Foreclosure Rescue A Concern In Arizona

The Arizona Republic warns of foreclosure rescue operators that make rescue offers that "are thinly veiled schemes to take control of a struggling homeowner's house and strip any equity left in it. As the number of people falling behind on their mortgages in metropolitan Phoenix has soared, so too has the number of schemes that cost homeowners their houses." For more, including the stories of two scam victims, and comments from regulators and others, see Scam takes owners' home, equity (Scheme targets owners faced with foreclosure).
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Foreclosure Rescue, Sale Leasebacks, Usury, & Substance Over Form

I came across a court case decided (in 1988) by the Court of Appeals for the District of Columbia (D.C.'s high court) that involved the prosecution and conviction of two foreclosure rescue operators for violating a D.C. law then in effect known as the Loan Sharking Act. This law (D.C. Code Ann. § 26-701 (1981)) provided in pertinent part that it was unlawful and illegal to engage in the District of Columbia in the business of loaning money upon which a rate of interest greater than 6 per centum per annum is charged on any security of any kind, direct or collateral, tangible or intangible, without procuring a license.

The principal question in this case was whether the two foreclosure rescue operators (husband and wife), according to the court, "[w]ere actually engaged in the criminal enterprise of making loans in a disguised form at legally impermissible rates and without a license."

The transactions for which the foreclosure rescue operators were prosecuted and convicted were the typical, "sale-leaseback-repurchase option" foreclosure rescue deals. While the transactions (which took place in 1981 and 1982) took the form of actual purchases of people's homes with a contemporaneous leasing back of the premises to the homeowner with an accompanying buyback option, the D.C. trial court disregarded the form of the transactions and, instead, looked to the substance of the transactions and treated the deals as disguised loans, and then applied the then-existing D.C. statute accordingly. The D.C. Court of Appeals subsequently affirmed the convictions.

While the foreclosure rescue operators insisted at their criminal trial that they were not in the business of lending money, the D.C. Court of Appeals listed a number of factors that, in their view, supported the trial judge's determination that the transactions were nothing more than disguised loans. The court's observations follow (bold text is my emphasis):

• "Each of the homeowners was drawn to the [operators] by advertising which promised the availability of "money to lend" to stop imminent foreclosure"

• "When the homeowners asked for the loans which they believed that the advertisements were describing, and then posed questions about the form of the transactions, the [operators] couched their answers to these questions in language which confirmed to the [homeowners] that they were receiving the very loans for which they had come"

• "The [operators] often simply calmed the inquiring homeowners' fears by pretending that it was usual practice, perhaps required by the accountant, to sign instruments transferring title to the homes."

The D.C. Court of Appeals then went on to make these additional observations:

• "Moreover, if the transactions were in fact sales, as [the operators] contend, they were surely most extraordinary ones. When a homeowner sells his home, which is usually his most valuable possession, one would expect at least some measure of bargaining over the sales price. Here, there was none. In each instance, what the [operators] characterize as the "sales" price bore no relation whatever to the value of the equity. It is absurd to suggest that Mrs. Carroll would knowingly sell her home, in which she had an equity of more than $ 36,500.00, for $ 8,100.00. None of the "sellers" had placed his or her home on the market or expressed the slightest interest in selling it. Each "seller" remained in possession after the purported sale, and [the operators] were indeed depicting their service as one that would enable their clients to "save" their homes from foreclosure. Although the transaction also lacked one of the common characteristics of a loan -- an evaluation of the borrower's credit -- no such investigation was needed because the home itself, which in each case was worth far more than the amount expended by the [operators], served as their security. It was therefore altogether reasonable for the trial judge to find that the depiction of each of these transactions as a sale and lease back was a transparent sham which masked an unlawful loan."

The D.C. Court of Appeals opinion cites cases from a number of states (ie. New York, Oregon, Alaska, Hawaii, Washington State, Tennessee, and California), so if any of these states is your home state, there might be something of interest in this case for you.

In conclusion, the D.C. high court, quoting from a case decided by the New York Court of Appeals (New York's high court), made the following memorable quote (among others) about usury laws:

• "The purpose of usury laws, from time immemorial, has been to protect desperately poor people from the consequences of their own desperation. Law-making authorities in almost all civilizations have recognized that the crush of financial burdens causes people to agree to almost any conditions of the lender and to consent to even the most improvident loans. Lenders, with the money, have all the leverage; borrowers, in dire need of money, have none."

