Monday, October 20, 2014

Feds Invoke 'Forfeiture' Move In Effort To Boot Innocent Wife, Kids From $1.9M Boca Mansion Co-Owned With Convicted Insider-Trading, Hedge Fund Hubby While Latter Preps For Nine Year Stay In Can

In New York City, the New York Post reports:
  • The wife of former SAC Capital moneyman Mathew Martoma doesn’t think she should have to give up her luxurious lifestyle just because her husband orchestrated the most lucrative insider trading scheme in history.

    Rosemary Martoma is trying to block the feds from seizing her share of the couple’s assets, including their $1.9 million Boca Raton, Fla., mansion where they moved after he was fired in 2010, and $4 million in bank accounts.

    Mathew Martoma was sentenced to nine years in prison and ordered to fork over $9.3 millionhis take of the $275 million profit his employer, hedge fund SAC Capital, reaped from his illegal trading.

    Rosemary, a former pediatrician, asked the court on Wednesday to set a hearing over her assertion that she should be able keep half of the properties.(1)

    She “agreed to give up her career, and care for the household and children, based on the promise that she would have equal, joint ownership of all income derived from the defendant’s work outside of the household,” her lawyers said in court papers.

    The same lawyers also represent Mathew Martoma and have been paid for by Steve Cohen, SAC Capital’s founder. Prosecutors tried to get Martoma to implicate Cohen without success.

    White-collar defense lawyers debunked her argument. “If one spouse steals money, the other spouse doesn’t get to keep it just because she quit work,” said Michael Bowe of Kasowitz Benson Torres & Friedman.

    Separately, the government on Tuesday opposed Mathew Martoma’s request to stay out of prison on appeal instead of surrendering Nov. 10. The government considers him a flight risk.

Sunday, October 19, 2014

Crackpot Gets Seven Years For Targeting Chicago U.S. Attorney, Other Feds With Billion$ In Bogus Retaliatory Liens Filed Against Their Property; Judge Declares All Illegally Filed Paperwork Null & Void

From the Office of the U.S. Attorney (Fairview Heights, Illinois):
  • After nearly two years, the federal prosecution of Cherron Marie Phillips, a/k/a “River Tali,” ended yesterday with Phillips being sentenced to a seven year prison term, the United States Attorney for the Southern District of Illinois, Stephen R. Wigginton, announced [].

    Phillips, a 43 year old Chicago native, was indicted back in November 2012 with knowingly filing false maritime liens against the property of a dozen current and former federal employees, including former United States Attorney Patrick Fitzgerald, in retaliation for their involvement in the investigation and prosecution of her brother, Devon Phillips. A jury in Chicago convicted her on 10 of 12 counts in June of this year.

    During the trial, the government presented evidence that from 2006 to 2011, Phillips’s brother, Devon Phillips, had been investigated and prosecuted in the Northern District of Illinois for trafficking cocaine. Cherron Phillips regularly attended his court proceedings and filed documents in the record objecting to the jurisdiction of the court. She filed the liens – each in the amount of $100 billion – in the spring of 2011, several weeks after her brother was sentenced.(1) The existence of the liens wasn’t discovered until later that summer, when one of the victims was attempting a real estate transaction.


    In a written memorandum he filed before sentencing, Judge Reagan noted that Phillips subscribes to the “sovereign citizen” ideology – a belief that the government is operating outside its jurisdiction and that by taking certain prescribed steps, citizens can live in this country without abiding by its laws. It was these “misguided beliefs” and “tortured logic,” he wrote, that formed the basis for her crimes. During the sentencing hearing, Phillips read aloud from a prepared statement and claimed the court did not have jurisdiction over her, prompting Judge Reagan to observe that even now, “she simply doesn’t get it.”


    On a motion from the United States, the court also signed an order from the bench declaring the liens null and void, releasing them, and ordering that they be afforded “no legal force or effect whatsoever.” That order and a copy of the final judgment will be recorded in the public record in Cook County, Illinois, where the liens were originally filed.
For the U.S. Attorney press release, see Sovereign Citizen Who Retaliated Against Federal Officials By Filing False Liens Sentenced To Seven Years In Prison.

(1) See generally,

No 'Sovereign' Immunity For 'Paper Terrorist', Gets Five Years For Taking Revenge Against Over Two Dozen South Jersey Judicial, Police, Municipal Officials By Filing Bogus Retaliatory Liens Against Their Property

In Camden, New Jersey, the South Jersey Times reports:
  • A Wisconsin man who is part of the "Sovereign Citizen" movement and pleaded guilty to threatening nearly 30 judicial, police and municipal officials around South Jersey will lose that sovereignty when he enters prison, authorities announced Wednesday.

    Michael G. Rinderele, 30, of Waukesha, Wisc., was sentenced Oct. 15 to five years in prison by Superior Court Judge Samuel D. Natal in a plea deal on charges of threats and other improper influence in official and political matters and four counts of retaliation against a public official or past public officials.

