Moore v. Cycon Enterprises, Inc. & Flack v. McClure - Equitable Mortgage Cases

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Re: Moore v. Cycon Enterprises, Inc., (Case No. 1:04-CV-800), 2006 U.S. Dist. LEXIS 57452 (W.D. Mi. 2006) (unpublished)

For those readers recently attempting to find the name of legal counsel who successfully litigated the equitable mortgage issue for the property owner in this case, it was attorney Phillip C. Rogers, Grand Rapids, Michigan. Mr. Rogers is a member of the National Association of Consumer Advocates.

I referred to this case in two earlier posts, December 17, 2006 and January 2, 2007.

In addition, the Illinois equitable mortgage case Flack v. McClure, 206 Ill. App. 3d 976, 565 N.E.2d 131, 151 Ill. Dec. 860 (Ill. App. Ct. 1990) is now posted here, for those recent visitors looking for this case.

Click here for a list equitable mortgage posts on this blog.

Oregon Appellate Court Invokes Equitable Mortgage Doctrine In Sale-Leaseback Deal

http://HomeEquityTheft.blogspot.com-Foreclosure Rescue...
The Oregon Court of Appeals invoked the "equitable mortgage" doctrine in order to re-characterize a sale-leaseback deal between an investor and a property owner as a secured loan in a 2005 case.

Representing the property owner in this case was attorney Jim Petersen.

Click here to read a more extensive post on this Oregon court decision.

The Oregon Judicial Department website has made the full text of the case available online. Click the link below.

Case Law Citation:

Swenson v. Mills, 198 Ore. App. 236, 108 P.3d 77, (Or. Ct. of App. 2005)

Click here for a list of other equitable mortgage posts on this blog.
http://HomeEquityTheft.blogspot.com-Foreclosure Rescue...

Philadelphia Congressman To Propose Mortgage Assistance Law

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U.S. Congressman Chaka Fattah of Pennsylvania will reintroduce the Homeowners' Emergency Mortgage Assistance Act (HEMA) this month which would establish a program to assist homeowners experiencing unavoidable, temporary difficulty making payments on mortgages insured under the National Housing Act (FHA-insured mortgages).

See this report at earthtimes.org for more information.
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NYS Home Equity Theft Prevention Act Update

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An alert reader of this blog has brought to my attention that, in addition to the statute that is contained at Section 265-a of the NYS Real Property Law, the New York State Home Equity Theft Prevention Act also has made modifications in Section 595-a of the NYS Banking Law, and has also added Section 1303 to the NYS Real Property Actions & Proceedings Law.

A) To obtain the provisions of the new law that are contained in Section 595-A of the NYS Banking Law:

Step 1:

Click here to begin your search. Then, click link for "Laws of New York."

Step 2:

Then,

1. scroll down and click link for "BNK" - Banking,
2. then scroll down and click link for "Article 12-D" - Licensed Mortgage Bankers,
3. then scroll down and click link for "Section 595-A" - Regulation of mortgage brokers, mortgage bankers and exempt organizations
4. See paragraphs (e), (f), (g), and (h), which are the relevant provisions regarding the new law, effective February 1, 2007.

B) To obtain the provisions of the new law that are contained in Section 1303 of the NYS Banking Law:

Step 1:

Repeat Step 1, above.

Step 2:

1. scroll down and click link for "RPA" - Real Property Actions and Proceedings,
2. then scroll down and click link for "Article 13" - Action To Foreclose A Mortgage,
3. then click link for "Section 1303" - Foreclosures, Required Notices, which contain the provisions relevant to the new law, effective February 1, 2007.

C) To obtain the balance of the new law (that is contained in Section 265-a of the NYS Real Property Law), I refer you to my January 4, 2007 post or my December 24, 2006 post.

I wish to express my thanks to the alert reader of this blog for this valuable contribution.

