. It was needed at the time.

  6. david — I agree with you that overall it is a good law. There are flaws though that hopefully will be corrected. Based on the comments here, it sounds like the Seattle Times article was a little less than cutting edge — perhaps those scams are not the problem that they were several months ago.

  7. That article focuses more on the parts of the legislation drafted by the AG, rather than that supported by Ms. Huelsman. It’s really two separate bills, one well thought out and well written, and one not.

    Also the article doesn’t really deal with recent trends, but instead just generally discusses the past five years.

    Finally, the example they do give is another good example of why someone shouldn’t enter into an unusual real estate transaction without an attorney that represents them reviewing the paperwork.

  8. Regardless of whether this law is “good” or not, it seems as if the economic incentives for the foreclosure scams have vanished, making this a very rare crime.

    I’ve heard similar things as David (i.e. that lenders just aren’t accepting many short sales anymore). Also, the fact that very few of these struggling borrowers have equity makes it difficult to pull off a fraud where you quickly re-sell the house and kick the “tenants” out, pocketing whatever equity was left.

    Maybe these scams will come back if the government acquires vast portfolios of defaulted loans and becomes aggressive with short sales, but I doubt it. The government doesn’t want to see cheap homes hit the market, setting low comps, so they would likely prefer to just work out sweet-heart deals with the borrowers with substantial principal reductions.

  9. I am curious and have been thinking along the lines of how lenders will maintain the mortgage value.
    You were right about lenders refusing to take more write downs.
    My thought was that the loans, all loans, should be converted to thirty year fixed at 6% for full value, fully assumable.
    Of course borrowers would have the option to keep the loans they have in place if they choose.

  10. Hi Craig,

    My Realtor students today reported that the foreclosure rescue scammers are still out there contacting homeowners. Their equity skimming propositions are being presented as an opportunity for the homeowner to share in the gain, but the contracts have many provisions. One missed payment for example, and the gifts are taken away.

    One of the challenges is dispelling the assumptions by Realtors and financially strapped homeowners that they’ll be able to hire an attorney, even if it’s just for, say, 2 or 3 hours for a decent hourly rate.

    So many believe hiring an attorney for help is going to cost them thousands and thousands.

  11. oh, and to answer Sniglet’s observation that there’s no equity, what’s going on is that the scammers are figuring out who HAS equity and is also in financial distress. Sometimes these folks are ashamed, embarrased, in denial, etc., and believe there are no other options. I know it’s hard to believe but human behavior can be irrational as we all know, especially when we are in a highly emotive state. 🙂

  12. Jillayne — that is ironic. A few hundred dollars on an attorney would be immensely beneficial to anyone who has been offered one of these transactions, and yet the misperception about the cost of an attorney keeps them from even seeking that guidance. Instead, they sign on the dotted line to their detriment.

  13. As to 16, the thing is they should have the money! They haven’t paid their mortgage for at least 5 months, if not longer. Given that, they should have the money to pay the attorney, and if they don’t then the chance of their having any good option other than a crappy sale is zero. Sometimes a crappy deal is your best deal, but at least by going to a professional you can make sure it’s the deal advertised and not something else entirely.

    Craig, I don’t know if you followed my other thread on option to purchase, but I came across the more recent case of Pardee v. Jolly, 163 Wn.2n 558, where even an option to purchase transaction tied up a property for years, again seemingly where no professionals were involved in drafting the contracts. This case also involved improvements to the property, however.

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