Home Equity Fraud and Home
Renovation Repair Scams
While more than $100 billion will be spent on home remodeling and
repair this year, you should be aware that home remodeling contractors
ranked just behind car salespeople and auto mechanics in generating
the most consumer complaints, according to the Council of Better
Be especially cautious about using your home as security for a home
improvement loan. If you fail to repay the loan as agreed, you could
lose your home.
Older homeowners are popular targets of fraudulent home repair financing
schemes because they’re likely to live in older homes that
need repair, they’ve built up substantial equity, and are less
likely to undertake home repairs themselves. In addition, older homeowners
are more likely to be vulnerable to high pressure pitches.
An elderly couple with an outstanding balance on their mortgage
of less than $1000 met three men who presented themselves as representatives
of a licensed mortgage banker and arranged for a home improvement
loan secured by a mortgage on their residence. The proceeds of the
loan were used to construct a fifty-foot decorative fence.
After the refinancing required to pay for the fence, the couple
owed $85,000 at 17.99% interest. In addition, the lender charged
them $4,200 in pre-paid finance charges and the mortgage broker charged
a fee of $6,800. These fees were deducted from the proceeds of the
Another couple was approached by home improvement contractors and
encouraged to take out a mortgage they could not afford. One was
legally blind and the other was deaf. They were both house-bound.
The work was never completed and the couple defaulted on the mortgage
payments. The kindly lender agreed to convert the loan into a reverse
mortgage so that the couple could stay in their home until they died.
An 88-year-old woman signed several home improvement contracts totaling
over $17,000 for extensive roofing, gutter and chimney work. When
she experienced continued problems after the work was performed,
she hired a consultant.
The consultant reported that she was overcharged for each item,
that unnecessary and shoddy work was performed, and that in many
instances, they failed to perform any of the work specified and paid
for in the contracts.
"Predatory home equity lenders target the most vulnerable homeowners
- the elderly and people in financial or personal crisis - for high-cost
loans secured by their homes," FTC Chairman
Robert Pitofsky said. "These subprime lenders appear to care
little about a borrower’s ability to pay, so long as they have
enough home equity to secure the new loan. The lenders are able to
prey on homeowners because mortgage transactions are often very complicated
and difficult to understand. These practices are among the most abusive
forms of consumer exploitation that I have seen."
Subprime loans have become a significant and growing part of the
home equity market. Subprime lending refers to the extension of credit
to higher-risk borrowers, at rates of interest and fees higher than
Some companies have made home equity loans to minority, elderly,
and low-income borrowers at interest rates as high as 20-24 percent.
As a general rule, loans made to individuals who do not have the
income to repay such loans usually are designed to fail; they frequently
result in the lender acquiring the borrower’s home equity.
The borrower is likely to default, and then ultimately lose her home
through foreclosure or by the signing over of the deed to the lender
in lieu of such a measure.
Title 1 Loans
Title I, part of the National Housing Act of 1934, is designed to
make loans available to people who can't qualify for conventional
loans because of poor credit history or low income.
Under the program, private lenders offer loans at market interest rates.
If a borrower defaults on the loan, the bank or finance company collects
90 percent of the principal from a fund administered by HUD.
The money for the fund comes from fees paid by lenders, who pass the
cost on to the borrowers.
Title I lending increased in the 1990s, when finance companies began
lending at high interest rates to borrowers with bad credit. The loans
were generally made through home-repair contractors acting as dealers
for national lenders.
But some contractors took advantage of homeowners by deceiving them about
interest rates, inflating prices and doing lousy work.
Home-equity stripping is a burgeoning unfair lending practice used
to steal the value from consumers’ homes whereby an unscrupulous
lender talks you into cashing out the money-value you have built
up in your homes with a home-refinance loan.
They promise low interest rates and low monthly payments then use
sophisticated and deceptive sales tactics to dupe you. You unwittingly
sign loans with thousands of dollars in hidden fees —sometimes
as much as 20% of the amount of the loan. In many cases, consumers
have been charged loan origination fees ranging from $12,000 to $20,000.
They rush you into signing scores of documents without first reading
and understanding them and you do not receive copies of their documents
until after the loans closes. Months later when you discover the
true cost of your loans you may be forced to refinance again.
