In part 2, Philadelphia homeowners fight to be released from their 40-year contracts with MV Realty. Complaints from all over the city and the state reach the Pennsylvania attorney general, who files a lawsuit against the company for allegedly misleading consumers. Attorneys general in several other states follow suit, and state lawmakers race to take action against what they call unfair real estate agreements.
[00:00:01] Bob: This week on The Perfect Scam.
[00:00:04] The city of Philadelphia pulled the deed records and found that there were 500 mortgages reported against Philadelphia homeowners, and then compared it to census track data so that we have a sense of, are these being made in neighborhoods with high concentrations of black and brown homeowners. And they are. And it's dramatic. That kind of result, that kind of disparity can't simply be by accident.
[00:00:36] Bob: Welcome back to The Perfect Scam. I'm your host, Bob Sullivan.
[00:00:41] Bob: When we left our story, homeowners around the country had reported seeing surprising encumbrances like mortgages or liens attached to their homes at the County Recorder's Office. The company behind the surprise is MV Realty, which says it has paid consumers a fee for the right to be their real estate agent at some point in the future, way in the future. It denies these are liens, calling them instead memorandums of the agreement, but in December 2022, the Pennsylvania Attorney's General sues MV Realty alleging the firm has deceived consumers. MV Realty says what it's doing is perfectly legal, says its contracts are clear and vows to clear its name in court. Meanwhile, Philadelphia homeowners, Felicia Pierce and Timothy Calhoun, who we met last episode, along with many, many like them, say they're stuck in a 40-year contract with MV Realty and don't know how to get out. Elizabeth Blosser from the American Land Title Association begins researching the contracts as soon as she hears about them.
[00:01:47] Elizabeth Blosser: So we put together a, a workgroup to look at this and we did a deep dive in terms of researching these types of agreements, taking a look at them, and what we found was really disconcerting. First off, the, you have a 40-year agreement and, and the length of time of the agreement is astonishing in and of itself. I can't remember what I did 40 days ago, some days I can't remember what I did 40 hours ago. You know the idea that I would sign a listing agreement and, and that it would be effective for, for 40 years and, and that I would, would remember that is, is definitely unusual. But as we dug in more, there were, you know, even further or more concerning things, primarily as we looked at the agreement, typically what we saw was if somebody wanted to cancel the, the contract or there was a noncompliance for some reason, the penalty was 3% of a person's property value, so much more than any upfront money received. So potentially you were receiving a couple of hundred dollars to sign this long-term agreement, and all of a sudden in order to get out of it or maybe because you forgot about it, you're paying a penalty of thousands of dollars. And certainly you can think of, of lots of instances why you might you know, at the end of the day, want to use another real estate company, maybe a family member has become a realtor. You want to, you know, cancel this, this agreement. Maybe again you just simply forgot that you had signed the agreement, and all of a sudden you go to sell your property, refinance, access equity, any types of those things, and you're going to see that that this agreement being recorded in the land records is going to create a problem.
[00:03:45] Bob: This isn't the first time companies have developed a way to make money off of title paperwork confusion, Elizabeth says.
[00:03:52] Elizabeth Blosser: I would say that this particular business model is new. I don't know that I would say that concept is new. About a dozen years ago we had an issue that came up with transfer fees where people were being paid up, up front a certain amount of money, and then the company would get a percentage or a fee every time the property was transferred on a go-forward basis. So we, we've seen similar types of things happen in the past.
[00:04:24] Bob: How does a mortgage or any type of debt or lien or even a memo end up attached to your home title?
[00:04:33] Elizabeth Blosser: So, a, a lien or an, an encumbrance is basically someone saying, I have some sort of interest in this property. So obviously mortgages are recorded in, in the land records as, as notice that there's, you know, a mortgage on the property. Sometimes mechanics or others, different tax organizations will put a lien on, on a property to say, hey, there's unpaid bills associated with this property. And any time a property is transferred or refinanced; all of those liens need to be addressed.
[00:05:13] Bob: So you might have an unpaid tax bill maybe that you innocently forgot about on a piece of property, or there's a bill attached to a property, a debt attached to a property, and when finally someone sells the property, that bill gets paid first before the property can change hands, right?
[00:05:28] Elizabeth Blosser: Absolutely. So if you sell your property before, you know, you've finished paying off your, your mortgage, that when you sell the property, that mortgage amount is, is paid off and then you would have proceeds after that as covered and, and any other liens on the property or other expenses.
[00:05:48] Bob: What is the process for adding a lien?
