Subject To in Texas - Coming Unwrapped

[Dion DePaoli]

Saw this news today and decided to share it on here.  The story is still developing but I think those who seek to do wraps, especially folks in the state of Texas, since that is where this is, should pay attention to how this is treated and the direction the state agencies take the charges.  

When stories like this make headlines other folks who maybe Sellers into wraps may sit up and pay attention then wondering about their situation.  In the follow up story the company is being charged $1.0 Million in restitution.  

There are two articles:  Link 1 and Link 2

At least 200 families in El Paso might have fallen victims to a real estate scam by an unlicensed company that is buying and selling homes without clear liens, according to Texas RioGrande Legal Aid, which is representing at least seven affected families.

Texas RioGrande Legal Aid claims that brothers Geoffrey and Thomas Schober, owners of El Paso Home Buyers, buy and sell houses fraudulently through “wraparound” mortgages, which means the original homeowner's name is never taken off the mortgage.

"In representing these clients, TRLA uncovered a practice in which the Schobers sold houses through wraparound mortgages to defraud both homeowners and homebuyers out of nearly two million dollars over the last six years," the Texas RioGrande Legal Aid said in a statement that urges prosecutors to begin a criminal investigation against the Schobers.

The Texas RioGrande Legal Aid argues that homeowners who are desperate to sell their homes, sell their property to the Schobers assuming their name will come off the mortgage loan. The Schobers then re-sell the house — with the first liens still attached to the home — to people who typically do not qualify for a bank loan and collect about $10,000 in down payment. Then the new homeowners make monthly payments to the Schobers thinking that the money is going toward the payment of the house.

However, the Texas RioGrande Legal Aid said that in many cases the Schobers do not pay the mortgages that are still under original owner's names, resulting in foreclosures and evictions.

After Texas RioGrande Legal Aid filed numerous complaints, the Texas Department of Savings and Mortgage Lending last week issued cease and desist orders to the Schobers and El Paso Home Buyers LLC. The state order prevents them from selling more houses and stops their company from making loans and collecting payments from homebuyers.

The orders state that El Paso Home Buyers LLC has never been a licensed residential mortgage loan company, nor a residential mortgage loan servicer in Texas. The Schobers have 30 days to appeal the orders.

"The Department has concluded that Mr. Schober originated more than five mortgage loans within a 12 month period without being licensed with this Department," the order states.

“When Mr. Schober failed to pay the first mortgages, the consumers learned of the wrap-around mortgages when the first lien holders began foreclosure proceedings. Several consumers have been evicted as a result of Mr. Schober failing to pay the first mortgage,” according to the order.

K-Sue Park, an attorney with Texas RioGrande Legal Aid, said the cease and desist orders were issued by the Texas Department of Savings and Mortgage Lending after learning that of more than 100 properties that the Schobers sold to homebuyers with mortgages under other people’s name, 85 percent to 90 percent were lost to foreclosure last year.

Last week, Park filed two civil lawsuits on behalf of the families.

The Schobers could not be reached for comment.

David Pineira said he purchased a home from the Schobers in July 2010, but he lost it last year after the Schobers stopped paying the mortgage.

Pineira said at the time he was 22 years old and did not have any credit history. He said he saw a yellow sign on the street that said, “Three bedroom house for sale. No credit history. $10,000 down payment.”

Pineira said he called the number on the sign and the Schobers found him a home. Pineira said he gave the Schobers a $10,000 down payment and for five years he gave $728 monthly payments to the Schobers.

Pineira said he was never late on the house payments and he invested thousands of dollars in the house thinking that it was his. He installed a new roof, a new air conditioning system, remodeled the bathrooms and added new windows and landscaping. But everything was lost last year when he received a notice of eviction, he said.

“They were not paying the original loan. All notices for foreclosure were going to the original homeowner,” he said.

Pineira said he lost his home, but somebody else lost their credit.

Adriana Murillo also responded to one of the street signs and bought her house through the Schobers in 2009. About three years ago, she received a letter in the mail addressed to the El Paso Home Buyers stating that the property was behind on payments. Murillo said she reached out to the lender and was told that she was not recognized as the owner of the house.

She then contacted Thomas Schober, who ended up paying the balance. Murillo said she now pays directly to Kaplan's Mortgage Co. in Downtown El Paso, but the account is still under El Paso Home Buyers’ name.

Murillo said the purchase of the home has given her a lot of problems, but she has decided to fight for it because it’s all she has. She said she has made the payments on time with a lot of sacrifice.

Patsy Lopez, assistant county attorney, said currently the County Attorney’s Office does not have any cases against the Schobers. The County Attorney’s Office handles deceptive business practices cases.

Lopez said people are encouraged to file a report with the Police Department or the Sheriff’s Office for the attorney’s office to be able to look into a case.

Pineira said he reached out to law enforcement to report the case, but he was turned away by El Paso Police Department and El Paso County Sheriff’s Office. He then reached out to El Paso County’s office, which did not help him either. The El Paso County Sheriff's Office on Tuesday said that because Pineira's residence was within El Paso city limits, he needed to file a report with El Paso Police Department.

Murillo said she also reached out to the Police Department, but nothing has been done.

On Tuesday, El Paso police spokesman Darrel Petry said currently the department has ongoing investigations against the Schobers and their company El Paso Home Buyers, but declined to answer any other questions or provide any specifics on the investigations.

Complaints against the Schobers and their company by other alleged victims have been featured by Channel 14-KFOX and Channel 26-KINT in the past.

[contact information removed for television station and reporter per BP rules]

How does a wraparound sale typically take place?

• Homeowners with a mortgage lien decide to sell their home or to work with another person offering to sell their home for them to buyers who cannot obtain traditional bank loans to finance the purchase.
• The person in charge of the sale will put up signs advertising the home (“For Sale” or “We Sell Houses”).
• The buyer will contact the person in charge of the sale.
• The buyer provides little or no proof of qualifying for the loan (“No Credit! No Credit Checks!”).
• The sale typically does not take place at a title company.
• The buyer typically receives a written contract and a Wraparound Warranty Deed. He or she may also receive a Deed of Trust and a Promissory Note.
• The buyer typically gets no warning that a first lien exists on the home.
• The buyer gives the seller (or the person in charge of the sale) a down payment, moves in and begins making monthly payments to the seller.

Source: Texas RioGrande Legal Aid

[Shanequa J.]

Buying subject to and selling with a wrap is not illegal in Texas if the appropriate parties know about the terms. What they did was illegal because the sellers did not know the loan was going to stay in their name and the buyers did not know there was a mortgage on the house they were purchasing. 

You can sell a house with a wrap on the MLS. The legal way: Let sellers know the consequences of keeping the loan in their name. Close at a title company for buying and selling. Get a RMLO to qualify and/or write the loan for the buyer. I would make the monthly mortgage payments and the buyer would then pay me so I could ensure the seller's credit is safe.