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Real estate market in GJ not immune from fraud

Mortgage and foreclosure fraud is an uncomfortable topic that has been discussed mostly in private on the Western Slope. A lot of people involved in the mortgage and real-estate business — and in Grand Junction, that’s probably every third person — simply haven’t wanted to acknowledge that such scams exist on this side of the Continental Divide.

As with many uncomfortable topics, most folks around here like to think the big problem resides on the Front Range, while we remain “insulated” here in Happy Valley.

But if comments made during a meeting in Grand Junction last week are a fair indication, the ground on this side of the mountains is just as fertile for scamsters as the ground on the Front Range. Several representatives of the mortgage industry told Colorado Attorney General John Suthers they suspect that scams and fraud are alive and well here in our booming real-estate market.

District Attorney Pete Hautzinger said his office is aware of at least two such scams that are operating in Mesa County, and others in the room said they have anecdotal evidence of questionable activity.

A variety of solutions to the problem have been proposed, ranging from mandatory state registration of mortgage brokers (only two states, Colorado and Alaska, don’t regulate mortgage brokers, according to Suthers) to better enforcement of existing fraud-prevention laws.

But the best solution begins with consumers. No matter how capable the Legislature might be, it can’t write a law that protects every home buyer in every situation. Consumers need to look out for themselves.

Suthers said public education is a crucial part of any solution.

“People just don’t know what they’re getting into” when they seek a mortgage loan, he said. Many people getting into trouble have interest-only loans, some of them coupled with adjustable interest rates that float upward as overall interest rates rise. Suthers said that during the first eight months of this year, 42 percent of the mortgage loans issued in Colorado were interest-only or adjustable-rate loans.

When interest rates rise or principal payments kick in on the interest-only loans, many homeowners discover that they can’t afford the higher monthly payment, Suthers said.

“The problem appears to be, why aren’t the mortgage brokers explaining it to them?” he said.

When homeowners can’t make their monthly payments, foreclosure can soon follow. That’s when foreclosure scam artists go to work. They contact desperate homeowners, offering them a way to stop the foreclosure. Many of the scams involve the homeowner signing away the home to the scam artist with an arrangement to rent it back and eventually repurchase it, Suthers said.

Homeowners who are in foreclosure often don’t understand the complicated foreclosure process, and they’re looking for ways to get out of their financial trouble. A smooth-talking scamster can seem like just the ticket out.

As interest rates rise, more people will be pushed into foreclosure, and scams could thrive, Suthers said.

“I expect to see the foreclosure problem get worse before it gets better,” he said.

Suthers said he would like the Legislature to adopt legislation making such scams more difficult by giving homeowners a grace period after signing such an agreement. During that grace period, a homeowner could back out of the arrangement if it began to smell fishy.

Regardless of what the Legislature and law-enforcement officers do to combat the problem, they won’t be able to eliminate it. The real solution lies with informed consumers. Buyer beware.

Bob Kretschman can be reached via e-mail at bkretschman@gjds.com.