Even as Arizonas housing market begins to recover from its years-long slump, people desperate for a break on a loan still can fall victim to those who offer hope but dont deliver.
Call 12: Here to help consumers
Authorities warn that schemes promising financial assistance are evolving along with Arizonas housing market. First, in the depths of the market, came predatory loan-modification scams. Now, as home prices rise and foreclosures drop, a new wave of companies has emerged to target those who are desperate for financial assistance.
People who are trying to buy homes with questionable credit, to modify onerous loans or to reduce effects of foreclosure often end up paying thousands of dollars in fees to operators who fail to deliver promised services, authorities say.
Those operators can be home-office businesses with shoestring budgets. They can be sophisticated networks with offices in dozens of states. Consumer-fraud lawsuits and complaints show no matter how widely they differ, many deals are similar in one respect: They require an up-front fee.
And often, with an up-front fee, money is paid, but no service is rendered, authorities say.
Since February, when Arizona received $1.6 billion as part of a lawsuit settlement with the nations five largest mortgage lenders over allegations of fraud and abuse, Arizona Attorney General Tom Horne said his office has seen an increase in the number of complaints involving up-front fees.
Its getting worse now, Horne said. It is a terrible situation. The people in society who can least afford to lose money are the ones (criminals) go after.
Horne said many people, in Arizona and nationally, are charged fees for services that they could get for free through legitimate companies or on their own.
The real issue is the up-front fee, he said. There are questions of paying fees at all. But it is flatly illegal to charge a fee to modify a mortgage.
Questionable operations can run the gamut, from a small business promoting private loans that customers say never materialize, to a multistate law firm and a rent-to-own company that have drawn legal scrutiny. Some recent complaints are examined in this Call 12 for Action investigation.
Up-front fees for loans
Elizabeth Kingsley-Young, 57, runs a San Tan Valley firm called Insight Investment Group LLC that offers to help people with poor credit and previous foreclosures fund new-home purchases through private equity loans. All for an up-front fee.
Kingsley-Young promises to find housing for families with bad credit, bankruptcies and low incomes. On its website, Insight Investment offers residential and commercial financing, rent-to-own properties, no-money-down loans, housing grants and financing seminars.
Through its non-profit partner, Empowering Resources, the companys website says it offers hope and restoration in the lives of individuals and families affected by poverty or any of lifes other crippling obstacles.
However, Kingsley-Young has about 15 aliases, a criminal history dating back at least 30 years and has served prison time in Texas, California and Minnesota for fraud, counterfeiting and forgery, records show.
In Arizona, she has identified herself as a doctor, a lawyer and as having an MBA.
Kingsley-Young was born and raised in Texas. An investigation by The Arizona Republic found she has been hired as a bookkeeper, mortgage-company clerk, grant writer and non-profit manager; records show those jobs all ended amid allegations of fraud.
You cant judge somebodys present by their pasts, Kingsley-Young said in an interview in late April. This is a situation that has two sides.
She has not been charged with any crime in Arizona. In interviews at her home and by phone, Kingsley-Young declined to answer specific questions about her business or about any of her clients.
State records show neither Kingsley-Young nor her companies are licensed as mortgage lenders or real-estate agents. Her companies are also not registered as valid corporations in Arizona. And the IRS has no record of granting tax-exempt status to her companies, meaning they are not valid non-profits.
Kingsley-Young rents virtual office space at a building in east Mesa, uses a post-office box as her corporate mailing address and does most of her business out of a home near Ironwood and Ocotillo roads in Pinal County, records and interviews show.
An analysis of the Insight Investment Group website found that the biography of its president was picked up nearly verbatim from another companys website. Educational, vocational and property records searches found nobody living in the United States who matched the names and backgrounds of Insights listed corporate officers.
A $10,000 disappointment
Gilbert artist Koi Hatchootucknee said he paid Kingsley-Young more than $10,000 last year to secure financing for a barbecue restaurant he planned to build.
Its not just the money, Hatchootucknee, 56, said. She took a year of my life. … She took my time, my dream, my energy, my everything … my dignity.
Kingsley-Young declined to respond to Hatchootucknees accusations.
Hatchootucknee said Kingsley-Young instructed him to put together thousands of pages of financial information, including business models, tax returns and credit reports, among other documents. She had him draw up profit calculations, equipment valuations, even menus.
Hatchootucknee said on her instructions he hired contractors, real-estate agents and architects, met with city officials about building sites and negotiated property purchases.
He said it took him more than a year to realize that Kingsley-Young was drawing out the process. Every time it appeared they were close to finalizing a deal, there would be some kind of delay, Hatchootucknee said.
