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At risk of losing your home? The rise in foreclosures has led to equity-stripping scams targeting Blacks and Latinos.

SEDERIA LEWIS WAS FULL OF HOPE when she bought her first home in Antioch, California, in 1994. She was in her 30s, a Black woman who planned to grow old in her new house.


"My dream was to be able to help people, especially children, have a safe place to live," recalls Lewis, now 46. She had also hoped to "always have a place for myself, as well as my family members or others that may need a place to stay."

That dream started to go awry when Lewis, who is disabled, unexpectedly lost her disability benefits and quickly fell behind on her mortgage payments. After receiving a notice of default that would lead to foreclosure, she went to the place she had always gone for help: her church.

According to Lewis, pastor Mario Raynard Howell directed Lewis to an alleged "financial advisor" and fellow congregant who promised to save her home from foreclosure. Desperate, Lewis put the fate of her home into the hands of her pastor's referral, Jeffrey Robinson.

Robinson allegedly had Lewis sign what she thought were refinancing documents but were actually papers that transferred the title of her home over to him. Just months afterward, Lewis says that Robinson began demanding rent and notified her that she no longer owned her home. He then sold her home to a fellow congregant well below market value, according to paperwork filed in Lewis's lawsuit against Robinson and others who apparently collaborated with him.

What happened to Lewis is not uncommon. It's known as a foreclosure equity-stripping scam. The one she experienced is called a "bait-and switch" scheme where the homeowner is told they are refinancing their mortgage when in reality they are signing documents that relinquish title to their home and losing the equity they have in the property.

Lewis allegedly lost between $70,000 to $90,000 in equity. Luckily, she lives in California, which was the first state to enact extensive laws addressing foreclosure equity-stripping fraud. A family member helped Lewis find Housing and Economic Rights Advocates of Oakland, which is now representing her along with Morgan Miller Blair, a technology and real estate law firm.

Foreclosure equity-stripping scams, which have existed since the 1930s, are on the rise across the country. Nationwide, nearly 100,000 homes have been lost to these schemes in recent years. In New York, Josh Zinner, coordinator of the Foreclosure Prevention Project at South Brooklyn Legal Services, has witnessed a sharp increase in this type of fraud. Zinner says that until recently, South Brooklyn Legal Services rarely received calls reporting equity-stripping scams, but since 2003, 107 cases have been reported. Of the homeowners, 71 percent are Black and 14 percent Latino.

California passed laws regulating foreclosure consultants in 1979. However, it was the only state in the country to do so at the time. In most states, foreclosure equity-stripping scams have fallen under general fraud laws that require extensive proof that makes cases difficult to pursue. But with a sharp rise in foreclosures and scams, six states in just the past two years have passed laws similar to the one in California.

The increase in foreclosures and equity-stripping scams is actually rooted in the sharp rise of subprime loans to Blacks and Latinos. Lewis herself had a sub-prime loan, meaning her interest rates were much higher than that of a prime home loan. Usually, the loan's interest rates are two percentage points higher than those of prime home loans. Subprime loans are also frequently adjustable rate loans that may start at a lower interest rate but jump significantly after the first few years, making the mortgage payments increase rapidly over a short period of time. While subprime loans represented only 5 percent of the total market in 1994 when Lewis bought her home, by 2004 that number had jumped to nearly 20 percent.

A critical report released last year by the National Consumer Law Center asserted that subprime loans have been a primary contributing factor in the increase in foreclosures and "rescue" scams across the country. The report called mortgage-industry predatory lending practices "reckless" and "grossly unfair."

Analysis of nationwide data on lending practices has consistently shown that people of color, particularly Black and Latino prospective homeowners, are disproportionately targeted for high-interest-rate subprime loans and are the overwhelming majority of victims in this type of fraud. Black and Latino borrowers are 30 percent more likely to receive higher-rate subprime loans than white borrowers with comparable credit scores, according to a study released this year by the Center for Responsible Lending. In California alone, people of color are paying at least $50 million more per month than white borrowers, according to a report released last year by the California Reinvestment Coalition, a nonprofit organization that works with community-based organizations to promote the economic revitalization of low-income neighborhoods and communities of color.

