WISCONSINREPORT.COM (07/12/08) - The United States Senate has passed Senator Herb Kohl’s (D-WI) legislation to protect Americans from becoming the victim of foreclosure rescue scams as part of a bipartisan housing package (H.R. 3221). The Kohl measure protects financially distressed homeowners – often elderly – from unscrupulous financial predators by implementing stricter requirements and a federal floor of protection.
Once enacted, the Foreclosure Rescue Scam Amendment (S. 2888) would help curtail the dramatic increase of mortgage fraud that has risen nationally by 800 percent in the last five years, with an estimated 60,000 cases expected this year, according to the FBI.
“When Americans unable to afford making mortgage payments become ensnared in these rescue scams, they are pushed even deeper into debt,” Kohl said. “Today, the Senate voted to enact my measure to protect our most vulnerable citizens from falling victim to these scams that have become prevalent with the foreclosure crisis afflicting our nation.
“The provision is an integral part of a landmark housing bill that will restore safety and stability to the housing market and help businesses and communities hurt by this crisis not only recover, but also create new jobs.”
Senator Kohl’s measure, which was unanimously approved by the Senate as an amendment to H.R. 3221, The Foreclosure Prevention Act, in June, is co-sponsored by Senators Susan Collins (R-ME), Blanche Lincoln (D-AR) and Barbara Mikulski (D-MD).
Foreclosure rescue scams prey on homeowners in the process of foreclosing their homes and especially vulnerable to deceptive practices that seem to offer hope. Instead, these scams often leave the victims facing a far worse financial predicament, sometimes ruining their credit rating entirely and stripping away their equity, making it almost impossible for them to recover financially.
The Foreclosure Rescue Fraud Amendment aims to prevent homeowners from falling prey to these cruel abuses by increasing disclosure and creating strict requirements for a person or entity offering foreclosure rescue services. Specifically, once enacted, the legislation would:
- Prohibit “a foreclosure consultant” from collecting any fee or compensation before completing contracted services, and from obtaining power of attorney from a homeowner;
- Require full disclosure of third-party consideration in the property;
Allow homeowners three days to cancel the foreclosure rescue contract; and
- Create a federal floor of protection; and Allow states without rescue-fraud laws to use these provisions as a way to help scam victims.
- In addition, this legislation would help states and federal agencies combat these schemes and protect people already in financial distress from becoming worse off.
In February, Senator Kohl, as Chairman of the Special Committee on Aging, held a hearing that uncovered the ways scam artists prey on homeowners in distress. Three types of prevalent scams were exposed.
- The first is “phantom help,” where the supposed rescuer claims that they will call the homeowner’s lender and re-negotiate the loan for a fee. Often the homeowner will pay that fee, but the “rescuer” then abandons the homeowner without any intervention.
- The second is a “rent-to-own” scheme which is set up to fail. A homeowner will sign over the title of the house and make monthly payments to the scammer in order to help rebuild their credit. However, the monthly payments are extremely high and often result in the homeowner violating the contract and being evicted.
- A homeowner may also be tricked into unknowingly signing over the title of their house and power of attorney to the scammer and the scammer will then sell the house to a third party. The scam artist might give the homeowner a small amount of money, but often only a fraction of the actual selling price.
The larger comprehensive housing bill will strengthen the Federal Housing Administration’s ability to keep people in their homes and provide them with secure fixed-rate mortgages, reform government sponsored enterprises (Fannie Mae and Freddie Mac) and assist potential homebuyers with a tax incentive to purchase their first home.
In addition, the measure also creates a landmark low-income housing trust fund to assist in the construction of affordable rental housing and provides assistance to communities with redevelopment aid.