Let's say you are an attorney with some litigation experience and you have an elderly widow, who we will call Mrs. Jones, who is the victim of a "home equity theft" scam walk into your office desparately looking for some legal help in keeping her home of 47 years.
After speaking with her at length, you determine the following:
- Mrs. Jones is the victim of a classic "foreclosure rescue" arrangement, whereby she unwittingly signed over ownership of her home to someone she describes as "a nice man who showed up at my front door offering to help me with a foreclosure bailout loan" (ie. foreclosure rescue operator) in exchange for him (1) bringing current a low-balance, defaulted home improvement loan mortgage that she obtained two years ago, (2) entering into a one year leaseback of the home to her allowing her to retain temporary possession of her home, (3) giving her a "buy back option", whereby she has the right to buy back her home from "the nice man" at price far above what she sold it to him for,
- there may be a serious question of whether or not Mrs. Jones understood what documents she was actually signing; she is adamant in telling you that under no circumstance would she ever consider selling her home of 47 years to a complete stranger (she wants to leave the home to her grandchildren) and that "the nice man" told her that all she was doing was "signing some standard loan papers" in exchange for a loan to reinstate a mortgage that was in arrears (you wonder if Mrs. Jones' signature on the deed was procured through fraud),
- Mrs. Jones knows that she has a big problem but that, even though she has two adult children and several adult grandhildren that could possibly be of some assistance to her, the overwhelming sense of embarassment that she is feeling for doing something her entire family might perceive as being foolish keeps her from telling anybody.
You feel terrible about what was done to Mrs. Jones, and you would really like to help her. The trouble is that you've never handled a case like this, you don't really know how to approach it, and that, if you took the case (on a pro bono basis, of course; after all, Mrs. Jones has no money to pay you), it would take you a tremendous amount of time, time that you don't have, to properly handle the case. At the end of your meeting with her, you tell Mrs. Jones that you're going to look into the situation and get back to her in a couple of days (obviously, you don't have the heart to tell her right away that you can't take her case without at least trying to do a little something to see if you can be helpful).
After she leaves your office, you get onto the Internet and you "Google" a couple of key words to see if you can "stumble into" any information that might shed some light on how to approach Mrs. Jones' circumstances. Interestingly enough, you "stumble into" the following:
- On the website of The First American Corporation (which is a national title insurance underwriter, among other things), you find an article titled Michigan Appellate Court Sends Warning to 'Foreclosure Consultants', co-authored by Albert Rush and John C. Murray. This article discusses a Michigan case involving a "foreclosure rescue" deal involving a sale of a home by a financially strapped homeowner to a foreclosure rescue operator and a susbequent leaseback of the home to the homeowner. A Michigan Court of Appeals affirmed the decisions of two lower courts in deciding that the deed transfering the home from the homeowner (ie. Mrs. Jones) to the "rescue" operator should not be treated as a deed, but rather, it was deemed to be an "equitable mortgage" (ie. the arrangement was treated as a mortgage loan to the homeowner, and not as a sale to the foreclosure operator with a simultaneous leaseback to the homeowner)
- You find another article on The First American Corporation website titled When is a Sale-Leaseback an Equitable Mortgage?, co-authored by Gregory A. Thorpe and John C. Murray. This article discusses an Illinois case (not a "foreclosure rescue" deal) involving two sets of sophisticated real estate investors represented by experienced counsel where the court decided that the sale-leaseback involved was not an "equitable mortgage". However (and more importantly), the article sets forth a list of thirteen factors that the Illinois state courts apparently look at when determining whether a sale-leaseback should be respected as such, or whether it should be deemed an "equitable mortgage"
- On the online newsletter of a Michigan law firm (Lipson, Neilson, Cole, Seltzer & Garin, P.C.), you find a brief summary of a recent Michigan Federal District Court case captioned Court Clobbers Foreclosure Rescue Plan, involving a "foreclosure rescue" sale-leaseback deal. The court found that, not only was the arrangement to be deemed an "equitable mortgage", but additionally, (because the arrangement was treated as a loan) it held that there were violations of the federal Truth in Lending Act ("TILA") and the Home Ownership and Equity Protection Act of 1994 ("HOEPA"), and also held that the lease was void and uncollectible, and that the purported sale leaseback was usurious
- The online newletter provided a link to the above referenced Federal Court decision, Moore v. Cycon Enterprises, Inc., which was kindly posted on the Internet by the Michigan Bar Association
- You found a Florida appellate court case, decided in 2006, involving a homeowner who signed over his home to another. In exchange, financing was to be arranged by the new title owner and/or a related party in order to refinance the existing mortgage on the home. Further, the homeowner claimed that there was an oral understanding whereby the now former homeowner would have the title to his home deeded back to him upon either his satisfaction or assumption of the newly arranged financing (the new title owner denied the existence of any such oral agreement). When the time came to deed back the home, the new title owner refused to do so. The homwowner filed suit seeking, among other things, to impose a constructive trust and an equitable lien on the property. The trial court dismissed these claims. The Florida appellate court, in reversing, held that Florida's Statute of Frauds does not bar claims for equitable relief such as these and, accordingly, directed the lower court to allow the case to continue and allow the homeowner the chance to provide oral evidence to support his claim that there was an oral agreement between the parties to deed back the home to him upon him either satisfying or assuming the new financing.
