Wednesday, January 03, 2007

Michigan State Court Declares "Foreclosure Rescue" Transaction An "Equitable Mortgage"

In this 2001 court decision by the Michigan Court of Appeals, a transaction involving a foreclosure rescue operator who entered into a "lease buyback", foreclosure bailout arrangement with a homeowner facing foreclosure was legally deemed to be nothing more than a loan transaction. Through the invocation of Michigan's "equitable mortgage" doctrine, the homeowner was deemed to have retained all of her ownership rights to the property involved, notwithstanding the fact that she had actually signed documents, including a warranty deed, that purported to transfer title to the property from her to a foreclosure rescue operator.

Both this 2001 case (London v. Gregory, which is available here), along with the 2006 Moore v. Cycon case from a Michigan Federal Court (available here) that I referred to in yesterday's post, appear to cite to a rather extensive body of Michigan case law on the "equitable mortgage" issue that can be utilized by homeowners (and their attorneys) to help them retain their ownership rights in those cases where, unwittingly or not, they sign over the title to their real estate to a rescue operator for the purpose of borrowing money. (Neither of these decisions, nor the cases cited therein, appear to have revolved around any fraud, trickery, deception, or any other egregious conduct by the foreclosure rescue operator). However, it does appear clear that, while there are a number of factors that the Michigan courts will consider in each case, there is no fixed, litmus test to be applied in all cases when invoking this doctrine. Because the facts in each case will not be exactly the same, the courts will apparently determine the applicability of the doctrine on a case-by-case basis.

I previously alluded to this case in an earlier blog post. An article titled Michigan Appellate Court Sends Warning to 'Foreclosure Consultants', co-authored by Albert Rush and John C. Murray, discusses this case in some detail and appears on the website of The First American Corporation, a national title insurance underwriter.

My highlights of this court decision can be found here.

On a concluding note, I have found cases from other states that indicate that not only is the "equitable mortgage" doctrine not something that is limited to the State of Michigan, but rather, this doctrine dates back centuries (back to the days of the old English common law) and apparently is available in some form in most, if not possibly all, states.

I expect to be reporting more on this doctrine on a somewhat periodic basis. I welcome input on this issue from attorneys from anywhere in the country as to the availability of this doctrine in their home states.

Click here to search for list of other equitable mortgage blog posts

Case Law Citation:

London v. Gregory, No. 216473, Mi. App. Ct., 2001, (2001 Mich. App. LEXIS 1700) Decided February 23, 2001 (available courtesy of the Michigan Bar Association)

Revised 1-17-07

Tuesday, January 02, 2007

Foreclosure Rescue Operator Violates Federal Law, State Usury Law

A Michigan Federal Court has ruled that a foreclosure rescue operator violated two Federal laws as well as the state usury statute when entering into a "lease buyback", foreclosure bailout arrangement with a financially distressed homeowner.

Moreover, the court, in invoking Michigan's "equitable mortgage" doctrine, declared the homeowners as being the true owners of the home involved in the transaction, in spite of the fact that they actually signed over the ownership of the home to the rescue operator. The court declared the rescue operator to be merely a secured lender in this arrangement, thereby disregarding the fact that all the documents signed between the operator and the homeowners pointed to the operator as having title ownership to the home involved and the homeowners as being mere tenants.

Representing the property owner in this case was attorney Phillip C. Rogers, Grand Rapids, Michigan. Mr. Rogers is a member of the National Association of Consumer Advocates.

This case, which I alluded to in an earlier blog post, is available here (Michigan Bar Association website; no registration necessary) and is also available here (U.S. District Court for the Western District of Michigan website; PACER registration, login and password necessary).

A summary and comment on this case is available from the online newsletter of the Michigan law firm Lipson, Neilson, Cole, Seltzer & Garin, P.C., (see the caption title Court Clobbers Foreclosure Rescue Plan).

My highlights of this court decision can be found here.

Click here for list of other equitable mortgage blog posts

Case Law Citation:

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)

Note:

If there is an "equitable mortgage" doctrine in other states that can be interpreted similarly to the one in this Michigan case, this may be a great way to attack those transactions by and between rescue operators and financially strapped homeowners where the operators walk away with all of the homeowners' equity and the homeowners wind up either having to pay excessive amounts to re-purchase their homes or being evicted from their homes.

revised 1-12-07

More Potential Victims Come Forward In N. Cal. Home Equity Theft Scam

The investigation of an alleged reverse mortgage, home equity theft scam that reportedly victimized an elderly couple from Tracy, California appears to be spreading throughout Northern California, according to a report from the Tri Valley Herald at InsideBayArea.com.