    Rinderle admitted to financially threatening a Voorhees Township Municipal Court judge via email in connection with traffic tickets issued to Rinderle's common-law wife, Joann Ellis, according to prosecutors.

    Prosecutors say Rinderle went on to file fraudulent commercial liens against the judge and 27 other public officials in Voorhees and Winslow Township, including court staff of police personnel.

    Rinderle was also ordered to pay more than $600 in fines and to have no contact with his victims or their families.

    Prosecutors say members of the Sovereign Citizen movement — who claim to be outside the realm of statutory law — commonly use bureaucratic processes to engage in "paper terrorism" as a form of harassment.(1)
Source: 'Sovereign Citizen' to serve 5-year prison term for threats to South Jersey officials.

(1) See generally,

Saturday, October 18, 2014

Philly DA Pinches Lawyer, Two Funeral Directors, Three Others In Alleged Scheme To Hijack Title To Dead Widow's Home, Car; Estate Fleeced While Victim Lays Buried In Pauper's Grave

In Philadelphia, Pennsylvania, The Philadelphia Inquirer reports:
  • The anonymous caller who dialed the Philadelphia District Attorney's Office last year had a disturbing tale to tell: A woman was dead, and someone was trying to steal her home and Buick LeSabre.

    That tip led to a yearlong grand jury investigation that culminated Thursday with charges against six men - including a lawyer, a real estate agent, and two funeral directors - who prosecutors say schemed to steal the dead South Philadelphia woman's rowhouse and car.

    "The facts in this case are disturbing and extremely sad," District Attorney Seth Williams said. "It's hard to believe that people would steal a dead woman's house and personal property."

    The six men - Andrew Kaufman, Romanoff Quarles, Vincent Marciano, Marvin Kimble, Antoine Turay, and Damion Rivers - were charged with conspiracy, theft, receiving stolen property, forgery, and perjury. All were either arrested Thursday or expected to surrender, Williams said.

    He credited the caller, whose tip about the thefts sparked an investigation by the Public Corruption Task Force of the District Attorney's Office. "I would like to thank the concerned resident who contacted my office to report their suspicions," Williams said. "Too often, we don't listen to gut instincts, and in this case, not only was it right, it helped uncover an elaborate criminal conspiracy."

    As authorities outlined it:

    Dorothy Kennedy lived with her husband, Frank, in their Marshall Street rowhouse for almost 40 years before he died in 2008.

    In 2010, Dorothy Kennedy died at age 79, leaving no heirs or will, but a well-kept home with a concrete front yard and shade tree out front.

    The 2005 LeSabre, still in the name of her husband, was parked out back.

    With no heirs to claim the property, it would, by law, go to the state.

    But, according to the grand jury report, Quarles, 43, who lived around the corner on Johnson Street, decided he wanted the house instead.

    According to the report, his lawyer, Kaufman, 56, of Cherry Hill, then devised "a scheme that would allow Quarles to unlawfully exploit the system."

    Kaufman told Quarles to apply to become administrator of the estate. To do so, the lawyer said, Quarles would need to represent - falsely - that he had supported Kennedy before her death.

    So Quarles obtained old calendars and marked them to make it seem that he had been regularly running errands for Kennedy. Kaufman said it would help if Quarles collected Kennedy's body from the morgue and buried her, the report said.

    Enter Kimble and Turay.

    Kimble, 57, who had once owned a funeral home at 53d and Vine Streets, directed Quarles to Turay, who owns the Turay Memorial Chapel in North Philadelphia.

    Turay buried Kennedy for $1,400, but gave Quarles a bill saying the burial cost $7,000. Quarles used the bill in a court petition to become administrator of Kennedy's estate.

    Kennedy was buried in a pauper's grave.

    The group then enlisted the help of Marciano, 63, a South Philadelphia real estate broker, who organized a sham sale of the home.

    Quarles, records show, took ownership of the home in 2012.

    And finally, there was Rivers, who used his family's West Philadelphia auto business to help transfer the car title to Quarles.

    To complete the transaction for the car, Quarles forged Frank Kennedy's signature five years after he had died.

Friday, October 17, 2014

Ex-Con Pinched For Allegedly Using Phony Deed To Hijack Title, Possession Of Elderly Woman's Vacant NYC Home

In Laurelton, Queens, the New York Post reports:
  • He may soon be living for free ­behind bars.

    The ex-con who allegedly filed a fake deed to steal an elderly woman’s Queens home was arrested Tuesday in Housing Court, where he was brazenly fighting eviction.

    Darrell Beatty, 49, was charged with grand larceny and criminal possession of stolen property for allegedly illegally transferring the deed of a Laurelton home into his name and moving in with his two sons.

    The Post on Sunday reported the alleged scheme, which could send Beatty to prison for more than 15 years.

    It was sweet relief for Jennifer Merin, whose family bought the house in 1930. “I heard the words, ‘You’re under arrest,’ and I [thought], ‘Thank God,’ ” said Merin, who saw sheriffs take Beatty into custody in a hallway. “I think I almost fainted with joy at that moment. I have really been waiting to hear those words for so long. I hope he is put away for a long time.”