For the text of the entire D.C. case, see:

Browner v. Dist. of Columbia, 549 A.2d 1107 (D.C. 1988).

For other posts on the issue of usury in the context of a sale leaseback, see:

• Usurious Loans Masquerading As Sale Leasebacks?
• Usury & Disguised Usurious Loans - Table of Posts

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Foreclosure Rescue Posts On This Blog

For a list of links to posts on foreclosure rescue on this blog, go to Foreclosure Rescue Posts.
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Alaska Mortgage Scammer Cops Plea

The Anchorage Daily News reports that

• "Kourosh Partow, an accused conspirator in a a seven-member mortgage fraud ring that operated in Anchorage since 2002, pleaded guilty to wire fraud in federal District Court on Friday morning. The six others have already pleaded guilty this year to charges in the criminal case, which involved deceiving mortgage lenders by overstating income or making other false statements on loan applications."

The real estate closings allegedly took place at Alyeska Title Company in Anchorage. For more, see Anchorage man pleads guilty to wire fraud (Mortgage Scam: Partow faces a prison term and as much as a $250,000 fine).

For story update, see Mortgage banker gets more than 2 years in prison (Associated Press - 8-27-07).

Go here for other posts on Anchorage mortgage scam.
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Weekend I.D. Theft Blotter

The following identity theft stories this week caught my eye:

• Deceased car accident victim has identity stolen within a week after death (see Even death no defense against ID theft - Survivors should contact creditors immediately),
• Jury duty I.D. theft scam (see Identity theft scam linked to jury duty),
• U.S. Senate warns against I.D. theft by income tax preparers (see Grassley Urges Tougher Sanctions Against Tax Prep 'Sharks'),
• Alabama I.D. theft victim now has hassles with tax collector (see Montgomery Woman Fights IRS Over Alleged Identity Theft),
• The emergence of the identity theft protection industry (see Is ID theft protection worth it? - Make sure services have really got you covered),
• Texas Attorney General sues CVS Pharmacy for exposing customers to I.D. theft; employees at one store threw out hundreds of customer records into a store dumpster, records that included customers' names, addresses, Social Security numbers, credit card numbers, prescriptions and doctors (see CVS Pharmacy cited for exposing hundreds of customer records),
• Hospital billing service employee and another use stolen I.D information of more than 400 patients at midwest hospitals in tax refund scam (see Man sentenced in identity theft and tax fraud),
• Alleged I.D theft ring accused of hiring waiters and waitresses to steal credit card info from restaurant customers by use of small skimming devices; ring accused of making millions of dollars of credit card charges, over 1000 victims identified (see Authorities indicted 13 in alleged identity theft ring),
• Over two dozen supermarket customers tell cops that they are victims of I.D. theft ring that tampered with a personal identification number, or PIN, keypad at check-out line (Supermarket identity theft case expands to Alameda store),
• Credit freeze laws have been passed and go into effect in 12 more states and D.C. in 2007 (see Innovative Credit Freeze Laws Tackle Identity Theft: Credit Reports Access is Reinvented),
• Local Sartell, Minnesota community group sponsors "Senior Shred Day" to promote battle against I.D. theft (see To do: Event help seniors avoid identity theft),
• Two Yakima, Washington area retailers promote "Shred Day" to highlight battle against I.D. theft (see Shredding is Key to Preventing Identity Theft),
• City of Cape Coral, Florida and Riverside Bank consider promoting regular “Shred Day” events to battle I.D. theft (see Protect yourself against identity theft),
• Washington's Law Enforcement Group Against Identity Theft is organizing 29 "Shred Day" events throughout the state to battle I.D. theft (see Free shredding offered to help prevent identity theft)

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ACORN To Kick Off National Foreclosure Prevention Campaign

Ben Hanna at YourHub.com reports that:

• "As part of a national campaign to address the foreclosure crisis, ACORN members in Denver announced their plans to conduct a large scale outreach program to find homeowners at risk of losing their home due to a predatory loan, and to organize these homeowners to fight back to save their homes and win major policy changes presented in a ten point platform."

Based on what is reported in the article, it appears that ACORN (Association of Community Organizations for Reform Now) community organizers will arm themselves with lists of homeowners in foreclosure or with subprime loans and will go door to door in the neighborhoods most affected by the problem, and involve homeowners in the group's campaign activities.

ACORN will also provide homeowners with information regarding, among other things, how to avoid foreclosure rescue scams.

