Foreclosure rescue vultures follow predatory lenders
FAMILY MAN MANAGES TO SAVE HOME IN FORECLOSURE
by Joe Narkin

(Plain Press, July 2008) Israel “Jerry” Wingo managed to save his family home on West 88th Street from foreclosure just a couple of days before it was scheduled for sheriff’s sale. The story of how he financed his home and the help that he sought in trying to save it from foreclosure provides a cautionary tale, as well as a cause for hope, for Cleveland residents who may be in similar situations.

The way that Jerry saved his home is really quite simple. He contacted Jan Kappenhagen of Midwest Housing in Ward 18, who put him in touch with Foreclosure Prevention Specialist Ana Gonzalez at the non-profit East Side Organizing Project (ESOP). Within just a couple of days, ESOP negotiated affordable terms with Ocwen Loan Servicing, a debt collection agency in Illinois, and Jerry was able to save his home. The services Jerry received through ESOP and Midwest Housing were provided free of charge as a public service. This is the happy ending part of his story.

Before he contacted Midwest Housing and ESOP, however, Jerry found himself in the hands of individuals and businesses that appeared to have been all too willing to prey upon the trust of a vulnerable man who was dependent upon fair dealing in order to navigate the complicated circumstances surrounding homeownership. In reluctantly telling his story, Jerry was motivated by a desire to help others, a characteristic quality of the man. “I am not throwing no mud around,” Jerry said, “I am putting out information for other people to use.”

Before getting into the sordid details of how Jerry’s trust was betrayed in numerous ways, it is necessary to tell a little about the man himself. Jerry is a 62-year-old Vietnam combat veteran. Deployed as a helicopter gunner, his natural ingenuity helped Jerry and his helicopter crews survive after twice being downed behind enemy lines. After leaving the service, Jerry lived in a farming community in England for 17 years with his first wife. In England, Jerry was able to profitably buy, restore, and sell five properties.

Now, Jerry is married to his second wife, Norma, a shy and retiring woman who works as a security guard. Jerry and Norma have a daughter, Kimberly, 13, who is a special needs student at Garrett Morgan School. Norma’s son, Israel, 18, also lives with the family and Jerry has given Israel his full attention. It seems important to note that Jerry also donated a kidney to his brother in 1990.

Jerry occupied his house for 11 years as a renter before he purchased it in 2005. While standing on the front porch of his home with Jerry on a warm spring day, it quickly became apparent that he had become an integral part of his racially diverse neighborhood during his years there. He exchanged cheery greetings with all who passed on foot or in cars. He is also well known throughout the neighborhood for doing home repairs and other chores at cost or at very reasonable rates for his elderly neighbors. In response to the fact that Norma sometimes views him as too softhearted in caring for his neighbors, Jerry responds, in a deep voice with southern inflections reminiscent of the actor, Samuel L. Jackson, “If I go against myself and don’t do it, I hurt myself.”

Jerry is a man of significant ingenuity in working with his hands, but he admits that he needs help in understanding complicated transactions and written documents. Jerry did not seek professional help in purchasing his home because of his mistaken belief that the purchase process was designed to protect his interests. “I don’t know how much fraud is going on,” Jerry said, “You hear about it, but you don’t think everybody is like that.”

When the property in which he was a tenant became available for purchase, Jerry believed that his income working as a laborer for a commercial roofing company, combined with other family income, was sufficient for him to purchase the home and complete much needed repairs utilizing his own labor. Given the fact that the property was a 2-family dwelling with a smaller upper unit, Jerry figured that rental income would provide a cushion.

Given a fair deal, Jerry may have been correct that he could afford to own a home, even though his circumstances did not work out as he intended. First, he lost his job when his employer unexpectedly died and he was unable to secure alternative employment given his age and various physical conditions resulting from years of deferred medical and dental care. Second, his upstairs tenants proved very unreliable in paying rent, but Jerry felt that it would be cruel to evict them to homelessness and he gave them an inordinate amount of time to seek alternative living arrangements. About the possibility of eviction, Jerry said, “I wasn’t brought up to be like that.” But, Jerry did not get a fair deal in any aspect of the home purchase process as he proceeded with detrimental reliance on good faith and fair dealing.