    Beatty allegedly filed a deed transfer in March listing himself as the owner of the three-bedroom ­Tudor, which had been empty for a decade with Merin living in Manhattan, prosecutors said Tuesday.

    He listed the previous owner as Edith Moore, but nobody by that name has ever owned the property, said Queens DA Richard Brown.

    Merin still had many of her family’s prized possessions in the home, which Beatty piled up in a heap in the garage. She first realized the home was ­being illegally occupied when her water bill spiked in late May. “This woman’s home — her sanctuary filled with the memories of three generations — was allegedly taken from her with the filing of a phony deed,” Brown said.

    Merin’s Russian and Ukrainian grandparents moved into the row house on 141st Avenue in 1931 and raised three children there, including Merin’s mom.“The house was maintained basically as a sanctuary to my family,” Merin told The Post, adding that she paid insurance, taxes and utility bills on the property and would visit every few months.

    “The arrest is, in part, resolution. Obviously it doesn’t get me my house back, it doesn’t get me any of my belongings back,” Merin said. “But at least it gives me a sense of that there is some kind of right­eousness in our city and that people are working on making justice prevail.”

    Beatty was arraigned at Queens Criminal Court and held on $29,000 bail Tuesday.
Source: Ex-con arrested for filing fake deed to steal woman’s home.

For an earlier story, see The extraordinary ‘theft’ of a woman’s NYC home.

For the Queens District Attorney press release, see Queens Man Charged With Filing Fake Deed And Stealing Family Home From Elderly Woman (If Convicted The Defendant Faces Up To 15 Years In Prison).

Sunday, October 12, 2014

Ohio Supremes Use Procedural Grounds To OK Improperly Commenced Foreclosure By Standing-Lacking Lender "Even If A Plaintiff’s Assertion Of Standing Was Patently False"; Homeowners' Failure To Challenge Lower Court Ruling On Bankster's Standing On Direct Appeal Fatal To Their Effort To Undo Foreclosure Judgment; State High Court Dissenters: Majority "Goes To Great Lengths To Preserve A Void Judgment ... Creates Uncertainty In Foreclosure Cases That Will Operate In Favor Of Careless Banks While Eroding The Rule Of Law In Ohio"

From a recent Opinion Summary from Justia US Law:
  • Bank of America, N.A. filed a complaint in foreclosure against George and Bridget Kuchta, claiming to be the holder of a promissory note and assignee of the mortgage. The trial court granted summary judgment to the bank and entered a decree of foreclosure in its favor.

    The Kuchtas moved to vacate the summary judgment and decree of foreclosure, arguing that the bank lacked standing to commence the action because it did not prove ownership of the note and because the mortgage assignment was fatally flawed. The trial court denied the motion. The court of appeals reversed, holding that standing is a jurisdictional matter and that Bank of America’s alleged lack of standing would warrant relief from judgment.

    The Supreme Court reversed, holding that a lack of standing cannot support a motion for relief from judgment, and lack of standing does not render a judgment void for lack of subject matter jurisdiction.(1)
Source: Bank of Am., N.A. v. Kuchta.

For the ruling, see Bank of Am., N.A. v. Kuchta, No. 2014-Ohio-4275 (October 8, 2014).

Editor's Note: The following Ohio non-profit legal services firms joined to file a "friends of the court" brief with the Ohio Supreme Court urging support for the homeowners' position in this case:

(1) From the majority opinion:

    {¶ 25} An allegation that a plaintiff fraudulently claimed to have standing may not be asserted as a ground for vacating the judgment under Civ.R. 60(B)(3). Further, lack of standing is an issue that is cognizable on appeal, and therefore it cannot be used to collaterally attack a judgment. And although standing is required in order to invoke the jurisdiction of the court over a particular action in foreclosure, lack of standing does not affect the subject-matter jurisdiction of a court of common pleas.

    For these reasons, we answer the certified question in the negative and hold that lack of standing cannot support a Civ.R. 60(B)(3) motion for relief from judgment, even if a plaintiff’s assertion of standing was patently false.

    We further hold that lack of standing does not render a judgment void for lack of subject-matter jurisdiction. We therefore reverse the judgment of the Ninth District Court of Appeals and reinstate the judgment of the Medina County Court of Common Pleas, denying the Kuchtas’ Civ.R. 60(B) motion.

From the dissenting opinion:
  • O’NEILL, J., dissenting.

    {¶ 26} I dissent. I would affirm the Ninth District’s decision to remand this case to the trial court for application of Fed. Home Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017, 979 N.E.2d 1214. While it is axiomatic that Civ.R. 60 (B)(3) is not a substitute for appeal, it is nonetheless clear that in this matter, Bank of America simply lacked standing to invoke the jurisdiction of the common pleas court under Schwartzwald in the first place. I disagree with the majority’s reasoning that the lack of a justiciable controversy between the parties does not affect the subject-matter jurisdiction of the court. That is a proposition that threatens the very foundation of our judicial system. Courts exist to resolve real controversies between real parties in interest. Nothing more.