[00:05:51] Elizabeth Blosser: Well basically what happens is the person who has the signed agreement goes to the County Land Records Office. So the process does vary from state to state, and the name of the office varies. But basically, there's generally a local official that manages the land records and keeps information on, on all the properties generally in the county, that they're usually run at the county level. And so someone comes to their office, and they record this document that has, has been signed. And so again, anytime you're recording a document in, in the land records in that way, it is an attempt to create a lien against the property.
[00:06:39] Bob: It strikes me that one of the issues here, liens, covenants, encumbrances or security interest in exchange for money like there, there's a lot of terms here for what is essentially the same thing. I think that leads to some confusion for consumers, no?
[00:06:52] Elizabeth Blosser: Yeah, there's a lot of legal terms as, as it relates to this, and the agreements have not been recorded in a uniform way across the country.
[00:07:03] Bob: Kerry Smith is a housing lawyer in Philadelphia where around 500 homeowners have an MV Realty mortgage attached to their homes. She's helping some of them.
[00:07:14] Kerry Smith: Most people understand a mortgage loan, right. So you get some money, and uh, you agree to, to pay it back with interest over a period of time, and yet secured by a mortgage, a guarantee with their home. Here, a homeowner is entering into a contract where they're obligated to pay fees to MV Realty. And if those fees are not paid, MV Realty has the right to go after the home.
[00:07:41] Bob: So you used the expression "mortgage loan," as distinct from the word "mortgage," which I'm guessing might be where I'm, myself and many people would get tripped up. The word mortgage just means obligation of some kind?
[00:07:52] Kerry Smith: The mortgage is putting the home up as a, as collateral for the contract. So the contract here requires the homeowner to turn over thousands of dollars in fees to MV Realty, and if the homeowner doesn't do that voluntarily, MV Realty can go after that by having this mortgage against their property. They can go to court to enforce their agreement against the home. And essentially, really what they're doing is putting a cloud on title so that if the homeowner, for example, has gone forward and is trying to transfer their property directly to somebody else through a sale that didn't involve MV Realty, the individual that they're selling it for most likely is going to be buying title insurance and making sure that there's no mortgages that are unresolved on the property, and one of the mortgages that will come up in a title search is MV Realty's. So MV Realty ensures that they're going to get paid back for any transfer of the property over the next 40 years.
[00:08:50] Bob: As we mentioned last episode, when AARP contacted MV Realty, a company spokesman, not authorized to speak on the record for the firm, disputed that these agreements are liens. But in a lawsuit filed by the Florida Attorney General's Office late last year, that office calls the documents filed at the county offices, liens. And while discussions of liens and deeds and encumbrances can sound esoteric, remember, there are real people and real homes behind this discussion.
[00:09:20] Elizabeth Blosser: So I've been able to speak directly with people who have signed these agreements, and as you know from talking to people on this podcast, it's, the stories are, are heart wrenching and, and hard to hear. At the end of the day, no title agent wants to sit across the closing table from a senior citizen who's literally being asked to pay 3% of their property value to a company that had nothing to do with the sale of their home, has done nothing to earn that payment.
[00:09:55] Bob: So, how could Philadelphia residents like Timothy Calhoun own MV Realty roughly $6,000 after receiving $640 from them? When he signed what the firm calls a Homeowners Benefit Agreement, MV Realty calculated the cash payment based on its estimated value of his home, in his case, $200,000, and the presumed 3% real estate agent commission if that home were sold, in this case about $6000. The $640 Timothy received was roughly 10% of that $6000.
[00:10:32] Bob: The benefit they're getting is four or five or six hundred dollars or something like that. But the, the cost can be three, four, five, seven thousand dollars, right?
[00:10:42] Kerry Smith: It is. It's, it's, it's really astounding. MV Realty ensures that they're going to get back at least ten times the amount of money it paid the homeowner for any transfer of the property over the next 40 years. So the way this works is at the time the contract is signed, MV Realty estimates the value of the home and then locks the homeowner into paying at least 3% of the, that value for any transfer of the property. It then provides the homeowner with about 10% of its guaranteed commission. So, for example, if it estimates a home to be worth $150,000, it will set its guaranteed commission as 4500, so that's 3% of the estimated value, and then will give the homeowner $450. If you consider that in loan terms, it's extraordinary. If a homeowner borrows $450 today and pays back 10 times that amount, $4500, at the time of sale, well if they waited five years to sell, that is an APR, an Annual Percentage Rate of 180%. If they sold within a year, it's even worse. It's an APR of 900%. And those are really interest rates that would make a loan shark blush. Of course, MV Realty says, this isn't a loan, it's not a mortgage, but there's a long history of predatory lenders trying to disguise their loans and claiming that they're not loans, and I believe MV Realty is doing the same with this scheme.
