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'Mortgage foreclosure rescues' cost some their homes

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Mike and Edie Jones are suing, to try get back their Oakdale house and equity from a mortgage rescue deal they claim was deceitful. (MPR photo/Dan Olson)
Hundreds, and possibly thousands, of Minnesota homeowners who have fallen behind on their mortgage payments have become victims of a controversial lending practice known as mortgage foreclosure rescue. They've signed agreements designed to retain ownership of their homes.

But in many cases, the deals lead to eviction and loss of the owners' home equity. The deals have drawn the attention of state officials, and have outraged a group of private practice attorneys who are trying to help some of the victims.

Oakdale, Minn. — Mike and Edie Jones of Oakdale, a St. Paul suburb, are living a nightmare. They've lost their home. The Joneses were evicted when they couldn't make payments on a mortgage foreclosure deal they consider deceitful.

The events began several years ago, when Mike Jones lost his job, and they fell behind on their mortgage payments.

The Joneses worried they'd lose the house Edie had lived in for 30 years. Mike Jones says they turned to Eden Prairie-based real estate investor Chad Banken for help.

He recalls Banken's assurances.

"'Oh, you won't lose your house, we'll catch up your back payments. Once this is all done, you'll be able to go get another loan, and so on and so on,'" Jones recalls. "It sounds so good, that it's just a big relief off your shoulders that you'll do just about anything."

THE DEAL THEY SIGNED

The deal the Joneses signed with Chad Banken included transferring the title of their house to one of Banken's companies. Then they agreed to lease back the home so they could continue to live there.

Once you're in that situation where you are up against the wall, you'll do just about anything.
- Mike Jones

But the Joneses say they didn't understand that they would no longer hold title to the home. And they say they weren't aware of all the fees, one exceeding $25,000, that were part of the deal.

Mike Jones says Chad Banken convinced them that, at the closing, they should hand Banken the check that Jones later learned was the equity from the sale of their house, more than $50,000.

"Once our equity was gone, we found out our name was off the title completely. We have no controlling interest in the home," Jones says. "We also find out that if we wanted to go get another loan to pay them off, we have no equity in the home. It wasn't our home to get a loan on, and there was no equity left."

The Joneses agreed to a monthly lease payment larger than the mortgage payment they couldn't afford. When they fell behind on the lease payments, Banken had the Joneses evicted.

DESIGNED TO FAIL?

Critics of mortgage rescue agreements say many of the deals are designed to fail.

Why would anyone agree to such a bad deal -- payments they know they can't afford to make? Because the victims often don't know what they're signing, says Leah Weaver, a lawyer with the Minneapolis Legal Aid Society.

"There are multiple transactions, and that all takes place in this one closing -- so, sign, sign, sign, sign," Weaver says. "It's many pages, so it's easy to get lost in the paper work."

The Joneses have sued, and Weaver is helping them in their lawsuit against Chad Banken.

There are legitimate lenders and lending practices for helping financially distressed owners save their homes.

Chad Banken is not charged with any lending abuses. He and the companies he and his associates operate in Eden Prairie are all registered with the state of Minnesota, and the employees are licensed.

Banken's account of the events couldn't be more different than the Jones'. He says there was no deception. The deals are complicated, he says, but above board.

"All the terms are on the table. There's nothing outside these 20 pages, so to speak, that we're promising them beyond what's in this paperwork," Banken says.

Banken says the Joneses misrepresented their situation, saying they had more income than was the case. He says he gave the Joneses all the legally required disclosures.

"That they are supposed to talk to an attorney, that there is a waiting period," Banken says.

Banken says he's done about 150 mortgage foreclosure deals in the past three years. He says as many as 20 have ended in evictions.

The Joneses say they were desperate to save their home, and that Chad Banken pressured them into a deal. Banken says he does not pressure clients.

"We know that the nature of the industry is more litigious. There's no reason we'd ever go out on a limb on one particular transaction than any other one," Banken says.

A BOOMING BUSINESS

Lots of people in this country who bought houses during the real estate boom are having financial problems. Two of the biggest reasons are job loss or a health problem.

