Foreclosure Rescue Operator Ordered To Return Homes To A Dozen Victims

In a 2005 Nebraska Supreme Court decision, two Omaha area foreclosure rescue operators were ordered to restore title to the homes of a dozen homeowners who the operators fraudulently induced into signing over their home titles, or reimburse them for their damages.

In addition, the operators were also ordered to pay approximately $378,000 in attorneys' fees to the lawyers for the victimized homeowners for violations of the state's Consumer Protection Act.

In this case, the homeowners all testified that the operators offered to loan them money to stop foreclosure so that they (the homeowners) could keep their homes, but never disclosed that the operators were actually taking title to the homes. The operators testified to the contrary, asserting that the terms of the transaction were fully explained to each plaintiff and that each plaintiff understood that he or she was conveying title to the home to defendants. In ruling in favor of the homeowners, the court made a specific finding that the homeowners' testimony was credible and that of the operators was not.

One notable point in this case is the illustration of a well-known legal rule regarding the signing of a contract and how it applies in a case like this one. This legal rule, as described by the Nebraska high court, is this:

• “[o]ne who signs an instrument without reading it, when he can read and has the opportunity to do so, cannot avoid the effect of his signature merely because he was not
  informed of the contents of the instrument.”

Having said that, the Nebraska high court went on to state:

• "[t]he general rule that one who fails to read a contract cannot avoid the effect of signing it applies only in the absence of fraud [...] Restated, the rule that one who signs a contract is bound by its terms does not apply where the controversy is between the parties and the execution of the instrument was induced by fraud."

A second point worth noting is that this case illustrates another method of attacking foreclosure rescue transactions. Unlike the equitable mortgage cases reported elsewhere on this blog (in which proof of fraud is not necessary), the homeowners' action in this case were based on allegations of fraud, civil conspiracy, unjust enrichment, rescission, and violations of Nebraska’s Consumer Protection Act and Uniform Deceptive Trade Practices Act (and importantly for private practice attorneys that are considering handling these types of cases, the $378,000 fee award was based on an attorney fee provision contained in the state Consumer Protection Act, and also involved the application of a "contingency fee" or "lodestar" multiplier that increased the "lodestar amount" (the base fee) by 30 percent).

Sources:

Rising foreclosures fuel fraudulent offers of aid (Seizures, byzantine terms spring from promises to help owners keep homes) (MSNBC website)

High Court Slams Foreclosure Scamsters, (WOWT, Channel 6 News - Omaha, NE)

Eicher v. Mid America Financial Investment Corp.. 270 Neb. 370, 702 N.W.2d 792 (2005) (made available online by Findlaw.com)

Counsel For Homeowners:

Mark C. Laughlin, Andrea F. Scioli, and Tamara D. Borer, of Fraser, Stryker, Meusey, Olson, Boyer & Bloch, P.C.,

Catherine Mahern, of Milton R. Abrahams Legal Clinic (Creighton Legal Clinic - Creighton University School of Law)

D. Milo Mumgaard, of Nebraska Appleseed Center for Law in the Public Interest

(revised 4-23-07) equitable mortgage zebra

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