PI Original Adam Doster Wednesday May 28th, 2008, 4:01pm

Illinois Ahead Of The Curve On Subprime-Rescue Scammers

Thought the exploitation of subprime mortgage borrowers was over? Tell that to this new breed of scam artists who've emerged from the rubble and made a killing by preying on homeowners facing foreclosure. Stateline reports:

These so-called mortgage-rescue companies ...

Thought the exploitation of subprime mortgage borrowers was over? Tell that to this new breed of scam artists who've emerged from the rubble and made a killing by preying on homeowners facing foreclosure. Stateline reports:

These so-called mortgage-rescue companies promise that for fees of about $1,000 to $2,500, they can negotiate loans with providers to get owners lower monthly payments. Or they offer deals that suggest homeowners temporarily deed their homes to the company or a third party, theoretically to allow the homeowners time to get back on their feet financially [...]

The scammers, on the other hand, find potential victims by combing through public records to see who is in danger of being foreclosed. Then they bombard them with calls or direct-mail solicitations that sometimes look like letters from a government agency. One company that operated in Idaho sent out notices to homeowners falsely claiming that their homes were “scheduled to be sold at auction” and instructing them to call the company. In some cases, consultants have even shown up on owners' doorsteps to drum up business.

Thankfully for Illinois borrowers, Attorney General Lisa Madigan was ahead of the curve. In 2006, the General Assembly passed a bill she drafted that gave homeowners five days to cancel a rescue contract and required rescue firms to pay the homeowner at least 82 percent of the fair market value if he or she cannot buy back a home after signing the deed away. Without such legislation, prosecutors could only pursue the perpetrators by claiming advertising fraud, a difficult allegation to prove beyond a resonable doubt.

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Madigan says that the law has curbed the scams:

Since the law’s enactment, Madigan has reached a settlement with at least one company, HomeSavers USA, that bans it from operating in the state, and her office has 12 current lawsuits against rescue schemes.

At the same time, she has seen a drop in activity. “A lot of these individuals and companies that were running these scams have left Illinois. It’s not beneficial for them,” Madigan said.

Eighteen states now have laws banning foreclosure-rescue scams on the books, including six states which have enacted protections just this year, often using Madigan's approach as an example.

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