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Washington State Settles with Mortgage "Rescuers"

March 16, 2007

Mortgage "Rescuers" • 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

A settlement has been reached with three Washington State-based businesses and their owners accused of taking unfair advantage of homeowners and other property owners facing tax foreclosure.

Attorney General Rob McKenna said the defendants offered "foreclosure rescue" services targeted at consumers who had fallen behind on their property taxes. They obtained names and addresses of property owners through public records available from county treasurers.

"We believe the defendants exploited the public's unfamiliarity with the tax foreclosure process and profiting unfairly at the expense of desperate homeowners," McKenna said. "They told property owners that they would solve their foreclosure problems. But often, their real intent was to let the property go to auction and take any excess proceeds from the sale -- money that would have gone to the property owner if the defendants hadn't 'helped' them."

Under the settlement, Fiscal Dynamics, Inc. and Cumulative LLC, of Tacoma; and Northwest Assets, of Seattle, denied the state's allegations but agreed to pay a total of $290,000 in consumer restitution. Two individuals also denied the allegations but agreed to the settlement terms: Walt Scamehorn, of Tacoma, who owns Fiscal Dynamics and Cumulative, and E. Arliss Morgan, of Burien, who owns Northwest.

The money will be used to provide refunds to consumers who would have received proceeds from the sales of their homes or land had the defendants not diverted the proceeds for their own use. Based on current information, more than 100 consumers may be entitled to receive restitution.

The state filed its lawsuit following a lengthy investigation by the Consumer Protection Division's Senior and Vulnerable Consumers Unit. It is pursuing civil charges against two additional defendants: Joseph Kaiser, of Tacoma, and Tina Worthey, of Burien. Kaiser previously owned part of Fiscal Dynamics and Cumulative. Worthey is an agent of Northwest Assets.

"We appreciate Mr. Scamehorn and Mr. Morgan for cooperating with our investigation and their willingness to step forward and make things right," McKenna said. "With the recent dramatic rise in foreclosure rates, this likely will not be the last foreclosure rescue case brought by my office."

Recent reports show that foreclosures in Washington increased significantly last year, claiming 18,527 homes -- or one in every 129. Statistics were worse in Tacoma, where the defendants did most of their business.

According to the state's complaint, the defendants told property owners they would pay off the delinquent taxes so that foreclosure could be avoided. They offered property owners money, sometimes as little as $200, in exchange for the transfer of a title or interest in the property. Property owners were sometimes told that if they did not take the fee, they would receive no money after the foreclosure sale.

"We understand most property sold at tax foreclosure auctions sells for close to market value, and in the current market that usually means an amount much greater than the amount paid by the defendants for the property," said Assistant Attorney General David Huey.

"After taxes are paid from the sale price, there may be substantial money left over. State law says that such a surplus rightfully belongs to the person who owned the property."

Huey said property owners who agreed to receive "help" from the defendants were inundated with paperwork, including a form that gave the defendants power of attorney or an "overage assignment form" that defendants asserted gave them the right to collect excess auction proceeds.

In other situations, the property was placed in a trust and the defendants acted as trustees. Most property owners believed they still owned the property, but the defendants actually had control.

The Attorney General's suit also charged that legal documents used for these details were signed days, or even hours, before the pending foreclosure auction; that no notary was present at the time of the signing; and that the defendants sometimes notarized documents themselves. The suit also accused Scamehorn of manipulating property sale prices during foreclosure auctions.

The defendants in the settlement agreed to a long list of injunctions when doing business with property owners facing tax foreclosure.

Specifically the defendants are barred from:

• Misrepresenting their purpose in contacting property owners as benevolent, disinterested or anything other than an attempt to earn a profit;

• Representing that they can help the property owner avoid any of the consequences of foreclosure;

• Obtaining a power of attorney or any other agreement that effectively transfers excess foreclosure sales proceeds to a third party which would normally be refunded to the person who owned the property at the time the court authorized the foreclosure;

• Failing to provide owners of property subject to a pending tax foreclosure proceeding a written and oral notice that informs them of their right to consult with an attorney or financial advisor and explains the financial impacts of accepting the defendants' offer to pay delinquent taxes;

• Taking any interest in real property subject to a pending tax foreclosure proceeding where defendants have reason to believe the property owner expects to reacquire that interest from defendants in the future unless the cost and terms of reacquiring that interest have been fully disclosed;

• Misrepresenting the material terms of any proposed real estate transaction;

• Using the Public Records Act to obtain a list of people likely to enter tax foreclosure proceedings or currently in tax foreclosure proceedings in order to solicit them;

• Engaging in any activities to conspire to manipulate the sales price of property at an auction or other sale;

• Entering into any contract unless the property owner is given a written notice of their right to cancel within three business days. (Documents closed by an independent attorney or limited practice offer at that person's usual place of business are exempt from this provision.);

• Acting as a trustee or other fiduciary when the defendants have a beneficial interest in the transaction or the property;

• Offering courses that train others how to engage in any of the activities described above.

The defendants also agreed to pay $50,000 in civil penalties (suspended, provided they comply with the settlement terms) and a total of $20,000 in costs and attorneys' fees.

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