    {¶ 27} At the trial court level, the Kuchtas, who appeared pro se, unequivocally asserted that the bank did not have standing to file the complaint in foreclosure. It was error for the trial court to allow the proceedings to go forward, but go forward they did. The Ninth District, having read this court’s recently released decision in Schwartzwald, correctly found that the Kuchtas’ Civ.R. 60(B) motion contained sufficient allegations of operative facts to warrant a hearing, citing State ex rel Richard v. Seidner, 76 Ohio St.3d 149, 151 666 N.E.2d 1134 (1996), and correctly remanded the case to the trial court for application of Schwartzwald. Bank of Am. v. Kuchta, 9th Dist. Medina No. 12CA0025-M, 2012-Ohio-5562. It was an abuse of discretion for the trial court to deny the Kuchtas a hearing on their Civ.R. 60(B)(3) motion for relief from judgment.

    {¶ 28} More than once in Schwartzwald, we stated that standing is a jurisdictional requirement. Schwartzwald at ¶ 22, 24, 27, and 38. This court unanimously agreed that it is fundamental that a party commencing litigation must have standing to sue in order to present a justiciable controversy and invoke the jurisdiction of the common pleas court. Id. at ¶ 41. This court repeatedly emphasized that standing must exist at the time of filing of the complaint, id. at ¶24, 25, and that lack of standing cannot be cured by postfiling events, such as the receipt of an assignment of the claim or by substitution of the real party in interest. Id. at ¶ 26, 27, 37, 38, and 41.

    {¶ 29} But in this case, the majority holds that Bank of America’s lack of standing to initiate the foreclosure action at the time of filing of the complaint has “does not affect the subject-matter jurisdiction of the court in which the party is attempting to obtain relief.” Majority opinion at ¶ 23.

    {¶ 30} What does this rule mean in practical terms? Does it mean that if the defendant in any given case fails to challenge standing on appeal, then the standing issue is forfeited in favor of the party who did not have standing to invoke the jurisdiction of the common pleas court in the first place?

    {¶ 31} The majority’s reliance on Pratts v. Hurley, 102 Ohio St.3d 81, 2004-Ohio-1980, 806 N.E.2d 992, is misplaced at a minimum. Rather, application of Pratts to this case demands exactly the opposite outcome. Pratts was a habeas action stemming from a capital case in which, after waiving his right to a jury trial, Pratts submitted his guilty plea to a single judge rather than a three-judge panel as required by statute. Pratts at ¶ 2-3. The Pratts court determined that the statutory errors committed by the trial court did not divest the court of its
    subject-matter jurisdiction. Id. at ¶ 36.

    {¶ 32} There was no dispute in Pratts that the case was properly commenced in the common pleas court. However, that is precisely the issue in this case, since this case was not properly commenced. On June 1, 2010, the date Bank of America filed the complaint, it was not the holder of either the mortgage or the note. The assignment of the mortgage was not complete until at least June 10, 2010. Thus, on the date the complaint was filed there was no injury, and
    therefore as a matter of law no justiciable controversy, between Bank of America and the Kuchtas. See also Schwartzwald at ¶ 28. As a result the court was without jurisdiction to consider—much less rule on—this complaint. Any judgments the trial court rendered on this complaint were void and subject to attack at any time. Pratts at ¶ 11.

    {¶ 33} The Ninth District got this case right when it concluded that the Kuchtas’ Civ.R. 60(B)(3) motion contained sufficient operative facts to warrant a hearing and remanded the case to the trial court for application of Schwartzwald. Instead of affirming the Ninth District, this court goes to great lengths to preserve a void judgment. And in so doing, it undermines this court’s own rule in Schwartzwald and creates uncertainty in foreclosure cases that will operate in favor of careless banks while eroding the rule of law in Ohio. I dissent.

    PFEIFER, J., concurs in the foregoing opinion.

Monday, October 06, 2014

Federal Appeals Court Kiboshes 'Rogue' Chapter 7 Trustee's Attempt To Use Bank's Failure To Record 1st Mortgage As Basis For Short-Circuiting Bay State's Homestead Exemption & Sell Home Out From Under Non-Defaulting Homeowner In Bankruptcy

From a recent post from
  • A chapter 7 trustee sought to avoid an unrecorded first mortgage and to preserve the lien for the benefit of the bankruptcy estate. In response, the debtor sought confirmation that if the trustee was successful, he would not be able to sell the mortgaged property without first foreclosing in accordance with state law. The bankruptcy court and bankruptcy appellate panel ruled in favor of the trustee and against the debtor, and the debtor appealed to the 1st Circuit.(1)

    The debtor owned a home that she valued at $223,500 in her bankruptcy schedules. She was entitled to claim a $500,000 homestead exemption. She granted a first mortgage to secure a loan of $200,000 and a second mortgage to secure a loan of $31,000. The first mortgage was never recorded. The debtor was not in default and continued to make payments on the mortgage loans during the bankruptcy.

