I am hoping that my network of savvy professionals here on ActiveRain can help me understand what has been going on, because I am at a loss to understand it.
This guy approached desperate sellers with some kind of proposal that involved a lease back, lease option that required a loan of the seller's equity at closing.
The first time I heard this story, from a lady sobbing in my office, I have to say I was a little skeptical. She said the guy, a skimming scammer, had preyed on her vulnerabilities. she was a battered wife in a divorce trying to avoid foreclosure. Unable to find a teaching job here, after moving from another state. Told her he was starting a school and she would be the director. And that he would be making payments on the equity, and she would get to stay in the home, with her children. At closing he received a large check with her equity. Four days after closing, he evicted her and her children, and of course there was no school to direct. No note for repayment of her equity, she was just out of luck. He wasn't actually the buyer, it was another out-of-state investor, his "partner" who was also his scam victim. The "partner" payed at least $100K more than the house was worth.
My mind just couldn't understand how that would be possible. How could he possibly get her equity at closing, with no note or repayment agreement of any kind? I was skeptical...
Then tonight, out of the blue, I listened to a man tell a nearly identical story to me, going through a divorce, desperate to sell and avoid foreclosure. This same skimming scammer approached him with a lease option deal that required him to loan his equity. It was a safe bet, sure thing. Yeah right. But, same scenario, at closing the skimming scammer got his equity, and when payback wasn't forthcoming, he was told that it was "your word against mine." And again, his "partner" was the investor who was also a victim paying AT LEAST $100,000 too much for the house.
The sellers and buyers here are all ruined, while the scammer has their equity, scott free, probably still scamming and skimming.
How is it possible that this is possible? Can someone please explain to me in idiot proof language how this scam works?
Janna Rankin Scharf provides a superior level of real estate services to home buyers and sellers in Coeur d'Alene and Kootenai County, Idaho. Visit www.JannaScharf.com to search for homes in the Coeur d'Alene MLS for anywhere in spectacular North Idaho.
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I am not sure how things are done there, but here, you would basically be signing the title of your home away to these people. it's the only way they can kick you out of your home.
People get desperate sometimes, and they are willing to believe just about anything.
No matter how desperate someone is, they need to consult their lender, their lawyer, their REALTOR - anyone - BEFORE they sign away their homes.
Janna: Those who fall prey are often looking for an easy way out. Usually it comes on the heals of other bad decisions. Appraisal swindled Equity stripped homeowners are, I find, 19 times out of 20, the ones who go for the agent who buys the listing by suggesting an inflated listing price. I can't speak to this scam but I can totally see people going for it, probably against the advice of someone who told them it was a scam.
I have never seen this but it does not sound good at all.
We are seeing this too. I am going to give you a link to Valerie Spaulding. She is in the middle of this mess right now. -Dinah Lee
I know what this one is.....it can be used in a very legitmate way or it can be used to hurt and take advantage, difference being the intention and the wording of the contract.
When done in alegitmate way you have a seller in trouble who has some equity in their home, but they are about to lose it. The legit. investor in this case would determine how the home owner got in trouble in the first place and verify that the home owner had a way to NOT be in that issue again. ( perhaps it was a temp job loss that is unlikely to happen again, maybe it was a preditory loan or something else, but they do have the means to make regular payments and so on.)
If they determine that the home owner just had a temp set back and that they will be able to continue making payments and so on then they would consider moving forward. It works like this. The investor buys the house and purchases it @ market value ( this is another difference with a scam it may be an inflated value) The former owner than pays the new owner the equity as a lease option. Now when it is done in a legitimate way the investor helps the person to do credit repair, they stay in touch and they also help insure that the past/future owner also has a plan in place for saving for a down payment and they are part of the accountability for that. There is also a very legitimate predetermined purchase price in place as well.
When this is done as a scam there in none of this care taken. The "investor" has a contract that is designed to fail so they can take the house back and keep the money. They do nothing to help insure the lease option will be able to be exercized, let alone that the former owner will have any way to purchase the house later. They hope that it will fail, they want it to fail and they now have the money too.
I have put some legitimate deals like this together in the past. Some have worked, some have not. None of them just kicked people out after no real chance to make things work. A couple in the end the INVESTOR lost money....
These are now illegal in our state, it is a shame that the scammers have made it so that people who are really willing to help others out.
This sounds so crazy that I barely know what to say. I would think if I ever heard about anything, I would call a real estate attorney, the local board office, my broker, and whoever else I could think of. These guys belong in one place... and one place only... prison.
When times are tough the scammers have historically had a heyday. I guess it's because desperate people will grasp at anything that seems at all plausible.
I think this sort of thing is what is behind Hawaii's Act 137, the act that has hamstrung all the Realtors in helping sellers of distressed properties.
Janna, wow, I have no idea. I have not seen or heard that here. And I hope I don't. I really can't quite wrap my head around this. I am checking out the link that Dinah gave you.
Janna, advise your sellers to run the other way, we had a fellow in Akron that is doing time for just this kind of "deal"!!
Have you or the victims reported this to the authorities? In our area during the hot market there was a group that managed to get buyers to pay 50K more for a house than it was worth with the promise that the kicked back equity (paid under the table by the seller) would go towards their equity. Instead they pocketed the money and now the buyers are losing their homes to foreclosure. The FBI has made some arrests but I am sure there will be more victims.