Homeowner’s Scheme Makes Bad Situation Worse… Ends Up in Jail


Yesterday, a Connecticut homeowner, Eric S. Scherz, 44, was sentenced by United States District Judge Vanessa L. Bryant to 37 months of imprisonment, followed by three years of supervised release, for mortgage fraud.


Here’s what happened…


According to a press release issued by the U.S. Attorney’s Office, District of Connecticut, in October 2007, Mr. Scherz secured a $417,000 mortgage related to the purchase of a property in Barkhamsted.  Then, in April 2008, he created a “fraudulent release of mortgage on the property” that showed that a fictitious lender (a company Mr. Scherz created), had been paid in full and he filed the fraudulent release with the Town of Barkhamsted.


Mr. Scherz then stopped making his mortgage payments in March of 2009, although in April 2009 he made three payments using a wire transfer from his bank that he knew would be reversed due to insufficient funds in his account.


And then… in May of 2009, he sold his property for $299,000, and even though he owed $410,718.56 on his loan, the buyer believed the fraudulent recorded release was legitimate… and Mr. Scherz just pocketed the cash… none of the sale proceeds went to satisfying his outstanding loan.  The case was investigated by the Federal Bureau of Investigation and was prosecuted by Assistant United States Attorney Michael J. Gustafson and on January 6, 2012, Mr. Scherz pleaded guilty to three counts of wire fraud.


And now Eric Scherz will be spending the next three years and one month doing “federal time,” which as I understand it, means he’ll serve every single day of his sentence.


Now, for the record, I don’t know anything more about this case… 


I have no idea what led Eric Scherz to attempt to pull off such a scheme.  What I do know is that there’s an entire “industry” growing all around us that’s dedicated to misleading homeowners in any number of ways, and some of those supposed cures are likely to be far worse than the disease.


Foreclosure rescue schemes often convince homeowners that they can save their homes from foreclosure through deed transfers and the payment of up-front fees.  According to the FBI, these “foreclosure rescue” schemes often involve a manipulated deed process that includes preparation of forged deeds.


“In extreme instances, perpetrators may sell the home or secure a second loan without the homeowners’ knowledge, stripping the property’s equity for personal enrichment. For example, the perpetrator transfers the property to his name via quit claim deed and promises to make mortgage payments while allowing the former home owner to remain in the home paying rent.  The perpetrator profits from the scheme by re-mortgaging the property or pocketing fees paid by desperate homeowners. Often, the original mortgage is not paid off by the perpetrator and foreclosure is only delayed.”


Debt elimination schemes are another growing scam targeting homeowners.  


The FBI reports continued efforts to train others in the use of debt elimination schemes.  Victims pay advance fees to perpetrators who promise to train them in methods to eliminate their debts.  They primarily target mortgages, unsecured debts, and automobile loans and the scammers coach people on how to file fraudulent liens, proof of claim, entitlement orders, and other documents to prevent foreclosure and forfeiture of property.




… than it probably is, right?  Most of us have heard that warning since childhood.  And yet these days, it seems that almost every day I’m hearing from homeowners who have been talked into believing things about saving their homes from foreclosure that, at best, should be hard for people to believe.


We’ve lost over five million homes to foreclosure since 2008… and there are an additional five million plus delinquent loans in the foreclosure pipeline today.  Just based on those facts alone, how could anyone believe today that someone has found the answer to saving their home from foreclosure?  If such an answer truly existed… why would thousands of homeowners from all over the country still be losing their homes to foreclosure every single day?


You know the answer to that question… but that doesn’t mean you want to admit you know it, because it’s scary to admit that if you haven’t made your mortgage payment in more than six months… you are at real risk of losing your home to foreclosure regardless of what anyone is selling… I mean, saying.


I hear from at least 100 homeowners each month that even without a lawyer representing them, believe they will defeat their bank in court, even though I could count on one hand or maybe two how many times that has happened over the last five years.  The fact is… even the most experienced attorneys lose far more often than they win, when attempting to sue this country’s giant financial institutions related to foreclosures and defending foreclosures in judicial foreclosure states is much more about delaying the inevitable than anything else.


And you know that’s the truth as well, right?  Because if it wasn’t… if someone was winning… actually stopping the banks from taking back homes in foreclosure… it sure as heck wouldn’t be a secret, now would it?  Of course not.  We may not want to admit it, but we’d all know if homeowners were “winning.”


So, why are we so capable of believing things about saving our homes from foreclosure that we should know better than to believe?