If you take out a loan but don’t have enough income to make
the monthly payments, you are being set up and will probably lose
Hidden Loan Terms: The Balloon Payment
The loans often are interest-only balloon loans in which, after
making payments for the term of the loan, you still owe the entire
amount of the loan principal. These loans are often secured by your
home and typically are made based on the worth of the home rather
than on your creditworthiness or income.
A lender calls to talk about refinancing, and using the availability
of extra cash as bait, claims it’s time the equity in your
home started "working" for you. You agree to refinance
After you’ve made a few payments on the loan, the lender calls
to offer you a bigger loan for, say, a vacation. If you accept the
offer, he refinances your original loan and then lends you additional
money. In this practice the lender charges you high points and fees
each time you refinance, and may increase your interest rate as well.
If the loan has a pre-payment penalty, you will also have to unknowingly
pay that as well each time you take out a new loan.
The "Home Improvement" Loan
Another abuse involves contractors who obtain your consent for a
loan with high rates and fees through the use of deception or coercion.
For example, the contractor and you may agree on a price for certain
work but then, after beginning work on the home, the contractor may
then present you with loan documents from the lender indicating higher
rates and fees than those that were agreed upon.
You are then pressured to sign the papers as drafted —especially
when faced with the untenable prospect of leaving the improvements
Credit Insurance Packing
The lender may tell you that credit insurance comes with the loan,
making you think that it comes at no additional cost. If you notice
the added cost and object, the lender may even tell you that if you
want the loan without the insurance, the loan papers will have to
be rewritten, that it could take several days, and that the manager
may reconsider the loan altogether.
Mortgage Servicing Abuses
Fraudulent lenders also deceive borrowers during the loan period
||phony charges of inflated monthly
||overdue balances, arrears, service
fees, and advances,
||adding phony charges to the loan
principal that were disclosed only at pay-off and only after
accruing large amounts of interest,
||withholding some loan proceeds while
forcing you to make monthly payments for the entire loan amount,
||foreclosing on borrowers who were
in compliance with their loan terms, and
||by failing to release its liens on
title to borrowers’ homes even after the loans were paid
Signing Over Your Deed
Sometime when you desperately need cash flow for mortgage payments
a lender may ask you to deed your property to him before he can help
you, claiming that it’s a temporary measure to prevent foreclosure.
The promised refinancing that would let you save your home never
comes through and once the lender has the deed to your property,
he starts to treat it as his own. He may borrow against it (for his
benefit, not yours) or even sell it to someone else and because you
don’t legally own the home any more, you won’t get any
money when the property is sold, regardless of your equity.
The lender will treat you as a tenant and your mortgage payments
as rent and if your rent payments are late, you can be evicted from
your own home.
What Practices Are Prohibited?
The following features are banned from high-rate, high-fee loans:
||All balloon-payments-where the regular
payments do not fully pay off the principal balance and a lump
sum payment of more than twice the amount of the regular payments
is required-for loans with less than five-year terms. There is
an exception for bridge loans of less than one year used by consumers
to buy or build a home: in that situation, balloon payments are
||Negative amortization, which involves
smaller monthly payments that do not fully pay off the loan and
that cause an increase in your total principal debt.
||Default interest rates higher than
||Rebates of interest upon default
calculated by any method less favorable than the actuarial method.
||A repayment schedule that consolidates
more than two periodic payments that are to be paid in advance
from the proceeds of the loan.
Creditors are actually prohibited from engaging in a pattern or
practice of lending based on the collateral value of your property
without regard to your ability to repay the loan. In addition, proceeds
for home improvement loans must be disbursed either directly to you,
jointly to you and the home improvement contractor, or, in some instances,
to an escrow agent.
How Are Compliance Violations Handled?
You may have the right to sue a lender for violations of these new
requirements. In a successful suit, you may be able to recover statutory
and actual damages, court costs, and attorney’s fees. In addition,
a violation of the new high-rate, high-fee requirements of the TILA may
enable you to rescind (or cancel) the loan for up to three years.
Reverse mortgages are often of interest to older consumers who have
paid off their mortgages and are living on fixed or limited incomes.
A typical reverse mortgage is a loan, secured by the house, where
the lender pays the homeowner a monthly advance while you continue
to live in the house.