ACORN has established a toll-free national hotline, 1-866-67ACORN, to take calls from homeowners facing foreclosure or suffering from predatory loans. For borrowers in Colorado, please call the ACORN office at 303-534-1948.

For more, see ACORN fights to stop foreclosure crisis.

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Washington Mutual Commits Up To $2 Billion To Help Subprime Customers Avert Foreclosure

Mortgage lender Washington Mutual has announced a commitment to refinance up to $2 billion in its customers' subprime loans at discounted interest rates in an attempt to help customers stabilize their finances and avoid foreclosure.

Under the program, WaMu subprime borrowers who remain current on their existing loans and anticipate pending payment increases may apply for new discounted fixed-rate loans or other mortgage products available to them.

A toll-free number (1-800-881-7099) is available to Washington Mutual customers who would like to inquire about this special program.

They have also joined forces with a number of foreclosure prevention groups, including the NeighborWorks® Center for Foreclosure Solutions and the Homeownership Preservation Foundation, to launch a national effort to avert foreclosures.

For more, see WaMu Commits up to $2 Billion in Assistance to Help Subprime Borrowers.
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Consumer Advocacy Group Calls For Slowdown In Foreclosure Process

According to a press release issued by the National Community Reinvestment Coalition ("NCRC"), it is recommending to Federal lawmakers "to pass legislation that provides for 60-to-90 day stays in foreclosure proceedings nationwide to ensure that homeowners situations are properly assessed prior to facing needless and expensive foreclosure actions that strip equity."

The NCRC has been working directly with subprime borrowers helping them work out problem loans with lenders and servicers. They claim, however, that "its loan workouts have turned into fast sprints against law firms involved in the foreclosures."

The NCRC also asserts that "a congressionally-mandated stay would establish uniform and reasonable time periods across all states for loan workouts that often contain multiple lending abuses, not just one or two. He presented to the committee a list of 27 abuses often found in subprime borrowers' loans."

For more, see NCRC Calls For a Congressionally-Mandated Stay To Slow Down 'Foreclosure Mills' Operated By Law Firms Seeking to Profit from Borrowers' Troubled Loans (Repeats Call For FHA Re-financing, Responsible Servicing, National Rescue Fund & Strong Anti-Predatory Lending Law)
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Mortgage Lenders Getting Into The Foreclosure Business?

An Associated Press story appearing on Daily Report says:

• "Consumer advocates have begun criticizing major mortgage lenders, such as Countrywide Financial Corp. and GMAC Financial, that also have in-house foreclosure businesses. It is "mind-boggling" that in many states, people can lose their homes in foreclosure without any court hearing and that the foreclosure is done by a company with ties to the lender, says Ira Rheingold, general counsel for the National Association of Consumer Advocates in Washington."

For more, see Lenders get into foreclosure business, particularly in West.
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More Layoffs By Subprime Mortgage Lenders

Housing Wire reports that at:

• WMC Mortgage, about half of the company’s national workforce — roughly 750 employees, were given their walking papers on Thursday. For more, see WMC Gutted, Lays Off Half of Workforce.
• GMAC LLC’s Residential Capital, roughly 600 to 700 workers — or five percent of its U.S.-based employees — will be cut loose during the next few months, a GMAC spokeswoman said Thursday. For more, see ResCap To Shed 700 More Jobs Amid Subprime Turndown.

For an interesting look at the current implosion in the subprime mortgage industry, see The Mortgage Lender Implode-O-Meter.

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Subprime Mortgage Weakness Spreading to Alt-A Market?

A recent Associated Press article appearing on the Florida Association of Realtors website reports that "[t]he so-called Alternative-A mortgage sector, which loans to borrowers with better credit than subprime borrowers but not quite prime, is starting to hurt." For more, see Weakness spreads from subprime mortgage market to so-called Alt-A segment.
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More On Subprime Mortgage Lending

For a perspective on the current subprime mortgage lending emvironment from public policy expert Alex J. Pollock, a resident fellow at the American Enterprise Institute ("AEI"), see:

• Subprime Mortgage Lending Problems in Context
• Subprime Mortgage Scandals and Lawsuits Are a Certainty
• Credit Crack-Up
• Subprime Time

AEI is a private, nonpartisan, not-for-profit institution dedicated to research and education on issues of government, politics, economics, and social welfare.

Mr. Pollock served for twelve years as President and Chief Executive Officer of the Federal Home Loan Bank Board of Chicago.