[00:12:20] Bob: MV Realty told AARP its program is not a loan. The firm's website at one time called it a loan alternative. Whatever the nomenclature, Timothy told us he has tried everything he can think of to get out of his contract and his financial obligation to MV Realty.
[00:12:37] Timothy Calhoun: I sent them back the $640 that they gave me. But when I spoke with her about a week or so ago, Ms. Smith said that that company said they weren't, could do the right thing, but they are actually not doing the right thing. So we're still kind of in limbo about these people still being on my mortgage.
[00:12:58] Bob: And you know, anyone would be bothered, but I mean you, you built this house with your own two hands, and they did this to you.
[00:13:03] Timothy Calhoun: That's right, and I plan on leaving it to my son.
[00:13:06] Bob: Okay, so tell me where things stand today now.
[00:13:09] Timothy Calhoun: Well today they actually stand, the Feds are involved. I had, when I spoke with the lawyer, she's waiting to hear something back again from MV Realty, but like I said, she said the last thing that she told me, she said that they were trying to help, but she said they're not helping.
[00:13:32] Bob: Hmm.
[00:13:32] Timothy Calhoun: That was the last I heard about MV Realty, and where I stand, nobody's come to me and told me anything about these people are out of your world yet. And I'm sure my lawyer would run and tell me that one.
[00:13:44] Bob: Hmm. And, and in the meantime e--, even if that happens, you still aren't sure what's going to happen to your house, right?
[00:13:50] Timothy Calhoun: I still don't know what the final outcome is going to be.
[00:13:55] Bob: Yeah. That uncertainty's terrible.
[00:13:58] Timothy Calhoun: But they're just, that's what the lawyer explained to us. She said that they're going after the equity of your house. They're not trying to take your house. They just want to have the equity in it.
[00:14:10] Bob: Timothy is convinced the stressful situation is impacting his health. He had a stroke recently.
[00:14:16] Timothy Calhoun: I did, I did, that's why you can't tell that I'm talking a little sideways out of my mouth now. I'm getting better though, you know, I'm getting stronger.
[00:14:26] Bob: Thank God, but that's a horrible thing to go through and a long, long recovery. I wish you well. But you've got enough to worry about without all this, right?
[00:14:36] Timothy Calhoun: Right, they have me taking steroids now and, and they, the steroids are working, I guess, because my mouth is coming back more to normal. There was no pain involved.
[00:14:47] Bob: Wow.
[00:14:48] Timothy Calhoun: No pain to this day. No pain involved. But the left side of my face, I can't even move it, like if I go to lift my eyebrow up, I can't, I can't close my eye. But now I had to put a piece of tape on it.
[00:15:00] Bob: Oh my God. When did that happen?
[00:15:03] Timothy Calhoun: It happened the 4th of last month.
[00:15:08] Bob: This, you're only a month out from your stroke? Oh my God.
[00:15:11] Timothy Calhoun: Yep.
[00:15:13] Bob: Wow. Do you think all of this happening to your house had anything to do with you having the stroke?
[00:15:19] Timothy Calhoun: I'm sure it has a lot to do with it. I'm always thinking about it.
[00:15:24] Bob: Yeah, all the stress, yeah.
[00:15:26] Timothy Calhoun: Yeah, it's very stressful, because I worked hard to own something on my own. Nobody's supposed to be on my deed or on my, you know, nobody's supposed to come after the equity that I worked for, that I put in here.
[00:15:39] Bob: Kerry is also helping another Philadelphia resident, Felicia Pierce, try to get out of her MV Realty contract. We learned in the last episode that Felicia tried using an MV Realty agent for six months, but didn't think she was being treated well. Then discovered she was not able to pick a new agent because of the contract.
[00:16:00] Bob: And my understanding is Felicia even offered to give them back the, the upfront money, the upfront money they gave her, and they wouldn't let her out of the deal still.