The suspect's initial court appearance was originally scheduled for Dec. 19; however, the complaint was placed on hold, the suspect was released from custody, and the matter was referred back to local police for further investigation.

When word of the suspect's business dealings began receiving media attention, more potential victims from Sacramento, San Leandro and Tracy began coming forward.

For earlier media reports on this case, see

Court date postponed in mortgage scam case (12-20-06)
Arrest puts reverse mortgages in spotlight (12-20-06)
Businessman accused of mortgage scam (12-8-06)

Go here for other posts on reverse mortgage problems. zebra

Monday, January 01, 2007

Minnesota Woman Signs Away Title In Refinancing Scheme

(orig. post 1-1-07; revised 6-26-07)
In an attempt to stave off foreclosure, a Minneapolis woman unwittingly signed over title to her home of twenty years in what she thought was nothing more than a refinancing transaction, according to this St. Paul Pioneer Press report.

The victim only found out about it when she opened one of a number of letters addressed to an unknown individual that began arriving at her home after she consummated the purported refinancing. The letter was a notice about "requiring a rental permit."

Shortly thereafter, police and a city inspector came to her home informing her, among other things, that she was no longer the home's owner, that a rental permit was needed for the home, and that she was an illegal tenant. Ultimately, the city stuck an "unlawful occupancy" notice on her door for failing to obtain a rental license and having too many people on the property.

She contacted the Legal Aid Society of Minneapolis, where consumer protection attorney Kristen Siegesmund arranged to have the home's property records researched and ultimately, confirmed the worst. The title to the victim's house had been transferred to a California woman whose name had been appearing on the letters that were being delivered to the victim's home.

Minnesota has an "anti home equity theft" law that was signed into law about two years ago. Reportedly, about 100 cases a year get filed around the Twin Cities, estimates Daniel Tyson, an attorney with the firm Best & Flanagan in Minneapolis. In spite of the new law, he said the scams continue and commented, "They're brazen about it, and there's real fraud going on."

The law, known as 325N or the anti-equity stripping statute, limits how much a foreclosure rescue operator can profit from one of these "rescue" deals to 18 percent of the home's value. The law is set to expire in 2009. With an eye to the expected wave of foreclosures ahead, attorneys want to extend it and beef it up in the state's upcoming legislative session.

Note:

For eligible residents of Minnesota looking for low cost legal services, a good place to start your search is LawHelpMn.org, which is a directory of Minnesota's non-profit, legal aid providers. You can conduct your search by your county of residence.

Illinois Mortgage Rescue Fraud Act (Anti "Home Equity Theft" Law) Becomes Effective Today

sale leaseback lease buy back lease purchase option to buy
Illinois Senate Bill 2349 is one of a number of new Illinois laws that goes into effect today, according to this Press Release from the office of Illinois Governor Rod R. Blagojevich. According to the governor's Press Release:

"Senate Bill 2349 protects vulnerable homeowners from unscrupulous mortgage ‘rescue’ firms that purport to help avoid foreclosure, but instead profit at the homeowners’ expense by taking over the property and not alleviating the debt. The law gives homeowners new rights when dealing with companies that offer financial assistance to help them save their homes from foreclosure. It also guarantees that homeowners will receive a substantial portion of their equity in the home from the companies. Additionally, the new law creates new disclosure requirements for mortgage rescue companies. "

The full text of SB 2349, officially called the Mortgage Rescue Fraud Act, is available here.

(revised 1-9-07)

Sunday, December 31, 2006

Westchester DA Nabs Attorneys For Alleged Theft Of "Home Sale Proceeds"

Two separate Westchester, NY cases involving the alleged theft of home sale proceeds by attorneys in the course of representing their clients is reported by The Prieston Group, a diversified mortgage risk management consulting company in their blog, The Mortgage Fraud Blog.

In the first case, reported here, a practicing attorney in White Plains, New York representing her aunt, allegedly absconded to Las Vegas with about $ 1 million of her aunt's money, the money representing the proceeds from the sale of two homes. The attorney was arrested, returned to Westchester County, and arraigned last week.

The Westchester, NY District Attorney's Press Release is available here.

Click here for a report in The Journal News.

In the second case, reported here, a former attorney who had been disbarred in 2001, stole approximately $90,000, the proceeds from a home sale, from a client. The client was not aware that the attorney was disbarred.

