Fritz Kreisler was a highly accomplished violinist and composer in the early 20th century. His compositions are regularly performed as encores and in recitals. In addition to performing the classic repertoire and his own compositions, Kreisler was known for premiering violin arrangements of unknown compositions by famous 17th and 18th-century composers, such as Vivaldi, Pugnani, and von Dittersdorf.
Except the compositions weren't written by those famous composers. Instead, they also were Kreisler's compositions – written so skillfully in the styles of the old masters that many experts were fooled.
The truth finally came out in 1935 when a music researcher pushed for more information about the original works Kreisler had arranged for violin. Kreisler eventually admitted that he had written the compositions early in his career when he wanted to enlarge his repertoire. He thought it would be "inexpedient and tactless" to perform a program of entirely his compositions.
The response from the music world was divided. Some were appalled that an esteemed violinist like Kreisler would lie to his audiences. Others believed that the source of the compositions was irrelevant—what mattered was their contribution to the violin repertoire.
Whatever one thinks of Kreisler’s actions, it's hard to say anyone was harmed. Unfortunately, many times this isn’t the case. Consider my recent real-life experience. Recently, someone emailed me asking if I knew anything about a Utah company (which I’ll call Easy Refi) that offered mortgage refinance and foreclosure relief services -- a company I'd never heard of until that email.
I learned that Easy Refi had copied (without permission or attribution) an article I was quoted in and put it on their website with a link to my law firm. In a future article, I'll discuss the reasons why using the entire article and my name wasn’t legal.
Although I know nothing about Easy Refi’s business, from what I learned from the email I received, Easy Refi may have been taking advantage of homeowners who, due to increasing costs, became desperate to keep their homes. This article discusses a common type of mortgage foreclosure fraud and how borrowers can protect themselves against scams. The facts in this article, as well as the location and names of companies and individuals, are fiction.
How a Mortgage Refinance Scam Works
To show how mortgage refinance scams prey on vulnerable individuals, frequently senior citizens, I’ve created a fictional victim, who I’m calling Jon.
Jon is a 75-year-old retiree who received Social Security and a small pension. Jon has owned his home for 25 years, but due to refinancing that extended the maturity date, his mortgage won’t be paid off until 2032.
Since 2014, Jon had worked part-time at a local hardware store to supplement his income. He lost his job in 2020 due to the pandemic, but he received unemployment that replaced the lost income and enabled him to pay his bills. However, Jon’s unemployment payments stopped in September 2021.
Between the elimination of unemployment benefits and price increases on groceries and other staples, Jon could pay only $2,000 of his $3,000 mortgage payment in October and November. In late November, Jon received an email from Easy Refi’s Gmail account offering to refinance Jon’s mortgage and lower the payments from $3,000 to $2,000 per month without extending Jon’s maturity date for a low upfront fee of $2,000.
Jon checked out Easy Refi’s website. Their office was on a major street in the next town over. Although the website didn't contain the names of Easy Refi's principals, the company boasted a long history of helping seniors refinance their mortgages so they could stay in their homes.
Jon replied to the email from Easy Refi. Easy Refi wrote back saying they didn’t need Jon’s credit report to tell he was a perfect candidate for a refinance with a company I’ll call Below Market Mortgage, Inc. (BMM). Easy Refi’s representative said that after receiving Jon’s $2,000 upfront payment, Easy Refi would email Jon a link to a website where he could fill out an application. Jon was happy to hear that BMM did not require an appraisal and had borrowers sign all documents online without having to find a notary or witnesses due to the pandemic.
Easy Refi said Jon need not pay his December mortgage payment because it would be included in the BMM mortgage. Easy Refi suggested that Jon use the money he otherwise would have used to pay his mortgage to pay Easy Refi’s upfront fee.
The rest of the story is all too common. Jon paid Easy Refi’s fee and signed BMM’s paperwork. BMM emailed him a link where he could provide his bank account information for the automatic withdrawal of his monthly mortgage payments. BMM said that it was a high-tech company and that all communications would be through its Gmail account.
BMM told Jon that due to the pandemic, his old mortgage company might take some time to process the refinance with BMM. Jon might receive late notices from his old mortgage company for 2-3 months, but he could ignore them.
Everything seemed to be going well in December, January, and February – his $2,000 monthly payments were withdrawn from his bank account like clockwork. Jon received some late notices, but he ignored them as instructed.
However, in March, Jon received a summons and court papers that mentioned foreclosure. Jon emailed BMM at their Gmail account, and they said that the old mortgage company hadn’t processed his payments. Jon could ignore the summons – BMM would handle everything.
Jon’s $2,000 monthly payments to BMM were withdrawn in April and May. But in May, Jon received a Default Judgment and Order of Sale from the court. Instead of calling BMM, Jon consulted with an attorney.
The attorney broke the bad news to Jon. Easy Refi and BMM were working together in a mortgage refinance scam. Jon’s original mortgage was never refinanced, the $14,000 he had paid to Easy Refi and BMM was gone, and Jon’s house was scheduled to be sold at a foreclosure sale in July. Jon likely would not be able to avoid losing his home.
