Selling hope to homeowners who have none

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(Shutterstock.com)

(Shutterstock.com)

By JOSH SALMAN

Behind and underwater on her mortgage, Sharon Mims will never forget the call she received on a sweltering August evening three years ago.

A charming voice on the other end of the line promised to save her Florida home of nearly 20 years through a new partnership with her bank.

The offer would reduce her principal balance, lower the interest rate and squeeze Mims into a government subsidy to help her catch up. She skipped her Wells Fargo payment for the next three months, cutting the caller checks for nearly $2,500 instead.

When the bank still foreclosed, she never heard from the man — or his bogus organization — again.

Tens of thousands of recession-battered homeowners nationwide have been caught in similar traps that prey on America’s most desperate.

In the wake of the housing crisis, foreclosure rescue schemes have sprouted in areas hardest-hit by the downturn, like Southwest Florida.

Using boiler rooms, late-night radio spots and guerrilla marketing, rescue scammers sell hope to homeowners on the brink of foreclosure.

The groups have enticed delinquent borrowers from Seattle to Miami to stop making mortgage payments, turn over deeds to their homes and pay thousands of dollars in fees to navigate crowded assistance programs.

But most vanish without ever providing help.

“It has been an extreme hardship for me,” Mims said. “After they took my money, I never heard a thing. I filed complaints with the Better Business Bureau, the state and federal agencies. Police never found him.”

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Foreclosure rescue has emerged as one of the most prolific fraud schemes in real estate, evolving faster than law enforcement agencies can keep up.

Even seemingly blatant foreclosure rescue schemes have not been prosecuted, a six-month Herald-Tribune investigation found.

The newspaper obtained and examined Federal Trade Commission foreclosure rescue databases — the Consumer Sentinel Network and the Loan Modification Scam Prevention Network — and reviewed thousands of local court documents.

The Herald-Tribune acquired every loan modification complaint submitted to the Florida Office of Financial Regulation since 2009. The newspaper also reviewed documents it requested related to fraud complaints kept by the state’s flagship foreclosure assistance program.

The newspaper interviewed dozens of government officials involved with the complaints, federal investigators who specialize in white-collar crimes and victims.

Among the findings:

• Consumers and lending institutions have filed more than 91,000 foreclosure rescue fraud complaints since 2009 — the peak of the nation’s housing crisis — including 395 in Southwest Florida.

• Fake rescue scams have bilked struggling Americans for more than $550 million in the past five years, with an estimated $32 million taken from homeowners in this region. Federally insured lenders and tax-driven bailout programs lost hundreds of millions more.

• Foreclosure rescue schemes have been most prevalent in areas still grappling with home defaults. Florida ranks second, with 10 percent of the nation’s total behind only California, the databases show.

• Florida homeowner losses ranged from a few hundred dollars to $50,000. Minorities and seniors were hit hardest. Homeowners aged 51 and older filed nearly six in 10 complaints in Florida.

• Florida law enforcement has done little to curtail foreclosure rescue rings, in part because the losses sustained are too small to warrant federal attention and often too complex for municipal police.

• Attorneys, too, have drawn scrutiny. Nearly one-third of all fraud complaints in Florida now involve practicing lawyers, FTC records show.

“A drowning man will always reach for a rope, whether that rope is legitimate or not,” said Dennis Black, a real estate fraud expert in Port Charlotte. “Scams will never go away. People are just playing it differently now.”

Interactive database of foreclosure rescue schemes in Florida

SOURCES: Consumer Sentinel Network (Federal Trade Commission), U.S. Census Bureau


Common methods

Two types of foreclosure rescue approaches have emerged as the most common.

Some of these operators will claim to represent banks or government programs, via mass mailings or cold calls.

One scammer with a California post office box sent documents to Southwest Florida homeowners posing as government-certified foreclosure counselors.

Other groups, like the Sarasota nonprofit Keeping Kids in Their Home Foundation Corp., entice delinquent borrowers to hand over the deeds to their homes.

The organization, which government officials have pegged as an unscrupulous manipulator of bankruptcy laws, then evades the default through a series of shell companies and bankruptcy filings.

Organization founder Aleksandr Filipskiy told the Herald-Tribune that he started the effort after his own personal struggle with foreclosure.

Filipskiy, who owned a local construction company, lost his family home and business when the Great Recession took hold. He said police cars arrived at his house — while he was out of town on business — to evict his pregnant wife and small child.