    Generally an unrecorded mortgage can be avoided under Section 544 of the Bankruptcy Code by a trustee exercising the rights of a bona fide purchaser of real estate under state law. And an avoided transfer is preserved under Section 551 for the benefit of the bankruptcy estate. (The purpose of preserving an avoided lien is to avoid giving junior lien holders a windfall.)

    In this case it was clear that the trustee was entitled to avoid the first mortgage and to preserve the lien for the benefit of the bankruptcy estate. What was not clear was what this meant. In particular, the trustee contended that he was entitled to sell the property in order to liquidate the value of the preserved mortgage interest.

    The 1st Circuit began by noting that Section 363 (regarding bankruptcy sales) does not authorize a trustee to sell exempt property. A trustee also generally does not sell property solely for the benefit of secured creditors. Rather, a trustee will sell property only where the value exceeds both secured liens and a homestead exemption – i.e., there is “equity” available for distribution to the bankruptcy estate.

    Given that (1) there was no residual equity after deduction of the $500,000 homestead exemption (much less the secured claims), and (2) the mortgagees were precluded from foreclosing due to the lack of a default, it was clear that if the first mortgage had not been avoided, the trustee would not have been able to sell the property and the debtor would have retained possession of her home.

    However, the trustee argued that he should be able to sell the property in order to realize the value of the mortgage interest. The trustee did not suggest that the preserved mortgage freed up equity by eliminating secured debt that must be satisfied, since regardless of the secured debt, there was no equity left after the $500,000 homestead exemption. His argument was also not based on a foreclosure sale of the home using the mortgage, since there was no default. Rather, the trustee’s argument was that the preserved mortgage itself created equity in the home for the bankruptcy estate, which could support a sale by the trustee.

    According to the 1st Circuit, the flaw in the trustee’s argument was that only the preserved lien rights became part of the bankruptcy estate, not ownership of the underlying property. The trustee ended up with the same rights in the collateral as the mortgagee had. A mortgage does not give a right to immediate ownership but only a right to foreclose if there is a default. The trustee could sell the mortgage interest, but did not have the ability to sell the underlying property.

    Although preserving a mortgage means that the trustee will get the benefit of the mortgage position from any sale, that does not mean that it creates equity that justifies a forced sale of the property by the trustee. The preserved mortgage “cannot double as the unsecured equity triggering the trustee’s sale powers under §363.”

    The court found that its decision was not only the best reading of the Bankruptcy Code, but also complied with its sense of fairness. It was not appropriate to punish the debtor for the lack of diligence by the banks that failed to record the mortgage.

    The bottom line: Preservation of a lien “entitles a bankruptcy estate to the full value of the preserved lien – no more and no less.” The trustee’s choice was to sell the mortgage, claim first proceeds from a sale, or wait to exercise the rights of a mortgagee in the event of a default. Accordingly the 1st Circuit reversed the lower courts.

    Although there are numerous cases that address avoidance, there are far fewer decisions that address the aftermath of avoidance, including the mechanics of preserving a lien for the benefit of the estate. As illustrated by this case, the consequences of preservation are not always self-evident.
Source: Strong Arm Powers: What Can Be Done With An Avoided Lien?

For the court ruling, see DeGiacomo v. Traverse (In re Traverse), 753 F.3d 19 (1st Cir. 2014).

Go here for a friend of the court" brief in support of the homeowner, filed by the National Consumer Bankruptcy Rights Center and the National Association of Consumer Bankruptcy Attorneys

Go here for other posts involving 'rogue' Chapter 7 trustees.


(1) In a unanimous decision, the 3-judge appeals panel opens its ruling by summarizing in a nutshell what the Chapter 7 Trustee tried to pull, attempting to use a bank's failure to record its first mortgage as the basis for selling a home out from under a bankrupt homeowner and give her the boot, despite the fact that the homeowner was not in default in her mortgage payments, and despite the fact that she was entitled to homestead exemption protection under Massachusetts law:
  • In 2005, six years before filing a petition for Chapter 7 bankruptcy, Virginia Traverse secured a loan with a mortgage on her home. In the years before her bankruptcy and continuing since filing her petition, Traverse has remained current on all mortgage payments on the property.

    Because Traverse's home is subject to a homestead exemption under Massachusetts law, in these circumstances the Bankruptcy Code would ordinarily allow Traverse to pass through bankruptcy in possession of her home.

    Yet because Traverse's bank failed to record the mortgage with the appropriate registry, the bankruptcy trustee contends that his power to avoid and preserve the mortgage justifies him in selling Traverse's home as property of the bankruptcy estate. The bankruptcy judge and Bankruptcy Appellate Panel accepted the trustee's view. We reverse.
The bad news in this case was that the Chapter 7 Trustee actually persuaded two lower courts to go along with his argument that the home should be sold out from under the now-no-longer-screwed over homeowner; the good news is that the homeowner apparently had the wherewithal to take the case to a Federal Appeals Court, which responded with a "No Sale!" and promptly reversed the lower courts.

