Fighting foreclosure rescue fraud…

Realty Times recently had an interesting article about how a California law is protecting distressed homeowners from becoming victims of fraud by predators who advertise themselves as Foreclosure Rescue outfits. (See www.tinyurl.com/cjt6so for the full article.) The gist of the article was an all to familiar story about a distressed homeowner who bit on one of those “I’ll buy your home from you and let you lease it back” schemes.

The predators make it all sound so good – they pay off the mortgage or get a short sale approval from the creditors and take title to the house, with a promise of letting the owner rent/lease it back, sometimes with first right of refusal to buy it back in the future. But what a future it can be. In the story in Realty Times the unfortunate former homeowner got behind on the lease payments and was served with an eviction notice. When they tried to exercise the first right of refusal to buy they discovered that the price was all of a sudden way higher than what the rescue buyer had paid.

Fortunately for these homeowners, they live in California and were able to file a lawsuit to abrogate the original sales contract under the California HESCA law. The California Legislature enacted HESCA (Home Equity Sales Contract Act) upon a finding that “homeowners whose residences are in foreclosure have been subjected to fraud, deception, and unfair dealing by home equity purchasers.” (An equity purchaser is an investor buyer of an owner-occupied home for which a Notice of Default has been filed.) The purpose of the act is to enable defaulting homeowners “to make an informed and intelligent decision regarding the sale of his or her home…” and “to safeguard the public against deceit and financial hardship; to insure, foster, and encourage fair dealing in the sale and purchase of homes in foreclosure;” and to “prohibit representations that tend to mislead.” (To read the entire California law, go to www.tinyurl.com/c9kog5 )

In this case the court upheld the homeowners arguments that they had been duped into a bad contract by a fast-talking investor, who had misrepresented the terms of both the lease and the right of refusal on a future sale. Even though a bankruptcy court had approved the deal (the bankruptcy judge claimed not to have been concerned about the terms of the deal, only that the debt be paid off) the judge hearing the HESCA case agreed that the investors had not been forthcoming about the buy-back provisions in the sale contract and threw it out.

I’m not sure that we have any such protections in Michigan. I sure know that we have a lot of these “foreclosure rescue” clowns running around making similar offers to distressed homeowners. What’s happening where you are and do you have laws to protect your homeowners against this type of fraud?