By Gerri Elder
Being approved for home loans can be an exciting time in any homeowner's life-and, if the wrong people are in charge of lending, it can also be a nightmare. Connecticut officials are claiming that one such nightmarish scheme left many homeowners to face foreclosure and potential bankruptcy. On September 5, Connecticut Attorney General Richard Blumenthal announced a lawsuit against a group of institutions he claims are behind the implementation of a "pervasive predatory lending scheme" that targeted first-time homeowners. Because of the thoroughness of this multi-layered "scheme," many of its victims found themselves in financial ruin.
According to the Attorney General's office, the institutions responsible for the scam (lenders, attorneys, and real estate agencies) sought out first-time homebuyers "who spoke little or no English," and took advantage of their inexperience. The scheme reportedly worked by luring in the potential buyers with promises of profits to be gleaned from working the property in various ways. They then offered services such as performing general maintenance, seeking out renters, collecting rent, and paying mortgages and taxes on the properties-even offering cash bonuses to further entice borrowers. Naturally, none of the promises was fulfilled. The defendants presented inflated property values, offered mortgages which contained hidden costs, and falsified bank and employment records to make the potential homebuyers appear eligible for loans much too costly for their means-in short, setting them up for bankruptcy down the road.
Perhaps most disturbing were the methods used to guarantee the success of the scam: the defendants worked in collusion to make sure their victims had no escape from the scam-and no means of discovering it until it was too late. They advised consumers against outside consultations for home appraisals-which would have revealed the inflated values-and referred them to only the institutions involved. Consumers were thus "financially battered and blindsided," and are now left to deal with the consequences-potential bankruptcy and foreclosure.
Blumenthal sees this scandal as merely the start of tough times for the real estate and lending industries. He and Commissioner of the State Department of Consumer Protection Jerry Farrell hope, with this lawsuit, to send a message of intolerance for predatory lending in the state of Connecticut. This message is echoed by Connecticut Senator Chris Dodd, who hopes to counteract an anticipated "tidal wave of foreclosures" with new legislation meant to crack down on predatory lending.
So what does Blumenthal seek to accomplish with his legal action? According to his statement, a lot. He hopes to get "money back to consumers" and issue "severe penalties for practices that undermine an entire industry," noting that the ultimate victims of schemes like this one include not only the individuals and families directly affected by predatory lenders and bankruptcies, but also the economic well-being of the entire region.
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