New mortgage fraud-fighting legislation, including mandatory written contracts for foreclosure consultants and equity investors, will be introduced in Colorado based on the findings of its mortgage fraud task force, a state official said Thursday.
“Earlier this year, the FBI identified Colorado as one of the top ten mortgage fraud ‘hot spots’ in the country,” Colorado Attorney General John Suthers said. “This is unacceptable and thanks to the work of the Mortgage and Foreclosure Fraud Task Force, we are making efforts to remove Colorado from this list.”
Mortgage fraud is on the upswing nationally, with the number of suspicious activity reports to the Federal Bureau of Investigation in 2004 almost triple those in 2003, according to a report the FBI released in May. Around 15,000 such reports were filed in 2004, and more than 20,000 in 2005.
According to the Federal Financial Institutions Council, up to 10 percent of all mortgage loan applications in the $3 trillion annual U.S. residential real estate market involve some form of material misrepresentation. States are taking action to counter this trend, with Georgia’s new Residential Mortgage Fraud Act having been signed into law May 5 by Georgia Gov. Sonny Perdue.
Colorado’s Mortgage and Foreclosure Fraud Task Force recommended legislation that would require foreclosure consultants and equity investors to enter written contracts with homeowners.
The Task Force also recommended that these written contracts describe in detail the services to be provided and the terms and conditions of any transfer of ownership in the property in foreclosure. Finally, the Task Force recommended that homeowners be given written notice of their right to rescind or cancel these contracts.
Under the recommended legislation, violations can be prosecuted under the Colorado Consumer Protection Act, and certain violations will be misdemeanors punishable by one year in jail and/or a fine of $25,000.
Republican Rep. Tom Massey and Democratic Sen. Jennifer Veiga will sponsor the legislation next session, Suthers said.
“Mortgage and foreclosure fraud is an increasing consumer problem here in Colorado,” Massey, who also works as a Realtor, said in a statement. “I’m pleased Attorney General Suthers is taking a closer look at what can be done to curb this growing wave of consumer fraud.”
In addition to the legislative proposals, the Mortgage and Foreclosure Task Force formed a subcommittee to address public awareness and outreach. Among its efforts to help educate the public about the rise of mortgage and foreclosure fraud, the group designed a brochure to be used in public trustee offices throughout the state.
“There are numerous scams that cheat the consumer or the lender out of the home’s true value,” said Suthers. “This brochure is one way we can give consumers the knowledge to avoid schemes like foreclosure rescue scams that become so onerous the homeowner often losses their primary asset.”
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