The last straw came in February, when Hatchootucknee said he was sitting in a title-company office waiting to close escrow on a Queen Creek property. The deal hinged on a bank transfer from Kingsley-Young, which was supposed to process at 2 pm
When 2 pm came and went with no money, Hatchootucknee said he filed a police report.
Late last month, after she had been contacted by The Republic, Kingsley-Young offered to repay him, Hatchootucknee said. He said he still intends to press his case with authorities.
You want something so bad. Thats what these people play on, he said, adding that he has given up on getting his money. This thing goes a lot further than me.
On her contract signature line, Kingsley-Young has identified herself as Dr. Liz A. Kingsley, MBA, JD, PhD.
In interviews, Kingsley-Young admitted that she is not a lawyer and does not have a law degree. She would not discuss her other credentials, but extensive records searches were unable to verify her MBA or doctorate.
Kingsley-Young acknowledged arrests and convictions on white-collar fraud charges in Texas, California and Minnesota since the 1980s. She also has a string of civil judgments and liens for unpaid state and federal taxes since 1994.
Up-front fees for modifications
Kingsley-Young focuses on financing. The Chicago law firm of Macey, Aleman and Searns has offices in 37 states, including Arizona, and it specializes in helping consumers with mortgage modifications, debt consolidation and bankruptcies.
The firm has racked up consumer complaints accusing it of failing to deliver services. The Arizona attorney general is accusing the firm of illegally taking up-front fees for mortgage modifications.
In a consumer-fraud lawsuit, the Arizona Attorney Generals Office in February said the law firm was using its legal status to end-run consumer-protection laws prohibiting up-front fees. A similar lawsuit filed last year by the Illinois Attorney Generals Office accused the company of illegally charging advance fees for debt resolution under the guise of legal services.
Jason Searns, the firms managing partner, denies any wrongdoing. He said the firm adheres to the highest ethical standards and that operations for both mortgage and debt-resolution businesses were rigidly vetted by experts.
Searns said that the law firm had a stellar track record and virtually no customer complaints before the first consumer-fraud lawsuit was filed. The firm has since gotten an F rating by the Better Business Bureau and has received hundreds of consumer complaints across the country.
Searns, a former prosecutor whose office is in Denver, said he believes the lawsuits have political motivations; he said his firm ran afoul of powerful banking interests by helping consumers negotiate alternatives to bankruptcies and foreclosures.
We were netting clients 29 percent savings on their debts, he said.
A 2010 ruling by the Federal Trade Commission, which regulates the mortgage-modification industry, requires significant disclosures and prohibits providers from taking fees from consumers before changing the terms of a mortgage.
An exception is made for attorneys as long as:
The attorney provides mortgage-modification services for clients.
The attorney is licensed to practice in the state where the client is seeking the modification.
The attorney has a face-to-face meeting with the client.
Horne said Macey, Aleman and Searns was using its law-firm status as a cover to charge fees. He challenged the firms claim that it hired local lawyers to represent clients.
They were using the subterfuge of a law firm. The lawyers were not really doing anything, he said. Here there was no lawyer-client relation.
In its lawsuit, Hornes office alleged that the firm, operating as the Mortgage Law Group, hired a proxy company to do all of the actual work for consumers, who paid up-front retainer fees.
The state maintained that the proxy company, Underwater Property Solutions of Scottsdale, guaranteed consumers that they would get mortgage modifications by hiring the law firm. It also falsely told consumers that the law firm could stop foreclosures and save them hundreds of dollars each month on loan payments, the state said in its lawsuit.
As part of a legal settlement announced April 26, Underwater Property Solutions will no longer be involved in debt or loan-modification services in the state. The company will also pay full restitution to consumers who filed a complaint with the Attorney Generals Office, as well as attorneys fees.
The settlement does not affect the ongoing lawsuit against the Mortgage Law Group, which Searns said his firm will continue to fight.
He described Underwater Property Solutions as a clerical firm hired for bookkeeping and paperwork. He disputed Hornes claims that local attorneys were mere figureheads used to avoid laws.
One clients allegations
Tempe resident Pearl Lee said she sought the Mortgage Law Groups help last year to lower her monthly payments and ended up threatened with foreclosure on a house she had lived in for 21 years.
Lee, 62, who co-owns and operates an assisted-living center in Phoenix, said she agreed to pay the firm about $4,100 before representatives agreed to take her case. She said the payments were deducted directly from her bank account in installments.
Records and contracts show that Lee hired the law firm in September. She said that the firm guaranteed her a new mortgage with a principal reduction of nearly $100,000.
At the time she hired the firm, Lee said she was current on her mortgage. She said the first instruction she received was to stop making her mortgage payments.
She said she filled out the forms and faxed all of the requested financial documents. Lee said three months went by, during which she continued to receive notices from her lender for failure to pay.
