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Scams and Foreclosures On the Rise

"Surplus Funds" Scam Targets Homeowners in Trouble

March 5, 2007

Mortgage "Rescuers" • Florida Attorney General Warns Big Banks On Modifications • Ohio Sues Mortgage Servicer For 'Incompetence' • Brown Challenges Banks On 'New Wave' Of Foreclosures • California Law Cracks Down On Foreclosure Rescue • Feds And States Get Tough On Scams • FTC Continues Crackdown On Mortgage Relief Scams • Florida Sues Foreclosure "Rescuer" Targeting Hispanics for Fraud • Class Action Proceeds Against Debt-Relief Scam • States Increase Pressure On Foreclosure Consultants • New York Sues Loan Modification Company • California Puts Foreclosure Consultants On Notice • Mortgage Modification Program Off To Slow Start • Florida Sues Four Foreclosure Rescuers • California Sues Dozens Of Mortgage Rescue Scammers • Don't Put Your Hopes, Or Money, In A Loan Modification • Ohio Launches Foreclosure Rescue Crackdown • Feds Look at Tougher Foreclosure 'Rescue' Rules • California Seeks To Register Foreclosure "Consultants" • FTC Slams Fake Government Loan Rescue Operation • Ohio Puts Heat on Foreclosure Rescue Operations • California Foreclosure ‘Rescue’ Defendants Rounded Up • Missouri Joins Mortgage Scam Smackdown • Florida Targets Fraudulent Foreclosure "Rescue" • Florida Foreclosure "Rescue" Company Shut Down • Illinois Sues Seven Companies for Mortgage Rescue Fraud • California Busts Foreclosure Scam Ring • Florida Sues Foreclosure Rescue Company for Deceptive Practices • Mortgage Rescue Fraud Schemes On The Rise • Indiana Charges Mortgage Broker With Scamming Homeowners • Indiana Targets "Foreclosure Consultant" • Missouri Attorney General Takes on Foreclosure Scams • New Washington Law Protects Distressed Home Sellers • Foreclosure 'Rescue' Firm To Pay $1.2 Million To Arizona Victims • Florida Governor Signs Foreclosure Rescue Law • California Busts 'Land Grant' Foreclosure Scam Artists • California Shuts Down Mortgage Scam Artists • FTC Takes On Mortgage 'Rescue' Operations • Illinois Uses New Law to Sue Mortgage Rescue Company • Washington State Settles with Mortgage "Rescuers" • Scams and Foreclosures On the Rise • Illinois Sues Mortgage "Rescue" Companies • Mortgage Crisis? Act Now to Avoid Foreclosure • North Carolina Shuts Down Mortgage "Rescue" Operation • Illinois Shuts Down Mortgage "Rescue" Scam • Indiana Fines Mortgage "Rescue" Firm • Illinois Sues Another Mortgage Foreclosure "Rescuer" • Missouri Sues Foreclosure "Rescue" Business • Illinois Launches Offensive Against Foreclosure "Rescuers" • New York Takes On Predatory Real Estate Scams • Texas Halts Bogus Foreclosure Rescue Operation

Some homeowners facing foreclosure are being subjected to scams that ultimately could cost them tens of thousands of dollars, New Jersey Attorney General Stuart Rabner warns.

As foreclosure filing rates are increasing nationally, scams targeting homeowners facing foreclosure are rising as well. These scams typically target "surplus funds" to which homeowners may be entitled if their homes are sold at a sheriff's sale.

"Homeowners facing the loss of their homes are understandably concerned, and con artists seize on their fears to perpetrate scams," Rabner noted. "These offers of help and money may seem like a godsend, but it is the con artist who ultimately benefits."

Surplus funds are the monies remaining after the sheriff's foreclosure sale takes place and mortgage and tax obligations have been paid. Neither the homeowner's mortgage lender nor the sheriff's office are required to notify the homeowner if surplus funds exist.

The state's Division of Consumer Affairs is alerting the public to two surplus fund scams.

In the first scam, the con artist offers to accept the property deed and, in exchange, pay the homeowner a minimal amount of money, typically no more than a few thousand dollars. By transferring the deed, the homeowner signs away ownership of his or her house and any equity that has built up.

The homeowner may be told he can buy the deed back if certain conditions are met. Many times, however, these conditions are almost impossible to satisfy or the scammer never intends to honor his promise. Instead, the house is sold through a sheriff's foreclosure sale and the con artist keeps the surplus funds that result.

In the second scam, the con artist offers to assist the homeowner in obtaining surplus funds that may be available after the house is sold via a sheriff's foreclosure sale. The homeowner often times is told that he cannot apply for surplus fund on his or her own, or that the process is very complicated or costly.

The con artist scams the homeowner by:

• charging an exorbitant fee that can range up to 75% of the total surplus fund;
• writing a fee in the contract with the homeowner that is higher than the fee verbally promised;
• pressuring the homeowner to sign away his/rights to the surplus funds through a quit claim deed; and
• forging the homeowner's name on a surplus funds application and then keeping the surplus funds.

In reality, homeowners in New Jersey can obtain the surplus funds by filing a simple form and paying less than $100. The process is similar in other states.

"These scams have the same goal: to enrich the con artist by taking money from a homeowner in trouble," Acting Director Nolan said. "It is unconscionable that con artists take advantage of good people who have fallen on hard times. We are working to educate and protect those facing foreclosure from these scams."

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