Testimony by the New York Legal Assistance Group
Oversight: The City’s Efforts to Combat Real Property Deed Fraud
Before the New York City Council Committees on Finance and Consumer Affairs
February 1, 2016
Chairs Ferreras-Copeland and Espinal, Council Members, and staff, good afternoon and thank you for the opportunity to speak about the City’s efforts to combat real property deed fraud. My name is Rose Marie Cantanno, and I am the Supervising Attorney for the Foreclosure Prevention Project at the New York Legal Assistance Group (NYLAG), a nonprofit law office dedicated to providing free legal services in civil law matters to low-income New Yorkers. NYLAG serves immigrants, seniors, veterans, the homebound, families facing foreclosure, renters facing eviction, low-income consumers, those in need of government assistance, children in need of special education, domestic violence victims, people with disabilities, patients with chronic illness or disease, low-wage workers, low-income members of the LGBTQ community, Holocaust survivors, as well as others in need of free legal services.
I would be lying if I said I was not surprised at the sheer number of potential deed theft cases that NYLAG encounters each week. Even during the real estate boom when I practiced solely real estate law, there was never the prolific number of scams on homeowners that exist today. The number of fraudulent service providers who are taking advantage of desperate homeowners has seemingly multiplied twentyfold since I began doing this work five years ago. Homeowners who are already in the stressful situation of potential foreclosure do not deserve to be preyed upon by these scam artists.
In the last year or so, we have seen many potential clients coming to us because they were served foreclosure papers, even though they had previously sold their homes and should no longer have a mortgage loan in their names. Many homeowners have mortgage loans which far exceed the values of their homes, and so a short sale needs to be negotiated with the lender. This allows the homeowner to transfer title to a buyer at market value and be released from any additional liability on the loan. These are individuals who, as difficult as it was, came to the conclusion that they could not afford their homes. They decided to be responsible and went to a real estate broker, or someone they thought to be a licensed real estate broker, in order to find a buyer and get a short sale approved. Unfortunately, they are often instead walking into a plot which will result in their turning over their home, while still continuing to be responsible for the mortgage debt. There was a time when deed thefts were much easier to identify. False deeds would appear in the county clerk’s offices with forged signatures. However, today’s scammers have become much more diverse and sophisticated.
One example of such a scheme involved an elderly couple in the Bronx, Sarah and Benjamin. Sarah came to us, bewildered, after receiving a Foreclosure Summons and Complaint. Two years prior, when Benjamin was diagnosed with dementia, they decided to sell their family home because they knew that the payments and upkeep were going to be too much for them. They contacted one of the many “brokers” who were sending them correspondence at the house and decided to allow him to sell their home. He advised them not to worry about anything, and that he would arrange for an attorney to represent them so there was no need for them to hire their own counsel. He would take care of getting documents signed and would transport them to and from the closing. He could help them get movers, deal with the utility companies and, most importantly, deal with their lender regarding paying off the mortgage.
He so completely earned their trust that they signed everything he put in front of them, even if it was blank. Soon after, he called Sarah and Benjamin to inform them that “the deal was ready to close,” even though they did not remember signing a contract, nor did they understand the terms of the sale. They were simply told everything was fine and that the house would be sold and they would have some time to move out. They quickly arranged to rent an apartment and were ushered off to the “closing,” where they met their attorney for the first time. The attorney pointed to a few signature lines, but did not explain the documentation to them. There were several people bustling around and it looked similar to closings they had attended in the past. In fact, most of what happened that day was a normal closing. While they did transfer the title to the property, the purchase price was never used to pay off their current mortgage loan. They did not expect there to be any leftover proceeds for them, but they fully expected that their indebtedness would be extinguished. Unfortunately, rather than allowing them to pay off their mortgage, the transaction put Sarah and Benjamin deeper into debt as their mortgage interest continued to grow.
Some people will say that there is no major harm here because couples like Sarah and Benjamin had no equity in the home, and the chances of the lender collecting a deficiency judgement against two senior citizens living solely on Social Security is close to nil. That could not be further from the truth. Even if one is not distressed by the fact that these new “owners” almost always collect rental income from the houses they gain by questionable methods, one cannot dispute the human aspect of these cases. Sarah and Benjamin are in their late eighties and came to us because Sarah could not sleep at night worrying about the foreclosure suit. Benjamin’s health has deteriorated, and she really needs to be able to focus on him and not the fallout from this scheme. Luckily, she found legitimate assistance, and we were able to negotiate with the lender and release her from liability. Unfortunately, the legal services organizations that do this critical work do not have the capacity to meet the need, and many victims of fraud are not able to rectify the situation.
A second trend we have observed revolves around properties whose values have recently increased and now the clients have substantial equity. In some cases, the clients believe they are refinancing their homes, yet when they arrive for the closing, a deed mysteriously appears in the package. Often, it is a blank form that is filled in after the clients leave, fully believing they still own their home, but instead they have signed away the deed to the house. In other cases, the so-called real estate broker misrepresents the value of the home to the homeowner and then directs the homeowner to a buyer (often a company owned at least in part by the broker) who is paying well below market value. The client trusts the broker’s advice on the value of the home because he or she is a real estate professional, and some brokers take advantage of that trust.
The number and complexity of these types of schemes is alarming. As more and more homeowners are deeper in the foreclosure process, there is ample opportunity for these unsavory individuals to convince desperate homeowners that they are their saviors. I appreciate the opportunity to speak to the Council about this issue, and I look forward to engaging in further discussions about putting an end to these fraudulent practices.
Rose Marie Cantanno, Esq.
New York Legal Assistance Group