It all began on February 18, 2009, when a brand new President Obama, while introducing the Making Home Affordable program, described a program to help save homes from foreclosure that has never really existed.  In that speech the president talked about principal reductions, loans that could be modified in bankruptcy court, and fixed interest rates of just two percent… and it would all be ours, just by calling our banks directly, or if we needed help… a government hotline or a HUD counselor.


Millions of Americans had been waiting for this president’s plan for a year or more… four million were already in or near foreclosure, and the prior administration’s Hope-4-Homeowners program had been a dreadful failure.  This president was believed to be smarter, more progressive, a man-of-the-people, he would know how to save millions of Americans from foreclosure.


And, after all, we had bailed out the banks.  Now our new president would make sure those same banks helped us keep our homes through the worst economic downturn in 70 years.  It made perfect sense, and the crowd’s cheering was literally deafening on that February day… louder than any that I could recall hearing in my lifetime following a politician’s speech in this country.


I can remember that speech like it was yesterday, but if you can’t… here are a few excerpts below, and the link is to the speech in its entirety.  If you do remember the speech, skip down… I have another  point to make…


President Obama, excerpts from his speech of February 18, 2009


In the end, all of us are paying a price for this home mortgage crisis.  And all of us will pay an even steeper price if we allow this crisis to continue to deepen — a crisis which is unraveling home ownership, the middle class, and the American Dream itself.  But if we act boldly and swiftly to arrest this downward spiral, then every American will benefit.  And that’s what I want to talk about today.

In the end, the home mortgage crisis, the financial crisis, and this broader economic crisis are all interconnected, and we can’t successfully address any one of them without addressing them all.

So yesterday, in Denver, I signed into law the American Recovery and Reinvestment Act, which will create or save — (applause.)  The act will create or save 3.5 million jobs over the next two years — including 70,000 right here in Arizona, right here — (applause) — doing the work America needs done.  And we’re also going to work to stabilize, repair and reform our financial system to get credit flowing again to families and businesses. 

And we will pursue the housing plan I’m outlining today.  And through this plan, we will help between 7 and 9 million families restructure or refinance their mortgages so they can afford — avoid foreclosure.  And we’re not just helping homeowners at risk of falling over the edge; we’re preventing their neighbors from being pulled over that edge, too — as defaults and foreclosures contribute to sinking home values, and failing local businesses, and lost jobs.

So here’s what my plan does:  establishes clear guidelines for the entire mortgage industry that will encourage lenders to modify mortgages on primary residences.  Any institution that wishes to receive financial assistance from the government, from taxpayers, and to modify home mortgages, will have to do so according to these guidelines — which will be in place two weeks from today.  (Applause.)

Here’s what this means:  If lenders and home buyers work together, and the lender agrees to offer rates that the borrower can afford, then we’ll make up part of the gap between what the old payments were and what the new payments will be.  Under this plan, lenders who participate will be required to reduce those payments to no more than 31 percent of a borrower’s income.  And this will enable as many as 3 to 4 million homeowners to modify the terms of their mortgages to avoid foreclosure.

And I also want to be clear that there will be a cost associated with this plan.  But by making these investments in foreclosure prevention today, we will save ourselves the costs of foreclosure tomorrow — costs that are borne not just by families with troubled loans, but by their neighbors and communities and by our economy as a whole.  Given the magnitude of these crises, it is a price well worth paying.  (Applause.)

… we will pursue a wide range of reforms designed to help families stay in their homes and avoid foreclosures.

And my administration will continue to support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value — as long as borrowers pay their debts under court-ordered plans.  (Applause.) 

I just want everybody to understand, that’s the rule for investors who own two, three, and four homes.  So it should be the rule for folks who just own one home — (applause) — as an alternative to foreclosure. 

In addition, as part of the recovery plan I signed into law yesterday, we are going to award $2 billion in competitive grants to communities that are bringing together stakeholders and testing new and innovative ways to limit the effects of foreclosures.    Communities have shown a lot of initiative, taking responsibility for this crisis when many others have not.  And supporting these neighborhood efforts is exactly what we should be doing.

So taken together, the provisions of this plan will help us end this crisis and preserve for millions of families their stake in the American Dream. 


Like I said… he described a program that has never existed.  And as 2009 was coming to an end, so was our faith in our new president’s plan to save us from foreclosure.  It was the single greatest tragedy I’d ever seen my country endure, and I had a front row seat as I wrote about the events as they transpired, each one more offensive than the last until all I could do was scream my head off… both in writing and more than once until my voice was gone.


Since then we’ve been told so many things that turned out not to be true, and seen so many things happen that we never would have believed could be true… that many simply don’t know what to believe anymore.  All people know is that the stress of living through each day unsure of whether your home will be lost to foreclosure tomorrow is beyond damaging… it commonly destroys relationships, and in the most tragic of cases, it can prove to be deadly.


And now there are literally millions of Americans that have been living under such conditions for more than two years… and after a certain amount of time living with such stress every day, our minds can play tricks on us and we can start believing things we wouldn’t believe normally.  It’s just that after a certain amount of time living with the stress of looming foreclosure, we’re nowhere near normal anymore… we need to believe something better than the reality before us… sometimes the truth just can’t be faced.


The problem is that when we start believing things that aren’t true… even though do so might make us feel better for the moment… that’s when we lose all of our power.  No one is powerful when they’ve got their facts wrong… or by believing something that’s simply not true.  Power comes from knowledge… from knowing more than your opponent does.


And inside you know when you don’t really know something for sure…. and you know inside when you don’t really want to find out that you’re wrong too… because you’re scared… to know.  So, you gravitate towards hanging around with people who won’t challenge you… because they don’t know either… who will allow you to believe you’ve got everything nailed down tight… even though you know inside that you don’t.  It feels safer that way… at least for the moment.


But, alone at night… you know the truth.  And you’re scared.  And it’s okay to be scared, because what we’re facing in this country today is God damn scary as hell… for everyone.  In fact, if you’re not scared, you’re not paying attention, I don’t care who you are.


So, be scared… it’s okay to be scared… in fact, being scared can help you achieve things you couldn’t otherwise hope to accomplish.  But don’t stop learning… question everyone… me included… triple-check everything… don’t let yourself be misled or misinformed.  Don’t accept short answers… beware anyone who claims to have answers to a crisis that clearly no one has solved.


And take your power back… don’t give it away just because you want to believe something you know isn’t true so you won’t be scared… until later.  Keep learning… getting smarter makes you scary… being wrong just makes you easy to ignore.


And that’s how you’ll end up on a path that can only end by making a bad situation that much worse.  I pray you won’t let that happen.



Two weeks ago in Chicago…


Just two weeks ago in Chicago, a single mom had been struggling to get her mortgage modified for almost a year.  Her husband had walked out leaving her with two boys to raise, and she wasn’t on the loan, so it wasn’t going to be easy, but she was trying… trying hard… and her 25 year-old son was helping.

I can’t even imagine a more responsible and dedicated son… trying to take care of his mother and his younger brother, still a teen… he was the man of the house ever since his father walked out and he would help her no matter what.  In fact, he had enrolled in the Community College earlier in the year and was majoring in accounting, I’m sure because he thought that knowledge of numbers would help him save their family’s modest home.

She hadn’t been able to make her regular mortgage payment for almost three years… since the economy started falling apart and her husband had left.  He only sent her child support payments every few months, and she never knew when to expect them… and since she had only been able to find a part-time job, she was taking in laundry from anywhere she could find it.  It was not an easy way to earn a living, but at least she could support her boys and still be there for them… all together at home. 

Her son sat with her on countless days and nights helping her to understand what it said on the government Websites about the HAMP programs… helping her to fill out all the required forms. I imagine no son has ever loved his mother more… ever wanted to help his mother more… and I’m also certain that no mother had ever been more proud of the young man she’d raised… the young man who had now earned his place as the man of her house.

And even though she wasn’t on the loan, Freddie Mac had said they were planning to have something called “an assumable modification,” which was what she would need… but at the last minute I guess the mortgage giant changed its mind… and before anyone could do anything, the family’s home was sold at a trustee sale.  

It happened just two weeks ago… and the news of that sale must have fallen on that 25 year-old young man… her oldest son, with the force of a ton of bricks dropped from the heavens… he must have felt like he’d failed her when failure wasn’t an option… because she had suffered enough, done enough… and he wanted to be able to help her this time… he must have felt shame so great that he simply could not bear it… 

… and he shot himself in that home the following day.  It was he little brother that found him laying there on the floor… laying there in so much blood.


The funeral was last week.


It’s no one’s fault… and there’s no blaming his death on Freddie Mac or anyone else going on.  When a young person takes their own life, the whole world bears the inestimable loss… and so the whole world mourns… and sheds a million tears.


She wants to keep the home and I have to believe that between her lawyer, her servicer and me… we’ll figure out some way for that to happen.  But what I wish more than anything would be to be able to figure out a way that such a tragedy would never happen again.


Don’t allow what’s already bad to get worse… take your power back by becoming smarter… because smarter makes you’re stronger.


Vaya con Dios mi joven amigo.


Mandelman out. 

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