Based on all of the above (including the significant amount of case law cited within the above sources of information), you believe that Mrs. Jones may have a good case to rescind or void the transaction; however, you still have the problem that you've never handled this type of case. Further, you are exclusively a state court practitioner and some of Mrs. Jones potential claims are federal claims, and you're not sure whether they need to be litigated in Federal Court, where you've never practiced, or whether they can be brought in state court. Also, you're still going to have to do a significant amount of case law research (after all, you can't simply "cite stuff that you stumbled into on the Internet" in your briefs). In addition, the state case law involved above may only apply to Michigan, Illinois or Florida (there may not necessarily be similar case law that applies to Mrs. Jones' potential state law claims in your home state).
You would like to help Mrs. Jones but you feel like you're going to have your "back against the wall" if you do take her case.
How should you proceed?
According to their website, the National Consumer Law Center (NCLC), who are nationally recognized as consumer law experts, offers a variety of consulting services on consumer law issues for attorneys nationwide. You may want to consider contacting them, discussing Mrs. Jones' situation with them, and finding out what their services will cost you. They are particularly familiar with "foreclosure rescue" scams (see their exhaustive report on these types of scams - available here).
In addition, you learn that Federal & State consumer protection statutes typically provide for an award of attorney's fees if you prevail in the case. So, to the extent you can prove violations of any state unfair & deceptive trade practices laws in your state, or any violations of Federal law (like TILA & HOEPA), you may end up being entitled to an attorney fee award to be paid by the losing party (The fee, generally calculated as a function of how many hours that you spent on the case multiplied by an hourly rate, subject to court approval, may be increased by a "contingency fee multiplier" in a state court case if you're in a state like Florida that allows for the application of such a multiplier).
All of a sudden you now realize that a case that you initially thought you would have to do for free (if you indeed took the case) is no longer a pro bono case, but rather, a contingency fee case. Needless to say, there is now much more incentive to take Mrs. Jones' case.
Whether or not you ultimately decide to take Mrs. Jones' case is a decision that shouldn't be taken lightly. There may be other issues that you may have to consider that aren't discussed here. However, at least now you are aware that if you do decide to take her case, there may be a financial incentive (provided by the consumer protection statutes) for you to do so and there is technical & advisory support available (NCLC) if you choose to avail yourself of it.
I will conclude here by briefly mentioning the National Association of Consumer Advocates (NACA). NACA is a non-profit association of attorneys and consumer advocates that are private and public sector attorneys, legal services attorneys, law professors and law students whose primary focus is the protection and representation of consumers.
While NACA is generally considered to be a good source for a consumer to use when seeking a consumer protection attorney, state court practioners should not hesitate using the NACA membership as well in cases where he/she is seeking a co-counsel arrangement with someone experienced in both consumer law issues and Federal practice, particularly in cases that may involve Federal claims, such as the TILA & HOEPA claims that may apply in Mrs. Jones case. While this is not necessarily intended as an endorsement of NACA as a whole, I am simply saying that if you're seeking a Federal consumer practitioner to work with (or if you're an individual looking for a consumer lawyer, for that matter), the NACA website may be a pretty decent place to start your search. A list of attorneys who are members of NACA, listed by state, can be found here.
For more on attorneys taking consumer cases, see Use Of Consumer Attorneys To Unwind Predatory Loans.
For other posts on the equitable mortgage, see Equitable Mortgage Doctrine I , II , and III.
Case Law Citations:
London v. Gregory, 2001 Mich. App. LEXIS 1700 (Mi. App. Ct. 2001) (unpublished) (click here for case)
Moore v. Cycon Enterprises, Inc., (Case No. 1:04-CV-800), 2006 U.S. Dist. LEXIS 57452 (W.D. Mi. 2006) (unpublished) (click here for case) or you can access the Michigan Western District Federal Court website directly by clicking here for case (requires PACER registration, login and password)
185 North Wabash, LLC v. Lake Wabash, LLC, No. 1-03-0751 (Ill. App., 1st Dist. Dec. 24, 2003) (unpublished) (copy unavailable)
Robinson vs. Builders Supply & Lumber Co., 223 Ill. App. 3d 1007, 586 N.E.2d 316 (1st Dist. 1991) 223 Ill. App. 3rd 1007 (1991) (click here for case)
Guest v. Claycomb, 932 So. 2d 567 (Fla. App. Ct. 5th Dist. 2006) (click here for case)
(revised 10-7-07)
