I swear, you can’t make this stuff up.
A Dallas area couple who were in default on their home mortgage filed a bankruptcy case in an effort to avoid a foreclosure sale of their home. However, they ultimately were unable to fulfill the terms of an agreed order that they entered into with the lender during the bankruptcy case, so the lender posted the property for a non-judicial foreclosure sale. So far, nothing unusual.
But a few days before the date of the foreclosure sale, the lender received a fax notice from “Jason” that the Texas debtors had transferred a 1% interest in the property to an individual living in California. And, to put icing on that cake, the Californian had just filed her own bankruptcy case, although she did not list the 1% interest in her bankruptcy schedules. Inasmuch as the lender did not have time before the scheduled foreclosure sale to hire California counsel and get the automatic stay modified as to the 1% interest, the lender passed on the foreclosure sale of the debtors’ Texas home.
But this is where the story really gets interesting. The California debtor knew nothing about receiving the 1% interest from the Texas debtors and claimed no ownership interest in the Texas debtors’ homestead! As Dallas-based U.S. Bankruptcy Judge Stacey Jernigan explains in this decision, the foregoing has become a common practice of anonymous “bankruptcy servicers” that prey on debtors in bankruptcy cases who are facing loss of their homestead to foreclosure.
Here is how the scam worked in this case. The anonymous servicer (approximately 40 (!) of them contacted the Texas debtors to offer their “services”) assured the debtors that the servicers could “legally” stop the foreclosure by arranging an eve-of-foreclosure conveyance of a fractional interest in the homestead to one of their California affiliates that would then file bankruptcy to stop the foreclosure. The cost? Just $650 monthly so long as the servicer’s “services” were “needed.”
In reality, no such affiliate of the servicer existed and the servicer simply inserted the unsuspecting California debtor’s name in the deed of the fractional interest. Then, “Jason” sent his fax informing the lender that the automatic stay in the bankruptcy case of the California “owner” of the 1% interest in the Texas homestead enjoined the lender from proceeding with the foreclosure sale.
Inasmuch as this scam only delayed the foreclosure sale in this case for a month, the scammers received just two of the $650 payments before the debtors realized that they have been had. But the scam artists are apparently getting a whole bunch of such $650 payments from desperate debtors who are looking for some way to keep their homesteads. Judge Jernigan looks as if she is intent on getting to the bottom of this, so stay tuned.