Many try to refinance to keep their home. But if their credit history is poor, they may not qualify for conventional refinancing. By the time they face foreclosure, many have been deluged with calls from people advertising themselves as foreclosure experts and promising help.

Mortgage foreclosure rescue can be a lucrative business. Many agents are honest, but the attraction of making tens of thousands of dollars from fees, a chance to grab the equity and the home, attracts bad actors.

Last summer, the Boston-based National Consumer Law Center released a report on mortgage foreclosure rescue scams. It found one crooked real estate investor in California had duped at least 1,800 homeowners.

The center's Steve Tripoli, a fraud investigator, says they found crooked real estate investors operating coast to coast.

"In Maryland, we were told by state officials there are probably hundreds of people doing this. We know there's an awful lot of it in New York City. It's big in Nevada. It's big in Ohio, Michigan (and) Virginia," Tripoli says.

In Minnesota, during the last two years, the Department of Commerce has revoked the licenses of 13 people or companies involved in various forms of equity stripping. The state has imposed thousands of dollars in fines. Officials say one St. Paul scammer defrauded at least 200 clients.

REGULATION IS LAX

Federal and state laws are in place to protect consumers from unscrupulous real estate investors. However, Department of Commerce Deputy Commissioner Patrick Nelson says the agency doesn't have the resources to review all of the thousands of real estate deals agreed to every year.

Moreover, Nelson says, the licenses the state issues to people involved in financing real estate deals do not guarantee they are honest.

"It just means they passed the requirements. It doesn't really get at whether they are a good provider of the service," Nelson says.

Most victims of mortgage foreclosure rescue deals and other equity stripping schemes face an uphill struggle trying to get their homes, or a portion of their equity, back. Many lawyers are unfamiliar with the complicated mortgage foreclosure rescue deals, and shy away from handling the cases.

Judges often approve the evictions, because on the face of it the deals appear to be legal. The lender can produce a deed with the lender's name on it.

ATTORNEYS HELPING VICTIMS

However, some Minneapolis private practice attorneys say many of the deals are fraudulent. They argue the lenders haven't explained all of the options to homeowners. At no charge, the attorneys have taken on Mike and Edie Jones' case and are helping their attorney prepare their lawsuit.

The group was brought together two years ago by Dan Tyson, an attorney at Oppenheimer Wolf. He'd learned that elderly women and others were being put out of their homes, and in some instances forced to seek refuge in homeless shelters, because of deals sold to them by unscrupulous lenders.

"To have these people come in and spoil things, it got me pretty upset," Tyson says.

Tyson and two dozen other attorneys meet once a month, to select what they consider the most egregious cases. They throw their considerable legal weight behind helping the victims.

Tyson says they ask judges hearing the cases to look behind the deal, and weigh it against what Tyson says is the longstanding legal principle of equity -- whether the homeowner got an equitable deal.

"If they owned the house before the equity stripper, before this person now holding this deed, then there's something more to the story. And the law and the system demands that they look behind it. That's what equity is all about," Tyson says.

Tyson says his group's record is mixed. They've helped a few victims get their homes or a portion of their equity back. He's hopeful a one-year-old Minnesota law will improve their record. That statute gives homeowners more legal avenues for suing an equity stripper.

Victims of bad deals are easily dismissed with the observation that they should have known better.

Mike Jones is the first to agree. Sitting at the kitchen table, in a house he and his wife are renting in Oakdale, Jones' face reddens. He's ashamed and embarrassed by the deal he struck with Chad Banken. He's agreed to talk about it publicly, he says, to warn others. Faced with a dire situation, they, too, might succumb to a bad deal.

"Once you're in that situation where you are up against the wall, you'll do just about anything to help matters out," says Jones. "One thing led to another, and there's not a whole lot of people out there that will lead you and tell you, 'Watch out for that stuff,' and we found out the hard way."

A district court judge ruled against Mike and Edie Jones' lawsuit, to get either their home or a portion of their equity back. The appeal of their case will be heard soon by the Minnesota Court of Appeals.

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