Default threat ignites scams

Firms prey on homeowners; A cautionary tale in Roxbury

J.D. Smith worked in the basement workshop of his Roxbury rowhouse last month. The master knife maker decorated the mantel above his fireplace with historic knives and swords and he forged an intricate front gate for the home. (Pat Greenhouse/Globe Staff)

J.D. Smith's desperate bid to keep his Roxbury condo comes as a cautionary tale for the rapidly growing ranks of Massachusetts residents facing foreclosure.

Last summer, Smith sold his home for $1 in a deal arranged by National Foreclosure Centers, a Florida company that wooed him with unlikely promises: His mortgage would be repaid and he would receive more than $100,000 in cash, reflecting the fair value of his property. He could stay in the condo as a tenant. Best of all, after one year, he could pay a fee and buy it back.

"It seemed reasonable," said Smith, who was 56 and tired of moving. "It seemed plausible." It seemed like the only way to keep the home.

But Smith received only a fraction of the promised money. And the new owner quickly defaulted, returning Smith to the brink of eviction. He now believes he was the victim of a scam and is suing those involved in the sale.

As foreclosures in Massachusetts hit record levels, companies that offer to save troubled borrowers also have proliferated. Roadside signs dot hard-hit neighborhoods: "Avoid Foreclosure! Call Now!" and "Save Your Home!" Companies bombard delinquent borrowers with calls and mailings, and sometimes knocks on the door.

But a growing number of people who agree to be rescued say they were robbed instead - of money, and sometimes their homes. The National Consumer Law Center estimates that thousands of troubled borrowers across the country were victimized in the last few years.

In the most simple scam, regulators say rescue companies charge borrowers thousands of dollars in fees to negotiate with lenders. Foreclosure may be avoided if the lender agrees to reduce the borrower's monthly payment, or to refrain from collecting overdue payments and fees. But the rescue companies often fail to contact the lenders.

The offer that hooked Smith was more complicated. The rescue company convinced him to temporarily transfer his property to an investor as a way to keep his home. These companies also collect thousands of dollars in fees. In many cases, they also succeed in taking the property itself by preventing the borrower from reclaiming it.

In June, Attorney General Martha Coakley issued a regulation banning such temporary transfers. Her office has also this year sued more than two dozen people for conducting transfer scams. One group allegedly enticed at least six homeowners facing foreclosure, including a Roxbury pastor, two nurses, and a single mother with four children.

The first-time homebuyer

J.D. Smith waited a long time to buy his first home. In 2002, he paid $200,000 for the first floor of a handsome rowhouse in Roxbury. He made a $50,000 down payment and borrowed the rest at an interest rate of 6.875 percent.

Smith worked as a building superintendent, but his passion is forging high-grade Damascus steel into knives that are prized by collectors; some sell for thousands of dollars. He teaches the craft at the Massachusetts College of Art.

Smith settled deep into the home. He set up a basement workshop. He decorated the mantel above the fireplace with historic knives and swords. He forged an intricate front gate for the building.

But soon after buying the home, "the bottom fell out of my financial life," Smith said. His partner fell ill and couldn't work. One of Smith's classes was canceled and he fell behind on his mortgage.

"It became a game of catch-up and I wasn't winning," he said.

By 2006, Smith owed the mortgage company $183,000 in principal, penalty fees, and interest. With his credit ruined by the late payments, he was unable to refinance his mortgage.

In April 2006, Smith received a foreclosure notice.

Days later, he received a letter from National Foreclosure.

Foreclosure help

In its press releases, National Foreclosure Centers advertised a simple promise: "Virtually any foreclosure process can be stopped."

The company was run by Eric L. Turner, a Florida resident who had created a string of similar firms beginning in 2004, Florida incorporation records show: Foreclosure Solution Group, Saving the American Dream Inc., Home Savers USA Corp. and, in 2006, National Foreclosure Centers.

Turner could not be reached for comment. The phone number for National Foreclosure Centers is no longer in service. The website directs visitors to a similar site for a new company called United Foreclosure Networks. People answering the phone at United Foreclosure said he worked there, but Turner did not return several messages left at the office or at his home in Plantation, Fla.

