WASHINGTON, DC – Last night, Senator Herb Kohl’s (D-WI) legislation to protect Americans from becoming the victim of foreclosure rescue scams was overwhelmingly approved as an amendment to a bipartisan housing package. The Kohl measure protects financially distressed homeowners – often elderly – from unscrupulous financial predators by implementing stricter requirements and a federal floor of protection.

 

Once enacted the Foreclosure Rescue Scam Amendment (S. 2888) would help curtail the dramatic increase of mortgage fraud that has risen nationally by 800 percent in the last five years, with an estimated 60,000 cases expected this year, according to the FBI. 

 

“Too many Americans – already in financial dire straits – are pushed even deeper into debt by scam artists preying on their vulnerability,” Kohl said. “By approving this vital measure, Congress has taken a much-needed step forward in addressing this problem – a direct consequence of the foreclosure crisis afflicting communities throughout the nation. This legislation helps to ensure we implement the steps necessary to prevent this fraud and abuse from being perpetrated against the elderly and all Americans.”

 

Senator Kohl’s measure is co-sponsored by Senators Susan Collins (R-ME), Blanche Lincoln (D-AR) and Barbara Mikulski (D-MD). Foreclosure rescue scams prey on homeowners in the process of foreclosing their homes and especially vulnerable to deceptive practices that seem to offer hope. Instead, these scams often leave the victims facing a far worse financial predicament, sometimes ruining their credit rating entirely and stripping away their equity, making it almost impossible for them to recover financially. 

 

The Foreclosure Rescue Fraud Amendment aims to prevent homeowners from falling prey to these cruel abuses by increasing disclosure and creating strict requirements for a person or entity offering foreclosure rescue services. Specifically, once enacted, the legislation would:

In addition, this legislation would help states and federal agencies combat these schemes and protect people already in financial distress from becoming worse off. 

 

In February, Senator Kohl, as Chairman of the Special Committee on Aging, held a hearing that uncovered the ways scam artists prey on homeowners in distress. Three types of prevalent scams were exposed. The first is “phantom help,” where the supposed rescuer claims that they will call the homeowner’s lender and re-negotiate the loan for a fee. Often the homeowner will pay that fee, but the “rescuer” then abandons the homeowner without any intervention. The second is a “rent-to-own” scheme which is set up to fail. A homeowner will sign over the title of the house and make monthly payments to the scammer in order to help rebuild their credit. However, the monthly payments are extremely high and often result in the homeowner violating the contract and being evicted. A homeowner may also be tricked into unknowingly signing over the title of their house and power of attorney to the scammer and the scammer will then sell the house to a third party. The scam artist might give the homeowner a small amount of money, but often only a fraction of the actual selling price.

 

At the February hearing before the panel, Catie Doyle, chief attorney for Legal Aid Society of Milwaukee, described in her testimony the difficulties lawyers face when trying to help victims of these scams. One major problem she pointed out was lawyers having to piece together both state and federal laws to untangle these scams. Senator Kohl’s amendment will remedy these concerns. While there are some states that have foreclosure rescue scam laws or are in the process of enacting them, many homeowners still go unprotected from these predators. This legislation requires all contracts between a foreclosure consultant and a homeowner be in writing and fully disclose the nature of the services and the exact cost. Additionally, the bill prohibits up-front fees from being collected and prohibits a supposed “consultant” from obtaining the power of attorney from a homeowner. 

 

The larger comprehensive housing bill, in which the Kohl measure is included, will strengthen the Federal Housing Administration’s ability to keep people in their homes and provide them with secure fixed-rate mortgages, reform government sponsored enterprises (Fannie Mae and Freddie Mac) and assist potential homebuyers with a tax incentive to purchase their first home. In addition, the measure also creates a landmark low-income housing trust fund to assist in the construction of affordable rental housing and provides assistance to communities with redevelopment aid.

 

“I am proud of my colleagues – Republicans and Democrats alike – for recognizing the need to prevent rescue scam fraud as a key component of addressing the foreclosure crisis,” Kohl said.

 

# # #