[00:16:08] Kerry Smith: They wouldn't let her out of the deal. She has canceled the contract, outlined all the problems that happened to her. Here in Pennsylvania we do have a state law that allows homeowners to cancel a contract that was entered into if, if the contract was the, the result of a call on their home or a visit to their home and the product was for more than $25. And so we have sent a notice of cancellation to MV Realty, asking them to cancel the contract because they are required to give people 3 days to cancel the contract. And that 3 days does not begin until they give the homeowner a special form, in duplicate, two copies, telling them about their rights to cancel the contract. So in Ms. Pierce's case, her 3 days had not even begun to expire. She was never given a copy of this form. We notified MV Realty, told them we're canceling the contract, and their response has been, no, we're not going to do it. Ultimately, that issue will have to be resolved in court. We're fortunate in Pennsylvania that our Office of the Attorney General has taken action against MV Realty. And one of the claims that they have brought against MV Realty is that they are not honoring this law that provides homeowners with the right to cancel the contract, they're not providing them the required disclosures, and as a result, homeowners should be able to cancel these contracts. Ultimately, a court's going to have to decide that issue. Unfortunately, the court process is not one that is very quick and fast for relief, so the lawsuit that the Pennsylvania Office of the Attorney General brought against MV Realty is still in its very early stages. There will be opportunities for both sides to get documents and information from the other side. That can take some time. But ultimately what we're hoping that a trial will be heard on this case sometime by the end of the year.
[00:18:09] Bob: So for now, Felicia, who is disabled and can no longer navigate the stairs in her long-time home, says she can't sell her home. She's staying out of state with her daughter at the moment.
[00:18:21] Kerry Smith: It's very frustrating. Her home just no longer works for her, so now she has done what she needed to do and moved out, but she feels trapped that she, in order to sell her house, that she's going to have to go back and use MV Realty, and if she doesn't do that, they're going to sue her and enforce the contract or find another way through the mortgage that's recorded against the property to seize any of the funds that take place if she were to go ahead and try to sell the house on her own. And that's not what she wants to do. She feels, you know, that she was victimized here, and that this is a company that shouldn't benefit from engaging in unfair and deceptive trade practices. And she's right.
[00:19:04] Bob: And given the sideways moves the housing market has taken recently, Kerry thinks the delay has really cost Felicia.
[00:19:11] Bob: Yeah, I mean if I was looking to sell a home in this market and I, somebody told me you have to sit still for a year, I'd be terrified, because who knows what's going to happen.
[00:19:21] Kerry Smith: Exactly. And we've already seen that home values in Philadelphia have decreased since Ms. Pierce put her home up for sale initially with the MV Realty listing agent. So she's already missed out on an opportunity to sell her home at a higher price.
[00:19:39] Bob: Even if the Pennsylvania Attorney General ultimately succeeds in court, Kerry is worried that MV Realty will have a lasting impact on many homeowners.
[00:19:49] Kerry Smith: Imagine if MV Realty gets shut down or they go out of business, but these mortgages are not addressed. Ten, 15 years from now when people go to sell their homes, they go to refinance, there's going to be all these clouds on title, these, these mortgages that need to be satisfied.
[00:20:09] Bob: MV Realty denied to AARP that these agreements cloud titles. To be clear, Kerry says it's normal for home sellers to enter into exclusive contracts with real estate agents, and while unusual, there's nothing necessarily wrong with compensating the home seller for that. Her problems with the contracts run deeper.
[00:20:31] Kerry Smith: In Pennsylvania, we cap the term that someone can be in an exclusive listing agreement with a real estate agent, and I think there's good reason to. Ms. Pierce's case is a perfect example. You may enter into a contract with a real estate agent thinking that this is going to benefit both of you, that, that everyone's going to be engaging in the, the best efforts to sell the home at the highest value, and then sometimes things don't work out the way we expect them to, and people should have an opportunity to have that contract come to an end. In Pennsylvania, we decided that the appropriate period of time for someone to be locked into a contract with a real estate agent is one year. So after one year the contract expires, and they're able to go on and use a different real estate agent. Being trapped for 40 years with a real estate agent that really isn't even engaging in the business of marketing your home for sale, but instead is engaging in the business of lending money where they're going to get a return of 10%, that's, that's too long. There should never be a 40-year listing agreement for real estate services.
[00:21:47] Bob: Plenty of people in state houses and attorney general's offices from around the US agree, says Elizabeth from the American Land Title Association.
[00:21:57] Elizabeth Blosser: So, attorneys general in Massachusetts, Florida, North Carolina, Ohio, and Pennsylvania have filed complaints regarding these agreements, and so that, that's been encouraging.
[00:22:13] Bob: There's been attention on the federal level too.
