Many Equity Skimming Scams Involve the Use of Lease Options

You also need to know that many equity-skimming scams involve the use of lease-options. Equity skimming occurs when a property owner uses any part of the rent, assets, proceeds, income, or other funds derived from the property covered by a mortgage or deed of trust loan as personal funds. In a typical lease-option equity-skimming scam, a property owner collects an option fee and security deposit upfront and then collects lease payments for months on end without ever making a single loan payment to the lender. This goes on until the lender finally forecloses on the loan and evicts the unsuspecting lessee or tenant-buyer. Under Chapter 12, United States Code, Section 1709-2, a person who engages in equity skimming is defined as:

Whoever, with intent to defraud, willfully engages in a pattern or practice of:

(1) purchasing one- to four-family dwellings (including condominiums and cooperatives) which are subject to a loan in default at time of purchase or in default within one year subsequent to the purchase and the loan is secured by a mortgage or deed of trust insured or held by the Secretary of Housing and Urban Development or guaranteed by the Department of Veterans Affairs, or the loan is made by the Department of Veterans Affairs,

(2) failing to make payments under the mortgage or deed of trust as the payments become due, regardless of whether the purchaser is obligated on the loan, and

(3) applying or authorizing the application of rents from such dwellings for his own use, shall be fined not more than $250,000 or imprisoned not more than 5 years, or both. This section shall apply to a purchaser of such a dwelling, or a beneficial owner under any business organization or trust purchasing such dwelling, or to an officer, director, or agent of any such purchaser. Nothing in this section shall apply to the purchaser of only one such dwelling.

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