In June, Turner was indicted on 16 counts of fraud in an unrelated case dating to 2001. The federal indictment said Turner and an associate raised $1.6 million through a fraudulent offering of shares in a payday lending business. Turner pleaded not guilty to the criminal charges, and is awaiting trial in US District Court for the Southern District of Florida. In 2004, Turner settled civil charges in the matter brought by the Securities and Exchange Commission and agreed to pay more than $160,000 in penalties.

"It's a shame it took the government so long to do something about him," David Paliotti, Smith's lawyer, said of Turner's indictment.

Smith never spoke with Turner directly. Rather, employees of National Foreclosure explained to Smith they would recruit an investor to buy the property for the nominal sum of $1. The investor would pay Smith a total of $295,000, mostly by taking out a new mortgage. Smith would use the proceeds to pay off his old loan, and keep the remainder - around $100,000. Smith's monthly rental payments to the investor would cover the new mortgage.

After a year, if Smith improved his credit enough to qualify for a new loan, he could repurchase the condo for $310,000.

An investor steps forward

The investor was a lifelong renter.

Eric Bullard ran a small apparel company in the same building as National Foreclosure, in Hallandale, Fla. He had recently moved from Missouri.

Bullard declined to comment, but his lawyer, Stefan Cencarik, said in an interview that Bullard and Turner became friendly. Over time, Turner persuaded Bullard to seize an opportunity.

The deal Turner described to Bullard, according to Cencarik, was different than the deal described to Smith. Turner said he would pay Bullard to use his name and credit to purchase rental properties. Bullard would get a couple thousand dollars each time. National Foreclosure would manage the properties and pay the mortgages.

During summer 2006, records show Bullard purchased Smith's condo and four properties in Florida. More than $1.1 million was borrowed in his name.

Cencarik said Bullard should never have qualified for the loans. He said Bullard's financial information was misrepresented on loan documents prepared by National Foreclosure. He said Bullard was "pretty naive," and unaware of what was happening.

"I think everyone to some degree got caught up in the real estate market," Cencarik said. "He got caught up in the promise and allure of making some quick money."

National Foreclosure soon stopped paying the mortgages. Bullard used the money he got from National Foreclosure to keep the mortgages current, Cencarik said, but defaulted on the loans when he ran out of cash. All five properties now face foreclosure.

Housing deal fallout

Bullard and Smith never met. They never signed the same settlement statement, the official document that details how money is distributed after the sale of a home.

The statement Smith signed showed Bullard would pay him about $100,000, after paying off Smith's mortgage.

It was replaced at the last moment with a statement showing that Bullard already had paid Smith about $75,000, and that National Foreclosure would receive most of the rest - around $25,000.

Smith received a check for only $6,500.

Netco Inc., a Missouri title company, handled the closing and disbursed the money.

Netco's general counsel, Pat Dignam, acknowledged to the Globe that the company violated its procedures. "Our employees know that they're not supposed to disburse funds unless they have a signed settlement statement," Dignam said.

In April, Smith sued Bullard, National Foreclosure, Netco, and First Franklin, the mortgage company that made Bullard's loan, in Suffolk Superior Court, accusing them of defrauding him out of his home and more than $100,000.

National Foreclosure did not respond to the accusations in the lawsuit and a default judgment was entered against it in July by the court.

Dignam said Netco was not responsible for any fraud against Smith. A spokesman for Merrill Lynch, which now owns First Franklin, said, "We would disagree with the allegations in the complaint."

Bullard settled the suit, and in September returned the Roxbury condo to Smith for $100.

But First Franklin still has a claim on the property unless Bullard repays the loan. And Cencarik says Bullard, who has defaulted, can't afford to do that.

Which leaves Smith back where he began: Facing eviction, searching for a way out.

"I have a lot emotionally invested in this place and I've really grown to love it," Smith said. "Leaving would be disastrous for me. I don't see how I'll start over. I really don't."

Binyamin Appelbaum can be reached at bappelbaum@ globe.com.