The amount of such a loan depends upon the consumer’s age,
the equity in the home, and the interest rate the lender is charging.
Among the facts to consider before applying are that:
||Reverse mortgages are rising-debt
loans. This means that interest is added to the loan’s
principal balance each month because interest is not paid on
a current basis. Therefore, the amount owed increases over time
as the interest compounds.
||Reverse mortgages and their associated
expenses use up some or all the equity in your home, leaving
fewer assets for you and your heirs.
||They are providing the loan as an
investment, which they aim to collect on, at a profit, not out
of goodwill or charity.
Prison Cell Needs Work
Stanley Rabner, 57, was sentenced in U.S. District to prison for
20 months and ordered to pay $218,145 in restitution to the U.S.
Department of Housing and Urban Development for his federal loan
insurance fraud schemes. His company was also ordered to pay $480,000
in restitution to 74 customers and $95,000 in civil penalties and
Fredmont Builders preyed on unsophisticated elderly and poor homeowners
in Pennsylvania by inflating labor and materials prices and loan
interest rates, misled homeowners about the real amount they were
financing for repairs, the true interest rate they would pay, the
monthly payments and the term of the loan.
Fredmont was among the prime offenders of this type of abuse, arranging
more than 1,000 Title I loans and doctoring financial papers to make
borrowers with incomes too low to qualify appear eligible for a loan.
In addition, the workmanship was exceptionally shoddy. The company often
didn't complete jobs, and when it did, workers ignored building and safety
codes. Roofs sagged, toilets leaked and replacement windows let in the
The Bad Debt Buddies
Seven young men, in their 20's and 30's, were the core group of
an alleged $9 million mortgage fraud scam that operated out of the
Rancho Bernardo, (San Diego) office of the biggest victim, Ameriquest
They dressed in nice suits, drove fancy cars and took lavish vacations
but they got their money, an estimated $30,000 in monthly commissions,
by over-appraising homes for fraudulent loans.
Using a hard phone sell the suspects sold refinancing loans on homes
appraised way beyond their value. Forged signatures of reputable
appraisers were used to fleece the elderly, the bankrupt and those
The six-month scam began in 1999 after one individual became an
Ameriquest manager then started hiring his old high school buddies
for the scheme. It was discovered during an underwriting review of
the loans after Ameriquest sold them to a bank investor.
03/02 -- First Alliance Corp., one of the nation's
largest lenders to people with poor credit before filing for bankruptcy
protection in 2000, has agreed to pay as much as $60 million to settle
FTC charges that it deceived borrowers by failing to provide accurate
information about loan costs and terms from 1992 through early 2000.
First Alliance offered home loans, usually secured by first mortgages
to the "subprime" market of homeowners with poor credit
ratings who might not have been able to qualify for conventional
loans. Nearly 18,000 borrowers may receive compensation in a settlement
the FTC describes as one of the largest consumer protection recoveries
First Alliance founder Brian Chisick and his wife, Sarah, who were
both barred from engaging in home loan originations for ten years
in Arizona, Massachusetts and New York and permanently in California,
Florida and Illinois, will contribute $20 million to the bankruptcy
Uses More Licenses Than Shingles
03/02 -Comal County, Texas deputies arrested 45-year-old Alex Williamson,
who ran a roofing and driveway repair business that allegedly preyed
on elderly homeowners including one 69-year-old widow paid $3,700
in cash for roofing repairs that turned out to be worthless.
Williamson, using an alias, allegedly went to her home and offered
to repair her roof for $450. He then spray painted half her roof,
then rang her doorbell to report that he had discovered a major leak.
After finishing the "repair," he presented her with a
bill for $5,700. When she refused to pay, he became angry and threatening
enough that she became frightened and wrote him a check for $3,700
which he cashed using a Georgia driver’s license with the alias
Weeks later, when it rained, the woman saw that she still had the
leak, and the substance painted on the roof ran off with the rain.
She informed a relative, who hired a roofing contractor to investigate.
The contractor found that the roof had been spray painted, but no
other repairs had been made.