Filipskiy maintains that his methods are not only legal, but also highly effective. He told the Herald-Tribune that he believes the program will become a progressive new approach to foreclosure defense.

“Banks took advantage of people, and the question is, when is it going to stop,” Filipskiy said. “We’re creating our own negotiation settlement systems to avoid (foreclosure) conflicts.”

Homeowners often pay hundreds of dollars monthly to avoid or stall foreclosure, many without the knowledge that they remain on the hook for the loan through what is known in industry parlance as “deficiency judgments.”

“Five years later, the bank can still come back, knock on the door and say you still owe for that loan,” said Joseph Lehn, a Sarasota foreclosure and bankruptcy attorney. “But the scammers are usually long gone by then.”

Burned by the crash

During Florida’s housing boom in the mid-2000s, when home prices were appreciating at a record pace and loan requirements were historically relaxed, the financial system grappled with a mortgage fraud epidemic.

Since then, the type of fraud permeating Florida’s economy has shifted to those burned by the crash.

Scam hotline has been inundated with calls

“It’s like that old saying, you rob banks because that’s where the money is,” said Christy Romero, special inspector general for the U.S. Treasury’s Troubled Asset Relief Program, which investigates foreclosure rescue fraud. “Fraudsters now see the bailout as an opportunity to line their own pockets.”

Even well into an economic recovery, there were more than 913,500 U.S. homes in some stage of foreclosure through the first eight months of 2014, according to industry researcher RealtyTrac Inc.

In Florida, nearly 179,000 active foreclosure cases continued to plague the economy during that time. Each of those represents a potential victim of a loan modification scam or foreclosure rescue operation.

“When the housing market crashed, the banks started paying a lot closer attention to their loans,” said Special Agent Andy Sekela, white-collar crimes supervisor for the FBI in Tampa. Questionable players “had to find another way of defrauding people, they were looking for a different scheme, and with the number of foreclosures out there, they found a different target.”

Local ties

Southwest Florida has seen its fair share, including a Sarasota businessman out to change the way homeowners fight their foreclosures.

But the nonprofit has been described by at least one U.S. Department of Housing and Urban Development official as a “rip off.”

Keeping Kids in Their Home Foundation Corp., which advertised itself as a government-certified foreclosure rescue, has convinced dozens of severely delinquent homeowners — from Tampa to Miami — to hand over their deeds.

Associates with ties to Keeping Kids in Their Home have picked up dozens more.

The parents of famed wirewalker Nik Wallenda, a karate sensei and a local pastor were among the borrowers who took out multiple loans against their homes during the mid-2000s housing boom.

But when the market slumped and foreclosure was imminent, each turned to Filipskiy and his foundation for help.

Filipskiy has managed to stall those defaults for years by transferring properties to new shell companies, trusts and nonprofits he creates, filing for bankruptcy protection under each to block the foreclosure, according to real estate deeds, court filings and state corporation records.

Bankruptcy is a federal process that takes precedence over local court foreclosures and temporarily suspends home defaults until a bankruptcy judge clears them to proceed.

Filipskiy then leased the homes back to their distressed owners, rented them to others and even lived in one with his family, utility bills show.

Real estate experts say mortgage borrowers are prohibited under most loan terms from transferring the title to their property without the bank’s consent.

At least five lenders have indicated in federal court documents that they never gave borrowers approval to deed homes to Filipskiy or any of his affiliates.

“Through successive bankruptcy filings, delay tactics, quitclaim deeds and sham corporate, trust and estate entities, they have been able to avoid foreclosure,” Owen Hare, an attorney representing Bank of New York Mellon, wrote in a motion to dismiss a bankruptcy filed by Filipskiy’s Abundant Life Trust.

“The debtor in this case simply does not owe the money and has mere possessory interests by virtue of fraudulent transfers and quitclaim deeds,” Hare wrote.

Beneficial? Or not?

Southwest Florida homeowners have deeded at least 25 properties to Filipskiy. He took control of another 10 in Hillsborough, Pinellas, Lee, Collier and Miami-Dade counties. He has obtained deeds in Illinois, Massachusetts, California and Colorado.

Filipskiy says his program is beneficial for both his homeowners and tenants. He vows not to make any unreasonable profits from the operation, while negotiating a settlement for his clients.

