Be protected against home equity skimming schemes.
Many Colorado consumers may be experiencing some financial hardship during these economic times, and those living in homeowner associations (HOAs) that are not able to pay their HOA dues and assessments, together with the thought of losing their home through foreclosure, may be approached by a “savior in disguise.”
The Colorado Division of Real Estate has become aware of a new twist to the home equity skimming scams through the use of HOA liens.
In a typical equity skimming scheme, the scammer has the financially-strapped homeowner transfer the property over to them and agrees to lease the home back to the homeowner who remains there as a tenant. This is done with the promise by the scammer that in return they will pay future HOA dues and assessments and also pay the outstanding mortgage, in exchange for the homeowner paying them future monthly rental payments. They will also let the homeowner believe that they will be released from all those obligations. In reality, the scammer will not make the promised payments to the mortgage company and HOA, but will just keep the monthly payments or skim the equity of the property.
If there is substantial equity in the property, the scammer may eventually get the homeowner to take a low sum of money for the property and have them enter into a lease agreement for a while, and then later evict them - with the homeowner losing their home and its equity.
In the HOA lien scheme, the scammer will purchase an HOA lien that is against the homeowner’s property. This lien may arise if the homeowner is not paying their HOA dues and assessments. We have also heard of scammers creating and recording fraudulent HOA liens against properties and using those liens to entice the homeowner to pay off the liens directly to them or transferring the title to their property for the promise to help them out of their financial difficulties. This can occur on properties where in reality no HOA exists or where the HOA is dormant, with someone posing as an HOA official or the HOA’s manager and sending out bills and liens in the dormant HOA name or newly created fake HOA name.
Typically in these instances, the title transfers from the homeowner to the scammer by way of a quitclaim deed that is never recorded, or it is recorded to either a fictitious, alias, or shell company or trust that was established to perpetuate the ruse. The recording of a fraudulent lien can go undetected for a long period of time until someone performs a title review on the property.
Since the lender and HOA are unaware of the property transfer they will continue to go after the original homeowner for payments. By the time they become aware, the scammer may be impossible to locate, and in fact may have titled the property to a trust in another state.
By this time the scammer has probably received a security deposit and many months of rent from the original homeowner. Even if the mortgage company or HOA initiates a foreclosure of the property, abuses in the bankruptcy system by the shell trust entity may hold off a foreclosure of the property, during which time additional rental proceeds may still come into the scammer’s hands until they are stopped by the courts.
These situations can leave a homeowner losing their property, becoming a renter in their own home, having their credit rating severely damaged, and having the possibility that the lender may pursue a deficiency judgment against them if the property is foreclosed upon, as well as the HOA pursuing a personal judgment against them for non-paid HOA dues.
Recognize some scam signs ahead of time.
If you are experiencing financial difficulties paying your HOA dues and assessments, as well as your mortgage payments, first contact a licensed and reputable professional to understand your options and rights, such as an attorney, real estate broker or mortgage lender.
- Talk with the HOA regarding the HOA lien notice, as it may be a fraudulent lien.
- Watch out for:
- Anyone wanting you to act fast with a quick-fix to your financial difficulties.
- Promises to resolve your financial problems and to leave your cares behind.
- Someone wanting you to transfer your ownership in the property to them.
- Anyone asking you to sign a power of attorney for them to act on your behalf.
- The situation where you will now be a tenant in the home that you owned.
- Someone telling you that there is no need to consult with an attorney, accountant, real estate broker, lender or anyone else.
- Check with the Division of Real Estate to research a licensed real estate professional at:
- Check with your local County Clerk and Recorder regarding any liens recorded against your property: https://www.clerkandrecorder.org/allcounties