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Texas lawmakers want to tighten legal loophole around 'wrap mortgages'

A home mortgage scam is costing some Austinites a lot of money. Now, four bills filed in the state legislature aim to stop so-called 'wrap mortgages' by tightening the legal loopholes around them. (Image credit: MGN Online)

A home mortgage scam is costing some Austinites a lot of money. Now, four bills filed in the state legislature aim to stop so-called 'wrap mortgages' by tightening the legal loopholes around them.

A wrap mortgage is the sale of a home with a preexisting lien. The mortgage broker says he'll pay the lien with the new mortgage, but in these worst case scenarios, the money didn't go where it was supposed to -- the original lienholder -- and the buyers can be evicted.

Texas Rio Grande Legal Aid discovered dozens of cases after the floodwaters receded in the 2013 Halloween flood in the Dove Springs area of Austin. "When people were trying to file claims and learned that their house was not even theirs," said Ofelia Zapata with Texas Rio Grande Legal Aid. "All the money was pocketed. It wasn't towards any mortgage."

Antonio Fernandez and Marisol Franco are among the victims. They say they are still in their house only because they hired a lawyer. "They sell it to Hispanics because they think we're not going to pay for them in five years and no one will finance the homes," they said in Spanish. The couple bought a home in the Dove Springs area in 2010. They say they gave their lender a $10,000 down payment and have paid regularly ever since. "He is abusive and despite of the fact that we gave him the money, he's not fulfilling his promise."

Meantime, a series of bills were introduced to the state Senate last week -- requiring wrap lenders be licensed and that the lender, the buyer and the lienholders all know what they're getting into.

It might not come fast enough for Fernandez and Franco. "We just received a document that says we have to pay $1,000 more a month. We'd have to pay $2,045." The couple is hoping to find a way to refinance their mortgage.

But the hope is, it could stop more people from falling victim. "Not only here, it's also happening in El Paso that we've identified so far, but I'm sure it's happening throughout the whole state," Zapata said.

Meantime, the Texas Department of Savings and Mortgage Lending is investigating what happened to Fernandez and Franco and other Austin area homeowners as well.

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