[00:22:16] Elizabeth Blosser: The leadership of the Senate Banking Committee sent a letter to both the FTC and the CFPB asking them to look into these agreements. And further, the SEC recently stopped robocalls regarding these agreements stating that they were junk calls to financially stressed homeowners.
[00:22:40] Bob: Elizabeth is primarily involved in lobbying states to pass legislation that would ban these kinds of agreements. AARP supports this legislation. The new laws would be straightforward, she said.
[00:22:52] Elizabeth Blosser: So the, the bill is not very long. It's only two pages, but it does a lot of things. There's a, there's a lot of power in those, those two pages. The first thing it does is it defines what an unfair service agreement is, and as I mentioned, this is kind of broadly defined to make sure, you know, if other types of business look to adopt this sort of practice of an, an agreement for future services that this legislation will address that. So hopefully that will be a deterrent to this sort of practice in the future. But it, it lays out that an unfair service agreement is for a service that will occur after one year from the time that the agreement is signed. It calls out that an unfair service agreement is one that purports to, to run with, with the land or be, be tied to someone's real estate. It is an agreement that purports to bind future heirs, and then, you know, further, we, we say that you know if the service agreement allows for assignability or it purports to create a lien encumbrance or other security interest in the property, it's, it's unfair. So the first thing we do is define these unfair service agreements. From there, we go on to say those types of agreements are not recordable in the land records, and if they are recorded in the land records, they are void and unenforceable. Further, if someone attempts to record one of these in the land records in the future, it constitutes a unfair and deceptive practice, which again, you know, gives state attorneys general some additional ways to combat this issue. We also have provision allowing for the recording to be removed from the, the land records, and then we have a, a provision on, on rights of recovery. So that's kind of an overview of what, what the bill does. I think if you take it all down to, you know, the, the most basic things is it makes these types of agreements unrecordable in the land records so they, they can't create any sort of encumbrance against the property. They make any agreements that are recorded void and unenforceable, and then they provide some rights of recovery and penalties if, if people do try and record these types of agreements in the land records going forward.
[00:25:35] Bob: And, and so it stops it before it starts, and but it also offers a potential for relief, right, so a, people who already have these agreements in their files, they'll be unenforceable.
[00:25:46] Elizabeth Blosser: Correct.
[00:25:48] Bob: To put a fine point on it, the law would ban Non-Title Recorded Agreements for Personal Services, or as the title association has taken to calling them, NTRAPS.
[00:25:59] Bob: Do you want to take credit for the, the NTRAPS acronym?
[00:26:03] Elizabeth Blosser: I am going to take credit on behalf of our association. As we looked at the issue, we were like, oh what are, you know, what are we going to call these? And we wanted to speak to them broadly, because again, this is a unfair business practice that others might engage in in the future. And, and so, you know, as we discussed them the actual term for, for them would be, well they're Non-Title Recorded Agreements for Personal Services. Well that is a, a very accurate description of what the agreements are, but what we talk about is NTRAPS, and this idea that these agreements are entrapping consumers. And so one of the uh, people on our workgroup came up with an acronym, and it stuck. So nobody ever remembers the Non-Title Recorded Agreements for Personal Services, but everybody remembers NTRAPS, and again, that's the important thing for consumers to keep in mind. If somebody's coming to you, and they want you to sign some sort of agreement regarding your property, or if something is going to happen sometime in the future, that's an NTRAP, and so hopefully that's what's sticking with people.
[00:27:18] Bob: The legislation has so far been approved or is being actively considered by more than a dozen states.
[00:27:24] Elizabeth Blosser: So legislation has passed in Utah, North Dakota, Colorado, Georgia, Idaho, and Tennessee. The exciting thing about seeing these bills pass is this is a consumer protection issue. It is not a partisan issue; it is not a political issue. You see great bipartisan support for these bills, legislatures passing the legislation with overwhelming majorities, and so that, that's exciting to see. Legislation has also been introduced in a, in another six states. We're hopeful to see quite a bills move. Passing legislation is usually a pretty slow and arduous process, so I'm thrilled with six states passing legislation. But of course, every time a state passes legislation my, my goal goes, goes up. I would love to see 10 or 15 states act on this this year and other states follow suit next year. I was sitting on a, a plane waiting for takeoff just last night, and I saw a tweet come through from the Attorney General in North Carolina congratulating the North Carolina House for, for passing the legislation to restrict these types of agreements. And yeah, something just sort of caught in my chest, and I thought, you know, this is it. We have, we have so much momentum, so many people coming together to address this, this issue. While we haven't seen these agreements in all 50 states, I would love to see legislation like our model enacted in all 50 states to protect consumers against this particular business practice, but also to deter others, others, from looking to do something similar in the future.
