One of the sad results of the subprime mortgage crisis that has been widely reported is that unscrupulous persons claiming to help the homeowner in trouble have come up with schemes to make their financial plight even worse. Maryland and other states have passed laws to regulate mortgage foreclosure consultants, and to prevent desperate lenders from being taken advantage of. A homeowner who falls victim to a “mortgage foreclosure scan” may, however, have little legal right to get their home back from a legitimate purchaser or lender. This was made clear by Maryland’s intermediate appellate court last week in the case of Julian v. Buonassisi.
The court described a “mortgage foreclosure scam” in these terms. An alleged “rescuer” sees a notice of pending foreclosure in the paper, and contacts the homeowner claiming to be able to stop the foreclosure sale and allow a fresh start. The rescuer agrees to pay off the mortgage, but the homeowner must transfer title to the home to a third person. The original owner then rents back their house, often with a promise that they can buy it back in the future when they get back on their feet. However, hefty fees and a failure by the new owner to pay a new mortgage often results in the original debtor losing their home anyway.
Ms. Julian’s story was a case in point. She and her ex-husband had purchased a home, which she then got in the divorce. She faced foreclosure several times, and when her lender again filed notice of foreclosure she heard an ad for the Metropolitan Money Store. Ms. Julian met with the owner who promised to help her. She went to a settlement and signed a great number of documents, including a transfer of title to her home to a Ms. Wilson. After paying off the old mortgage, over $81,000 in cash was generated, of which Ms. Julian received only $5,000. The rest paid a number of fees to other persons, with the result that about $50,000 was placed in escrow to supposedly pay the mortgage. Ms. Julian rented back her former home, with the understanding she would be able to buy it back in a year.
Instead, she learned that the mortgage was not being paid, and Ms. Wilson told her the Moneystore was being investigated by the State. The lender ended up foreclosing and, as often happens, bought the home at the foreclosure sale to resell. Ms. Julian intervened in the foreclosure, claiming she had been defrauded and excepting to the sale to the bank. The trial court ruled against her, and she appealed.
She argued that since the Protection of Homeowners Against Foreclosure Act had been violated by the Moneystore, the foreclosure sale of her home was void. That Act regulates foreclosure consultants in some detail. It requires written foreclosure consultant contracts, which the homeowner can cancel at any time. The consultant must provide written notice of a right to rescind a reconveyance to someone else within 3 days after receipt of proper notice. It places limitations on leasing back a home, limits interest that can be charged to the homeowner, and provides that such a consultant cannot be paid until all services are provided.
Ms. Julian claimed she never got notice of her right to rescind anything. However, the Court held, it was not the Bank that foreclosed on her house that violated the Act. The law in fact does not even apply to person doing business under banking laws. The fact that she was the victim of a scam did not affect the rights of a bona fide lender and purchaser, and she was held to have no remedy against the purchaser of her home.
While these laws, which were amended and strengthened further in 2008, can help protect persons facing foreclosure, this case illustrates that they are no protection against banks who act lawfully in foreclosing on a property.