She said she made repeated calls to the law firm and first was told that part of her application had been lost and would have to be resent.
By December, Lee said she was in a panic over the threat of foreclosure. But she said she could not get through to firm representatives.
Nobody got back to me. … I didnt know what to do, she said.
Lee said she researched the firm, contacted its headquarters in Chicago and demanded a full refund.
Ultimately, Lee said, the firm agreed to return a portion of her money. She said a firm representative told her that because representatives did substantive work on her behalf she was not entitled to a full refund.
In March, Lee said, she received a check for $2,955.
She questions whether the firm ever intended to help her with her mortgage, which she is now struggling to repay.
Searns, who said the firm would not address specific cases, said clients were dealt with fairly and honestly and that his firm was committed to representing them.
Up-front fees for rent-to-own
Up-front fees for loans and loan modifications are simple transactions. In more complex cases, some people facing foreclosure have agreed to turn over title to their homes and lease them back in deals that they believe one day will allow them to buy back their homes.
Bella Homes, an Atlanta-based company run by Scottsdale resident Mark Diamond, told homeowners in Arizona and other five other states that its program would allow them to avoid foreclosure, stay in their homes, save money and ultimately finance their repurchases.
A joint lawsuit filed in February by the Colorado Attorney Generals Office and the US attorney for Colorado alleged that Bella principals bilked homeowners out of nearly $3 million that they used for personal expenses in a nationwide foreclosure-rescue scam.
In March, as part of a consent decree, Diamond and other Bella principals admitted defrauding homeowners.
Neither Diamond nor any other Bella representatives could be reached for comment. In addition to running Bella Homes, Diamond is president of a retirement-planning services company in Scottsdale.
According to the federal lawsuit, from March 2010 until February this year, Bella defrauded as many as 450 homeowners. The lawsuit said company representatives persuaded desperate homeowners to turn over title to their homes and enter into three-, five- or seven-year leases.
As part of its program, owners had to pay Bella up to three months rent in up-front fees once they transferred the title.
Bella Homes admits that it has not purchased any mortgages and lacks the financial capacity to purchase mortgages, the federal lawsuit stated. Because neither Bella nor the homeowner pays the mortgage, the home is inevitably foreclosed … and the homeowner is ultimately evicted.
As part of a consent decree, Bella principals are prohibited from participating in any mortgage or real-estate business in the United States, agreed to release $707,726 to the government and agreed to pay $497,500 in restitution.
Up-front fees in the future?
Now, operators may be focusing on trying to cash in on the $25 billion settlement with the nations largest lenders, Horne said.
The Arizona attorney general is warning consumers to watch out for companies contacting them about the settlement. People who are eligible for part of the settlement will be contacted directly by one of the five major lenders involved — Bank of America, Citigroup, the former GMAC (now known as Ally Financial), JPMorgan Chase and Wells Fargo.
Only borrowers with loans owned by the five lenders involved are eligible for aid from the national settlement, and those lenders are responsible for contacting eligible homeowners in the coming month to offer assistance.
Investigate the company making the pitch and be wary of offers providing faster assistance or guaranteeing better results, Horne said.
But in any case, dont offer cash up front, he said.
Horne advised consumers to contact his office or a bank before paying up-front fees for financial assistance, particularly if the fee is tied to mortgage relief.
Protect yourself from potential fraud
Here are tips to guard against real-estate fraud.
Be wary of:
Companies that demand up-front fees. Most legitimate operations dont charge in advance for financial assistance. Arizonas Foreclosure Consultant Statute prohibits loan-modification consultants from charging fees in advance.
Companies that tell you to stop making mortgage payments. And never make mortgage payments to any entity other than your lender or servicer.
Companies that say you cant be evicted during the process of establishing a new loan.
Companies that guarantee they can stop foreclosure.
Companies that offer to take over your house payments and then lease the house back to you, promising that you will be able to buy back your home at a later date.
Anything from a company offering help that has blank lines or spaces. Information could be added later that you wont know about.
Investigate the company:
Check to see if it is registered with the Arizona Corporation Commission. Companies are supposed to be registered to do business in the state. starpas.azcc.gov.
Check to see whether a potential lender is licensed with the Arizona Department of Financial Institutions. www.azdfi.gov.
Check to see whether a company or person holds a valid real-estate license with the Arizona Department of Real Estate. www.re.state.az.us.
Check federal and state court records to see whether a company or individual has been sued or convicted of a crime. Federal court records also can be used to check if an individual or company ever has filed for bankruptcy.
Conduct a Google or other Internet search on a company or individual. google.com.
Seek help from the state:
Call Arizonas foreclosure help line at 877-448-1211 or go to www.azhousing.gov.
Sources: Arizona Attorney Generals Office, Arizona Republic research
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