Coakley bans foreclosure rescue scams
Swapping help for house title called exploitive
Massachusetts Attorney General Martha Coakley has permanently banned rescue scams that target victims of the state's growing foreclosure crisis.
Her office issued a regulation that prohibits a specific type of rescue plan in which a business or individual claims to offer assistance to distressed homeowners facing foreclosure if the homeowner gives over ownership of the property.
Coakley's office contends such offers often exploit homeowners who are under extreme duress - with the lure that they would be able to get their homes back at a later date.
But these homeowners often end up losing the house, and any equity they have accrued in the property.
With the new regulation, "We are one step closer to ensuring that distressed homeowners are protected from unscrupulous business practices," Coakley said in a statement. She initially imposed a temporary ban in June, and made it permanent on Friday, her office said.
Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said the ban will be widely accepted within his industry.
Such rescue schemes, he said, are "a scam." Cuff said he supported the regulation because it will protect emotionally and financially vulnerable homeowners who "have reached the end of the line in their financial decisions."
Cuff, who lives in Andover, said he has seen flyers advertising these scams stapled to telephone polls in neighboring Lawrence, which has been hit hard by foreclosure.
The new regulation comes as Massachusetts foreclosures continue to increase. Through June, lenders filed 13,105 initial foreclosure notices against Massachusetts homeowners, putting the state on track to exceed the 2006 record of 19,487, according to ForeclosuresMass.com. While not all proceedings end in a foreclosure, there have been more than 2,000 scheduled auctions of foreclosed homes advertised in Massachusetts newspapers every month since October.
In the past year, the state filed three cases against alleged foreclosure scams that involved 46 homeowners.
The ban does not apply to rescue plans offered by members of the homeowner's family or by nonprofit or housing organizations that are attempting to help the troubled borrower.
The regulation also will not apply to short sales, in which a homeowner sells the house for less than the outstanding balance and gets the lender to agree to accept a smaller settlement. More troubled borrowers have turned to short sales as their mortgage interest rates and payments increase while their house values decline due to the current market slump.
Coakley in June put into place other temporary regulations that explicitly make it illegal for mortgage companies to inflate borrower's incomes on loan applications. The regulations also restrict lenders' ability to make loans to borrowers who do not fully document their income.
Her office has scheduled public hearings to determine whether to make these other temporary regulations permanent, too. The hearings are scheduled Sept. 17 to 20 in Worcester, Brockton, Springfield, and Boston, her office said.
Kimberly Blanton can be reached at blanton@globe.com. 