In conclusion, an article on this new law (apparently) aimed primarily at NYS real estate attorneys titled Home Equity 'Theft', by NY real estate attorney Bruce J. Bergman (originally published on October 11, 2006 in the New York Law Journal), is available at accessmylibrary.com (free, but a "no-hassle" registration is required). Among other points, the article raises issues that may be of interest to attorneys representing either side in a foreclosure action as well as title insurance underwriters.

Click here for other articles on the new law.
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Attorney Charged With Theft of 300K+ Home Sale Proceeds

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Another New York attorney has been charged with the theft of home sale proceeds, as reported in this report on The Mortgage Fraud Blog, presented by The Prieston Group. The total proceeds of the home sale, belonging to his elderly client, were approximately $470,000. He paid $310,000 to his client with what turned out to be a "rubber check" before finally being arrested by Westchester County, New York authorities.

Click here for Westchester Conty District Attorney Press Release

For prior posts involving the alleged theft of home sale proceeds by attorneys, see:

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

FBI Investigate NY Attorney For Alleged $600,000+ Theft Of Home Sale Proceeds
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Equitable Mortgages & "Deeds Absolute Given As Security" For Loans

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Recent posts have referred to what I have learned is a centuries-old real estate law doctrine of "Equitable Mortgage." It is a doctrine that has been created and applied by the courts in cases where money lenders would attempt to disguise a loan as a sale with a simultaneously executed lease back or buy back agreement, generally intended as an attempt to evade usury laws as well as to evade the hassle of having to go through the foreclosure process, thereby purportedly destroying the redemption rights of property owners. Based on the recent cases I've reported on, it seems that this doctrine has and can be successfully used to void home sales by financially strapped homeowners to foreclosure rescue operators. I expect that there will be more attorneys taking on cases such as these in defending the rights of victimized homeowners.

I have put together a description of what generally is meant by the "equitable mortgage" doctrine, specifically within the context of a "deed, absolute in form, given as security" by a property owner for a loan, which has been the legal issue involved in the recent equitable mortgage posts.

Because of space limitations, I have posted the description here, for those of you who are interested.

Click here to search for other posts on this blog on equitable mortgages.
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Ohio Senior Scammed, $67K in Home Equity Lost

A Cleveland mortgage agent pleaded guilty yesterday of conning a 72 year old Garfield Heights woman out of $67,400 through a home loan scam, and faces up to 8 1/2 years in jail according to a report in The Mortgage Fraud Blog presented by The Prieston Group.

The prosecution was handled by Assistant County Prosecutor Michael Jackson of the Office of Cuyahoga County Prosecutor Bill Mason.

The victim has a civil lawsuit pending against the mortgage agent and her employer.

To read The Plain Dealer (Cleveland, Ohio) report on this story, see Law and Order, and then scroll down to Loan agent robbed woman, 72.

Go here , go here , and go here for other posts on elder financial abuse. zeta elder financial abuse

Utah High Court Reinstates Foreclosure Scammer's Conviction

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The original conviction of a man accused of an upfront fee, mortgage refinance scheme was upheld by the Utah Supreme Court recently. The man was convicted of defrauding over thirty homeowners facing foreclosure, whereby he promised them refinancing options in exchange for an up front fee of at least $400, purportedly to be used for credit reports & appraisals. The money was actually used for his living expenses and he did not perform any of the promised services.

For more details, including links to the original reports, court decisions, and other relevant links, see this report on The Mortgage Fraud Blog, presented by The Prieston Group.

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NACA Class Action Litigation Guidelines Available Here

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The Class Action Guidelines, revised in September, 2006, have been issued by the National Association of Consumer Advocates, and is available at the link below for those attorneys with an interest in consumer protection litigation.

NACA Class Action Guidelines

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NY Woman Victimized In Purchase Of "Stolen Homes"

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The New York Daily News reports, in this December 2005 story, of a woman who unwittingly purchased two "stolen homes" and who only learned of her situation when Brooklyn prosecutors called to warn her she was a victim in a $5 million housing scam - and that she didn't own the properties.

