Chicago: America's Mortgage Fraud Capital
John and Eloise Smith purchased their home on the South Side of Chicago in the early 1980s for $54,000, and lived there happily for nearly 25 years. But in 2005, circumstances began to change dramatically. They faced personal bankruptcy and a mortgage rescue fraud that stripped the couple of their home equity. Then, Mr. Smith died in 2007. After three years of courtroom fighting and uncertainty, Eloise, 67, lost her home in 2010 and moved in with her daughter.
"It was miserable," says Eloise about the experience. "I didn't know which way to go. I left before the sheriff could throw me out."
The Smiths' experience is far from unusual in the Windy City. The Chicago area is viewed as especially vulnerable to mortgage fraud according to Interthinx, an Agoura Hills, Calif., company that tracks specific types of mortgage risk for the residential mortgage industry. In its 2010 Annual Fraud Risk Report, the company found that "one of the most noteworthy trends of 2010 was the spread and elevation of fraud levels in [Chicago]." Three of the top six and four of the top 20 riskiest zip codes for mortgage fraud in the country were found in the Chicago area.
Fraud that in 2009 seemed concentrated in Chicago's poorer South Side neighborhoods, has spread to other areas, according to Ann Fulmer, vice president of business relations for Interthinx.
"There are more opportunities for fraud with high rates of foreclosure and distressed properties, short sales industry."
The Smiths were victims of fraud during the housing boom -- and poor elderly couples in Chicago continue to face the same risk.
"We've had problems in Chicago with mortgage fraud perpetrated by borrowers and borrowers who are completely innocent victims," says Attorney David Leibowitz, who was the trustee for the Smith's bankruptcy estate. "With equity stripping you have someone who offers to buy your home. It's a way to prey on the elderly."
The Smiths were trying to refinance their home after a bankruptcy (brought on by John's brain surgery and delays in disability payments) but had been rejected by the bank. Facing foreclosure, they turned to what they believed was a reputable realty and financing company. The company introduced the Smiths to a buyer who promised to "rescue" them. The buyer agreed to purchase their property and allow them to repurchase the home in two years. The deal would allow them to remain in the house where they ultimately became renters.
Leibowitz claims the purchaser was a "straw buyer" who never intended to actually buy or occupy house, and along with others, were perpetrating a mortgage rescue fraud. The Smiths never received any money from the buyer, were victims of "misstatements and improper disclosures" and stripped of their remaining home equity. In 2008, Eloise Smith received a cash settlement (Leibowitz wouldn't reveal the specific amount) for back taxes and three years rent. Even though the fraud situation was resolved, she still couldn't pay her mortgage and the home was ultimately foreclosed on.
Liebowitz says the Illinois Attorney General's office has generated a lot of good will for taking on high profile fraud cases, but they're still a few steps behind.
"The fact of the matter is there is never enough law enforcement," Ann Fulmer says. "The good guys are just outnumbered."
For more on mortgages and related topics see these AOL Real Estateguides:
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- How to Get a Low Mortgage Rate
- Mortgage Jargon in Simple Terms
- How Much Home Can I Afford?
- How to Buy Foreclosures
- Closing Costs: How Much to Budget
- Guide to Settlement and Escrow