Foreclosure Expert Cautions Homeowners Against a New Scam

Dec. 4, 2008 - PRLog -- Columbus, O.H. Troy Doucet, author of 23 Legal Defenses to Foreclosure, cautions homeowners against a new foreclosure scam that requires a transfer of ownership in the home as part of the scam.  Transferring ownership can end significant legal defenses the homeowner could have otherwise raised in foreclosure, like those available under the Truth in Lending Act.

The Scam
The scam centers around a foreclosure “specialist” offering to defend a homeowner’s foreclosure action in court, in return for ownership of the property.  The specialist tells the homeowner that he will retain an attorney to prosecute the legal defenses and prevent ultimate foreclosure, and that the homeowner can walk away from the mortgage without obligation - and without any negative credit report repercussions.  

The key to this scam is that the specialist requires, in order to defend the foreclosure in court, that the homeowner transfers ownership of the property to him.  The specialist does not take ownership of the mortgage as part of the scam, he just takes an ownership interest in the home.  The specialist explains that transfer of the home (but not the mortgage) is necessary to create legal “standing” so the specialist can sue on behalf of the homeowner.  The scammer relies on powerful federal mortgage laws, like the Truth in Lending Act, to defend the foreclosure and potentially win a refund of all money paid on the loan through rescission.  Being owner of the property, he hopes to benefit to the tune of tens of thousands of dollars.

The Truth in Lending Act (TILA)
Congress enacted the Truth in Lending Act (TILA) to standardize credit disclosure to consumers, like disclosing a loan’s Annual Percentage Rate (APR) and finance charges.  The penalties for non-compliance can be stiff, including rescission of the loan transaction.  Rescission means the entire mortgage transaction is unwound – all fees, payments, closing costs, and down payment for the home are refunded to the homeowner.  

Here, the scammer anticipates using TILA as part of his legal defense to defeat any foreclosure action against the homeowner, secure rescission for himself, and obtain a windfall refund of all the money paid on the loan.  In some instances, this can equal $100,000 or more.

The Problem
The primary problem with this scam is that a homeowner’s right to rescind the loan under TILA ends upon transfer of all of the consumer's interest in the property.  Not only will TILA prohibit the scammer from securing rescission under TILA, but by transferring the property, the homeowner also loses her ability to use TILA in her own foreclosure defense.  

The scam is a no obligation proposition for the scammer because he thinks he either wins the foreclosure lawsuit under TILA, keeping the property, or loses the foreclosure and sticks the homeowner with the loan obligation.  In reality, the scammer destroys the homeowner’s ability to benefit from a powerful legal safeguard - the Truth in Lending Act.  

An alternative unhappy ending to this scam occurs if there happens to be equity in the property.  In that case, the scammer simply arranges to sell the home himself, pay off the mortgage, and keep the excess proceeds for himself.  

To learn more about foreclosure law, visit http://www.foreclosure-fight.com.  Troy Doucet is the author of 23 Legal Defenses to Foreclosure, also available by visiting http://www.foreclosure-fight.com.

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Troy Doucet is a former mortgage firm owner, law student, and paralegal who assists attorneys throughout the United States in their efforts to combat foreclosure. He regularly audits loans for TILA and HOEPA violations, as well as for the other defenses contained in this book. He has appeared several times on CNN’s Houston radio affiliate, CNN650, discussing foreclosure and debt collection law.