Attorney General Hardy Myers today announced the filing of agreements with two Oregon businessmen, who solicited homeowners at risk of defaulting on their home mortgages with promises of cash buyouts that rarely happened. Named in Assurances of Voluntary Compliance filed in the circuit courts of Marion and Washington Counties, respectively, are Stephen Seal of Portland and his business Radius Corporation and Jack Alloway of Beaverton, who does business as Rapid Equity Services, LLC. The assurances admit no violation of law.
"A large percentage of these types of "distressed property rescue schemes" appear directed towards vulnerable homeowners such as the suddenly unemployed, the elderly, couples in divorce proceedings and non-English speaking homeowners in financial straits," Myers said. "Homeowners sign away their equity and interest for the often false promise of being able to get out from under their mortgage. Oftentimes, the company gets control of the property while the seller remains liable on the original mortgage."
Department of Justice investigators found that Seal and his business, Radius Corporation, pitched a quick sale for cash to a Tualatin couple, who needed to sell their Oregon home quickly and move back to family in Tennessee. The actual transaction involved the homeowner placing their property in a trust and then signing over their beneficial interest in the trust to Seal's company. As a result, the company gained control of the property but the homeowners remained liable on the original mortgage. The homeowners complained that payments and taxes were not made timely and they sought the return of their property.
Jack Alloway of Beaverton, who does business as Rapid Equity, devised a similar scheme after attending seminars and watching late night television to learn how to manipulate the subtleties of real estate law to his financial advantage. Alloway targeted single-family homeowners, who perceived themselves in desperate need of relief from the obligation of their mortgage payments. Alloway also initially offered to purchase a home for cash but soon reneged on the offer.
Alloway offered homeowners a solution to their problems by persuading them to place their property in a trust and promising to pay all loan obligations and to assist in promptly finding and qualifying a buyer to purchase the property, thus releasing the homeowners from their mortgage obligation. This complicated scheme left consumers liable on the original mortgage while transferring ownership of the property to a trust that was controlled by Alloway.
Such schemes pose a substantial risk to homeowners, who sign away their beneficial interest in their home, while continuing to carry the mortgage obligation, which shows up on credit reports as a huge debt. And while the tenant or a potential buyer maybe making loan payments and paying the taxes, the homeowner has no control over the timeliness of these payments. If the tenant defaults, the homeowner has no recourse.
Under the Marion County Assurance of Voluntary Compliance, Seal paid $1,500 to the Department of Justice consumer protection and education fund and promised not to offer cash buy-outs when they weren't available. Seal also promised to not provide references knowing that they were disenchanted with his program.
Alloway agreed to not misrepresent the nature of any real estate transactions and pay $500 to Justice. If Alloway doesn't meet the terms of the AVC, he must pay another $6,500 to Justice.
Attorney General Myers warned homeowners that "distressed property rescue schemes" are not regulated by a government agency and must be carefully examined before participating in them. Justice officials offer the following tips to consumers:
If you are thinking about selling your home because of financial duress, consider options such as renting out the property yourself to make mortgage payments.
Remember that a company that offers to find a buyer for you won't have any greater luck than you at the outset in disposing of the property and it may take a long time to find or qualify a new buyer.
Be careful; see an attorney or a licensed real estate professional if you are giving up control of your property but remaining liable on the mortgage loan.
Even though an arrangement may appear to avoid a default, you give up control over making sure mortgage payments and taxes are paid on time, which means there is still a potential for default and your credit could be decimated.
There is a risk that the lender, particularly if interest rates are rising, will exercise a "due-on-sale clause" if the lender discovers that you no longer have a beneficial interest in the property and you are no longer living in the home.
Even if the seller avoids default, the seller may not be able to get credit since the seller still has a huge debt.
Consumers wanting more information on consumer protection may call the Attorney General's consumer hotline at (503) 378-4320 (Salem area only), (503) 229-5576 (Portland area only), and toll-free at 1-877-877-9392. Justice is online at www.doj.state.or.us.
Jan Margosian, (503) 947-4333 (media line only) firstname.lastname@example.org