In conclusion, it merits noting that two national non-profit consumer bankruptcy advocacy organizations, the National Consumer Bankruptcy Rights Center ("NCBRC") and the National Association of Consumer Bankruptcy Attorneys saw fit to jump into the fray by filing a friend of the court" brief in support of the homeowner, reflecting the significance of this litigation, not only for homeowners filing for bankruptcy in Massachusetts, but for similarly situated homeowners in other states, particularly those providing its residents with generous state homestead exemptions (ie. Florida, Texas, Iowa, Kansas, Oklahoma, South Dakota, Minnesota, among others come to mind). See, generally:
Go here for links to other cases where the NCBRC has filed "friend of the court" briefs on in support of consumers in bankruptcy, and here for links to the briefs.

Friday, October 03, 2014

Philly Feds Bag Six in Probe Alleging Group Peddled Bogus Sale Leaseback Arrangements To Homeowners Facing Foreclosure In Scam To Strip Their Home Equity Out From Under Them

From the Office of the U.S. Attorney (Philadelphia, Pennsylvania):
  • An indictment was filed yesterday charging six people, including a couple and their daughter, in a wide-reaching mortgage fraud conspiracy in which the defendants allegedly stripped the equity from the homes of desperate homeowners facing foreclosure, announced United States Attorney Zane David Memeger. The scheme caused losses to mortgage lenders of approximately $3.8 million.(1)

    Silver Buckman, 36, of Cherry Hill, NJ, her parents, Vincent Foxworth, 69, and Cynthia Foxworth, 63, of Turnersville, NJ, Danette Thomas, 52, of Pennsauken, NJ, Byron White, 44, of Pennsauken, NJ and Franklin Busi, 46 of Sicklerville, NJ, are charged with conspiracy to commit bank fraud and wire fraud. Some of the defendants are also charged with bank fraud and wire fraud.

    According to the indictment, the defendants engaged in a scheme in which they offered to help financially-vulnerable individuals save their homes from foreclosure or obtain money from the equity in their homes and, instead, defrauded the homeowners and mortgage lenders. Buckman owned and operated Fresh Start Financial Services (“FSFS”), in Mount Laurel, NJ and was an employee of American Home Lending as well as a mortgage broker for American One Mortgage (“AOM”). Her father is an experienced Realtor.

    Between October 2006 and November 2009, Buckman and her co-defendants allegedly targeted financially vulnerable homeowners and represented to them that they could improve their credit, save their homes from foreclosure, or provide them with money through Buckman’s lease buyback program.

    The homeowners were told that “investors” would be used to temporarily refinance their homes and that they could repurchase the homes in one year, or once they regained their financial footing. The defendants also allegedly induced the homeowners into signing documents related to the sale and lease of their homes by their representations that the homeowners would remain on the title to their homes, that the equity from their homes would be placed into an individual escrow account in their names, and that new mortgages would be paid from the escrow accounts to establish their timely payment histories.

    According to the indictment, in order to carry out the scheme, Buckman recruited Vincent Foxworth and Cynthia Foxworth and others to be straw borrowers. White also recruited a straw borrower. Ultimately, Buckman and Busi submitted false financial and employment information about the straw borrowers to mortgage lenders. Once lenders agreed to fund the mortgage loans, Buckman and some of the other defendants allegedly prevented the homeowners from receiving the settlement proceeds and did not put money into escrow accounts for the homeowners. Instead, the defendants distributed the proceeds amongst themselves.

    Buckman used the majority of the proceeds due the homeowners to pay the fees due the straw borrowers, the down payments on behalf of the straw borrowers in subsequent transactions to further the scheme, and her personal expenses. She used only a fraction of the homeowners’ monies toward the payment of the mortgages obtained by the straw borrowers for the homeowners’ homes and thereby caused the loans to go into default.

    If convicted, the defendants face an advisory sentencing guideline range of at least 87 to 108 months in prison plus restitution.

    The case was investigated by the Federal Bureau of Investigation and the United States Postal Inspection Service and is being prosecuted by Assistant United States Attorney Anita Eve.
For the press release, see Indictment Charges Six New Jersey Residents In Multimillion-Dollar Mortgage Fraud Scheme.


(1) A few years ago, the U.S. Attorney's Office in Philadelphia took a novel approach in prosecuting a similar type of sale leaseback, equity stripping racket. This press release (if link expires, go here) describes the approach taken in that case:
  • At the time of indictment, the U.S. Attorney's Office Civil Division filed a verified complaint and temporary restraining order to help the original homeowners save their homes. The complaint and temporary restraining order sought novel relief that would bring all the individuals and entities that have a stake in the homes before the Court in an orderly process by which the damage caused by the defendants' alleged fraud could be mitigated.

    In 2011, U.S. District Court Judge Michael Baylson approved conversion of the temporary restraining order into an injunction that stopped foreclosures and evictions that were related to the alleged fraud, and that set forth the details of the mediation process.
See Use Of Novel Dual Criminal/Civil Prosecution Targeting Sale Leaseback-Peddling Racket Yields Guilty Pleas, Keeps Victims From Getting Boot From Homes for the earlier blog post.


