Tuesday, February 12, 2008

It's Time to Place Legal Curbs on 'Rescue' Practice

THE BANK WAS threatening to foreclose on Lonnie Davis' El Cerrito home.
One day, the 76-year-old retired school custodian got a postcard in the mail from someone offering 11th-hour help. But what seemed like a life preserver would drag Davis and his wife, Dorothy, to rock bottom faster than a pair of cement boots.

Lonnie Davis not only lost the home where he had lived more than half of his life, the person he trusted to help him wound up being the new owner.

The Davises were victims of a legal but deceptive mortgage lending practice euphemistically referred to as a "foreclosure rescue."

The "rescuer" takes advantage of a person's desperation and financial naiveté to convince him to sign over his deed. He offers to pay the distressed homeowner's delinquent payments, which allow him to stay in his house, then gives him a new loan.

A lot of people don't realize that they will no longer own the property.

Once the title has been transferred, the rescuer takes money out of the house by refinancing. Real estate fraud investigators call that "equity stripping."

If the homeowner defaults, the rescuer gets the property.

Lonnie Davis' story is classic. He was an especially easy mark because he had dementia.

Davis paid $17,500 for his house in 1963. He had refinanced so many times that his monthly note was $2,100. He and his wife's monthly income was about $2,400.

Over the years, a succession of sleazy lenders had signed Davis up for loans with thousands of dollars in junk fees tacked on. Some had high interest rates and huge balloon payments.

Davis had effectively used his house as an ATM because, like a lot of elderly Californians, he was house rich and cash poor. He had a fixed income that didn't cover his living expenses. But Davis couldn't afford his house payments. He had to keep refinancing just to stay afloat.

Eventually the pyramid crashed. Why? Because so much of the equity had been drained through predatory loans and he didn't have enough income to qualify for another refinance.
That's when he got the postcard from a company called Bridgeport Capital Management in Irvine. It sounded simple. Bridgeport would loan him the money to pay off his previous mortgage. His house payments would go down. The Davises could stay in their home.
All he had to do was temporarily - or so he thought - sign over the deed to Elham Assadi, Bridgeport's president.

Things moved at lightning speed. Bridgeport faxed Davis an equity sales contract.
Then, the company flew a notary to Oakland. The Davises met her at Oakland International Airport.

Dorothy Davis graciously had lunch waiting for the notary at home. She needn't have bothered. The woman hustled the Davises to the chaotic sitting area near the airline ticket counter. She gave Lonnie Davis a thick stack of documents to sign.

Dorothy Davis admits that she didn't understand the legalese. Her husband later told an attorney that he thought the purpose of the documents was to allow Bridgeport to "help" him.

Bridgeport had told him he would have a year option to repurchase his home.

Lonnie Davis didn't know that with a few strokes of a pen he had unwittingly gone from an owner to a renter.

Assadi refinanced the property a few days later and took $80,000 out.
The Davises' new monthly payments were only $80 less than before. It wasn't long before they fell behind.

They borrowed money from family, but they couldn't catch up. Bridgeport pressured them to move. On Jan. 5, 2006, a Contra Costa County Sheriff's deputy showed up at the Davises' home with an eviction order.

Lonnie Davis locked himself in the back of the house. His frantic wife called Pleasanton attorney Alan Ramos. Ramos contacted Bridgeport, which agreed to temporarily postpone the eviction.

Thirteen days later, Davis died, a heartsick, broken man. His wife had to move out in October.

"The memories are too painful," she says through tears. She recently went to live with her son in Sacramento.

Believe it or not, Dorothy Davis is luckier than most.

Ramos took on her case pro-bono. In April, she got a $37,500 out-of-court settlement. Most victims of foreclosure rescues get nothing.

Foreclosure rescuers insist that people like the Davises were going to lose their homes anyway. It's true that many people can't afford the homes they're in, and that they'll have to move. But shouldn't they get whatever equity is left over, not some unscrupulous opportunist?

The Legislature can and must take a major step now to curb foreclosure rescue abuses.
AB 1356 would have done just that, but the law fell victim to petty politics.

For starters, it would have required foreclosure rescuers to clearly let people know in bold letters that they would no longer be the homeowner.

It would have also required that equity sales contracts be recorded with the county. That would have prevented foreclosure rescuers from selling the property to a third party who knew nothing about the individual's option to repurchase the property.

Finally, the law would have mandated that anyone signing an equity sales contract must first undergo pre-loan counseling.

Homeowners going through foreclosure are in a panic. They don't know where to turn. They're not thinking clearly. They often don't realize that there may still be time to salvage some of the equity.

They have a tendency to hunker down and hide, ignoring notices from their lender. Yet what they should do is contact the mortgage company to try to work something out.

Foreclosure rescuers pressure homeowners not to talk to anyone but them. Their game is to run out the clock until it's too late for homeowners to get real help.

It's time to derail the foreclosure rescue gravy train.

The Legislature must revive and pass AB 1356.

Meanwhile, we urge every California county to follow Contra Costa's example and institute a homeowner foreclosure notification program. The county sends a warning letter about foreclosure rescue scams to every homeowner who receives a notice of default.

It includes the telephone numbers of certified Housing and Urban Development counselors who offer unbiased advice. Good information is the best protection.

It's not just a piece of property that is lost when an elderly person loses his home. Seniors lose their sense of safety; their self-respect. Sometimes, even, the will to live. Lonnie Davis deserved better.

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