One general observation about the "home equity theft" epidemic made in this article, which can't be emphasized enough, is that

• "while there are thousands of variations, the crimes are often perpetrated by people who forge documents or who dupe homeowners into believing they are refinancing their homes. The cases often end up in court, in complex arrays of lawsuits and countersuits brought by buyers, owners, mortgage companies and title insurers."

The article quotes Jessica Attie, a staff attorney with the Foreclosure Prevention Project of South Brooklyn Legal Services as saying that, "Millions of dollars are being stolen from low-income homeowners." Two years ago, Attie said her nonprofit law firm saw a handful of similar cases. "Now, we get that same handful every week," she said. "It's an epidemic."

(revised 1-20-07)

Possible Sources Of Low Cost Or Free Home Repair Assistance Available Here

HomeEquityTheft.blogspot.com

Homeowners who are "house rich" but "cash poor" are vulnerable targets for home equity theft scam artists, particularly when the home is old and in need of repair. Scam artists masquerading as home repair & improvement salespeople, reverse mortgage consultants, financial consultants, and other pseudo-professionals with self-styled titles (as well as some licensed contractors, licensed mortgage brokers, and investment professionals whose morals range from the unethical to the corrupt) are out there looking for the "next house to steal."

See, for example, the case of Mrs. Mintze, a retired and disabled Philadelphia homeowner who couldn't afford the $3,800 cost of a replacement heater for her home (she owed $25,600 on her home and had $10,500 in unsecured credit cards). She was referred by a heating contractor to a finance company, from whom she ended up with a high rate mortgage for $44,700, which paid for the heater; the balance being used to consolidate her existing debts, pay closing costs ($2,800), and buy two life insurance policies ($2,000; one of which she didn't qualify for due to a pre-exiting health condition). Shortly thereafter, she ended up defaulting on the new mortgage and, within about one year, filed for bankruptcy protection (See In re Mintze, 434 F.3d 222 (3d Cir. 2006) (available on the website for the U.S. Court of Appeals, 3rd Circuit; free, no registration needed).

There are potential sources of low cost or free home repair help that "house rich, cash poor" homeowners should consider, especially if they would like to avoid having their home equity "stolen" from them. Click the links below to begin a search for possible sources of low cost or free home repair assistance.

.

1) Rebuilding Together

2) AmeriCares HomeFront (serves Connecticut - Fairfield, Hartford & New Haven Counties, and New York - Westchester County);

or you can search these links:

3) Possible Sources Of Low Cost Or Free Home Repair Assistance

4) Possible Sources Of Free Home Repair Assistance

Because these last two lists are "rather long", I suggest that you modify the "key words" in the search box by adding one or more additional key words, and then "re do" the search. The first additional key word should be either your town, city, county, parish, borough or state of residence.

For example, if you're looking for help in "Wichita, Kansas", simply add "Wichita" to the existing key words in the "search box". You should quickly find links that will lead you to sources of help such as the Wichita city government website, who have a loan program where, subject to availability, they offer interest-free loans up to $5,000 that do not require any repayment until you no longer live in the home (many cities and counties offer programs like this one; Mrs. Mintze could have used a loan like this) (Any other additional key words can also be used that one feels is appropriate).

South Dakota Supremes Say "No Sale" In Equitable Mortgage Cases

The South Dakota Supreme Court has held that a purported realty sale by its owner to a buyer (ie. foreclosure rescue operator) coupled with a "buy back" (contract for deed) agreement entered into simultaneously is an equitable mortgage, and not a true sale (see Myers v. Eich).

One point that I feel needs highlighting in this case is that in reaching its decision, the South Dakota high court cites both to its own prior decisions (including at least one case over 100 years old) as well as to equitable mortgage cases from other states (ie. Missouri, Washington, Nebraska, South Carolina, New Mexico, Iowa, Rhode Island, New Jersey, Minnesota, West Virginia, Louisiana, and New York).