For those contemplating bringing civil lawsuits in these types of cases in Pennsylvania, see Pennsylvania B'kruptcy Court Voids Sale Leaseback Scam; Victimized Homeowners' Continued Possession Leads To Invalidation Of Subsequent Deed, Mortgage for a post on a recent U.S. Bankruptcy Court case in Philadelphia which could provide a roadmap for one way in which a sale leaseback, equity stripping foreclosure rescue scam can be undone or unwound, invalidating both the initial title transfer (that was coupled with a contemporaneous leaseback of the premises with a repurchase option) by the victimized homeowner to the foreclosure rescue operator, as well as subsequent conveyances to others.

Other Resources:

See Foreclosure Rescue Scams (a chapter in a longer publication from the National Consumer Law Center) for a lawyer's guide to making a case on behalf of a victimized homeowner in attempting to void or set aside an abusive real estate transaction.

See the National Consumer Law Center's Dreams Foreclosed: The Rampant Theft of Americans' Homes Through Equity-stripping Foreclosure 'Rescue' Scams for an extensive report on this type of home equity ripoff.

Monday, September 15, 2014

No Brotherly Love In Philly (Birthplace Of U.S. Constitution) As City's 'Seize & Seal' Method Of Snatching Homes Out From Under Homeowners Over Minor, Unprosecuted Drug Allegations (w/out Criminal Charges or Convictions) Continues To Draw Light, At Heart Of Recent Federal Lawsuit

In the "City of Brotherly Love", The Pennsylvania Record reports:
  • A group of homeowners have asked a federal judge to grant a preliminary injunction against the City of Philadelphia’s practice of seizing homes accused of involvement with drug sales,(1) according to a motion filed at the U.S. District Court for the Eastern District of Pennsylvania.

    Lawyers from the Institute for Justice(2) made the request before District Judge Eduardo Robreno on behalf of a group of clients that began a class action suit against the City of Philadelphia to reclaim alleged damages from the district attorney’s long-standing practice also known as “seize and seal.”

    According to the class action suit,(3) Philadelphia has abused the civil forfeiture system to add millions of dollars in revenue to its budget.

    Philadelphia’s program stripped thousands of city residents of over 1,000 residences, 3,200 vehicles, and $44 million in cash over an eleven-year period, ultimately raking in more than $64 million in revenue wholly outside its appropriated budget,” the complaint says.

    The claim says the system operates by having the D.A.’s office sue properties, not the owners, in civil actions relating to drug activity. The homeowners are required to come to the court and defend against the allegations, but if the city wins, it keeps the property and sells it.

    The named plaintiffs in the class action all stand to lose their homes through the civil forfeiture process, the complaint says. Christos Sourovelis, Doila Welch and Norys Hernandez represent thousands of residents who have been unfairly evicted from their homes with no notice from law enforcement and little recourse to win back their properties, the complaint says.

    In all three cases, a family member had been arrested for selling small amounts of marijuana, according to the claim. Philadelphia police officers received authorization from the district attorney’s office and the court to remove all of the occupants and seal the home for civil forfeiture. In the cases of Sourovelis and Welch, they were eventually allowed to re-enter their homes after attending numerous court proceedings and filling out paperwork.

    The plaintiffs seek declaratory and injunctive relief for themselves and all others affected by the city’s use of civil forfeitures, the complaint says.
Source: Homeowners file for injunction against Philadelphia’s civil forfeitures.

See also, KYW-TV Channel 3/CBS Philly: Philadelphia Homeowners Try To Stop DA’s Quick Property Seizures ("The practice is called “Seize and Seal,” and it allows the Philadelphia DA’s office to get an order from a judge to seize a home that is linked to alleged drug activity.").

For more on the profit incentive at the heart of civil forfeiture laws that encourages some law enforcement agencies to pursue property, rather than justice, by seizing people's homes, cash, etc. without ever having to bring criminal charges, see:
For earlier posts on law enforcement's abuse of civil forfeiture laws in efforts to rip off people's property, see:
(1) See, for example:
  • Philadelphia's Civil Forfeiture Machine ("Unlike criminal forfeiture, where the government takes someone’s property only after he or she has been convicted of a crime, police and prosecutors can use civil forfeiture to take the cash, cars and homes of people without ever having to convict or even charge the owner with any wrongdoing. This is because civil-forfeiture cases technically are filed against the property rather than its owner, ..."),
  • Philadelphia City Paper: The Cash Machine.
(2) The Institute for Justice is a non-profit, 501(c)(3) public interest/civil liberties law firm engaging in litigation and advocacy both in the courts of law and in the court of public opinion on behalf of individuals whose most basic rights are denied by the government, with its primary focus on private property, economic liberty, free speech and school choice, according to its website.