Officials of the Sheriff’s office, working with the National
Association of Bunco Investigators, then connected a number of aliases
and charges to Williamson who was booked on a charge of theft of
between $1,500 and $20,000 and a failure to identify himself to authorities
as a fugitive from justice. The theft is a state jail felony punishable
by six months to two years in a state jail and a fine of up to $10,000.
Williamson allegedly used these aliases: James E. Miller, Rojas
Kaybeck, Allen Taylor, Alex Taylor, and Alex Cord. He operates under
the business names of Tri State General Contractors and Pave Pro.
When he was arrested, he was holding driver’s licenses from
Indiana, New Jersey, Georgia, Ohio, North Carolina, Colorado, and
Texas – all with his photo and different names.
The Baltimore-based National Association of Bunco Investigators
(NABI) is an association of law enforcement agents who pursue confidence
swindlers which can be reached at (410) 752-8150, by fax at (410)
357-5191, or by e-mail at email@example.com.
Two Men Arrested in Elderly Scam
By KADESHA THOMAS
The Ledger (excerpt)
03/28/04 - LAKELAND, Florida -- Two men were arrested Thursday
after trying to scam an 87-year-old woman out of $2,700, according
to a report from the Lakeland Police Department.
Thomas Patrick Riley, 21, of Seffner, and Michael Joseph Linzy, 26, of
Spring Lake, Mich., visited the woman's home in Lakeland and told her
they were there to follow up on previous work done on her roof, the report
After spending less than an hour on the roof and spraying part of it
with silver paint, Riley and Linzy told her the cost was $2,700 cash.
The report said Riley and Linzy followed her to the bank to make a withdrawal,
but the woman returned from the teller line saying she didn't have the
The two men told her she could pay $1,000, and they would come back next
month for the rest.
The report said the two men drove away without the money after witnesses
at the bank called the police to report their suspicious behavior and
followed the men as they traveled to Interstate 4, where they were arrested.
Mother ordered to pay restitution in home
renovation scam that bilked widow
The Associated Press - BRUNSWICK, Ga.
05/23/04 - A mother who helped her son carry out a home repair scam
that bilked a 90-year-old St. Simons Island widow out of nearly a
half-million dollars has been sentenced to pay $57,828 in restitution
to the woman.
U.S. District Judge Dudley Bowen Jr. on Thursday also sentenced
Brenda Thrift, 52, to five years probation.
Thrift pleaded guilty on July 14 to a single count of wire fraud
as part of a plea bargain.
The scam involved billing the elderly woman for repairs and construction
that were never done, and to overcharge her for minor and shoddy
household repairs. The woman's name was not released.
Thrift was the last of five defendants to be sentenced on federal
charges in the case.
Her son, Sean Dylan Olds, 28, of Jesup, was sentenced to four years
in prison and ordered to pay $223,225 in restitution after pleading
guilty to five counts of wire fraud.
Federal prosecutors say Olds initiated and orchestrated the scam
in which the group swindled the woman out of $496,000 from Jan. 1,
2000 through April 20, 2001.
Six indicted in alleged senior home repair
Richmond Times-Dispatch Jun 24, 2004
A federal grand jury in Alexandria has indicted six people who live
in the Culpeper area for allegedly defrauding elderly people in the
Washington area with home-repair, yardwork and pest-control scams.
Seven victims, ranging in age from 79 to 88, lost more than $100,000
to the defendants involved in the alleged conspiracy, according to
the U.S. attorney's office for the Eastern District of Virginia.
"These people targeted some of the most vulnerable members
of our community - elderly citizens living alone," said U.S.
Attorney Paul J. McNulty. "Taking advantage of both their good
faith and faulty memory, they defrauded these victims - and dozens
more - of thousands of dollars. Predators like these are a menace
to the community."
According to McNulty's office, the defendants live in Culpeper or
in surrounding towns. They targeted homeowners likely to have substantial
incomes in Washington and its suburban areas in Northern Virginia
The charges in U.S. District Court in Alexandria include conspiracy,
interstate transportation of property taken by fraud, money laundering
and bank fraud.
According to the indictment, the group referred to their activities
as "granny ripping" or "granny hunting." They
would pick victims by cruising neighborhoods looking for "handicapped" symbols
on parked cars and by following women home from shopping centers.
