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Three Accused of Bankruptcy Fraud in Foreclosure Scam

Three con-artists devised a foreclosure rescue scam that used the bankruptcy court as a cog in their fraud machine. The three men preyed on distressed homeowners and offered to halt home foreclosure proceedings for a fee. The fees usually amounted to $1,500 per month. The scam generated roughly $550,000 in fees during the course of the scam, according to federal prosecutors.

One of the men admitted in his plea agreement on bankruptcy fraud charges that he assigned a one-eighth part ownership in a home to a fictitious person. The men would then file bankruptcy in the name of the fictitious person to ward off the foreclosure. The true homeowners were unaware that they were giving up the partial ownership. The homeowners were equally unaware that a bankruptcy was filed by the fictitious partial owner.

Ohio bankruptcy attorneys know that attempts to collect on a debt must cease when a bankruptcy petition is filed. The creditor can only resume collection efforts with permission of the bankruptcy court.

Filing the fictitious bankruptcy petition as a part of the scam would put a halt to the foreclosure proceeding. While the bankruptcy proceeding remained pending, the three men would collect their fees from the homeowners. The three men used the scheme to stall foreclosure proceedings of nearly 1,500 homes over the course of their fraudulent enterprise. That amounts to $750 million in mortgages affected.

Prosecutors have not determined the financial losses that the banking institutions suffered as a result of the scam. One month of principal and interest on $750 million in mortgage loans is no small figure. Some of the lenders involved lost payments for up to three years before the three men were caught and charged.

The three men reportedly ran the scam from December 2006 through July of this year. All three have been indicted on bankruptcy fraud charges. Two have pled guilty and the third is scheduled for trial in February.

Source: Los Angeles Times, "3 Southern Californians accused of running foreclosure rescue scam," Stuart Pfeifer, 4 Dec 2010

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