Meanwhile, the original seller can have his or her credit ruined for the same reasons.
“These are almost always unsophisticated, first-time home buyers,” said Veronica Carbajal, an attorney with Texas Rio-Grande Legal Aid in El Paso. “We would argue that the only thing they have done wrong is trust someone and open the door to fraud.”
In El Paso, the Texas Department of Savings and Mortgage Lending issued a cease-and-desist order last year after a wrap scammer made off with nearly $2 million from 200 families, officials said.
In Austin, the agency is investigating potential wrap scams involving about 40 homes in the Dove Springs area, and it also issued a cease-and-desist order in the case. The Austin American-Statesman wrote about the situation in Dove Springs in 2016 and 2015.
“It is a pretty egregious set of circumstances,” Watson said Monday. “These are predatory people taking advantage of people who are just trying to buy a home.”
Watson’s bill, SB 1995, would increase wrap loan disclosure requirements, add some enforcement provisions and also mandate that the disclosure be provided in a language other than English if the loan was primarily negotiated in another language.
The bill filed by Rodríguez, SB 1993, eliminates a loophole that currently allows wrap lenders and servicers to avoid licensing requirements from the Texas Department of Savings and Mortgage Lending.
Zaffirini’s bill, SB 1994, would render a wrap loan void unless it is made with the prior, written consent of all existing lienholders and is closed at a title company office. It also creates a fiduciary obligation and constructive trust for all payments a new owner makes to a wrap lender, ensuring the payments are used for their intended purpose.
Watson said he’s optimistic the bills will be approved, saying representatives of the banking and mortgage sectors he has spoken with have been supportive of them.
“It protects them in the long run,” he said. “They don’t want to have to foreclose on a house because someone didn’t know there was a lien on it.”
Susie Stringer, president of the Central Texas Association of Mortgage Professionals, said she hadn’t heard about the proposed legislation, but she also described predatory wraparound mortgages as “scams.”
“I would advise people to go through standard channels (when they buy a home) — a title company, an attorney,” Stringer said. “Have all the paperwork properly executed. There is no need to go through a middleman who has only his own interest at heart.”
In El Paso, Carbajal said, military families have been typical victims of the scams. They receive orders to ship out to a new base and opt to try to sell their homes quickly.
Similarly to unsophisticated buyers, she said, such sellers often come in contact with wrap scammers by responding to corner street signs. While all such signs might not be scams, she urged people to fully vet anyone with whom they’re considering entering into a real estate transaction.
“They see a sign on the street that says, ‘We Buy Houses,’ or ‘Fast Cash For Your House,’ and it seems very easy to sell their home,” Carbajal said.
“Our clients are working-class Texans,” she said. “It is a shame that people have taken advantage of their trust to rob them of tens of thousands of dollars.”
Military families have been typical victims of the scams. They receive orders to ship out to a new base and opt to try to sell their homes quickly.
State Sen. Kirk Watson, D-Austin, talks to Sen. Kelly Hancock, R-North Richland Hills, on the Senate floor last month. Watson and two other Democratic senators have filed legislation seeking to rein in providers of “wraparound mortgages.” The state is investigating numerous cases of wrap scams.