A home equity scam through “mortgage elimination”

Thieves take your home, get a home equity loan, and take your money

The last five years have seen unprecedented growth in the American real estate market, as investors have run away from risky stocks. Prices are high, interest is high, business is brisk, and homeowners have record amounts of equity in their homes. In some markets, the price of housing has tripled in the last five years! This increase in home wealth has benefitted homeowners, who have been able to take advantage of home equity loans for all kinds of uses. Unfortunately, this real estate market has also caused real estate related crime to take off, as thieves have found new and clever ways to relieve homeowners of their home, their equity, or both.

One recent scan involves companies that claim in their advertising that they can, for a fee of a few thousand dollars, “eliminate” the homeowner’s mortgage and provide them with a free and clear title to their home without the homeowner paying off the remaining debt. 

How does this scam work? How do the thieves get the money?

The plan is somewhat more extensive than other home equity scams that use simple forgery or identity theft. This scheme involves some legal shenanigans in which the homeowner places the ownership of his or her home in a trust controlled by executives of the mortgage elimination firm. The company, acting as the trustee , files a long-winded, tedious, frivolous, and complex letter of complaint to the mortgage company, claiming that in some way or ways, the lender is in violation of some terms of the lending agreement. The trustee gives the lender ten days to respond. Should the mortgage company fail to respond in ten days, and do to high workloads, they frequently do not, the trust claims that the lending agreement is no longer valid. Following this with a questionably legal power of attorney procedure, the trust then files with the local title company or register of deeds for a release of the home’s title. It now appears that the home is free of an encumbrance.

The legal details of this scheme are murky, and vary from suspect to outright fraud. The murkiness is part of the plan; the schemers don’t want what they’re doing to be legally clear. Eventually, all legal parties in these transactions catch on, but it takes quite a while for the lenders, the deed registrar, the courts and the homeowner to figure out what’s going on. The part that soon becomes quite clear is the next step, where the trustee, owning clear title to the home, either sells it or takes out a home equity loan. Following that, the trustees cash the check and disappear into the night with the homeowner’s money. The mess that results leaves the homeowner with a title problem, possibly two mortgages, numerous lawsuits, and probable dealings with the local police.

Homeowners can easily avoid this scam by recognizing one simple truth - if it sounds too good to be true, it probably is too good to be true.