Foreclosures Open Door to Fraud

At The Barber's Chair, in the small, quiet community of Accokeek at the far end of Prince George's County, Md., the talk often turns to the foreclosure crisis -- for good reason. Here, in the nation's most affluent majority black jurisdiction, a remarkable example of the growing wealth of the new black middle class, foreclosures are growing at one of the fastest rates in the country, and foreclosure fraud is increasing right along with it.

With locals constantly in and out, Leo Harrington, the owner, hears it all. How people who bought homes once valued at $800,000 down the the road at upscale subdivisions like The Preserves or at the one- and two-acre homesites of St. James have friends and relatives living in their basements to help pay the mortgage.

How lenders pushed deceptive and high-cost loans on first-generation homeowners, without disclosing the consequences, assuring them that home values only go up. How people bought expensive cars, timeshare vacations and boats -- and put their homes at risk. How lenders continue to target the community and push loans. And how homeowners, with years of mistrust in mainstream lenders, wait too long to get help when they fall behind on their loans, wary of trying for a short sale or a loan workout, and so fall prey to foreclosure scams.

Arson is No Solution for Foreclosure Threat

The fact that there is little or no financial gain in setting a home on fire may explain why investigators are seeing so few cases of suspected arson involving houses threatened with foreclosure.

When a home is destroyed by fire, insurance will cover the replacement cost of the home. However, whether the fire is a result of arson or other means, the lender will be named on the insurance settlement check.

In 2007, California recorded 481,392 notices of default. However, while the number of foreclosures has skyrocketed, potential foreclosure-related arsons have not followed suit. Only 14 arsons potentially related to foreclosure were reported in 2007 by the California Department of Insurance.