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New York Judge Convicted Of Bribe Taking

In another story that has absolutely nothing to do with the subject matter of this blog (and for which I respectfully request your indulgence), EmpireStateNews.net reports that, in Brooklyn, New York, Kings County District Attorney Charles Hynes announced yesterday the conviction of former Brooklyn trial court judge Gerald Garson on charges of Bribe Receiving in the Third Degree, and two counts of Receiving a Reward for Official Misconduct in the Second Degree.

The charges were reportedly based on a relationship the former judge had with attorney Paul Siminovsky involving buying numerous lunches, dinners and drinks in exchange for favorable treatment and lucrative court appointments; and giving "gifts" of expensive cigars and $1,000 in cash which were caught on video surveillance.

For more, see Ex-judge convicted for taking cash bribes and gifts from attorney.

Go here for other stories on questionable conduct by members of the judiciary. naughty judges
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Arrest Warrant Issued For Florida Homebuilder

The Sarasota Herald Tribune reports that Florida prosecutors say they have obtained an arrest warrant for Joseph Pufta, the chief executive of Avalon Homes, a homebuilder that reportedly "[c]ollapsed last fall, leaving 50 homes unfinished and dozens of home buyers ... saddled with mortgages for homes they may never be able to finish building."

According to the article:

• "Authorities say Avalon took hundreds of thousands of dollars from banks for work that was never completed. And they say subcontractors were never paid for work done on dozens of homes, causing them to levy liens. Assistant State Attorney Kate Wallace said Pufta will be charged with 20 felony counts of misappropriation of construction funds and one count of grand theft. More charges could be filed if more families come forward, she said."

While other builders have gone "belly-up" with the downturn in Southwest Florida's building industry, it is believed that Pufta could be the first homebuilder in the area to face criminal charges.

For more, see Builder left homes undone; CEO faces arrest.

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In a related story, the Sarasota Herald Tribune reports that "The contractor who allowed Avalon Homes to use his building license says he had no idea the company was leaving its customers broke and homeless."

Based on the reported facts in the article, contractor James Leake, in effect, "rented" his contractor license to Avalon Homes for $1,000 per home site to build houses under his license. Reportedly, the city of North Port, Florida issued 92 building permits to Avalon Homes under Leake's license.

For more, see Builder costs contractor his license.

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For story update, see Avalon home builder is booked on charges ("The former head of now-defunct Avalon Homes is charged with 20 felony counts of misapplication of construction funds and one felony count of grand theft. [...] According to an arrest report released Wednesday, Avalon Homes took "several withdrawals" of money from Schaller's construction loans "and failed to complete the work that these withdrawals were designed to pay for.").

For other posts on builders accused of stiffing customers & subs, go here and go here. contractors stiff subs customers zeta

NJ Man Indicted In Alleged Home Improvement Scam

The Jersey Journal reports that Miguel Perez, owner of New Jersey home improvement firm Miaggiamar Home Designers, was indicted on four counts of theft by deception in connection with allegedly conning more than $150,000 from four victims for home improvements that weren't completed. To read the story of one victim, who spent almost $400,000, on top of the $97,000 she said she'd already paid to Perez, to finish the job, see Took Our Money And Ran (ripping off homeowners in $150G con job).
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Colorado Man Indicted In Alleged Real Estate Scam

An arrest warrant has been issued for Darin DeVoe, who was indicted by a grand jury in Weld County, Colorado last week on 11 counts of felony securities fraud and theft in connection with an alleged real estate investment scam.

According to media reports, the grand jury indictment states that DeVoe stole $2.6 million from 19 of his investors by inducing them to invest in the business of buying distressed homes. The investors claim that Devoe not only failed to provide property management services as he agreed to, "[b]ut robbed the home of the investors’ equity, leaving the homeowners with homes in disrepair and massive upside-down mortgages with no way out."

For more, see Law enforcement looking for former Ogallala resident, reported in the North Platte Telegarph.

For other stories on Darin DeVoe, see:

• Investors vs. DeVoe (Greeley Tribune),
• Suspected Con-Artist Indicted On 11 Felony Counts (America's Most Wanted Fugitive File).

Massachusetts AG Gets Preliminary Injunction Against Foreclosure Rescue Operator

Massachusetts Attorney General Martha Coakley’s Office has announced that it has obtained a preliminary injunction in Suffolk Superior Court against fifteen individuals and companies allegedly involved in mortgage fraud and a foreclosure rescue scheme; preventing them from engaging in any further foreclosure rescue transactions.

