Equity skimming is a real estate fraud where a third party deceives a homeowner into signing over their property’s title. The perpetrator then extracts the property’s equity for profit without making mortgage payments, leading to foreclosure. This article covers how these schemes operate, Colorado’s laws on the issue, how to recognize it, the penalties, and what to do if you are a victim.
Understanding Equity Skimming
Equity skimming is a fraudulent practice where an individual persuades a homeowner, often one facing financial hardship, to transfer their property’s title. The scammer promises to take over mortgage payments to save the homeowner from foreclosure. Instead, the perpetrator collects rent from the property and keeps the funds without paying the mortgage until the lender forecloses. The homeowner is left with a damaged credit score, the loss of their home, and any equity they had built.
How Equity Skimming Schemes Operate
These schemes begin with a “foreclosure rescue” offer, with perpetrators identifying homeowners in distress through public foreclosure notices. They approach these individuals with a solution that appears to be a lifeline, offering to handle the mortgage in exchange for the deed. The homeowner is often led to believe they can remain in the home as a renter, paying the scammer directly.
Another tactic involves a power of attorney, which gives the scammer broad legal authority over the property. This allows the perpetrator to manage finances, refinance the home to extract cash, or take other actions without the owner’s direct involvement. The title transfer may be done through a quitclaim deed, which is sometimes not recorded to hide the transaction.
Equity Skimming Laws in Colorado
Colorado law directly addresses equity skimming of real property under Colorado Revised Statute 18-5-802.1Justia Law. Colorado Revised Statutes Section 18-5-802 (2024) – Equity Skimming of Real Property The statute defines this act as a crime, specifying that a person commits equity skimming if they knowingly acquire an interest in a property subject to a loan in default. The crime occurs when they then fail to apply all rent received toward the loan payments before using the funds for any other purpose.
This statute makes the diversion of rental income from mortgage obligations a specific criminal offense. The law is designed to protect homeowners by making it illegal for someone to take control of a property and its income stream while ignoring the underlying debt. The state also has laws concerning foreclosure consultants that can apply to these schemes.
Recognizing Potential Equity Skimming
Homeowners should be wary of unsolicited offers to help them avoid foreclosure, especially if the offer involves transferring the property’s deed. A red flag is any transaction where the “rescuer” promises to handle mortgage payments but provides no upfront money for the title. High-pressure tactics that rush a homeowner into signing complex documents without time for an attorney to review are also a sign of a fraudulent scheme.
Other warning signs include:
- Being asked to sign a power of attorney or a quitclaim deed without independent legal advice.
- Being told there is no need to get the property appraised.
- Being advised not to consult with a real estate professional.
- Any suggestion to bypass standard due diligence steps.
Penalties for Equity Skimming in Colorado
Equity skimming of real property is a class 5 felony in Colorado.2Justia Law. Colorado Revised Statutes Section 18-5-802 (2024) – Equity Skimming of Real Property A conviction can result in one to three years in prison, a mandatory two-year parole period, and fines of up to $100,000.
Beyond criminal charges, a person engaging in equity skimming may also face civil lawsuits from their victims seeking the return of funds and compensation for damages. The Colorado Attorney General’s office may also take civil action to stop these practices.
Steps to Take if You Suspect Equity Skimming
If you believe you are a victim of an equity skimming scheme, it is important to act quickly. You should take the following steps:
- Gather all documentation related to the transaction, including contracts, correspondence, payment records, and any other papers you signed.
- Report the suspected fraud to law enforcement, such as your local police department, the county District Attorney’s office, or the Colorado Attorney General’s Office.3Colorado Attorney General. File a Complaint
- Contact the Colorado Division of Real Estate, which can provide guidance and may investigate the matter.4Division of Real Estate. Complaint Process
- Consult with a private attorney specializing in real estate fraud to understand your rights and legal options, including a potential civil lawsuit.
- Communicate with your mortgage lender, with your attorney’s help, to explore any options to mitigate the damage from the impending foreclosure.