[00:29:17] Bob: For its part, MV Realty told AARP through a spokesperson that it supports legislative efforts, "that would allow for the effective oversight and prevention in abuses and consumer protections." But it was critical of the bill that the title association supports which it says, "would take money out of homeowners' pockets." Blosser says, "The speed at which legislators have acted is a sign her group's proposals have wide support."
[00:29:44] Elizabeth Blosser: So, we initially got together some of our, our members and took a look at this, and then we had that moment where, you know, we said we have a list of principles, we think these agreements are unfair, and I asked the question, "Well what do we, what are we going to do next? Are we going to draft legislation banning these types of agreements?" And there was like this moment of, of pause where everybody was quiet, and then someone said, "Well that's the right thing to do." And I feel like we, we haven't slowed down since. It has, it's been a lot of work, but it's been a lot of groups of, of people coming together. We've had the opportunity to work with AARP, a lot of our industry partners, lenders, realtors, county/land records, officials, lots of groups have, have come together and, of course, the people who have signed these agreements have been willing to come forward and share their stories, and that has been, you know, the most powerful tool in, in this conversation. We believe every time a state legislature passes a bill that bans or severely restricts the use of these unfair agreements, it is a win for consumer protection, and it is a win for people's property rights. So we had the benefit as we started working on this, to have a lot of coalition, partners, again AARP, industry partners, and then we were extremely fortunate to have national real estate law experts volunteer their time to help us draft this legislation. So we're talking to people who actually write the textbooks that are used in real estate law classes, coming alongside of us, and, and making sure that we had a model legislation that was going to provide very solid consumer protections.
[00:31:35] Bob: The support has not been universal, however.
[00:31:38] Elizabeth Blosser: There were two bills introduced that would have allowed for the use of these agreements. There was a bill filed in Georgia and one in Texas that would have allowed for 30-year listing agreements and for them to be recorded in the land records. The Georgia bill, dead, and in fact, the Georgia legislature instead passed legislation voiding these types of agreements. In Texas, there was a hearing just last week on the legislation there, the number of years has come down to, to 15, but as, as I testified in that hearing and, and others, the legislation still falls woefully short of the sorts of consumer protections that other legislators have deemed necessary. So I'm, I'm hopeful through education and advocacy efforts, you know, legislation can be considered by the Texas legislature that would be much more in line with what's passed in other states. '
[00:32:41] Bob: MV Realty's position that it gives homeowners an upfront payment for the right to act as a real estate agent at some point in the future and earn the standard 3% realty fee, that might sound familiar to someone who's followed Wall Street in recent decades. It's a bit like other securitization models. One way to think of this is, it's a way to acquire and then pull together the right to a whole bunch of future revenues from the lucrative real estate agent commission business and sell those future earnings to investors today at a discount.
[00:33:14] Kerry Smith: We do know that MV Realty at one point had a partner that was planning on helping them securitize these agreements. We know that because their relationship with that partner broke down and they sued each other in court where they aired their dirty laundry. So there always was an intention to securitize these agreements, and we'll only know if future relationships break down, whether or not that's an ongoing effort. But this appears to me to be private equity funded, and it appears to be an effort to securitize these agreements as well.
[00:33:53] Bob: That concept rolling out a future revenue stream and selling it to investors is perfectly legal and familiar to private equity investors. But as the housing bubble collapsed 15 years ago showed, securitization of residential home assets certainly comes with risks that feel familiar. Also familiar to some listeners, is one of MV Realty's co-founders. She is realty show contestant, Amanda Zachman, formerly Amanda Zuckerman, who appeared on CBS's Big Brother in 2013. She filled the role of a, uh, tough contestant on that show.
[00:34:32] (show clip) Elisa's making an attempt to push my buttons, making me feel as though she threw the competition to me. And not only did I win, I kicked your ass. She wants to push my buttons; well she just pushed the wrong one.
[00:34:47] Bob: Zachman herself is named in the Pennsylvania and Florida Attorney General's lawsuits. MV Realty is not her first association with home selling. She comes from a real estate family. Here she is talking about selling properties on an audition tape she made in an attempt to appear on another reality show, The Bachelor.