The injunction was ordered against 15 defendants:

• Leo Desire, Sr., a salesperson who works on behalf of Primary Mortgage Resource, Inc.,
• Primary Mortgage Resource, Inc., Mortgage Broker and where Desire Sr. worked,
• Valerie Hanserd, a closing attorney,
• Home Pride Management, a company that took fees for unrendered services,
• Leo Desire Jr., President and Treasurer of Home Pride Management,
• Dr. Joel Charles (d/b/a Sourie Corp.),
• Louis R. Joseph, Pierre N. Joseph and his wife Daphne Mompoint, Robens Joseph, Paul A. Joseph, Jean Joseph, Advie Charles, Neville Francis and Marie Betey Mereus, all property buyers.

For more, see Massachusetts AG Press Release.

For a Boston Herald article, see Home scheme halted: AG slams Mass. firms’ foreclosure ‘rescue’.

Florida Regulators "Sting" Unlicensed Contractors

The Pensacola News Journal reports:

• "The Department of Business and Professional Regulation completed a sting that resulted in the arrest of 11 people for performing unlicensed work.The sting was an effort by the department, the Escambia County Sheriff’s Office and the Office of the State Attorney."

For more, see 11 arrested for unlicensed work.
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Feds Nail Preparer For Phony Tax Returns Used In Straw Buyer Scam

The Times-Picayune reports that Robert Green, who was allegedly paid about $8,000 for preparing false tax documents for straw buyers who submitted fraudulent mortgage applications for federally insured loans in a house flipping scam, pleaded guilty in a New Orleans, Louisiana federal court last week as part of a deal that requires him to cooperate with the government's continuing investigation of the scam.

According to prosecutors, the mortgage fraud scheme involved local businessman Calvin Davis, who recruited straw buyers to buy his houses at inflated prices and submit fraudulent applications to obtaining financing and, further, they claim that local real estate appraiser Donald White was paid an unspecified amount for furnishing false and inflated appraisals of the property that Davis was getting rid of. According to federal court records, White and Davis have not been charged.

Prior to Green entering his guilty plea, three other participants in the scam, Dennis LeBlanc, Dennis Addison and Timothy Falls have also entered guilty pleas and await sentencing. The latter three acted as the straw buyers in the scheme. For more, see House flipping scam nets plea (N.O. man will be sentenced in July).
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Business Week On Foreclosure Rescue

BusinessWeek.com has a general article on foreclosure rescue that reports on one homeowner who paid an upfront fee to a foreclosure rescue consultant and ended up losing the home anyway; it gets comments from two foreclosure rescue operators (an upfront fee operator and a New York sale - leaseback operator), and also gets comments from two consumer advocates regarding the foreclosure rescue process.

One foreclosure rescue operator, Albany, N.Y.-based Rivertown Financial engages in sale-leaseback transactions in New York, New Jersey and Pennsylvania and its chief executive, Geoffrey Goldman, said that "There's nothing inherently sinister about sale leaseback transactions. Businesses do it all the time."

For more, see Foreclosure rescue plans pose questions, or see

Frauds compound the pain of foreclosures (Homeowners paying to save their houses and end up losing them anyway) (reported on MSNBC.com).

Editor's Note:

Based on the information in my recent posts on foreclosure rescue as well as in earlier posts, it appears that there are more cases being brought by financially strapped homeowners seeking to have sale-leaseback, foreclosure rescue deals declared to be equitable mortgages. Successfully asserting an equitable mortgage claim will recharacterize the sale-leaseback as a secured loan between the foreclosure rescue operator and the homewoner, subject to state usury laws, and possibly Federal consumer protection laws (ie. Federal Truth-In-Lending Act and the Homeowner Equity and Protection Act).

The usury point could be a significant issue in a state like Florida. Its civil usury statute (where interest exceeds 18% per year) requires a forfeiture of the right to collect interest on the loan and requires the creditior to pay a penalty of double the amount of interest actualy reserved or collected (Fla. Statute Section 687.04). Its criminal usury statutes (where interest exceeds 25% per annum), call for a forfeiture of the creditor's entire loan, in addition to those penalties commonly associated with misdemeanor and felony crimes (Fla. Stat. Section 687.071).

