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Fraud > Advance
Fee Fraud > Mortgage/Debt
Do you hate paying your mortgage? Yeah, I know that Congress gives
you a deduction for the interest and all, but don’t you
just hate writing a check out for the house that you own?
Well, anytime people hate doing something, odds are that some scam artist
will figure out a way not only to make things worse, but also to fatten the
scam artist’s wallet in the process. That is how it is with the so-called “Mortgage
Elimination” scam that is now going around.
Like most scams, the Mortgage Elimination scam has been around for years and
years. The last time that it was popular was back in the late 1980s and early
1990s when many Midwestern farmers were losing their plots of land that had
been in their family for ages to the evil bankers (or, about as often, the
Resolution Trust Corporation) who were foreclosing on their mortgages. Remember
the movie “Field of Dreams”? In large part, that movie was about
the frustration of the Iowa farmers, and, accordingly, the foreclosing bankers
were portrayed as worse than blood-sucking leeches. John Cougar Mellencamp
also did his famous “Farm Aid” concerts around this time.
Never missing an opportunity to profit from others’ pain, many scam
artists flooded the Corn Belt selling various books and kits that espoused
hinky theories about why the farmers weren’t really liable under the
law to repay the banks on their loans. Many of these theories involved so-called “Allodial
Title” schemes, while others involved thwarting sheriff sales by repeatedly
putting bogus liens on the property. Other popular theories involved the remarkable
claim that money isn’t really money, and that the banks never actually
made any loans in the first place.
These same theories have resurfaced today in what is known as Mortgage Elimination
strategies. Essentially, the scam artists advertise for “Mortgage Elimination” or “Debt
Elimination” on internet websites, in the Penny Shopper, in the newspaper
classifieds or wherever. People who have difficulty in paying their mortgages
and some who are just deadbeats and don’t like to repay debts, see these
adds and hook up with the scam artists. Then, they buy into a number of schemes.
Most of these scammers have similar modi operandi. First, they come up with
a bunch of untrue and wild theories about why your average Federal Reserve
Notes are not money. To do this, they dig up a bunch of old and out-of-context
quotes from old Congressional hearings or Federal Reserve press releases, etc.
Then they take the position that whatever it was that the bank advanced to
the borrower, it wasn’t money; therefore, the loan was both illegal and
it is illegal for the bank to require payment of the loan in money.
A similar argument posits that the bank never actually advanced anything,
but created “vapor money” out of thin air by making the loan. As
crazy as this sounds, it actually appeals to those whose IQs are in the mid-double
digits and who never figured out the whole escrow process. Because they never
actually touched any money that the bank lent them, these dullards have concluded
that no money was ever actually loaned.
It’s really kind of fun to argue with those who are drunk of the Mortgage
Elimination Kool-Aid, because their theories are so easily thwarted. One has
only to ask “So, the seller turned over title of the house to you for
free, right?” to get the deer-caught-in-the-headlights stare, followed
by more indecipherable babbling about the whole Federal Reserve conspiracy.
Having decided that the original loan on the home was invalid because of the “vapor
money” argument, the homeowner then goes down and files what is basically
a phony release of the original loan with the county clerk’s office.
This makes the property appear to be free-and-clear, allowing the homeowner
to next fill out a fraudulent loan application that will allow the homeowner
to receive a sizeable percentage of the (false) equity in their property. The
proceeds from this loan are usually either split with the scam artists, or
the scam artists generously allows the homeowner to retain up to $50,000 of
Of course, as soon as the new loan comes due, the homeowner defaults on that
loan too. Presumably, the homeowner could repeat the cycle several times, generating
several loans for the same equity in the property.
Usually, the first loan goes into default the fastest (if it is not already
in default), and the first lender starts the foreclosure process – only
to discover the phony release and that another financial institution has attempted
to place a priority lien on the property. The first lender then goes into court
to set aside the phony release, whereupon an attorney hired by the promoter
appears for the borrower and makes every bogus argument to the court, including
the “vapor money” argument (more on the attorney in a moment).
The goal of this attorney is simply to gum up the works so badly that the first
lender will simply throw up his hands and settle the case (using the money
gathered from the second loan), and then this tactic is repeated for each lender
Apparently, the scam artists and those dumb enough to believe in the mortgage
elimination scams think that the courts will waste their time in lengthy hearings.
But courts can smell a scam like this a mile off, as a recent federal judge
sitting in California did when he commented:
“ The Court here has seen the scam at work. Greater bad faith would
be hard to imagine. Plaintiffs and their counsel have employed a smokescreen
to burden various lending institutions and impose upon them litigation costs
in hopes of extracting settlements. The complaint filed in Kenny is exemplary
of plaintiffs' oppressive litigation tactics. In a 35-page, 221-paragraph complaint,
plaintiffs made . . . baseless allegations [which] have no basis in fact. They
are disjointed, vague and incomprehensible. Fourteen separate complaints containing
nearly identical allegations were filed in this district. Moreover, plaintiffs' ‘vapor
money’ theory has no basis in law. It has been squarely addressed and
rejected by various courts throughout the country for over twenty years.”
[cite: Frances Kenny Family Trust v. World Savings Bank FSB, 2005 WL 106792
(N.D.Cal. Case No. C-04-03724-WHA, Jan. 19, 2005).]
The court then assessed liability for the lenders’ attorney fees against
the promoters and their attorney, jointly and severally. The court also stated
“ Given the serious and disturbing nature of the allegations set forth
above, including the possibility of mail and wire fraud to further an Internet
scam upon distressed and vulnerable citizens about to lose their homes, not
to mention the lenders, the Clerk shall send a copy of this order to [the]
United States Attorney for the Northern District of California.”
Finally, the court referred the conduct of the promoter’s attorney to
the State Bar of California for review (and probable disbarment).
Suffice it to say that mortgage elimination scammers may face serious difficulty
in finding an attorney to take their case. The bottom line is that mortgage
elimination schemes simply do not work, and the promoters of these schemes
have never had a single victory against creditors. Of course that doesn’t
mean that the promoters haven’t lined their pockets with huge advance
fees for their kits and services, though their chances of success are a precisely
Many of those buying into mortgage elimination schemes are people in desperate
financial situations who have gotten into debt over their heads, and probably
would have had to downsize their houses and lifestyles anyway. These folks
might think that they are buying some time, but they have made matters dramatically
worse. By making fraudulent filings with the court and bogus loan applications,
they have committed perjury and risk prosecution. If that isn’t bad enough,
their odds of having their debts now discharged in bankruptcy will be very
low, and maybe even impossible with the new Bankruptcy Act discussed above.
Usually, those scammed into buying the mortgage elimination kits are also willing
suckers for de-tax schemes, which means that, on top of everything else, they
are accumulating tax liability that will never be discharged.
The most recent bizarre episode in the mortgage elimination saga is the rumor
that has been circulating that one of the most prolific scammers has forced
Fannie Mae to their knees and is forcing them to settle cases on a mass basis.
Uh, yeah, right . . . right. If anything happens, it will be mass federal prosecutions
for loan fraud of both promoters and those who believed in these schemes.
Carolina DA stops mortgage elimination scam from preying on homeowners,
defrauding lenders - Judge blocks California outfit from
promising to eliminate mortgage for a fee. (pdf)
Board of Governors of the Federal Reserve System letter
on "Debt Elimination Scams"
Illegal Financial Activity - Fictitious Debt Elimination Schemes -
ALERT from the Office of the Comptroller of the Currency.
The Frances Kenny
Family Trust v. World Savings Bank FSB,
2005 WL 106792 (N.D. Cal. 01-19-2005)