The defendants would pressure or deceive the victims into authorizing
work that was not needed. Little or none of the work was done and
what was done was shoddy. - Tom Campbell
Man pleads guilty in $97,000 driveway-paving scam targeting elderly
09/07 - A man accused of bilking an 83-year-old Sandy Springs woman
out of $97,000 in a driveway-paving scam has been arrested 40 times
in the past 17 years — usually for targeting the elderly.
Jack Harrison Jr., 37, pleaded guilty to one count of elder abuse
and one count of theft Monday in Fulton County Superior Court. He
will find out next week if he will get any prison time
Prosecutors Brad Malkin and Sally Butler told Judge John Goger that
Harrison was wanted all over Georgia and South Carolina for similar
scams and that he had been arrested 40 times since 1990 and convicted
21 times, usually for targeting the elderly.
He also apparently didn't want his record to follow him around because
he had used 18 aliases, 10 Social Security numbers and nine dates
The prosecutors believe Harrison should get the maximum of 10 years.
They fear he might get probation, Butler said.
"He needs to do some time," Butler said. "He will
go out and do it again if he gets probation."
In the current case, Harrison pleaded guilty to targeting a woman
on Dalrymple Road by asking her if she wanted her driveway paved.
The prosecutors contend that the woman said she would think about
it but awoke the next day to find Harrison and his crew at work paving
Once finished, Harrison demanded several checks from her that totaled
$96,900.Because of the multiple large checks, the woman's bank became
suspicious and notified the Adult Protective Services agency of the
Georgia Department of Human Resources. Fulton County police arrested
Harrison and determined he worked with a roving band of con artists
who targeted the elderly around the country.
It's not clear if the victim's money can be recovered.
Police on the hunt for home renovation scam artist - again
09/07 - Michigan - After weeks of searching, police finally got
their man. But not for long.
The search is now back on for Robert Lee Cooper, a man suspected
in a series of home-repair scams dating back to last summer. His
brief stint in custody ended Sunday in what officials are calling
a miscommunication between police and hospital officials.
Cooper, 41, is accused of defrauding at least five homeowners in
Ann Arbor and Pittsfield Township, using several aliases to dupe
local residents into paying large sums of money up front for house
work that was never completed.
Cooper also was wanted on five felony warrants for fraud in Florida
and one 1991 warrant in Pittsfield Township, authorities said.
He was arrested Friday at a McDonald's restaurant in Wixom, where
he was to meet with his four children - ages 18 months to 12 years
- before they left to stay with relatives in Florida, Pittsfield
Township Detective Lt. Steve Heller said.
After his arrest, Cooper complained of chest pain and said he was
having a heart attack, Heller said. He was taken to St. Joseph Mercy
Hospital, where doctors determined he didn't have a heart attack
but kept him overnight for a stress test Saturday, Heller said.
A Pittsfield police officer guarded Cooper at the hospital until
the test was conducted, Heller said. But physicians determined Cooper
needed to stay at the hospital to see a urologist Monday or Tuesday.
Heller said the decision was then made to leave Cooper unattended
at the hospital due to staffing issues, but detectives asked hospital
security officers to notify them if Cooper was to be released, Heller
The decision to stop guarding Cooper was made in part because police
don't yet have charges in the recent scam cases, and the 1991 warrant
was for a crime now considered a misdemeanor, Heller said.
"We had several people already working overtime due to the
(University of Michigan) football game and determined it was unreasonable
to keep someone there watching a man on a warrant that he likely
wouldn't go to jail for," Heller said.
When it came time for Cooper to be released Sunday, police were
never notified. He left in a taxi sometime that day and hasn't been
seen since, Heller said.
Lauren Stokes, a spokeswoman for St. Joseph Mercy Hospital, confirmed
Monday that police were not called when Cooper was released. She
noted the security office has several shifts and several employees
worked during that time period.
It's not the first time Cooper avoided custody, Heller added. He
was nearly arrested earlier last week outside a Taylor home that
he and his wife rented with their children, but Cooper spotted investigators
and was able to escape, Heller said.
Cooper's wife was arrested late last week on a felony warrant from Florida,
and is expected to be extradited there to face charges, Heller said.
Anyone with information on Cooper's whereabouts is asked to call
Pittsfield Police at 734-944-4911.
Ann Arbor News
Rod Scam - article