Clyde Griffing needed a bigger house and was grateful in June when a buyer offered to assume the $45,000 loan on his Salt Lake County home, allowing him to look for another.
With papers signed, Griffing considered himself lucky to have sold his home in Utah's soft real estate market."We thought we were finished with it until we started getting notices from the mortgage company saying we were in arrears," Griffing recalled months after a scam that nearly ruined his credit rating and hopes of ever buying a home again.
Griffing is one of a number of Utah victims of what U.S. Housing and Urban Development officials call "equity skimming" scams that annually account for 20 percent to 25 percent of HUD's $40 million in losses in Utah alone.
Now, however, Utah HUD officials hope to prevent others from being victimized by bringing an investigative force to Utah to probe the scams. After years of lobbying, HUD has agreed to send a single investigator to Salt Lake City.
"We think just one full-time investigator will have a terrific impact," said Richard Bell, Salt Lake HUD office manager.
Preventing just two of the area's 1,900 foreclosures would pay an investigator's salary, Bell said, and go a long way toward stopping equity skimming in Utah.
Equity skimming is not uncommon in the Salt Lake County area, where the real estate market has languished for much of the past decade and is showing only insignificant signs of recovery. Consequently, sellers are often desperate.
"We had our house on the market for two years. We were ready to take any offer," Griffing said.
Unscrupulous buyers often offer to assume mortgage payments for homeowners desperate to get out from under the burden of monthly house payments, HUD officials say of common equity skimming schemes.
Trouble is, the buyer sometimes never actually assumes the loan. Instead, they sign fake "quick claim deeds" that fool sellers into believing they have sold their property when, in fact, the home's deed is still in their name.
Meanwhile, the buyers rent out the homes, taking in $400 to $500 dollars in monthly rent from tenants while never making mortgage payments on the home - a quick way to make a profit.
Lenders, however, receiving no payments on the home, within six to nine months begin foreclosure proceedings on the home's owner, actually the unsuspecting seller who thought the previous deed was now in the buyer's name.
When the bank moves in, the buyer moves on - disappearing behind false corporation names or simply leaving town.
HUD, as guarantor of FHA loans, is then forced to repay banks that foreclosed on homes. Last year, HUD lost $40 million on foreclosures. Bell estimated 20 percent to 25 percent of those losses come from equity skimming or similar scams.
In Utah, the practice is "spreading like wildfire," according to Vaun Bateman, chief of the mortgage credit branch for Salt Lake HUD offices.
The scams wreck havoc on otherwise stable, tranquil neighborhoods. Salt Lake County resident Jim Whitehead said four homes in his neighborhood mysteriously fell into foreclosure in 1988.
"For one year our whole neighborhood was in a state of flux," Whitehead said. Renters moved into the home and held loud parties nightly and allowed their properties to deteriorate.
"It affects the intrinsic value of the homes in the whole neighborhood," Whitehead said.
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(ADDITIONAL INFORMATION)
How to guard against equity skimming:
- Bring an attorney or trusted real estate agent to home closing.
- Write and phone lender to be sure lender knows home is being sold.
- Complete lender's documentation showing home is sold.
- Check with county recorder's office to be sure home deed is no longer in your name following sale.
- Feel free to call Salt Lake City's HUD office to check on buyer's reputation.
- Be aware unscrupulous buyers look for "distressed sellers."