(Editor's Note: As I read these cases, its becoming quite clear that there may not be anything novel about asking a judge to declare a foreclosure rescue arrangement to be an "equitable mortgage." Lately, I've reported on some recent court decisions (click here for a list of other equitable mortgage posts on this blog) on how this doctrine has been applied in a couple of states; what's notable is that in reaching these decisions, the courts are citing cases that are both pretty old and come from numerous states.)

Click here for a more extensive post regarding this case and the invocation of South Dakota's equitable mortgage doctrine.

Representing the property owner in this case was attorney Thomas K. Wilka of Hagen, Wilka & Archer, P.C., Sioux Falls, South Dakota.

Myers v. Eich is the second equitable mortgage decision by the South Dakota high court in the last five years. The prior case, Adrian v. McKinnie, similarly held that a deed, absolute in form, was an equitable mortgage under facts involving a title transfer of realty with a simultaneous lease back coupled with a purchase option.

Representing the property owner in this case was attorney Michael W. Strain of the Morman Law Office Sturgis, South Dakota

Case Law Citations:

Myers v. Eich, 2006 SD 69; 720 N.W.2d 76; (S.D. 2006)
Adrian v. McKinnie, 2002 SD 10, 639 N.W.2d 529 (S.D. 2002)

"Air Loans" Mortgage Scams

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According to the FBI, air loans are "non-existent property loans where there is usually no collateral. To read about the "air loans" mortgage scam, see FBI Names Air Loans as Type of Mortgage Fraud, reported by RISMedia at rismedia.com.

One Stolen Wallet = Three Attempted "Home Equity Thefts"

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Anyone interested in knowing how one stolen wallet in a crowded bar can lead to the victimization of its owner, three Chicago property owners, and three mortgage companies should read this January, 2006 story reported in the Chicago Tribune Online Edition at chicagotribune.com.

In a nutshell, a stolen wallet and its contents ended up in the hands of fraudsters. After assuming the identity of the wallet's owner, they went out and obtained mortgages on three Chicago properties they didn't own, unbeknownst to the true owners of each property.

Each of the three properties ended up with phony mortgages on them. Reportedly,

• one property owner was able to save her property and clear her property title and straighten out her mess, but declined to say how much it cost her to do so,

• another property owner was able to forestall a foreclosure sale involving the phony mortgage on his property, but couldn't sell or borrow against it because the mortgage company hasn't released the phony mortgage,

• a third property owner (for undisclosed reasons) never appeared in the foreclosure action brought by the company holding the phony mortgage on his property; the property (as of the date of the media report) was headed for a foreclosure sale.

Despite the fact that the wallet's owner immediately reported the incident, the incident has cost her a perfect credit rating and her parents about $10,000 in legal bills in fending off the claims from the three mortgage companies (who were also scam victims; reportedly, the wallet's owner got little help from the law enforcement agencies that she met with).

Minnesota Anti Equity Stripping Law

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Minnesota's anti "equity stripping" statute, which was the state's response in curbing the abuses in the foreclosure rescue, foreclosure bailout loan business, became effective on August 1, 2004. It is found in the Minnesota Statutes, Chapter 325N, available here.

Minnesota attorney Brian S. McCool has written an article on Chapter 325N which provides some insight on the basics of this law.

Inspite of the new law, the scams continue, according to this St. Paul Pioneer Press report at twincities.com.

The law, as originally written, is set to expire on December 31, 2009.

Houston FBI Pursuing Fraudsters With Mortgage Fraud Unit

Mortgage fraud has become so popular in the Houston area that the local FBI office has dedicated a unit within their office solely to fight mortgage fraud. The office currently has open about 25 multimillion-dollar cases involving various types of mortgage fraud.

This information, reported in an article in the Houston Chronicle at chron.com, is part of a larger story about a local individual who filed a civil lawsuit in 2004 against several people involving an alleged "straw buyer" scam. Subsequent to the civil lawsuit, one of the alleged scammers was indicted and arrested by the FBI. Ultimately, the scammer pleaded guilty to wire and mail fraud. Other charges against him were dropped "in exchange for his cooperation" (presumably for his cooperation in prosecuting his cohorts).