[00:35:07] (audition tape) I have a showing in one of mine and my mother, as a team, we're a real estate team, in the Caribbean Keys, it's a really cool 1.6 million listing on the water. So we're, we've been trying to sell that one for a little bit now. And then um, after that, 30 minutes all the way out west to show two more properties, investment properties. So pretty busy day. And um, wish me luck. I need to sell some. I need to make some money! Make that money!
[00:35:39] Bob: Kerry Smith, the Philadelphia housing lawyer says there is a larger issue at play with the surprise mortgages she's seen. Many of the people who sign up with MV Realty are long-term homeowners. KIRO TV in Seattle said it interviewed a former employee who acted as a telemarketer for MV Realty. The employee described that most people they contacted as "elderly."
[00:36:02] Kerry Smith: The people being targeted are typically you know older individuals, and so in many ways this feels like intergenerational wealth stealing.
[00:36:11] Bob: I believe you and others who are working on this issue do not think it's an accident that this happened in Philadelphia and in particular neighborhoods in Philadelphia. Why is that?
[00:36:21] Kerry Smith: Yeah, this, this scheme appears to be targeting black and brown homeowners. So the city of Philadelphia pulled the deed records and found that there were 500 mortgages recorded against Philadelphia homeowners by MV Realty. And then The Reinvestment Fund, a great nonprofit in Philadelphia, mapped those mortgages in Philadelphia and, and compared it to census track data so that we could have a sense of, are these being made in, um, neighborhoods with high concentrations of black and brown homeowners. And they are. And it's dramatic. So just to give you a sense of the disproportionality here, in Philadelphia, about 37% of homeowners are black homeowners. So you would expect that of all the 500 mortgages that had been recorded MV Realty, you'd expect that about 37% be recorded in favor of black homeowners. And it's 69%. So black homeowners make up 69% of MV Realty's mortgages, but only 37% of the homeowners in Philadelphia. That kind of result, that kind of disparity can't simply be by accident. And we're very, very concerned about the fair housing implications here.
[00:37:44] Bob: When asked about this allegation, an MV Realty spokesperson told AARP that "MV's customers are a representative sample of the city of Philadelphia. We do not focus on any specific demographic group." And for now, the spokesperson tells us it has "voluntarily and temporarily paused entering into any new agreements." So what should consumers do if they're contacted by a firm which promises some kind of upfront payment for real estate services? Or really any service that requires a lot of paperwork and the presence of a notary?
[00:38:20] Kerry Smith: Well I think saying, "if it sounds too good to be true, it probably is," has some value. And if someone pitches a program, whether it be through a telemarketing phone call or a knock at your door that sounds too good to be true, take a moment, pause, get some advice, have someone help you review the contract and look at it before signing it, because there are companies that are making a lot of money off of schemes that are designed to steal home equity, and it, it, it's worth it to take the time and pause. And if you have family or friends who may have fallen victim, have the conversations with them and let them know that they shouldn't be ashamed if this happened to them, instead they should be, they should be angry that there's companies out here that are trying to trick and trap them into these kind of schemes and there are actions they can take to get redress.
[00:39:23] Bob: I'm sure that these do exist, but it's hard for me to imaging anything that could go from a phone call to a notary at my house with a pile of papers in 24 hours.
[00:39:32] Kerry Smith: (chuckles) Any time you have someone who needs you to act immediately, they're on the phone and they're saying, "Great, we can send someone to your house today or tomorrow to sign the paperwork," that's a red flag. That's the time to say, "Great, send me something in writing, I'll take a look at it." Wait until you have the written documents. Share it with a trusted friend. Share it with your, you know, a lawyer or a legal services program, a housing counseling agency, just have someone take a second look, because far too often these kind of like quick deals, they're designed to rush someone through, so they don't understand or know the details.
[00:40:12] Bob: One reason to be particularly wary right now, the value of home real estate has skyrocketed in recent years.
[00:40:18] Elizabeth Blosser: Well I would say right now everybody needs to be paying special attention to any sort of offers regarding their home, anybody wanting them to sign any sorts of agreements as it relates to their property. Right now, Americans have record amounts of equity in their property, and a lot of that is because there's, you know, been such a rise in property values, especially through the pandemic. And so, unfortunately, what happens is people come up with ways to siphon that equity away from people. So let's say any time you are approached about something regarding your home, that deserves a second, third, fourth look and maybe some input from a trusted advisor, a family member, friend, but make sure you're looking at things multiple times before you're signing them.
[00:41:14] Bob: You know, I'm sure, like everybody, I'm getting letters once a week from someone offering to sell my property because there's just not enough properties for sale right now, right. So this is a very competitive environment, so a letter like this might not look that out place.