“The idea was never to enrich myself,” Filipskiy told the Herald-Tribune last fall. “It was to break this wall between the bank and the homeowner. I had a vision to create something different that would benefit others.”

“If this was about money, I would be rich.”

Paul and Susan Moon were among those who turned to Filipskiy.

The couple bought their 1,829-square-foot home on North Port’s Natrona Drive in 1995 for $84,400, borrowing nearly $400,000 against the house through a series of loans from 2004 to 2007, records show.

After they were hit with a foreclosure notice in January 2012, the homeowners deeded away their residence to the foundation that May, which transferred the property to Abundant Life Trust — another of Filipskiy’s entities — three months later. Both of those organizations have filed for bankruptcy, which will slow the looming repossession.

Despite those efforts, Wells Fargo won a $133,926 foreclosure judgment in January 2013.

In another instance, a homeowner in Massachusetts transferred a home with a $504,000 delinquent mortgage to Filipskiy.

Through the use of quitclaim deeds and shell corporations, four bankruptcies ultimately stalled the foreclosure. The tactic resulted in two canceled bank auctions, enabling the owner to delay repossession for eight years, federal court records show.

The bank still has not successfully gained control of the home.

“The filing of a bankruptcy petition merely to prevent foreclosure, without the ability or the intent to reorganize, is an abuse of the bankruptcy code,” Michael Gulisano, an attorney representing creditor BLB Trading LLC, wrote in a motion to dismiss Filipskiy’s Abundant Life Trust bankruptcy.

“By intentionally and knowingly filing a bankruptcy petition containing false and incomplete information, the debtor committed bankruptcy fraud, a federal offense,” Gulisano wrote. “The scheme to hinder, defraud and delay is particularly apparent.”

An attorney representing Abundant Life Trust has refuted those allegations through court filings, saying it was a “legal and equitable owner” of the properties in question.

A website for Filipskiy’s nonprofit, which has since been removed, advertised that the group was certified by HUD.

But neither the foundation nor its affiliates are registered with HUD. The agency has never heard of them.

“We would never condone anyone turning over their deeds or paying up-front money to anyone,” HUD spokesman Brian Sullivan said. “Our guidance is to do the exact opposite. Any company that asks you to turn your title over to them as a mechanism to spare you from foreclosure is a rip off.”

Early attention

Foreclosure rescue fraud first caught the attention of federal regulators in 2010.

That year, the FTC banned foreclosure rescue operators from changing advanced fees or promising guaranteed success.

But foreclosure rescue fraud has exploded.

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Complaints to the FTC, law enforcement agencies and consumer groups more than doubled from 8,937 in 2009 to 20,478 in 2011. Median losses also grew by about $300 during that time to $2,727, records show.

Since 2009, consumers have filed 83,119 foreclosure rescue fraud complaints, FTC records show.

Officials believe the complaints may be but a fraction of the fraud’s actual scope because the FTC system relies on consumers, some of whom may be unaware they have been scammed or too embarrassed to report a loss.

“These are people who need this money, and then you have somebody that’s preying on them, it adds insult to injury because now they’re in an even worse financial situation,” said Sekela, the FBI supervisor. “All of the indicators point to an increase in this crime.”

The proliferation of foreclosure rescue fraud stems largely from government programs intended to help homeowners.

At the height of the financial crisis, Congress ordered the U.S. Treasury to establish the Troubled Asset Relief Program to help stabilize the U.S. financial system by purchasing assets from the nation’s largest lenders.

The deal set aside about $46 billion as a subsidy to support struggling homeowners through programs such as the Home Affordable Modification Program and Hardest-Hit Fund — a particularly popular option in Florida, where $1 billion was awarded.

In many instances, the programs’ different eligibility requirements, application processes and hardship standards have overwhelmed homeowners.

The confusion has allowed groups to pose as official agencies and charge homeowners fees for services offered for free by the government, an examination of complaint records by the Herald-Tribune shows.

“With foreclosures skyrocketing, we have had a lot of agencies out there scamming people,” said Richard DiGiorgio, a housing counselor for the Manatee Community Action Agency, an approved HUD program.

“Anyone has access to public records, and they start sending fraudulent information out to people as soon as they see that foreclosure notice hit the courts,” DiGiorgio said. “Most of these homeowners are embarrassed, they don’t want people to know they’re in trouble, and they don’t know how to deal with it.”

NEXT: Part 2 -- Strategy, or mortgage violation?

Last modified: October 9, 2014
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