Upon further investigation, it was discovered that three additional clients were defrauded by this disbarred attorney in the amount of $90,000.00.

He has plead guilty and faces up to fifteen years in state prison.

The Westchester, NY District Attorney's Press Release is available here.

revised 1-13-07

Saturday, December 30, 2006

Long Island Couple Lose Home, "Skimmer" Convicted

The saga of a Long Island, New York couple who fell prey to an "equity skimmer" was the subject of extensive coverage earlier this year by the newspaper Newsday (New York), and reported at Newsday.com.

The story is pretty typical. Reportedly, the homeowners found themselves in foreclosure, went to a crooked mortgage broker to refinance their mortgage, and were told late in the loan approval process that they couldn't obtain the mortgage. They were then told by the scammer that their only hope to save their home was to sign the home over to him and then lease the home back from him until they get their finances straightened out, at which point they can buy the home back from him. The arrangement called for rent payments from the victims to the mortgage broker, with the mortgage broker then making the mortgage payments to the bank.

The mortgage broker had no problem collecting the rent, but never bothered to make the mortgage payments.

The bottom line in this story was that the mortgage broker and his confederates were convicted of grand larceny and the victimized homeowners lost their home that had been in the family for some sixty years. For the story, see:

Friday, December 29, 2006

Two South Florida Homeowners Targeted By "Home Rescue" Companies

A July 2006 media report describes the plight of two financially strapped Florida homeowners who got involved with foreclosure rescue companies.

The article also reports that, according to court records, one rescue company "has taken the titles to more than 100 homes in Miami-Dade County nearing foreclosure", and that the company has "sought to evict more than a dozen people, in some cases less than a year after they deeded their property to his company. They were all facing foreclosure."

Jeffrey Hearne, an attorney with Legal Services Of Greater Miami, Inc., commented that about two people a week appear at his office facing eviction after doing business with "one of possibly hundreds of home-saver investors operating in Miami-Dade and Broward counties".

Another attorney, who has filed at least three foreclosure rescue complaints recently, comments that those most fiercely targeted are "older people, single women and minorities" who are "bombarded by mailings, phone calls and visits often before realizing a lender is moving to foreclose on them".

To read more on this story, see article captioned Homeowners Needing Aid Snared by Schemes (after clicking link, scroll down to the fourth article from the top of page.

Note:

For eligible residents of Miami-Dade and Monroe Counties looking for low cost legal services, a good place to start your search is Legal Services Of Greater Miami, Inc., a non-profit law firm representing the lower-income and elderly.

Residents throughout Florida can begin their search here and/or here.

Consumer protection attorneys who are members of the National Association of Consumer Advocates (NACA) who are located in Florida are listed here.

(revised 1-25-07)

Thursday, December 28, 2006

NJ Couple Sign Away Home To Home "Rescuer"

Anyone wanting a detailed, step by step walk through of the horror that one financially strapped New Jersey couple endured with a foreclosure rescuer should read, Rug pulled out from under them, a media report appearing on NorthJersey.com.

The homeowner claimed, among other things, that she and her husband were rushed through the signing process and were not allowed to thoroughly study the documents they were signing. The rescue operators reportedly read sections of the contracts to them out loud.

For the three months after signing, the homeowner reportedly got calls from the rescue company, not about new financing that was promised, but about unrelated matters. The homeowner stated: "They wanted to know everyone I spoke to. And they didn't want me to talk to a lawyer." This aroused suspicion in her, but reportedly was continuously reassured that they were on her side.

Melissa Huelsman, a Seattle, Washington consumer protection attorney who has represented clients involved in over a dozen foreclosure rescue cases this year, was quoted in the story (referring to homeowners dealing with rescue companies), as saying "People just trust. It is scary and intimidating to them. And they have no idea of what they are signing."

Rather than reciting the rest of the details, I'll let you read the story for yourself. I will say, however, that the story ends by stating that "The ordeal has left the couple heartbroken, potentially homeless, and on the verge of separating".

Note:

For eligible New Jersey residents looking for low cost legal services, a good place to start your search is the Legal Services of New Jersey directory, which lists non-profit law firms throughout the state of New Jersey. For general information on this organization, go to the Legal Services of New Jersey home page. You can view their brochure here.

Consumer protection attorneys who are members of the National Association of Consumer Advocates (NACA) who are located in New Jersey are listed here.

More on Seattle, Washington consumer protection attorney Melissa Huelsman: