THE TOUGH CUSTOMER- Full Montie: Revisiting the 'home rescue' industry
The column published in this space two weeks ago about the "We Buy Houses," or the so-called "home rescue" industry ["Scam or salvation? What you don't know can hurt," July 12] generated an unusually robust number of responses– at least for this column– on The Hook's website.
Separating out those posts that simply argued I stink (one of which was suspiciously in the same writing style as my wife's), there were some substantive comments that warrant response.
First was the assertion that the column was unfair to Dominick Montie, the owner and president of DMT Properties, whose business was characterized as a "scam" by a prominent local blogger. Montie himself felt his position was not adequately represented, while several other posters– taking issue with the depiction of the industry as a breeding ground for predatory practices– saw the column as damning Montie by insinuation.
"My understanding is that the individuals that buy the houses help solve the problem, by offering an option to foreclosure," wrote one poster. "Business is business," wrote another. "People are lucky there are buyers like Montie who can afford to buy your house, and hopefully you will learn from your mistake so that you will not be in the same boat."
First, to the extent the original column failed to do so, I want to make explicit that I came across no evidence that Montie himself engaged in any predatory practice.
But as I wrote then, Montie is not the issue. Indeed, he recently contacted the Hook and noted that he's leaving the creatively financed house-buying business to build and sell new residential and commercial property.
The real issue is the combination of declining home values and tightening lending standards that has put more homeowners at financial risk, often through no fault of their own, and thus made them more susceptible to the industry's widespread predatory and fraudulent schemes, called equity stripping.
But is this industry, as some posters contend, simply an exercise in entrepreneurship, albeit with a few bad apples? Not according to Bankrate.com, a widely read website about consumer credit.
"You see the DayGlo signs everywhere these days," the website reported two years ago. "'We buy houses! Cash for your home! Fast refi now!' Chances are, you mentally filed these come-ons under good old-fashioned American entrepreneurship in action. Maybe you even think kindly toward companies that would offer a hand to debt-ridden homeowners on the brink of foreclosure.
"Fat chance. The majority of these so-called foreclosure ‘rescuers' are actually sleazy predators, says Harvard Law School professor and bankruptcy expert Elizabeth Warren."
Equity stripping typically comes in three flavors:
• "Phantom Help," in which the "rescuer" performs some nominal service for a large fee;
• "The Bailout," in which homeowners sells their home with the false expectation they will lease it back and, when back on their feet, repurchase it; and
• "The Bait and Switch," which involves a transaction in which the homeowners, unbeknownst to them, sell their home to the "rescuer."
Whatever its form, equity stripping capitalizes on two things, according to a recent front-page article in the New York Times: borrower desperation and "mind-bogglingly complex mortgage loan documents."
Are there circumstances in which a "rescuer" might be the right choice for a homeowner? Sure. For example, a knowledgeable, financially stable homeowner seeking to avoid the uncertainty and delay of a more traditional sales process might fit the bill.
But without casting aspersions on any individual operator, the argument that the "home rescue" industry "solves problems" for financially strapped homeowners is absurd, contrary to the vast weight of available evidence, not to mention common sense.
If you're in a bind and thinking that one of these outfits is your ticket out, I again urge you to fully educate yourself and seek help as soon as you can from organizations like the Piedmont Housing Alliance.
Each week, the Tough Customer investigates a specific consumer issue. Email him with yours!