Further, if the transaction is tainted with elements of fraud, deception, or unfair business practices, the transaction will also be subject to the state's unfair and deceptive trade practices laws, as well as to common law claims of fraud, conspiracy, and constructive trust, among others. Also, as was the situation in one recent case I reported on, a claim for legal malpractice was brought against an attorney who was supplied by the foreclosure rescue operator to the homeowner, and who purportedly "represented" the homeowner in the transaction when the homeowner signed away his home to the operator.

Finally, in a state like New York, stringent regulations (including criminal sanctions) have been imposed in the form of the Home Equity Theft Prevention Act to protect homeowners facing foreclosure when dealing with foreclosure rescue operators, both those who purchase from the homeowner as well as those who provide fee-based "foreclosure consulting" to the homeowner. No doubt that state regulators will be out there vigorously enforcing this statute. (Other states with anti home equity theft statutes can be found in the sidebar on the right side of this page.)

Financially strapped homeowners generally may not have the sophistication in matters of business, finance, and law to appreciate the nuances of the law to be able to know his or her rights, much less find experienced legal counsel to handle cases like these. However, I think we are seeing the beginning of a legal environment where attorneys and investigators, whether from legal services firms, from private firms (both small and large), or from state and local government law enforcement and regulatory agencies, will be out there finding them, prepared to bring the appropriate legal action to vigorously enforce both the statutes regulating the foreclosure rescue industry, as well as to enforce the laws that are a product of case law which has been around for a century or two. equitable mortgage zebra

Victim Of Home Improvement Contractor To Lose Home Of 40 Years

NorthJersey.com recently reported on the story of a Paterson, New Jersey woman and her family who were victimized by a local home improvement contractor and a mortgage company in a scam that has left the homeowner in the process of losing her home of 40 years. The gist of the story is that:

• she unknowingly signed for a mortgage loan on her home,
• the contractor she hired took the proceeds of the loan and did little work,
• the work that was done lacked the necessary permits and resulted in a local building inspector stopping the work on the home,
• the basement subsequently collapsed, leaving the house sitting lopsided,
• ultimately, it was determined that the mortgage lender's appraiser had overvalued the home by $100,000.
• the homeowners also claimed that their signature was forged and earnings were inflated.

The homeowner filed a civil lawsuit against D&M Financial (the mortgage lender), and both East Coast Developers (the home improvement contractor) and John Evans (its owner) in 2003. A state court arbitrator ultimately ruled that the contractor was paid "in an apparent conspiracy with D&M" for a "predatory loan," and that D&M, the lender, was liable.

Unfortunately for the homeowner, the mortgage loan was sold several times. A state court subsequently ruled that the current holder of the loan had no knowledge of what had gone on earlier among the original parties and therefore ruled that a foreclosure action brought by the current mortgage holder could proceed.

Regarding the mortgage lender, investigations by banking regulators in New Jersey and New York of D&M Financial reportedly revealed that a few dozen banks have sued it for unloading bad loans on them. In one action brought in Brooklyn Federal Court, D&M was alleged to have been engaged in or having some connection with "vastly inflated appraisals," misstating borrowers' incomes and writing false checks for about $20 million in loans.

As far as the the contracting company and its owner are concerned, their phone number has been disconnected, they are not registered with the State of New Jersey as a home improvement contractor, and efforts to locate them were fruitless.

For the story, see Mortgage scam turns 40-year dream into a nightmare for Paterson family.

For links to Federal Court cases involving DMC Financial Corporation, see DMC Financial - Party Index (To view court documents, PACER Registration required).

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Ohio Man Charged In Home Repair Scam That Targeted Elderly, Unwitting Lenders

The Cleveland Plain Dealer reports that a joint investigation by State and Federal authorities have resulted in an indictment against Jerry Ponsky, of Chagrin Falls, Ohio and five others of nearly 90 counts of racketeering, theft, money laundering, forgery and other crimes. In essence, they are accused of using bogus home repair and financing schemes to rip off the elderly of their home equity. Authorities say that he left dozens of victims buried in debt and living in homes left derelict by unfinished repairs. According to the article, the authorities describe the scam as follows:

• "Ponsky and his collaborators would inundate run-down neighborhoods with leaflets and pin-up fliers advertising "federally guaranteed" home-improvement programs for senior citizens. When older people responded, Ponsky and his collaborators would create phony, inflated appraisals of their homes' value; use those fake appraisals to line up loans from unwitting lenders; and then pocket huge chunks of the money, leaving the victims buried in debt."
• "In some cases, Ponsky's purported "remodeling crews" would gut all or part of the victims' homes until they vanished after financing came through."

