Affinity fraud threatens to drain home equity from victims

Home equity loans used to fund high-dollar Ponzi schemes

We have written extensively about the topic of mortgage fraud. There are many unscrupulous people who have decided to take advantage of the booming housing market over the last few years. All manner of scams have popped up to take advantage of consumers and the lending industry:

Foreclosure help - People pretend to offer help to those who cannot make their house payments by “temporarily” taking over their mortgages. Then they evict them and sell their houses.

Property flipping - Lenders use fraudulent appraisals to make a house seem to be worth more than it is. Then they sell it to an out of state investor for several times it’s actual value. Or they sell it to a “straw man” buyer who has no idea what’s going on. He gets stuck with the bill.

Most of these scams involve either fleecing a lender or stealing a home away from the owner. Another scam that is quite popular these days is known as an “affinity scam.” In this case, the house isn’t the target. Just lots of money. Affinity scams involve a person who makes himself known to a group of people who have something in common. More often than not, this group is a church. This person may join a church, become well known within the congregation, and then let it be known that he or she has a money making plan that cannot miss. The plan varies; it can be a money making “system” or a scam involving cut-rate aluminum siding or perhaps some way of raising funds for a new church through “secret investments”. The trick is that by becoming known and trusted, the crook can persuade people who would otherwise know better to invest money.

These schemes often require large sums of money; plans involving personal investments of $100,000 or more are not unknown. The victims are persuaded that the investment scheme is legitimate, and they have no reason to think that this trusted member of the community would deceive them. So they run off and take out a home equity loan or refinance their home so that they can give the proceeds to this profit-promising crook.  Once he has the money, the crook disappears, never to be seen again, leaving the victims to stand around and say things like, “But he was a deacon in our church! How could he do that?”

This sort of thing is very common as it takes advantage of people’s trust. Worse, most people who are victimized by such schemes are so embarrassed that they will not tell the authorities about it.

• Here are some things you should know about affinity fraud:
• Always find out as much as you can about the plan, no matter how much you trust the person.
• Get the plan in writing. If it isn’t, you should be suspicious.
• Beware of any plan that promises unreasonably large returns. Anyone promising a 20% or 50% return on your investment in a short period of time should raise your eyebrows.
• Don’t be pressured, by the crook or anyone else, to rush into an investment that seems suspicious.

Peer pressure goes a long way towards making these schemes work. Don’t fall for it.