NEW YORK (AP) -- Having tried for months to refinance their home and take it out of foreclosure, Alejandro and Martha Balderas thought they finally found their white knight: a mortgage and real-estate investment company that offers "foreclosure rescue services."

ADVERTISEMENT

The company, Platinum Investment Group, promised the Chicago couple a loan against their house so that they could pay off their mortgage and stay in their home.

The Balderas, in their early 40s, signed on in April 2005 -- only to find out soon afterwards that they had signed over their home to Platinum, which then sold it. Unable to keep paying "rent" to the company, they are now threatened with eviction. A lawyer representing Platinum didn't return requests for comment.

"It's a nightmare and we're reliving it every day," says Martha Balderas, who along with her husband have joined a growing number of homeowners to bring to state or federal authorities their complaints of fraud and deception by companies that engage in lending to financially distressed borrowers to avoid foreclosure.

Those complaints center on "foreclosure rescue" companies which target homeowners who are behind on their mortgage payments through newspaper ads or flyers claiming services such as "fast cash," "equity funding" and "no credit check."

According to some recent cases filed by consumers and regulators, those companies misled borrowers into believing they can save their homes from foreclosure in exchange for a transfer of the title to their property for about a year or two.

At the same time, those companies promised the borrowers that they can stay in their homes by paying rent during that time. The pitch is to give them time to catch up financially until they can buy back their property. But in fact, often unknown to the borrowers, those companies sold their homes to outside investors, stripping out the home equity and leaving the borrowers on the verge of eviction.

"The number of complaints (about foreclosure fraud) is more than what we ever had before," says Thomas James, senior assistant attorney general in the Illinois Attorney General's consumer fraud bureau.

Adds Arizona Attorney General, Terry Goddard: "more and more, we're seeing some real sharks, pretending to be the homeowner's best friend, but what they are after is the equity in the house."

Foreclosure fraud, involving dishonest businesses trying to take advantage of already vulnerable homeowners, has existed for a long time. But in recent years, experts and law enforcement officials say, those schemes have grown increasingly complex, with scam artists often eying the chunks of equity homeowners across the country amassed in their homes during the rapid housing-price appreciation from 2000 to 2005.

Even in places, notably the Midwest rust belt, where the growth in housing wealth hasn't been as strong as in areas such as Arizona, California and New York, there are still homeowners who have built up substantial equity in their homes by paying down their mortgages for years, making them also attractive targets for equity skimmers.

Now, the housing boom is fading and the number of past-due mortgage loans and foreclosures are climbing, in part because many borrowers are finding themselves struggling to pay off high-priced loans lenders churned out during the boom time.

Online foreclosure-data service RealtyTrac, of Irvine, Calif., says more than one million borrowers have seen their properties put in foreclosure so far this year, up 27 percent from the same time last year.

"Because (American consumers) are stressed now more than ever before because of the debt load" associated with rising costs for housing, health care and education, "there are more targets (for foreclosure scams) than ever before," says Elizabeth Renuart, a staff attorney at the National Consumer Law Center in Boston, who co-authored a report last year entitled Dreams Foreclosed: The Rampant Theft of Americans' Homes Through Equity-Stripping Foreclosure "Rescue" Scams.

Statistics on the exact number of foreclosure-fraud cases filed are hard to come by as they are usually broadly referred to as mortgage fraud -- including defrauding of lenders as well as borrowers. The Federal Bureau of Investigation says that of the 818 pending mortgage-fraud cases as of Sept. 30, about 37 percent involve individuals. Of those cases, more than half involve estimated losses in excess of $1 million.

Using Suspicious Activity Reports filed with the Financial Criminal Enforcement Network, the FBI estimated that mortgage fraud in general led to over $1 billion in losses in 2005, up from $429 million a year earlier. "We're increasing our focus on mortgage fraud," says Bill Stern, a supervisory special agent and mortgage-fraud coordinator at FBI.

In response to the recent spike in foreclosure scams, some states have recently passed or are contemplating new laws to give homeowners more protection.

Today, a total of 10 states have legislation in place to deter foreclosure-rescue fraud, including California, Georgia, Missouri, Minnesota, Maryland, Colorado, Rhode Island, New York, Ohio and Illinois, according to Creola Johnson, an associate law professor at Ohio State University. She also notes that because those statutes differ state by state, their effectiveness may differ, too.

A common feature among those laws is that they give homeowners the right to cancel the "rescue" transaction days before the closing. In addition, for instance, under the legislation passed in Illinois this year, if a company acquires any financial interest in a property in foreclosure and simultaneously leases it back to the homeowner and gives the owner the option to buy it back at a later date, the acquirer, in certain cases, must pay the homeowner at least 82 percent of the property's fair-market value at the closing of the purchase.

The goal of the payout requirements under the Illinois law, which goes into effect Jan. 1, is to ensure that distressed homeowners will receive a substantial and fair amount of home equity when entering into those lease-back transactions, while giving legitimate foreclosure purchasers a reasonable chance to profit.

The new legislation also covers so-called "foreclosure consultants." Another common type of consumer complaint involves those consultants -- for an upfront fee -- promising borrowers to negotiate with their lenders to postpone or avoid foreclosures but in fact failing to offer any meaningful help.

Illinois and several other states forbid foreclosure consultants from charging an upfront fee before performing the agreed-upon services.