Brooklyn DA Indicts Three In Theft Of Dying Senior's Home

Kings County (Brooklyn), NY District Attorney Charles J. Hynes has recently obtained indictments against three men for allegedly using forged documents in the theft of a now-deceased, elderly cancer victim's home. Two have been taken into custody. The third is on the lam.

A fourth defendant, the notary public who notarized a power of attorney used in the alleged theft, has been charged with lying on a notary public renewal application, in which he denied that he was a convicted felon.

For more details, go here on The Mortgage Fraud Blog, presented by The Prieston Group.

Go here for Brooklyn DA's Press Release.

Maryland Home Equity Theft Law Available Here

Maryland's equity stripping prevention, home equity theft protection act was signed into law on May 26, 2005 by Governor Robert Erlich to protect homeowners at risk of foreclosure, from self-styled foreclosure rescue consultants who promise to help them avoid foreclosure but end up

• owning the home themselves, or
• stripping off the property owner's built-up home equity in some other manner.

The law can be found in Title 7 of the Maryland Real Property Law. (More specifically, the law is contained in Title 7, Subtitle 3 - Protection of Homeowners in Foreclosure (Sections 7-301 through 7-321). Each section of the statute has its own link.

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Arkansas Appellate Court Finds Usury In "Sale - Buy Back" Deal

In a case decided about three weeks ago, an Arkansas Court of Appeals recently invoked the "equitable mortgage" doctrine in finding that a "sale-buyback" deal was really a disguised usurious loan secured by an equitable mortgage in a dispute between a pawn shop owner and his customer.

In Smith v. Eisen, a dispute arose out of a transaction in which the customer "signed over" title to her home to the pawn shop owner in exchange for a sum of money and, simultaneously with this purported sale, an agreement between the parties was entered into entitling the customer to repurchase the property for twice the amount of the “sale.”

In addition to finding that the transaction was a usurious loan secured by an equitable mortgage, the court ruled that the customer was also entitled to an award of her attorney's fees to be paid by the pawn shop owner (Arkansas law generally provides for an award of attorney’s fees in usury cases involving consumer loans and credit sales).

In reaching its decision, the court made the following observations:

1. "the “seller’s” obvious financial troubles;
2. her expressed intent to keep the property;
3. her remaining in possession of the property;
4. the substantial disparity between what she paid for the property and the “purchase” price; and
5. the immediate renegotiation of a contract for resale

all point to the conclusion that none of the parties intended for the property to come into the hands of [the pawn shop owner] any more than was necessary to secure the loan and for [the pawn shop owner] to make a profit from such loan."
"Also relevant were

1. [the customer's] ninth-grade education,
2. her medical disabilities, and
3. her lack of sophistication in business matters in comparison to [the pawn shop owner's]."

See Smith v. Eisen, at page 18.

Representing the homeowner in this case was Robert R. Cloar, a member of the National Association of Consumer Advocates ("NACA"), of Fort Smith, Arkansas.
Other Arkansas consumer attorneys who are members of NACA are listed here.
Eligible Arkansas residents can check out the non profit Arkansas Legal Services Partnership, a partnership of two nonprofit Legal Services Programs that work together to provide free civil legal assistance to low-income residents and the elderly throughout all 75 counties. Click here for the branch office nearest to you.

Click here to search for other equitable mortgage posts on this blog
Case Law Citatations:

Smith v. Eisen, 245 S.W.3d 160, Ark. App. Ct., 2006 Ark. App. LEXIS 858, December 13, 2006.

Go here for links to some other Arkansas cases where judges have delved into the particulars of a financial arrangement to expose its usurious nature (ie. where a financial arrangement was used as a cloaking device to disguise a usurious loan).

Go here for other cases involving attempts to cloak usurious loans, usurious schemes.

Northeast Ohio Prosecutors Crack Down On Mortgage Fraud & Predatory Lending

59 defendants were indicted Wednesday on 269 charges of racketeering, forgery and theft involving a mortgage fraud scheme in the Cleveland metropolitan area, according to the office of Cuyahoga County Prosecutor Bill Mason. Additional indictments are pending.

The story, reported here at Cleveland.com (the online presence of Cleveland's The Plain Dealer), describes the indictments as "part of a long-awaited crackdown on shady real estate and lending practices that have left homes abandoned and helped Cuyahoga County rack up one of the highest foreclosure rates in the nation."

An assistant county prosecutor was hired by County Prosecutor Mason's office last year to focus on crimes such as mortgage fraud and predatory lending.

In a prepared statement, Mason said "You predators are now put on notice. Those of you who engage in deception in the lending process will face criminal charges."

