OMAHA, Neb. – After Ivan Eicher lost his job, he and his wife Delores fell several months behind on their house payments. Facing foreclosure, they accepted an offer from a company that promised to help them keep the home where they’d lived for more than 20 years.

Without realizing what they were doing, the couple ended up surrendering ownership of their home.

“It was just a really nice song and dance,” Delores Eicher said.

The Eichers are among the thousands of people who fall each year for offers that promise to help them avoid foreclosure but that leave them with none of the equity they had built up in their property. Their situation matches one of the three common models of foreclosure fraud the National Consumer Law Center has described in a report on the growing problem.

Caveat emptor

The number of foreclosures reported nationwide soared 42 percent in 2006 to 1.26 million, according to RealtyTrac, an Irvine, Calif.-based company that tracks foreclosures. That creates opportunities for more foreclosure fraud, although the exact number of cases is difficult to determine because they are generally lumped in with other kinds of fraud in crime reports.

The Eichers thought they were taking out a $1,700 loan to help them pay the roughly $4,700 in back payments they owed on their mortgage. They learned too late they had signed their house over to Mid-America Financial Investment Corp. and agreed to lease their home from Mid-America when they accepted that loan.

Although the couple no longer owned their home, the mortgage remained in their names, so they made their $554 payments on the loan through Mid-America, along with monthly fees of at least $100.

Elizabeth Renuart, a staff attorney at the National Consumer Law Center who co-authored the report on foreclosure fraud, said such schemes are popular in areas of the country where home values have soared, but any homeowner who has been paying down a mortgage for many years will have significant equity and can become a target.

A second scheme described in the report involves consultants charging high fees to help homeowners out of trouble but never delivering the promised services. A third involves an agreement where a homeowner knowingly signs over their home and agrees to buy it back over time, but the terms of the agreement make it nearly impossible for the homeowner to succeed.

The Eichers became part of a lawsuit against Mid-America in 2001. They eventually won the title to their home back after the Nebraska Supreme Court ruled in 2005 that Mid-America had defrauded them and 12 other homeowners in the Omaha area.

Scott Bloemer and Elaina Hollingshead, who run Mid-America, did not respond to The Associated Press’ requests for comment. Bloemer and Hollingshead defended their business practices in court and argued that the paperwork the Eichers and others signed spelled out what was involved in the deals. But the courts ruled that Bloemer’s and Hollingshead’s testimony wasn’t credible.

Renuart said foreclosure rescue agreements can be difficult to decipher – even for an attorney.

“It’s hard to make heads or tails of these agreements,” she said.

That’s one reason why at least eight states have adopted laws designed to help protect consumers from the questionable practices some foreclosure consultants use. Nebraska’s Legislature is considering adopting such legislation this year.

The laws vary, but generally all require the terms of these agreements to be spelled out in writing and offer homeowners a chance to cancel the agreements within a few days of signing them.

States fight back

Nebraska’s proposed law is based on a Colorado law passed last year.

In Maine, the speaker of the House of Representatives, Rep. Glenn Cummings, is introducing legislation to strengthen existing laws to protect consumers from predatory lenders. In 2006, a report from Coastal Enterprises Inc. found Maine remains vulnerable to unsavory mortgagors, given its high rate of home ownership, escalating property values, and aging population.

The danger zone, according to the CEI report, is the sub-prime mortgage market, in which out-of-state lenders offer attractive, low-interest loans, mostly for refinancing of existing debt. This market topped $1 billion in 2006, the report found, with more than half of these sub-prime loans issued in the state’s rural counties.

Lewiston-Auburn has the highest concentration of sub-prime loans of any metropolitan area in Maine, said CEI.

“The real unlevel playing field is not between state-charted lenders and federally-charted lenders; the real unlevel playing field is between responsible lenders and predatory lenders,” Cummings said in September. “Strong predatory lending laws ensure that victims of predatory lending don’t lose their right to defend their home against foreclosure in a court of law by relegating them to costly, and often one-sided, arbitration.”

Foreclosed

For most of 2006, Colorado was the state with the highest residential foreclosure rate in the nation, according to RealtyTrac. Colorado had one new foreclosure filing for every 376 households in December.

In New England, Maine had the highest rate of subprime mortagages entering foreclosure, according to CEI. From mortgages issued in 1999, the report said, 21 percent were foreclosed upon by 2005. The study also found sub-prime loans are 11 times more likely to enter foreclosure, compared to prime loans issued by traditional lenders.

And the worst might be yet to come.

“National trends suggest that foreclosure rates in Maine will likely increase again in the next few years,” the study stated. “Low interest rates and a refinancing boom have possibly delayed foreclosures in Maine.”

Tell-tale signs of predatory lending are aggressive sales tactics, hidden fees and pre-payment penalties, and tactics like steering – pushing borrowers toward higher-priced loans – and flipping, the practice of continually refinancing without offering a tangible benefit. CEI described flipping as a method to sponge fees and penalties from borrowers.

Maine, along with 46 other states, sued two national lenders – Beneficial Finance Corporation and Household Finance Corporation – in 2003 for predatory practices, which was settled for $484 million of which Mainers were eligible for $1.6 million. In January 2006, a similiar suit against Ameriquest was settled for $295 million.

The Eichers, in Nebraska, and a dozen other homeowners who sued Mid-America said they never had a chance to read the Mid-America loan documents before signing them because Bloemer and Hollingshead rushed them through the process.

One of the other people who successfully sued Mid-America, Steven Starman, said he realizes now he should have read the documents carefully instead of relying on oral explanations.

“I made decisions based on what I was told,” Starman said. “They tell you what you want to hear.”

Renuart and groups that track foreclosures worry that many more Americans could fall victim to fraud because the number of adjustable-rate and interest-only mortgages taken out in recent years will likely contribute to a jump in the number of foreclosures when loan payments adjust upward.

RealtyTrac said 109,652 homes across the nation entered some stage of foreclosure in December, a nearly 9 percent drop from the previous month, but an increase of 35 percent from December 2005. The company reported a national foreclosure rate of one new foreclosure filing for every 1,055 U.S. households.

And the Center for Responsible Lending issued a report in December predicting 2.2 million foreclosures in the coming years among homeowners with so-called sub-prime loans, which are loans offered at rates higher than the prime rate and that are aimed at people with poor credit ratings.

Moving on

The Eichers are now trying to sell their home because during four years of litigation, the house developed a roof leak they couldn’t afford to fix. Their insurance company refused to pay for the repairs after the lawsuit was settled, partly because it had already paid Bloemer $1,080 to repair the roof, which was never done.

The Eichers did receive $1,080 as a result of the lawsuit, but Delores Eicher estimates that the needed repairs might cost more than $30,000 now. The couple moved out of their home in November and hope someone will buy it before March, so they can pay off the mortgage and possibly other debts as part of a personal bankruptcy.

“We just want to sell the house and get everything cleared up,” Eicher said.



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