Quatloos! > Report
From Quatloosia > May
2005
By Tony-the-Wonder-Llama
(May 2005)
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 it.
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 in turn.
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.” 1
The court then assessed liability for the lenders’
attorney fees against the promoters and their attorney, jointly
and severally. The court also stated that:
“ 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 calculated
0.000%.
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.
A Must-Have Book on HYIPs
Following the publication of our Developments newsletter
for March, we received a few messages from attorneys and other
professionals seeking more information on so-called Prime
Bank and High-Yield Interest Programs. While this is a subject
that we have covered at Quatloos from the very start, we can’t
recommend a better source than Preventing
Financial Instrument Fraud, by Jon Merrett and
Paul Renner, prepared by the ICC Commercial Crime Services,
the anti-crime arm of the International Chamber of Commerce.
This unique reference guide uncovers the mysterious world
of High Yield Investment Programs (HYIP) and Financial Products
such as Letters of Credit, Bank Guarantees, CD's, Safe-Keeping
Receipts and more as used by Fraudsters. http://www.fraudbook.com
This is the book that you need to show your clients why the
20% per week “risk free” deal that is being proposed
to them isn’t so.
Footnote
[1] Frances Kenny Family Trust v. World Savings Bank FSB,
2005 WL 106792 (N.D.Cal. Case No. C-04-03724-WHA, Jan. 19,
2005).