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Home or street for Christmas? Texas family falls prey to wrap-around mortgage scam

Parents of three kids saved for eight years to buy home, but nine months after moving in they learned they were scammed and are now fighting eviction. Since then, State of Texas has created taskforce to catch culprits

 

A family with three children may have to leave their home before Christmas because of a wrap-around mortgage scam.

More than a year ago, Santa Martinez and Michael Moreno were living with their three kids in a small apartment when they got excited about a tempting offer: a four-bedroom house, 10K down, no credit, bad credit OK, the poster read.

It was exactly what they wanted, so they called.  

“We had been saving for eight years for a moment like this, especially to have a house of our own,” Moreno told Fox News.

They said they spoke on the phone with a real estate agent named Victor Dennis, to whom they later gave the $10,000 down payment and then $1,270 a month for the home.

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“We had no credit and no going through hassle of banks, so we thought it would be easy,” said Martinez. “So we decided to go for it because we had that money saved.”

They started making payments in October of 2015.

But when Moreno and Martinez bought the house from Dennis, they did not know the mortgage from the previous homeowner had not been paid off. The house went in foreclosure and on June 14th they received a notice saying they had three days to vacate.

They would later find out that Dennis used a wrap-around mortgage scam to sell them the house from the original owner.

“We may end up being evicted from our own house just because of this man,” said Moreno. “He ended up being a con artist who kept all the money in his pocket.”

A wrap-around mortgage is when the seller’s mortgage is kept on the home when the new buyers take ownership. A second mortgage is often taken out to cover equity the home may have gained or to help the buyer make some money on interest. Wrap-around mortgages can be helpful for people with bad credit because they don't have the same requirements with banks that traditional mortgages have.

Martinez and Moreno are not alone. In an effort to crack down on wrap-around mortgage scams, catch culprits and help victims, a Texas state senator along with other officials have created a joint task force to combat the problem. Since the start of the task force – which includes multiple state and federal agencies, including the FBI - in October, more victims have come forward.

People often get scammed and lose the house when a middleman makes a promise to the homeowner to sell the home and handle the mortgage. Instead, the middleman doesn't handle the mortgage; the person just sells the house, pockets the down payment and monthly payments from the buyer and lets the mortgage fall into foreclosure. Because the scams result in foreclosure, they impact not just the buyer but the seller as well. The seller's credit is destroyed after the mortgage defaults and they often don't know.  

According to State Senator Jose Rodriguez, victims in Texas are typically military families and immigrants. Military families get reassigned frequently and need to sell their home at a moment’s notice, so they trust the scammer at their word to handle the mortgage and the sale.

Immigrant families often don't have good enough credit to qualify for a traditional mortgage so they too are enticed by a good deal and are duped into believing the house will be theirs for a great price. He said those two vulnerable groups are why El Paso is a target for scammers.

"Scam artists promise to take care of the mortgage and sell the house for the prior owners," said Rodriguez. "Instead, they walk away with thousands of dollars by selling it again and letting the first mortgage fall into foreclosure."

In July, the Texas' Department of Savings and Mortgage Lending issued a cease-and-desist order to three of the biggest offenders. According to the order, although they had been servicing mortgages to homebuyers, they were not and had never been a residential mortgage loan originator as is required by Texas code. One of the accused offenders was Victor Dennis. He did not appeal.

In addition to the cease-and-desist order, Dennis has lost two civil cases and there's another one pending. District Court judges ruled against him on claims including common law fraud, negligent misrepresentation, and promissory estoppel. The judges said Dennis lied to people to get them to buy a home, he knew he was lying, and the reason his victims bought the homes was because they believed his lies.

Dennis was ordered to pay the money back to the plaintiffs and make sure the deeds to the homes they bought were officially put into their name. The third case waiting a decision is nearly identical to the first two.

Texas Rio Grande Legal Aide (TRLA), an organization helping low-income families in South West and Central Texas with employment, family, civil rights and other legal issues, is involved in active litigation on more than 30 of these cases and has handled hundreds over the years. K-Sue Park is an attorney for TRLA Park and a member of the task force. She described Dennis as an egregious offender. According to Park, Dennis has scammed many, including Santa Martinez and Michael Moreno.

The Martinez Moreno family is still living in the home with the help of Park and TRLA; Park said the judge is allowing the family to stay in the home for the time being because they could prove they were making payments. Park also said they filed complaints with the Texas Department of Savings and Mortgage Lending and the Attorney General's office.

"We're very grateful to the judge who has seen this is not a normal eviction case," said Park. "These people were paying the whole time they didn't even know the foreclosure had taken place. The judge has been very fair and listened to our arguments about that."

According to attorneys, the original mortgage on the home was through Patriot Mortgage. After it went into default, the mortgage was taken over by PennyMac Loan Services.

Fox News reached out to PennyMac and learned that their records showed the house had been sold in June. When PennyMac learned of the case from Fox News, they immediately had their fraud team investigate. They have since reached out to the couple and offered to assist. The couple confirmed that PennyMac reached out to their attorney and offered to sell the home to them. The family and their attorney are unsure if a deal can be reached.

"We're sorry to hear the circumstances for these folks and to the extent that we can do the right thing we will," said Steve Hagey, PennyMac Financials media relations representative.

Park said Dennis broke Texas Property Code by not informing the family or the previous owner and that there was an existing mortgage on the home at the time of the sale. She hopes Dennis will face criminal prosecution in the future.

The family has a court date Dec. 5th. During the hearing, the judge will hear a motion to change judges from PennyMac and a motion to compel by K-Sue Park on behalf of the family.

As for Martinez and Moreno, they're waiting to find out if they'll have to move. They said the children are extremely concerned about where they'll live when this is over.

"They ask almost daily: Mom, are we leaving already? Are they kicking us out already?"

Ray Bogan is a Fox News multimedia reporter based in El Paso, Texas. Follow him on twitter: @RayBogan