(Source: By Richard Cowen, The Record, Hackensack, N.J. (MCT) – With foreclosures once again on the rise, a new state law has taken effect that is designed to protect struggling homeowners from predatory “foreclosure consultants” who promise financial help but instead rip them off.
The law, known as the Foreclosure Rescue Fraud Prevention Act, offers an array of protections for property owners facing foreclosure from consultants promising to “fix” the problem — often by buying the house and renting it back to the owner. The bill, sponsored by Assemblyman Gary S. Schaer, D-Passaic, is intended to guarantee that the homeowner facing foreclosure retains much of the power in the transaction.
“New Jersey remains, unfortunately, one of the hardest-hit states in the nation in terms of foreclosure actions,” Schaer, who is also the Passaic City Council president, said. “My new law will provide critical protections to ensure homeowners are not preyed upon at their most vulnerable time.”
Distressed homeowners who receive a writ of foreclosure from a sheriff’s office often get a phone call from a foreclosure consultant who may try to fashion a deal in which he offers to buy the property to satisfy the outstanding mortgage. Often, the consultant promises to let the distressed owner stay in the home by renting it back.
These deals are often a rip-off, Schaer said. Foreclosure consultants typically make such offers when the value of the outstanding mortgage is less than the fair market value of the home.
Schaer said that before the law was adopted, the foreclosure industry “was almost completely unregulated.”
The law is designed to protect the homeowner from such a rip-off by requiring that the consultant offer the owner at least 82 percent of the fair market value of the house, as set by an independent appraiser.
And, for the first time, the law requires that all foreclosure contracts be put in writing — instead of “handshake” deals. The new law requires:
* Foreclosure consultants must be licensed by the state banking and insurance commissioner. Applicants for licenses are subject to a criminal background check.
* The foreclosure consultant agreement must be in writing and written in 14-point type. There should be no “fine print” clauses.
* The contract is to be written in the language that the homeowner is most comfortable with, such as Spanish, or in Farsi.
* Consultants are prohibited from collecting fees upfront. Fees are to be paid once all the services have been completed and not until financial relief for the distressed property has been secured.
* The homeowner has the right to cancel the contract at any time until after the foreclosure consultant has performed every service and secured the financial relief for the distressed property.
* If the property is to be conveyed to the consultant, he or she must provide a disclosure statement that includes all costs the owner will incur in connection with the conveyance, and any option for the owner to purchase the property back from the purchaser.
The law was adopted in response to a series of enforcement actions by the state Attorney General’s Office in 2008 against unscrupulous foreclosure consultants, mortgage companies and lawyers. New Jersey brought the actions based on violations of the state’s Consumer Fraud Act and the federal Racketeer Influenced and Corrupt Organizations law.
The attorney general’s action led to a temporary moratorium on all foreclosure actions in the state. The moratorium was lifted in August of 2011; the Schaer bill was adopted by the state Legislature and signed by Governor Christie four months later.
With the moratorium lifted, foreclosures in New Jersey are now on the rise. Realty Trac, a California-based company that monitors the foreclosure market nationwide, reported that foreclosures in New Jersey rose 86 percent between May 2011 and May 2012. In Bergen County, one in every 2,986 households was in foreclosure during that one-year period. In Passaic County, the figure was one in every 1,629 households.
Email: cowenr@northjersey.com
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©2012 The Record (Hackensack, N.J.)
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