Facing foreclosure / Banks may not want your home, but some unscrupulous foreclosure rescue companies might
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By Jeff DeMoss
Standard-Examiner staff
OGDEN -- In bankruptcy and worried about the possibility of losing his home to foreclosure, Ron Chavez turned to a company that agreed to assume his mortgage, rent the home back to him, and restructure payments in a way that would allow him to keep ownership.
A year and thousands of dollars later, Chavez is in court fighting the company that rescued him to prevent being kicked out of the place altogether after missing a lease payment.
"They said they would help me through my financial mess. I followed their directions, got the home in their name, and only then I found out they they wanted to sell it back to me for a 50 percent profit," the Ogden resident said.
The creative financing methods that allowed many Utahns to become first-time homebuyers in the past few years have backfired on some, leading to a rash of foreclosures this year.
In response, more local real estate brokers are advertising services to help people stay in their homes.
Operators of so-called "foreclosure rescue" services, which have proliferated in Utah and across the nation recently, say they are filling a void in the marketplace by providing a valuable service to people who have run out of options.
Housing officials, however, believe many desperate homeowners are being duped into paying for services that are already available for free, and say Chavez is just one of many who have fallen prey to an increasingly familiar scam.
Lee Arnold, owner and principal broker of Venturi Realty in Murray, runs a foreclosure rescue service called I'm The Solution. Arnold works with homeowners along the Wasatch Front, and conducts foreclosure prevention seminars nationwide.
He said the idea came to him during an auction when bidding started at $175,000 for a home on which the previous owners owed $400,000.
"I thought if a bank is willing to take that big of a hit at auction, maybe they would be willing to make a deal before it goes to auction," he said.
"We started making more money in pre-foreclosure than we were making at auction, and we felt better about it because we could rent back to the people who were losing the home instead of immediately evicting them."
He said the problem -- the main reason why services like his are needed -- is that people often don't understand their options when facing foreclosure.
"Unfortunately, too many owners bury their head in the sand. They don't understand that the bank doesn't really want their house," he said. "Banks are willing to do all kinds of things."
Officials in the U.S. Department of Housing and Urban Development warn against paying for any type of foreclosure assistance service or dealing with any kind of service not recognized and approved by HUD.
Laurie Maggiano, deputy director for HUD's Office of Single Family Asset Management, said so-called foreclosure rescue services have proliferated along with a sharp rise in foreclosure filings in the wake of the subprime mortgage meltdown.
Maggiano said the vast majority of those are refinancers or "short-sale vendors" -- real estate brokers who prevent foreclosures by purchasing homes from banks at reduced prices before the homes go to auction.
While foreclosure rescue services generally aren't doing anything illegal, their tactics are typically unethical, she said.
"It's entirely possible that a few of them provide a great, legitimate service, but I believe that most of them are companies that have sprung up overnight, not necessarily with the intention of helping people, but with the intention of making lots of money at the expense of vulnerable people."
Local bankers are also skeptical about real estate agents getting involved in foreclosure prevention efforts.
"I would really worry where someone is providing that service and has a potential conflict of interest," said Branden Hansen, senior vice president of residential lending at Ogden-based Bank of Utah.
Mike Bybee, an agent with Five Star Realty in Sunset, started an offshoot business earlier this year called Foreclosure Prevention of Utah LLC.
Aside from his regular real estate work, he counsels distressed homeowners headed for foreclosure and acts as an intermediary between borrowers and lenders to work out refinancing or other options to keep people in their homes. He insists the service is 100 percent free.
Word of mouth is payment enough, he said.
"We really do this for free. We tell them, 'if you like our service, when you eventually get through this and want to buy or sell again, we'd like to be considered'."
He said churches and community agencies that offer counseling are noble in their intent, "but they generally don't have the experience, manpower, knowledge or money to do this."
Arnold said his company offers free consultations and negotiates with lenders on behalf of homeowners -- without charge. Money comes from speaking at seminars, selling books and tapes across the country, and real estate commissions on home sales in Utah.
In about 40 percent of the cases he sees, his involvement isn't needed, but if an owner is "upside-down" in a mortgage (owes more than the home is worth) and has no other significant equity, "then it might be best to take the short-sale route."
He said banks are desperate in the current economic climate to get bad loans in order, which gives homeowners additional leverage in working out a deal.
"When people can't make their payments, they assume the letter from the bank is from an angry person looking to kick them out of the house. The reality is banks are sending out letters offering reduced interest payments," he said.
"Banks are in such a bad spot right now, the last thing they need is more vacant, REO (real estate-owned) properties on their books."
The recent ups and downs in the Utah housing market have been relatively calm compared with many states, but Utah foreclosure rates are still higher than most.
Statewide, one in 559 homes was in some stage of the foreclosure process in August, according to the foreclosure tracking company RealtyTrac Inc. That was the 12th-highest rate among all states for the month, but still lower than the national average of one in 416 properties.
California-based RealtyTrac reported 1,611 Utah homes in various stages of foreclosure in August this year, an increase of 85 percent from August 2007.
First American CoreLogic, another information service also based in California, reported that 0.7 percent of all outstanding mortgage loans in the Ogden-Clearfield metropolitan area (Davis, Weber and Morgan counties) were in the foreclosure process in August, up from 0.5 percent a year earlier.
Maggiano said homeowners looking for help should start with one of thousands of counseling agencies funded and approved by HUD that offer services "for free or almost no cost."
She encourages people to contact the Hope Now Alliance, a voluntary agreement in which the nation's largest loan servicing companies look for ways to help homeowners stay on top of their mortgage debt.
The federal housing bill that took effect Oct. 1 has a provision that provides government backing to lenders willing to write down mortgages on their books to 90 percent of their value and provide some relief to borrowers.
But Hansen said the complexity of the market, where mortgages are sold, repackaged, securitized and sold again, makes it difficult for such programs to work.
"The company you pay is probably not the company that owns your mortgage," he said. "You can't get authorization to write down a loan if you don't know who owns it."
Market messes aside, Maggiano said there are several simple steps homeowners can take to avoid those who would take advantage of them.
"Only deal with reputable firms recommended by people you know and trust. Don't pay for a service that's offered for free by a government agency. Always contact a service in person before paying any money and under no circumstances transfer your title to a third party."
That's cold comfort for Chavez, who said he has already given more than $50,000 to the people who claimed they could save him from foreclosure.
He's bringing forth a lawsuit, but the outcome is uncertain at best.
"They prey on people's misfortune. As soon as one little thing falls through the cracks, it's over. They've got your house, and you're done."
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