[00:41:27] Elizabeth Blosser: Yeah, and that's why everything warrants, again, a second, third, fourth look. Have a second set of eyes on it, talk to a trusted advisor. You know it's somebody's home, it, it means a lot of things. It's a place where you live, a place where you're making memories, it is your home, but it, it also should be an investment, and right now people have a lot of equity in their homes, a lot of people have you know worked very hard their entire lives to pay off their, their mortgages and have access to a good return on their investment. And what you don't want is someone coming along and having you sign an agreement that's, you know, potentially going to siphon that equity away.
[00:42:15] Bob: Even if you haven't been contacted by a firm like MV Realty, this podcast might stress you out when it comes to surprise liens or any encumbrance that might end up on your home. Here's Elizabeth's advice for that.
[00:42:28] Elizabeth Blosser: You can always uh reach out to your local title company and ask them about it. You can also reach out to your state's attorney general's office, uh ask questions. And also, your, your county recorders or county clerks' office. All of these people are there to provide information and, and guidance. A lot of times, you know things related to your home can be complex, and completely normal that people would have, have questions. So reach out and talk to the people who are designated to be resources for you in this area.
[00:43:06] Bob: And if you or someone you know has entered into an agreement like the one MV Realty has advertised...
[00:43:12] Elizabeth Blosser: There's a few steps that you should take. First you should take a deep breath and be kind to yourself. Second, I would suggest people sit down, either with pen and paper or at a, at a computer, and make an accounting of their experience, their full story. And I would say don't, don't leave out any detail. When did you hear about these sorts of agreements? How were you contacted? When and how many times were you contacted? What sort of promises or offers were, were made to you? How was your agreement signed? When did you get executed documents? What was your understanding of the agreement? What was the, the compensation you were provided? What were the terms of the agreement? So once you have all of that information, I recommend that you reach out to your state attorney general. Attorney generals, one of their primary functions of their office is to look at business practices happening in the state, and the impact on consumers. So they're going to be interested in, in hearing these types of stories. You can call the office or usually there's an online portal where you can submit the information. So it's important that state attorneys general hear about what's happening. Also, again, there has been great news reporting and, and investigative journalism on this topic. So it may be that local news outlets would be interested in hearing your story if you're open to sharing that. And then, also reaching out to your legislators and asking them to take action on this bill, especially knowing that other state legislatures have already acted, and that there, there is model legislation out there. So there's, there's things, steps that, that you can take if you've signed one of these agreements.
[00:45:07] Bob: And if you haven't heard about these kinds of confusing home agreements, well you probably will at some point. I
[00:45:14] Elizabeth Blosser: It's kind of funny. I was talking to my mom the other day on a drive home from, from the airport where, where I've been a lot, traveling around talking about this, this topic, and she's like, "Oh, you know what, what were you doing?" And I was like, "Actually I should tell you about this issue because I know it's something that's been happening in Minnesota." And so I started talking about, you know, payment for people to sign 40-year listing agreements. And she cut me off. She's like, "Oh, I know all about that. I know about that." And I was like, "Really?" Because you know, I go talk to regulators and legislators and I'm often the one providing them, you know, the first information they get on this. And she said, "Yeah, I heard about it through AARP." So the, the word is getting out and that's fantastic.
[00:45:59] Bob: Also fantastic that there's some place for people like Timothy Calhoun to turn when he feels like the home he built with his own two hands has been threatened.
[00:46:08] Timothy Calhoun: Well, I'm a God-fearing man, so, you know, they're going to keep on coming at what they're going to keep on coming. So, only thing we could do is just try to keep our heads above water. And then like I said, I'm glad that I have the Community Legal Services people with me, because if I didn't, I would really be in a pickle.
[00:46:28] Bob: How much is this lawyer costing you?
[00:46:30] Timothy Calhoun: She's not costing me a dime. And she's probably the best in the city that does what she does.
[00:46:46] Bob: If you have been targeted by a scam or fraud, you are not alone. Call the AARP Fraud Watch Network Helpline at 877-908-3360. Their trained fraud specialists can provide you with free support and guidance on what to do next. Thank you to our team of scambusters; Associate Producer, Annalea Embree; Researcher, Sarah Binney; Executive Producer, Julie Getz; and our Audio Engineer and Sound Designer, Julio Gonzalez. Be sure to find us on Apple Podcasts, Spotify, or wherever you listen to podcasts. For AARP's The Perfect Scam, I'm Bob Sullivan.
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