One point that I find notable here is that a civil lawsuit by a scam victim apparently preceded a criminal prosecution of the scam artists. This could possibly indicate that, given that criminal investigators may lack the resources to investigate every single case, bringing a civil lawsuit may be a way for "some" (financially well-heeled) victims to publicly bring attention to their cases and "discover" information from the scam artist (which could potentially be used in a subsequent criminal case), in addition to an attempt to recover damages.

Alleged Scam Artists Sued, Class Action Status To Be Sought

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Allegations of a massive mortgage fraud scheme involving as many as 400 investors and an estimated $1.2 billion of property were filed by Temecula attorney Richard Ackerman, on behalf of a client, in a civil lawsuit in Riverside County, California Superior Court on Friday, according to this story in the North County Times.

What I found notable in this story is:

• While the fraud allegations were made against a local network of alleged real estate scam operators by one alleged victim, the attorney for the alleged victim reportedly will be seeking class action status for the case, an attempt to enable him to pursue this network on behalf of all other potential victims who are similarly situated,
• The local county prosecutor has not, as yet, filed any charges in this case (although they are reportedly investigating the matter).

(I wonder if an attempt by a private individual to bring a civil lawsuit and seek class action status against those who are allegedly involved in potenially criminal conduct will be helpful or hurtful to a local prosecutor's criminal investigation of those same people regarding the same alleged conduct.)

For follow up story, see Real-estate investors bought on faith (1-13-07)

revised 1-29-07

California Laws Regulating Foreclosure Rescue & Equity Skimming Available Here

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California has two statutes, both passed in 1979, that regulate home sale transactions involving homeowners facing foreclosure, investors purchasing from these financially strapped homeowners, and mortgage foreclosure consultants. It is the state's response for curbing the abuses associated with foreclosure rescue and foreclosure bailout loan situations.

1) California's Home Equity Sales Contract Act, which was explicitly passed:

• "To provide each homeowner with information necessary to make an informed and intelligent decision regarding the sale of his or her home to an equity purchaser; to require that the sales agreement be expressed in writing; to safeguard the public against deceit and financial hardship; to insure, foster, and encourage fair dealing inthe sale and purchase of homes in foreclosure; to prohibit representations that tend to mislead; to prohibit or restrict unfair contract terms; to afford homeowners a reasonable and meaningful opportunity to rescind sales to equity purchasers; and to preserve and protect home equities for the homeowners of this state" (Section 1695(d)(1)),

can be found at Section 1695 through Section 1695.17 of the California Civil Code.

2) California's Mortgage Foreclosure Consultants Act, which was explicitly passed:

• "To require that foreclosure consultant service agreements be expressed in writing; to safeguard the public against deceit and financial hardship; to permit rescission of foreclosure consultation contracts; to prohibit representations that tend to mislead; and to encourage fair dealing in the rendition of foreclosure services" (Section 2945(c)(1)),

can be found at Section 2945 through Sction 2945.11 of the California Civil Code.

3) In addition, California also has a statute prohibiting rent skimming (equity skimming) and can be found at Section 890 through Section 894 of the California Civil Code.

revised 1-19-07

Rhode Island Mortgage Foreclosure Consultant Law Available Here

Rhode Island passed two new laws in 2006 designed to curb the abuses associated with foreclosure rescue situations. One law regulates the activities of so-called foreclosure consultants; the other addresses the activities of foreclosure purchasers, those who purchase realty from property owners facing foreclosure.

The Mortgage Foreclosure Consultant Regulation became effective immediately upon passage, can be found in Title 5, Chapter 79 of the Rhode Island Statutes, and encompasses Sections 5-79-1 through 5-79-9 (each section has its own link).

In addition, the new statute regulating Mortgage Foreclosure Purchasers can be found in Title 5, Chapter 80 of the Rhode Island Statutes and encompasses Sections 5-80-1 through 5-80-9 (each section has its own link).