Bankruptcy Foreclosure Scam - Foreclosure scams will flourish if not detected

Bankruptcy Foreclosure Scams

Posted on February 28th, 2008 by saman

In 1998, the Bankruptcy Foreclosure Scam Task Force issued a report describing many bankruptcy foreclosure scams operating in California. The report explained how the scams hurt the bankruptcy courts, lenders, and those who own homes. The report recommended ways to fight them.

The most common foreclosure scam linked to the West Coast is something called fractional interest transfer. A five or ten percent interest in property is held by the homeowner. This interest is transferred to a real or imagined entity that is already in bankruptcy. Since the property interest is being held by a bankruptcy debtor, the creditor of the original owner cannot foreclose. They cannot foreclose until the bankruptcy court lifts an automatic stay.

There are some scams involve fractional interest that are transferred. This interest transfer is done with the knowledge of the property owner. Even so, the original homeowner transfers the property to the scam artist. The con artist then transfers the fractional interest without the owner knowing. In some cases, a property is moved between cases as the stay is lifted. There has been a case where a residential property was linked to twenty four bankruptcy cases.

The task force explained that when a homeowner is faced with foreclosure they are persuaded by a scammer to sign deeds of trust transferring the fractional interest in the property. The scammer was paid several hundred dollars a month so they can stay in their home. The recipients of this fractional interest included fictitious people. It also included homeless people who were recruited for a price.

There are several versions of bankruptcy fraud in the country. The most prevalent scam involves using foreclosure notices to identify people who are facing losing their homes. The scammer will contact the home owner and offer “mortgage assistance” or “foreclosure counseling”. They promise to work out the problems of the homeowner and obtain financing for a fee. This fee usually ranges from $250 to $850. The scammer will tell the home owner to fill out forms, which include a bankruptcy petition. They may also collect the information needed to complete the petition at a later date. The scammer then files a petition for bankruptcy in the name of the homeowner. The homeowner may sign or the scammer will forge the homeowner’s name. The petition will invoke an automatic stay, foreclosure is postponed, and the homeowner will no longer receive collection calls or letters.

What happens in most cases is that the perpetrator will not tell the home owner about the petition for bankruptcy. They will instead convince the homeowner that they are no longer in the foreclosure process because they have worked out their mortgage problems for them. A homeowner may be told that they will receive a notice from the court that they should not pay attention to. The perpetrator may even tell the homeowner that they have gone to court for them. Truthfully if no one appears at the Section 341 meeting, the case will be dismissed. Then the foreclosure will go forward and the home will be lost.

Bankruptcy foreclosure fraud continues to be a growing problem and threatens the bankruptcy system. It takes advantage of families in distress. The United State Trustee Program works hard to indentify bankruptcy foreclosure scams. They try to take the proper legal action through criminal referral and civil suits.

Foreclosure scams will flourish if not detected. Some owners who have been defrauded do not report the scams apparently believing more time in their homes was worth the loss. Bankruptcy foreclosure scams should always be reported and maybe others will not become victims.