(3) Sourovelis v. City of Philadelphia (filed August 11, 2014):

Saturday, September 13, 2014

NJ Supremes Adopt Eight-Factor Standard For Equitable Mortgage Determination In Sale Leaseback Transactions; May Serve As Comprehensive, Practical Guide In Attempts To Undo Equity Stripping Foreclosure Rescue Scams

Reprinted from a recent Opinion Summary:
  • The issue this appeal presented for the New Jersey Supreme Court's review centered on an agreement for the sale of a residential property and a subsequent lease and repurchase agreement, specifically whether the transactions collectively gave rise to an equitable mortgage, violated consumer protection statutes, or contravened its decision in "In re Opinion No. 26 of the Committee on the Unauthorized Practice of Law," (139 N.J. 323 (1995)).

    In 2007, defendant Barbara Felton faced foreclosure proceedings with respect to her unfinished, uninhabitable home and the land on which it was situated. Felton and plaintiff Tahir Zaman, a licensed real estate agent, entered into a written contract for the sale of the property. A week later, at a closing in which neither party was represented by counsel, Felton and Zaman entered into two separate agreements: a lease agreement under which Felton became the lessee of the property, and an agreement that gave her the option to repurchase the property from Zaman at a substantially higher price than the price for which she sold it.

    For more than a year, Felton remained on the property, paying no rent. She did not exercise her right to repurchase. Zaman filed suit, claiming that he was the purchaser in an enforceable land sale agreement, and that he therefore was entitled to exclusive possession of the property and to damages. Felton asserted numerous counterclaims, alleging fraud, slander of title, violations of the Consumer Fraud Act (CFA), and violations of other federal and state consumer protection statutes. She claimed that the parties’ transactions collectively comprised an equitable mortgage and constituted a foreclosure scam, entitling her to relief under several theories. She further contended that the transactions were voidable by virtue of an alleged violation of "In re Opinion No. 26."

    A jury rendered a verdict in Zaman’s favor with respect to the question of whether Felton knowingly sold her property to him. The trial court subsequently conducted a bench trial and rejected Felton’s remaining claims, including her contention that the transactions gave rise to an equitable mortgage and her allegation premised upon In re Opinion No. 26. An Appellate Division panel affirmed the trial court’s judgment.

    The Supreme Court affirmed in part and reversed in part the Appellate Division’s determination. The Court affirmed the jury’s determination that Felton knowingly sold her property to Zaman. Furthermore, the Court affirmed the trial court and Appellate Division's decisions that Felton had no claim under the CFA, that this case did not implicate "In re Opinion No. 26," and that Felton’s remaining claims were properly dismissed.

    The Court reversed, however, the portion of the Appellate Division’s opinion that affirmed the trial court’s dismissal of Felton’s claim that the parties’ agreements constituted a single transaction that gave rise to an equitable mortgage, adopting an eight-factor standard for the determination of an equitable mortgage(1) set forth by the United States Bankruptcy Court in "O’Brien v. Cleveland," (423 B.R. 477 (Bankr. D.N.J. 2010)).

    The case was remanded to the trial court for application of that standard to this case, and, in the event that the trial court concludes that an equitable mortgage was created by the parties, for the adjudication of two of Felton’s statutory claims based on alleged violations of consumer lending laws, as well as several other claims not adjudicated by the trial court.
For the opinion summary and the court ruling, see Zaman v. Felton, Docket a-60-12 (N.J. Sept.9, 2014.

For related posts, see:

(1) The court's analysis of this issue follows:
    In O Brien, supra, the Bankruptcy Court scrutinized a residential sale that was conducted under the threat of imminent foreclosure, in which the parties agreed that the seller would remain in his home and buy the home back from the buyer in a series of payments over time. 423 B.R. at 483-86. It identified eight factors to assist trial judges in determining whether a given transaction gives rise to an equitable mortgage:
    [(1)] Statements by the homeowner or representations by the purchaser indicating an intention that the homeowner continue ownership;
    [(2)] A substantial disparity between the value received by the homeowner and the actual value of the property;
    [(3)] Existence of an option to repurchase;
    [(4)] The homeowner s continued possession of the property;
    [(5)] The homeowner s continuing duty to bear ownership responsibilities, such as paying real estate taxes or performing property maintenance;
    [(6)] Disparity in bargaining power and sophistication, including the homeowner s lack of representation by counsel;
    [(7)] Evidence showing an irregular purchase process, including the fact that the property was not listed for sale or that the parties did not conduct an appraisal or investigate title;
    [(8)] Financial distress of the homeowner, including the imminence of foreclosure and prior unsuccessful attempts to obtain loans. [Id. at 491.]
    Under the O Brien framework, the court considers not only the form of the transaction itself but circumstances that can motivate a party to disguise a mortgage secured by a property as a sale of land and indications that both parties intend the seller to retain the land notwithstanding the purported sale.
    We concur with the District Court that the eight factors set forth in O Brien are useful and consistent with New Jersey equitable mortgage jurisprudence. Johnson, supra, 698 F. Supp. 2d at 470. We adopt the O Brien factors as a comprehensive and practical standard to guide trial courts as they determine whether a particular transaction, or series of transactions, gives rise to an equitable mortgage.
    We remand the matter to permit the trial court to make findings addressing each of the eight factors that comprise the O Brien test.