The subprime loan market is disproportionately comprised of people of color--33 percent of Black and 20 percent of Latino homeowners have these loans compared to 8 percent of white borrowers. Mortgage companies claim that subprime loans are a way for "high-risk" borrowers with poor or no credit history to buy their own homes. But upper-income Black borrowers are twice as likely to have a subprime loan as low-income white borrowers, according to the Department of Housing and Urban Development (HUD).

Nearly half of all Black homeowners in New Orleans have subprime loans that did not immediately offer the same mortgage relief granted to prime loan borrowers, greatly impacting Black families that were already devastated by Hurricane Katrina. This summer, HUD is scheduled to end its moratorium on foreclosures in hurricane-affected areas.

"The real root of the problem is the unequal system of credit in this country. Communities of color have much more limited access to mainstream and fair credit and are targeted heavily by abusive and high-cost lenders," said Zinner. "The dynamic that plays out with foreclosure rescue schemes is a result of that."

Even though California has extensive foreclosure equity stripping laws, the state has minimal laws against predatory lending. Zinner asserts that stricter laws, increased enforcement and raising consciousness among those most likely to be targeted and victimized are necessary to end the epidemic.

Under California laws protecting homeowners who have defaulted on their loans or are in foreclosure, Lewis's lawyers hope to at least regain part or all of the equity lost, though it could take up to three years. In the meantime, Lewis has been left homeless. She has relied on the support of friends for a place to stay, the same safe haven she had once hoped to provide with her home.

Megan Izen is editorial assistant at ColorLines magazine.


* Seven states have laws limiting the fees that foreclosure consultants can charge. These laws also set contract requirements for foreclosure consultants and buyers and establish minimum fines, restitution and jail time for mortgage fraud offenses.

* Homeowners have a better chance in court when they can prove, for example, that a foreclosure consultant charged more than permitted by the state.

* There's not enough legal assistance available for victims of foreclosure equity-stripping scams. Lawyers are still not familiar with equity-stripping policies.

* Consumer advocacy groups have tracked research and personal stories of foreclosure equity-stripping scams over the past decade. With this information, they have pressured elected officials to support stricter laws against equity-stripping scams. Groups like the Maryland Consumer Rights Coalition and the Georgia Real Estate Fraud Prevention Awareness Coalition have done this work in Maryland, Minnesota, Georgia, Illinois, Rhode Island and Colorado.

* "Dreams Foreclosed," a 2005 report by the National Consumer Law Center, was the first national study of foreclosure equity-stripping scams. The report provided critical research that helped convince legislators in several states to pass stricter laws.

* The new state laws still have loopholes like exemptions for real estate licensees, attorneys and mortgage brokers, who are technically not foreclosure consultants but can still participate in these type of scams.

* Most states include foreclosure equity-stripping scams under general fraud laws. This is hard to prove.


* If you are behind on your mortgage payments, don't respond to promises to help save your home. The solicitations often come by e-mail, telephone or mail from people who know about your home.

* If you default on your loan or are in foreclosure, contact your mortgage company directly to negotiate with them.

* Seek the advice of legal aid attorneys or non-profit community groups in your area or national groups like National Consumer Law Center and the Center for Responsible Lending for local referrals.

* Always have an independent legal representative look over all documents before you sign them, keep copies of all signed documents and make sure you have read every document relating to your loan or transaction.

* Research and check the credentials of any lender, real estate agent or consultant you deal with.
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Article Details
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Title Annotation:FEATURE
Author:Izen, Megan
Publication:Colorlines Magazine
Geographic Code:1USA
Date:Sep 1, 2006
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