With the alternative financing scam, the con artist usually tries to delay the process for as long as possible, so he can collect as much “rent” as possible.
If you receive default papers or notices that the sheriff’s sale is coming, the con artist tells you that everything has been taken care of and that the system just hasn’t caught up with the payoff yet — or some story like that.
You believe him and continue to pay your monthly rent. He probably even comes over to pick it up — what a nice fellow.
After the redemption expires or the mortgage goes to sale, you lose. Even if the scammer actually redeems the property, it’s redeemed into his name, not yours, and you no longer own your home. If he doesn’t redeem the house, what he’s doing is just collecting as many rent payments as he can before the jig is up and you get evicted.
A few years ago, we uncovered a group that was preying on homeowners by collecting rents. Now, you may wonder why a con artist would risk committing this crime for a measly $600 to $1,000 a month, but this group had scammed over 100 families and was raking in a total of about $100,000 a month. Not a bad payday for driving around collecting rent checks or having them sent to a P.O. box.
If an “investor” approaches you with an alternative financing arrangement, she is usually going to ask you to sign a contract or lease stipulating the terms of the agreement. Have yourattorney review the paperwork and explain it before you sign anything. (And this can’t be just any attorney: Choose an attorney who specializes in real estate and understands foreclosure.) Con artists who are looking to steal your home with a contract often pack the contract with stipulations that make it almost impossible to comply with — they’re just looking for a way to declare that you defaulted on the contract, so they can have you evicted. Evicting a tenant is a lot easier than evicting a homeowner. The con artist then can benefit in two ways — from the monthly rent she collected and from the proceeds from the sale of your home.
The alternative financing scam is usually used when the homeowners have fallen behind on tax payments on a property they own free and clear, or when the balance on the mortgage is way below the market value of the house — in other words, when the homeowners have a lot of equity in the property.
After the scammers have sucked you dry of all your equity and any savings you may have had, you have little recourse:
Little or no money to fight a lengthy courtroom battle.
No place to live while you’re trying to resolve the problem.(You’re likely evicted before you have time to stop it.)
Trouble locating the con artist.Most of them work out of their cars and never meet you anywhere other than your home, a coffee shop, or some other public place. The con artist may give you a phone number, but he probably changed that number long before you figured out what was going on.
Calling an attorney after you’ve been evicted is often too late, but it’s worth a try. The earlier you involve an attorney (preferably before you sign anything), the better chance you have of avoiding the scam altogether.
Spotting the Signs of an Overbid Scam
Even if someone else buys your home at a foreclosure sale, you may have a rightful claim to some of the proceeds from that sale, assuming the winning bid was an overbid— more than enough to pay off all the liens on the prop- erty. If, for example, you owe $100,000 on a $200,000 property and the high bid comes in at $150,000, that $50,000 is rightfully yours. After all, you worked hard to build that equity and should be entitled to any surplus paid at the auction.
Overbid money goes to the lien holders first. If you owed $100,000 on the first mortgage, $20,000 on a second mortgage, and $10,000 on a home equity line of credit, then you would be entitled to only $20,000 of the overbid money.
The other $30,000 would be used to satisfy the other two liens.
Getting the overbid money is fairly easy. In Michigan, where we operate, you go down to the county sheriff’s civil division office, show them your driver’s license or photo ID, and sign a recovery form proving that you collected the overbid. They copy your ID and the signed form and issue you a check while you wait, tell you to come back in a couple days after the check has been issued, or mail it to you.
Some individuals or companies attempt to profit from overbids by selling a service to assist homeowners in claiming the overbid money. All the overbid service does is have the paperwork sent to them along with a contract that enables the service to collect the money on your behalf. They then have the check issued to them, take their cut, and send you the difference. That’s hardly worth a third to a half of the overbid proceeds.
Overbid scams can take any of several forms. Here are the two most common:
The con artist convinces you to sign over the overbid money to her; in exchange, she promises that the money is going to be used to obtain a new mortgage or alternative financing to solve the problem.The con artist then collects the money and disappears. This rendition of the scam usually occurs when the homeowners have a substantial amount of equity in the home. The end result is that the home is still in foreclo- sure and the homeowners lose all the equity they were entitled to — equity they could have used to put this nightmare behind them.
The second form that the overbid scam takes on is more morally than legally troubling: Some con artists charge 30 percent to 50 percent of the overbid proceeds to assist homeowners in recovering the overbid money.That can be 30 percent to 50 percent of a good chunk of change for a couple hours of work. This just isn’t right. We know of some people who perform this same service for 10 percent to 15 percent, which is more reasonable. After all, they do alert the homeowners to the exis- tence of the overbid money and facilitate its recovery, so they deserve to earn something for providing the service, but 30 percent to 50 percent is price gouging.
After the sale, call the sheriff’s office or your county’s register of deeds and find out the winning bid. If the bid amount was higher than the total amount you owe on the property, obtain instructions on how to claim the overbid money yourself. Don’t trust someone else to obtain it for you — you may never see a dime of it, or you may only see a small fraction of what you’re entitled to. In the case of a nonjudicial sale of a trust deed, the trustee con- ducts the sale and is responsible for ensuring that the surplus is paid out to the rightful recipients.
Recognizing Property Tax Scams
Falling behind on your property tax payments is bad enough. Add an oppor- tunist or a con artist to the mix, and you’re about to be living in the house of pain. As soon as someone has a tax lien against your home or a tax deed, that person has a certain amount of leverage to either kick you out of your home or apply enough pressure to make you want to leave. With a little sleight of hand, in the form of a deed, the person can even steal your home right out from under you before you know what’s going on.
In the following sections, we explain the basics of tax liens and deeds and reveal how a typical property tax scam goes down. Arming yourself with this knowledge is the best defense against this particular scam.
The most powerful lien on your home is a property tax lien. The government always gets its cut before it allows any other lien holders to get theirs. By paying your property taxes, you prevent opportunistic investors from obtain- ing a legitimate tax lien or deed. However, if you’re destined to lose the home anyway, you may want to stop paying your property taxes (see Chapter 13).
Save the money, instead, for when you have to move out. Whoever buys your home in foreclosure gets stuck with the bill.