Jerry really liked his home, but, as a sitting tenant in the property, he realized that the home had suffered from deferred maintenance under an absentee landlord since at least 1977 and that the neighborhood was in decline. Thus, he felt that the landlord’s $84,000.00 asking price was far too high, but he believed that the property appraisal process would determine actual market value.

In fact, Jerry was right in his suspicion that the purchase was too high, but he was dead wrong about the fairness and reliability of the appraisal process. An analysis of records available through the Cuyahoga County Recorder’s Office would seem to indicate that he overpaid by at least $11,000.00.

Based upon his suspicion about pricing, Jerry obtained a copy of an appraisal report from the lender that gave an opinion of value at $85,000.00. This report satisfied Jerry enough to persuade him to proceed with the deal. A review of comparable sale targets utilized by the appraiser and other highly questionable assumptions tendered by the appraiser seems to indicate, however, that the appraisal value greatly inflated. The appraiser, who is not on the current list of appraisers licensed by the Ohio Department of Commerce, stated that the home was in an area of steadily increasing home prices and rental values. Furthermore, the appraiser projected a fair market rent of $900.00 per month for the upstairs unit. The appraiser explained that, while no comparable rents were being realized in the area, landlords had been discounting rents in order to attract good tenants. These contentions are clearly untrue. The appraiser also did not appear to adequately account for the relatively poor condition of the property.

For mortgage financing, Jerry contacted an Aegis Lending Corporation office in North Olmstead at the suggestion of the property seller. In 2005, Aegis Lending Corporation, based in Houston, Texas, was attempting to increase its lending operations in Ohio, according reports available on the Internet. According to a May 11, 2008 analysis of Cleveland Plain Dealer Reporter Mark Gillespie, Aegis Lending Corporation (also known as Aegis Funding) was one of five lenders with the worst record for foreclosure filings in Cuyahoga County Common Pleas Court for mortgage loans issued in 2005. Of 238 property purchase loans issued by Aegis in 2005, 127 properties (53% of loans issued) entered the foreclosure process. The average time between the sale of the property and foreclosure filing was only 484 days.

Faced with cease and desist orders based upon fraudulent practices issued by courts in at least five states (California, Connecticut, Massachusetts, New Jersey and Washington), Aegis Lending Corporation folded its mortgage loan operation in August of 2007. A subsidiary of Aegis Lending, a toy wholesaler and manufacturer, continues to operate under the name of Aegis Wholesale in Houston. Attempts to contact Aegis Wholesale were unsuccessful due to a continually busy phone and a lack of response to an email inquiry. Ironically, the word aegis in the ancient Greek language meant a shield or a tool of protection.

Based upon an analysis of loan statements for two loans issued simultaneously to Jerry for the purchase of his home, it seems clear that Aegis acted as a predatory lender. Jerry reports that he was awarded a “no down payment loan.” He also indicated that he specifically requested a fixed rate loan only. In fact, Jerry was issued two loans – an adjustable rate loan at an 8.7% interest rate for 80% of the purchase price (with a 6-month readjustment period) and a fixed rate loan for the balance at an 11% interest rate. Jerry was aware that he had two loans, but was not aware that one of them was at an adjustable rate that placed him at high risk for regular mortgage payment increases.

Jerry also indicated that he specifically asked the lender to include an escrow payment for property taxes and home insurance in his payment requirements. Even if he did not make such a request, it is standard industry practice for a lender to include an escrow payment in order to secure their investment in the event of property damage or an unpaid tax lien. Aegis did not set up an escrow account and did not include property tax and home insurance costs in the monthly payment premium requested from Jerry. In fact, the loan document specifically stated that the monthly escrow payment required for this loan was “waived.” Jerry, due to a failure to read and/or understand loan documents, falsely believed that his home was insured and that his taxes were being paid through the lender. He realized that his taxes were not being paid only upon receiving a tax delinquency notice from Cuyahoga County.

The willingness of Aegis to offer a loan on a property under an inflated value without a substantial down payment and with a waiver of the escrow requirement provides persuasive evidence that Aegis acted as a predatory lender in their dealings with Jerry. Predatory lenders are typically more concerned with potential profit realized by bundling loans for resale and fees associated with loan origination and servicing than actual property value. This appears to be the case to an extreme with Aegis Lending.

