- January 22, 2008
- All Issuing Offices in Virginia and West Virginia
- Foreclosure Rescues
Recent economic conditions have led to a substantial increase in mortgage defaults and foreclosures. As is often the case, there are opportunists who will prey upon the disadvantaged. In our industry, this is taking the form of companies and/or individuals who purport to rescue homeowners from their dire economic circumstances. What makes this difficult for us is that there are legitimate foreclosure saver companies among the fraudulent ones.
Agents must be extremely careful before insuring any transaction that is or appears to be a foreclosure saver. If you have any doubt or question about the transaction, call underwriting counsel.
Some red flags:
- The existing loan is in default.
- The owner is deeding the property to the buyer, but staying in the property beyond a normal "leaseback." There may be a contemporaneous lease or a second contract allowing the owner/seller to repurchase the property.
- The buyer is a non-resident individual or entity, usually arranged through a third party company with a name like "foreclosure savers."
- The consideration is substantially less than fair market value, especially if the consideration is the balance remaining on the existing mortgage(s). The buyer is taking title subject to the existing loans.
- The buyer is taking out a loan which effectively strips the equity from the property, either at closing or shortly thereafter.
- The seller requests the settlement statement be prepared in a way not in conformity to standard sale/purchase practices.
Failure to scrutinize these transactions may expose you, the agent, to liability for participation in the scheme, however unwitting it may be.
NOTE: Virginia and West Virginia have legislation pending this session addressing these practices. Regardless of the outcome of the bills, agents must be vigilant to this kind of transaction.
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