A recent corrupting trend in Chapter 13 bankruptcy is creating serious challenges for honest Chapter 13 debtors, their attorneys, mortgage companies, and Bankruptcy Courts. The problem is a new foreclosure scam called property dumping, and it illustrates the ingeniously evil thinking of some real estate crooks.
Property dumping has cropped up in response to the desperation of homeowners facing foreclosure sales. It involves a fraud on the Court, pure and simple. Here’s the typical scenario:
A homeowner facing foreclosure is told by the crook that he can postpone the foreclosure sale for many months for a small fee – say $1,500. As part of the process the crook has the homeowner quitclaim the house to himself (i.e., to the homeowner, not to the crook – we’re using the reflexive pronoun correctly here; deeding the home to the crook is a different scam that’s been around for years) and an unnamed person – the name line is left blank, and the deed is not dated. The crook then finds a recently filed Chapter 13 bankruptcy case, backdates the quitclaim deed to prior to the date the bankruptcy was filed, lists the Chapter 13 debtor in the previously blank name line, and then photoshops the County recording stamp and notary stamp from a previously recorded valid deed onto the bogus one. The crook then sends the fraudulent deed to the mortgage company and claims that since the Chapter 13 debtor is on title to the property, the automatic stay of 11 U.S.C. § 362(a) is in force, so the foreclosure sale is halted.
The mortgage company then files: (a) a motion for relief from the automatic stay, (b) a proof of claim in the Chapter 13 bankruptcy case for the large outstanding mortgage arrearage, and (c) an objection to plan confirmation on the basis that the Chapter 13 plan fails to provide for the mortgage arrearage. The results include a protracted confirmation process in the Chapter 13 case, lots of unnecessary costs incurred by both the victimized Chapter 13 debtor and the mortgage company, and a clogging of the Bankruptcy Court. Pretty clever, n’est pas? Actually, it’s downright illegal, and should lead to some free room and board for the malefactors.
Although this is a growing problem, I have not yet heard of criminal charges being filed against anyone by the U.S. Attorney’s Office. However, I recently chatted with one of the bankruptcy judges in the Central District of California, and he indicated that the problem was serious enough to warrant a major push by the U.S. Attorney’s Office. The nature of this scam makes it fall within the Racketeer Influenced And Corrupt Organizations (RICO) statute of title 18 of the U.S. Code. See, in particular, 18 U.S.C. § 1961. The penalties for RICO violations are outlined in 18 U.S.C. § 1963, part of which is reproduced below:
Whoever violates any provision of section 1962 of this chapter shall be fined under this title or imprisoned not more than 20 years (or for life if the violation is based on a racketeering activity for which the maximum penalty includes life imprisonment), or both, and shall forfeit to the United States, irrespective of any provision of State law—
(1) any interest the person has acquired or maintained in violation of section 1962;
(A) interest in;
(B) security of;
(C) claim against; or
(D) property or contractual right of any kind affording a source of influence over;
any enterprise which the person has established, operated, controlled, conducted, or participated in the conduct of, in violation of section 1962; and
(3) any property constituting, or derived from, any proceeds which the person obtained, directly or indirectly, from racketeering activity or unlawful debt collection in violation of section 1962.
I predict that sometime in the near future we’ll read of arrests of these crooks, and later that they have been given long stays in government housing. Stay tuned.