Millions At Risk Of Foreclosure

Angela Carter's family has lived for 46 years in the same small two-story home in Chicago, perhaps a 15-minute ride from Barack Obama's adopted Hyde Park neighborhood. But today a piece of paper says someone else owns the property, and a judge will soon decide if Carter and her mom get to stay in her home.

The reason Carter, 55, is facing eviction, she says, is that she fell for a high-stakes scam that’s sweeping the nation, preying on the 1 in 11 consumers who are either behind on their mortgage payments or already in foreclosure.

Interviews with legal aid offices and law enforcement officials around the nation indicate the problem of so-called “foreclosure rescue scams” has spread like wildfire, neatly paralleling the downturn in the mortgage market.

The problem is so bad that in Portland, Ore., local police now automatically send a letter to homeowners who enter foreclosure warning them that they will be inundated with shady offers of help. In one case in Maryland, a single firm is accused of bilking hundreds of residents out of their homes and stealing $60 million in equity. Similar large-scale scams are happening elsewhere; in fact, foreclosure fraud is so common that it's exacerbating the nationwide housing slump, adding to the ranks of distressed homes that pull down the housing market in general, according to some experts.

There are many variations on the scams, but they all boil down to two types. There’s a simple fee-based racket, in which the criminal offers to help the homeowner stave off foreclosure, collects an up-front fee and then disappears. But the more lucrative scheme involves seducing homeowners into complicated transactions that allow the middlemen to steal equity in the house or walk away from the closing table after netting thousands in phony payouts.

How serious is the problem? The proliferation of roadside signs with entreaties like “We buy houses” and late night infomercials promising easy real estate riches offers a clue.

"There is a booming business in selling information on foreclosures,” said Melissa Huelsman, a Seattle-based lawyer who represents victims in predatory lending cases. “There are whole companies that do that and little else. That gives you an idea how big this is.”

Carter -- who might lose her Chicago home -- said she was hit by the worst kind of rescue scam, with her suitor managing to drain nearly $100,000 in equity from her home before she knew what had happened.

She said that she fell behind in her mortgage four years ago after losing her job as a clerk for a company that publishes local "yellow pages." As the bank closed in, a company named Second Chance Program offered to help Carter save her home.

Here is Carter’s version of events: After signing a flurry of paperwork, she signed title of the house over to Second Chance, selling her house for $140,000 with the understanding that she would pay the firm rent and could repurchase the house a year later for $180,000. But almost immediately after signing the deal, Carter said, Second Chance took out a second loan on the property based on her untapped equity and pocketed close to $100,000 -- a common scheme called "equity skimming."

“I had no idea what the building was worth,” she said. “And I had no idea they were buying my house. All along I thought they were giving me a loan.”

Two years later, Second Chance sent Carter an eviction notice. With the help of Chicago's nonprofit Home Ownership Preservation Project, she was able to temporarily block the eviction. Now, the two parties are fighting in state court about who holds the rights to the home. Earlier this month, Carter spent a week in court pleading her case. Now she faces a long wait to find out if she'll get to keep her house and what will happen to the $100,000 in equity her family earned from living there for nearly five decades.

"I have no idea how it's going to turn out," she said. "It's like living with a question mark over your head.”

Carter faces a formidable legal opponent. Second Chance is owned by J.T. Foxx, a self-proclaimed real estate investment guru whose motto is "Get Rich or Die Broke." Foxx hosted a Chicago radio talk show every weekend where he offered investment advice.

Foxx did not reply to messages left with his attorney, Bill Sullivan. An operator who answered the phone at Second Chance’s offices said, “They (Second Chance) aren’t with us anymore.” E-mails sent to the address at Foxx’s Web site were undeliverable.

Dan Lindsey, who represents Carter, said the rapid rise and fall of the housing market created an ideal situation for con artists. “These people are the perfect target for equity strippers,” he said. “It was a niche market that exploded. It seemed everybody was getting into it. Entire companies were formed to do it.”