Red Flags for Mortgage Refinance Fraud
Unfortunately, Jon missed numerous red flags that might have cued him into the fact that Easy Refi and BMM were working together on a scam:
Unsolicited Email Advertisement
Few legitimate mortgage companies conduct business through unsolicited emails – unless they are part of an affiliate program with an organization, such as a professional organization or senior advocacy organization. Not every unsolicited email is a scam, but a borrower should conduct additional research into a company before paying them money.
Gmail Address for a Business
Legitimate mortgage refinance companies should have company email addresses instead of a free Gmail account. Although some companies may use Google to handle their email, the email address should bear the company’s name.
No Credit Report Required
Legitimate mortgage lenders require a credit report. It’s possible that a borrower’s current mortgage lender might forego a credit report for a customer who has regularly paid on time. But a new mortgage company will require a credit report to ensure there are no judgments or other liens that could affect the new mortgage.
A new mortgage company will require an appraisal. Even the current mortgage lender often will require an appraisal – if not to value the property, to ensure the property still is standing and in reasonably good condition.
No Notary or Witness Requirement
In every state, a mortgage must be recorded in government records to be enforceable against third parties. Although state laws vary, recordable documents must be notarized, and some states also require witnesses.
Lower Payments, Same Maturity Date
BMM’s refinance offer screams of the adage – when it sounds too good to be true, it probably is. Jon was offered lower monthly payments with the same maturity date – in a rising interest rate environment. In a rising interest rate environment like we have now, except for some government programs, there’s usually a trade-off either in a later maturity date or higher payments.
Legitimate mortgage brokers should not charge an upfront fee. If the broker charges a fee, it typically is paid at closing.
No Telephone Number
Although many legitimate businesses operate virtually, and a few might operate solely online, most mortgage lenders haven’t completely abandoned telephones. In the context of the other red flags, not having a telephone number should have been a concern.
Late Notices from Former Mortgage Company
The late notices from Jon's original mortgage company were a red flag that something wasn't right. Instead of relying upon BMM, Jon should have contacted his original mortgage lender to learn why he received the notices.
Borrowers Should Conduct Due Diligence
Jon was desperate. He wanted to believe that Easy Refi was the answer to his problems, so he didn't conduct due diligence on either Easy Refi or BMM. Here's what Jon should have done and what he would have learned if he had researched Easy Refi:
Business Address at a Mailbox Business
Had Jon checked EasyRefi’s business address on its website, he would have learned that its address was a mailbox service in a strip mall. In our post-pandemic virtual business climate, many legitimate businesses utilize mailbox services to handle and distribute their mail. However, not having a physical address can indicate a scam.
No Secretary of State Registration
Companies must register with the state Secretary of State (or Department of Assessments and Taxation in Maryland) before conducting business in a state. There are legitimate businesses that skip this critical step. But mortgage lending is a highly regulated industry. A legitimate lender should be registered in the state where the borrower is located.
No Mortgage Broker License
Many states license residential mortgage brokers. Had Jon checked, he would have learned that Easy Refi wasn’t licensed.
No Mortgage Lender License
Some states, such as Maryland, license mortgage lenders that aren’t banks or similar financial institutions – BMM wasn’t licensed. However, borrowers should realize that a lender will not always have to have a license.
Negative Better Business Bureau Reviews
Like many websites, information on the Better Business Bureau (BBB) isn’t necessarily accurate. However, had Jon checked Ready Refi’s BBB rating, he would have found negative reviews from four individuals who accused Ready Refi of fraud.
Check Out the Competition
Jon took the first offer he received. Had Jon checked mortgage terms from well-known lenders and his local banks, he would have learned that Easy Refi’s and BMM’s mortgage loan terms deviated drastically from current market conditions. Although mortgage lender terms may vary, a drastic departure from market loan terms indicates the borrower should proceed with caution.
This article describes only one type of mortgage refinance scam. But its message can help anyone seeking to refinance their home. Borrowers should conduct due diligence on their mortgage broker and lender and ensure their loan terms are in market range before proceeding with a refinance. And the red flags in Jon’s refinancing may appear in other types of scams.
Kreisler's hoax fooled experts until a diligent researcher pushed for answers. Similarly, a diligent borrower may well identify a scam before losing money.
DISCLAIMER: The content of this blog is for informational purposes only and does not provide legal advice to any person. No one should take any action regarding the information in this blog without first seeking the advice of an attorney. Neither reading this blog nor communication with Whitman Legal Solutions, LLC or Elizabeth A. Whitman creates an attorney-client relationship. No attorney-client relationship will exist with Whitman Legal Solutions, LLC or any attorney affiliated with it unless a written contract is entered into.
This series draws from Elizabeth Whitman’s background in and passion for classical music to illustrate creative solutions for legal challenges experienced by businesses and real estate investors.