There can be little doubt that Jerry would have had great trouble qualifying for a loan with a traditional lender. It is also likely that Jerry would probably have been better served by remaining a renter, especially in light of his job loss and his difficulties renting the upstairs unit of his property. Jerry was able to purchase a home, however, within a business climate that supported predatory lending, but he was unable to keep it based upon the loan terms and conditions he faced. Under a convergence of circumstances that included an inflated purchase price, interest rate increases under an adjustable rate mortgage, property tax delinquency, and a belated imposition of tax and insurance escrow requirements, Jerry’s payments ballooned to over $1100.00 per month, more than double the $570.00 that he expected to pay. He was not capable of meeting such payment requirements and faced foreclosure.

But Jerry was determined that, having gone this far, he would find a way to keep his house. With the realization that consultation with a lawyer could have kept him out of trouble in the purchase and financing of his home, he contacted a foreclosure rescue firm, Foreclosure Home Assistance, which he believed to be a firm run by lawyers. Whether he was given reason to believe that the firm was, indeed, run by lawyers cannot be determined. But what is clear is that, in attempting to do what was prudent by seeking professional help, Jerry ran into an enterprise that appears to be designed solely to defraud.

Jerry paid $1500.00 in three payments to Foreclosure Home Assistance (referring to itself as “FHA” in an apparent attempt to wrongly communicate to consumers that “FHA” is a part of the well-known U.S. government agency, the Federal Housing Administration) and he received nothing in return for his money.

From “FHA,” Jerry has only two phone numbers, two first names (Gordon and Wanda), a suite address in 55 Erieview Plaza, and a document that fits none of the criteria for a legally binding contract. This document contains no names, signatures, addresses, or statement of legal status of “FHA.” In the document text, it states in only very vague terms what “FHA” will do for Jerry, but it makes it very clear that he would not be entitled to a refund in any amount - under any circumstances. Phone messages to the main phone number of “FHA” have gone unanswered. A person who would only identify herself as LaToya and confirm that she was an employee of “FHA” answered a call to a cell phone number for the agency
At the beginning of his contact with “FHA,” according to Jerry, Gordon informed him that, even if they were not able to save his home, they could sell him another foreclosed home for as little as $1500.00.

After making final payment to “FHA,” Jerry received no information from “FHA” until after the East Side Organizing Project (ESOP) contacted the agency to make an inquiry and to inform them that they had arranged a mortgage workout on Jerry’s behalf. Very soon thereafter, “FHA” contacted Jerry to inform him “you can tell them (ESOP) that they don’t have to do it no more because we worked it out.” ESOP had previously instructed Jerry to make a $1600.00 one-time payment directly to the bank to initiate the restructure mortgage. Jerry reported that “FHA” told him that he could bring the money directly to them; it appears to be a good thing that he did not do so.

Jerry said that he hopes to send a message to the community in this article about how easy it can be to fall prey to scam artists and to provide guidance to the homebuyers and homeowners regarding how to protect their investment in a home.

If you are contemplating the purchase of any home, it is best to contact a Licensed Real Estate Broker to guide you through the process. A licensed broker will require no upfront payment of any kind for his consultation, and if you are financially qualified to purchase a home, the agent will enter into an agreement to represent your interests in the real estate transaction.  A list of real estate brokers who are members of Cleveland Area Board of Realtors (CABOR) can be obtained by calling (216) 901-0130.

If you are facing foreclosure, you can obtain free guidance and assistance by calling the East Side Organizing Project at (216) 361-0718 or Neighborhood Housing Services at (216) 458-4663.

If you believe that you have been a victim of mortgage or foreclosure rescue fraud, the Cuyahoga County Prosecutors office has joined with the FBI and the Ohio Attorney General’s Office in forming the Cuyahoga County Mortgage Fraud Task Force. During 2007, the Cuyahoga County Prosecutor’s office has indicted 16 cases (with 171 defendants involved in over $41.5 million in mortgage fraud); more indictments are expected over the next few months. You can obtain information on filing a complaint through First Call For Help of United Way by dialing 211.

Editor”s Note: The Ohio Department of Commerce’s Foreclosure Prevention Task Force, impressed by the methods developed by East Side Organizing Project in Cleveland, asked ESOP to duplicate the program statewide.  In August of 2007 the East Side Organizing Project changed its name to Empowering and Strengthening Ohio’s People to reflect its new statewide focus.

(see related photos here)

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