There is no indication in this article, however, as to whether Mason's policy will be extended and applied to predatory "foreclosure bailout loans" made to financially strapped homeowners attempting to save their homes from forced sale. Such loans are often "disguised" as sale-leasebacks by "foreclosure rescue" companies in the belief that structuring the transaction in this way enables an investor to avoid usury statutes, eliminate the hassle of foreclosure proceedings and homeowners' redemption rights, and provide for an effective way for the investor to either:

• earn interest income on their investment in an amount that exceeds the maximum allowed by law, or
• acquire a financially desperate property owner's home equity at well below market value.

For The Plain Dealer follow up story, see:

Fraud Squad - Indictments send a sign that local law officers are serious, but pervasive predatory lending demands more urgent action

Click here for the Channel 3 story, at wkyc.com

Click here to watch/listen to Channel 3 video news report

(Revised 1-6-07, 1-20-07)

Tennessee Federal Court Declares Sale-Leaseback Foreclosure Rescue Deal An "Equitable Mortgage"

A Tennessee Federal Court has invoked the "equitable mortgage" doctrine in a case involving a transaction between a foreclosure rescue operator and a homeowner in financial straits attempting to save his home from a forced sale.

The court, in the case of Perry v. Queen, relied on a 1996 Tennessee Court of Appeals case which set forth a number of factors that Tennessee courts consider in determining the homeowner's intent in conveying title to his/her home to another in a sale leaseback transaction, including the following:

1. the relationship between the parties;
2. whether the parties had access to legal counsel;
3. the sophistication and circumstances of the parties;
4. the adequacy of consideration; and
5. whether the grantor retained possession of the property.

The Federal Court made the following observations in reaching its decision:

• "The disparity between the parties as to their sophistication and the circumstances under which they were operating is particularly relevant. Courts view [property owners] who are lacking in sophistication or who are laboring under stressful circumstances as more likely to have intended their conveyances to serve as security devices, as opposed to as transfers of their land."

• "[t]he relatively low amount of consideration paid by the [foreclosure rescue investor] in exchange for the [property owner's] warranty deed here furthers a determination that the [property owner] intended the deed to serve as security for the loan. Where consideration received by the [property owner] is much less than the value of his property, there is an inference that a security device, as opposed to an outright sale, was intended."

• "[t]he fact that [the property owner] retained physical possession of his house after he gave the [foreclosure rescue investor] the warranty deed. Where a [property owner] continues to occupy the premises, there is an inference that a security device was intended."

• "The last of the relevant Hensley factors directs the court to consider whether the parties to the transaction in question were represented by legal counsel. [W]hile the [property owner] did not have access to legal advice at the time the deal was executed, the [foreclosure rescue investor] did. [L]ike the other factors, this one also leads the court to a determination that the [property owner] intended his deed to serve as a security device."

Representing the homeowner in this case was Sharmila L. Murthy, a consumer lawyer with the Nashville office of the Legal Aid Society of Middle Tennessee and the Cumberlands, Nashville, TN.

Eligible residents throughout Tennessee seeking low cost legal help can begin their search with the TennLegalAid.com website.

Tennessee consumer protection attorneys who are members of the National Association of Consumer Advocates (NACA) can be found here.

Click here for list of other equitable mortgage blog posts

Case Law Citations:

Perry v. Queen, (M.D. Tn. Civil No. 3:05-0599) 2006 U.S. Dist. LEXIS 17120, February 27, 2006 (unpublished), available on the website of the Federal Court for the Middle District of Tennessee (PACER registration, login, and password required).

Hensley v. Britt, 1996 Tenn. App. LEXIS 793, No. 01A01-9607-CH-00296, 1996 WL 709375 (Tenn. Ct. App. Dec. 11, 1996) (made available courtesy of the Tennessee Administrative Office of the Courts)

Note:

PACER (Public Access to Court Electronic Records) registration, for public access to electronic court records filed in the Federal Court system, is available free of charge to the general public. To obtain a PACER registration, login code and password, you can register here. Once registered, you can view available electronic court information filed in the Federal courts at a cost of $.08 per page; however, some Federal courts will allow viewing of the court's "Written Opinions", such as the opinion in this case, free of charge. Check with the specific Federal court website for details.

revised 1-17-07

NYS Home Equity Theft Prevention Act

(revised 10-25-07)
For those of you who are interested, a copy of the New York State Home Equity Theft Prevention Act is available here (available online courtesy of the New York State Banking Department).

The bulk of the new law has been incorporated into the New York statute at Section 265-A of the NY Real Property Law. The law becomes effective on February 1, 2007.

I apologize to those who were unable to access the new law by clicking the link provided in my December 24, 2006 blog post. The problem with that link has since been corrected.

See 1-12-07 Post For Updated Information On This New Law.

Click here for other articles on the new law.

On a housekeeping note, if anyone ever encounters a problem with any link found on this blog, please don't hesitate to drop me a line either by clicking the "comments" link appearing after any post or by e-mail at HomeEquityTheft@yahoo.com.

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

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

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)

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