Victims of Chicago Reverse Mortgage Scam Seek Protection
Inside Subprime: May 14, 2019
By Lindsay Frankel
A Chicago, Illinois, loan officer was charged with scamming elderly homeowners out of millions two years ago. Now, a lawyer representing some of the victims of the reverse mortgage scam is calling for the establishment of a committee of consumer creditors to protect the interests of the victims during bankruptcy filings that could affect the defrauded borrowers.
The loan officer allegedly issued reverse mortgage loans to some elderly homeowners who never signed up for the loans, and he also misrepresented the loan terms in order to persuade others that the loans were a good idea. He then allegedly persuaded title companies to to give him the funds directly and kept the money for himself. He also allegedly defrauded victims by pretending to be a representative of the Department of Housing and Urban Development, according to the indictment.
The scam impacted 125 African American families and involved about six mortgage lenders. The homeowners and lenders were duped out of $7 million and many were left facing foreclosure. Three of the victims have claims pertaining to reverse mortgages issued or serviced by the same mortgage lending firm. But the firm’s current bankruptcy proceedings are complicating matters for the victims.
Samuel Tenenbaum, the lawyer who filed the request with the U.S. Trustee on behalf of the victims, stated the request was “based upon our observations of the types of servicing abuses [the lenders’] consumers have suffered, as well as the type of wrongful action our clients have suffered, and our concern that consumers may be without recourse to appropriately address these errors if their interests are not specifically represented in bankruptcy.”
The mortgage lender firm contends that loans currently in foreclosure shouldn’t fall under the court-ordered automatic stay, which Tenenbaum said could hurt his already-vulnerable clients, many of whom are elderly, disabled, and lack financial security.
He insisted that the current committee of creditors, which includes two consumer representatives, isn’t enough to protect the victims. Establishing a committee with the sole purpose of protecting those who have been defrauded would ensure those victims and others yet unaware of the bankruptcy do not incur harm from the mortgage lender’s financial situation.
Attorneys representing the mortgage lender creditors have come out in support of Tenenbaum’s request, indicating that their rights might also be impacted by the bankruptcy.
“There’s a lot of people who could be negatively affected,” Tenenbaum told HousingWire. “We just want to make sure that the bankruptcy does not do anything that negatively impacts consumer rights.”