There have always been victims and villains in the real estate industry over the years, but the financial crisis that ripped across the United States over the past several years has added to the problem. One Illinois law, the Illinois Mortgage Rescue Fraud Act (the “Act”) is designed to protect homeowners who are at risk of losing their homes because of foreclosure or non-payment of taxes and have been approached by someone who promises to save their home (i.e., “distressed property consultants” and “distressed property purchasers”).
“Distressed Property”
The Act applies to any “distressed property”, which the Act defines as a home that is in foreclosure or at risk of loss due to non-payment of taxes, or whose owner is more than 30 days delinquent on the mortgage.
“Distressed Property Consultants”
A “distressed property consultant” is a person who, in exchange for compensation from the homeowner, offers to stop a foreclosure sale or loss of the home due to non-payment of taxes; to improve the homeowner’s credit resulting from a foreclosure sale or tax sale; or to assist the homeowner in obtaining a loan while in foreclosure. There are exceptions to this definition. For example, the following persons are not distressed property consultants: banks, attorneys, and licensed real estate professionals when providing licensed services.
The Act requires any contract between a homeowner and a “distressed property consultant” to include the exact nature of the services and the name, address and total compensation to be paid to the consultant. The contract must also notify the homeowner that the consultant may not receive any money or ask for money until the services are completely performed and may not ask the homeowner to sign any lien, mortgage or deed. The contract must also notify the homeowner that he/she has the right to cancel the consultant contract at any time until the consultant has performed every promised service.
The Act prohibits a “distressed property consultant” from collecting or demanding any fee until all of the consultant’s promised services are fully performed; collecting or demanding any fee that exceeds 2 monthly mortgage payments or the most recent tax installment on the property, whichever is less; taking any sort of lien or other security interest in the property; taking any compensation from a third party unless it is first fully disclosed to the homeowner; and taking any power of attorney from the homeowner for any purpose.
“Distressed Property Purchasers”
The Act defines a “distressed property purchaser” as a person who buys a distressed property while allowing the homeowner to continue occupying the property, or any person who participates in a joint enterprise involving a transaction in which the owner of a distressed property sells it, the purchaser allows the former owner to occupy the property, and the purchaser promises to sell the property back to the former owner or gives the former owner an option to purchase the property at a later date.
The Act requires any contract between a homeowner and a “distressed property purchaser” to be in writing signed by the homeowner and the purchaser. The contract must also, among other things, include a provision that the homeowner may terminate any lease back agreement at any time, and notify the homeowner that he/she has the right to cancel the contract until the 5th business day after it is signed by the homeowner or until the last day of the redemption period under the Illinois Mortgage Foreclosure Law or Property Tax Code, whichever occurs first. In addition, if title to the distressed property will be transferred as part of the transaction, the contract must state: “As part of this transaction, you are giving up title to your home.”
Under the Act, when a homeowner and a distressed property purchaser enter a conveyance contract, the purchaser must:
- Verify that the homeowner has the ability to pay for the monthly lease payments AND future re-purchase of the property; and
- Purchase the property for at least 82% of the property’s fair market value OR, in the alternative, pay off all existing obligations on the property and establish the cost of re-purchase as no greater than 125% of the purchaser’s original cost to purchase the property from the homeowner.
Under the Act, a distressed property purchaser is prohibited from:
- Representing to the homeowner that the purchaser is acting on behalf of the homeowner, acting as a consultant for the homeowner, or assisting the homeowner to “save the house” or “buy time”;
- Failing to give title back to the homeowner after the homeowner has fulfilled all the requirements to re-purchase the property;
- Inducing the homeowner to execute a quit claim deed;
- Entering into a conveyance contract with the homeowner where any party to the transaction is represented by power of attorney;
- Failing to assume or pay off all liens or interests on the property immediately after the conveyance of the property; and
- Causing the property to be conveyed or encumbered without the knowledge or permission of the homeowner, or in any way frustrating the ability of the homeowner to complete the conveyance back to the distressed property owner.
A violation of the Act constitutes an unlawful practice under the Illinois Consumer Fraud and Deceptive Business Practices Act (the “CFA”). Therefore, a homeowner who suffers any loss by reason of a violation of the Act may bring a civil action under the CFA to enforce the Act, and may recover his/her attorneys’ fees. The Act also explicitly provides for criminal penalties for violations of the Act. Any person who intentionally violates the Act commits the offense of criminal mortgage rescue fraud, a class 2 felony.
DeBlasio Law Group has advised clients involved in the purchase or sale of properties that are subject to the Act. For more information, visit our website at www.DGLLC.net.