Monday, July 6, 2015

Fraudulently recorded deeds

One of the foreclosure scams alive since at least 2008 is, just before a scheduled foreclosure sale, a scammer convinces the borrowers to deed all or part of the property to a third party who is in bankruptcy. This requires the lender to go to bankruptcy court and request permission to conduct the foreclosure sale.

All this accomplishes is the borrowers buy themselves another 30 days before the property is sold. Bankruptcy judges are not stupid. They see this all the time, and in fact there is a 100% chance the bankruptcy court will allow the sale to proceed.

This result happens even if the borrowers back-dated the deed to the third party and the bankruptcy case was filed BEFORE the sale but the lender isn't notified until AFTER the sale. The property was then technically sold while the bankruptcy “automatic stay” was in effect. Borrowers think this makes the sale invalid, but bankruptcy judges will 100% of the time validate the sale.

Apparently these borrowers never stop to think about what might happen if they are actually successful in obtaining a loan modification. Whether they deeded away 100% of the property or only a small percentage [even as low as 1%], they will have to (1) track down this third party and beg that person to assign the property back to the borrowers, hopefully at no charge, or (2) file a quiet title action to get the property back, or (3) admit to the fraudulent deed, opening themselves up to a criminal prosecution and/or also filing a quiet title action, and/or annoying the lender so much that the loan modification offer is retracted.

This is also a LOT of fun during the eviction trial, especially if the scammer had the prior owner deed away 100% of his interest to the third party. I bring a certified copy of the grant deed, and when it's my turn to cross-examine the Defendant [prior owner] –

Defendant: Direct testimony.  [LOTS of allegations about how the foreclosure sale was invalid / unfair / illegal / etc, how my client (an investor who bought the property with cash at the sale and who is NOT the lender) defrauded him / stole the property / etc]

Me: I'm showing you a grant deed that states you gave your house to John Smith. Do you remember signing this?

Defendant [looking at document]: Um... yeah... well... this guy who's helping me save my home from these foreclosure scams, told me to sign a bunch of papers.

Me: Did you pay him money?

Defendant: Yes.

Me: He told you this would save your home?

Defendant: Yes.

Me: Did you read the papers before you signed them?

Defendant: Um... well... not really.

Me: Sorry to point this out, but on [whatever date the deed says it was signed], you actually GAVE AWAY your home to John Smith.  Isn't that true?

Defendant: That's not what I meant to do.

Me: So as of [date], you were a squatter in John Smith's house. And right now, you're a squatter in Plaintiff's house.  Isn't that true?

Defendant: I'm not a squatter.  I want my house back.

Me: Isn't it true that it hasn't been your house since [date].

Spoiler alert -- I always win.

For anyone facing foreclosure, please remember that valid options to SAVE your property do NOT include deeding away a portion or all of the property, despite what some scammer may tell you.

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