For the whole story, see Chagrin Falls man indicted for home-repair scam that preyed on elderly.

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

South Florida Feds Get Guilty Verdict In "Operation Whose House" Mortgage Fraud

Ishmael Grant, of Lauderhill, Florida, one of the lead defendants in a $10,000,000 scheme to defraud mortgage lenders, was found guilty by a jury in a Fort Lauderdale, Florida Federal Court. The joint announcement, by authorities from a number of Federal agencies involved in the case, was made late Friday afternoon (4/13/07).

The verdict was the culmination of a two week trial in which 32 witnesses testified. Grant was found guilty on one count of conspiracy to commit mail fraud, wire fraud and aggravated identity theft , three counts of mail fraud, and three counts of wire fraud.

Ishmael Grant is the eighth defendant to plead guilty or be convicted after trial in connection with “Operation Whose House.” Presently, one defendant is awaiting trial and two defendants are fugitives in a foreign country. According to the evidence produced at trial, the scam involved fraudulently obtaining over 30 mortgage loans from lenders on property throughout Broward County, Florida and involved:

• paying individuals to act as straw buyers, the submission of false documentation (ie. false loan applications, false employment verification forms, false salary statements, false bank account statements reflecting high account balances), and identity theft (ie. using false or stolen Florida’s driver’s licenses, identification cards, and social security numbers as their personal identification to buy the homes in other people's names).

For more, see the 4-16-07 USDOJ Press Release, Operation Whose House Mortgage Fraud Defendant Guilty In Mortgage Fraud Scheme.

For a local media report on the case, see Lauderhill man found guilty of multimillion-dollar mortgage fraud, reported in the South Florida Sun-Sentinel.

For earlier USDOJ Press Releases announcing the guilty pleas of other defendants, see

• Five defendants Plead Guilty To Motgage Fraud Scheme (2-23-07),
• Two More Plead Guilty In Operation Whose House Mortgage Fraud And Identity Theft Ring (3-16-07)

For a copy of the indictment in this case, see Indictment - USA vs. Patterson, Brown, McGuire, et al., (detailing the Federal Grand Jury's 47 charges against the 11 person fraud ring)

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Florida Court Rules That "Foreclosure Rescue Eviction" Not A Landlord-Tenant Matter

A Florida appellate court ruled last month that a Miami-area foreclosure rescue operator cannot evict a homeowner who signed away title to her home in a "sale-leaseback-buyback option" arrangement until a determination is made as to who the true owner of the property is and effectively ruling that the Florida Residential Landlord Tenant Act is not applicable to such a transaction unless and until such a determination favorable to the operator is made.

The case involved a situation where, at some point after a financially strapped homeowner signed away the title to her home to a foreclosure rescue operator, the operator attempted to evict her. The homeowner asserted the defense that she was the true owner. The lower court ruled that, pursuant to the applicable provisions of the Florida Residential Landlord Tenant Act, she had to pay into the court registry the rent that was called for in the leaseback of her home while the court proceedings were pending.

According to the appellate court's opinion:

• "[The homeowner] alleges she was tricked into conveying her home to Equinamics in a transaction which is impressed with characteristics of a sale, but in reality is a disguised loan secured by her home. If this is accurate, then Equinamics is not an owner of [the homeowner's] residence but rather a lender who must proceed to oust [her] via a foreclosure action."

The court then made this observation:

• "Based upon the facts of this case, it is apparent that the transaction by which Equinamics received title to the Minalla residence was not an ordinary real estate transaction. Likewise, the circumstances under which Minalla continued to remain on the property after she executed the special warranty deed to Equimanics was not possessed of the trappings of a usual landlord tenant relationship."

Ultimately, in reversing the lower court ruling to the contrary, the appellate court ruled as follows:

• "[T]here is a factual dispute in this case concerning who is the true owner of the property. Because the trial court's order requiring payments by Minalla of monies into the registry was made without conducting an evidentiary hearing concerning the nature of the transaction and who is the true owner of the residence, the court erred in imposing the payment requirement upon her."

The homeowner is being represented by attorney James A. Bonfiglio, Boynton Beach, Florida.
Minalla v. Equinamics Corp., (Fla. App. Ct., 3rd Dist. March 21, 2007) (Court decision made available online courtesy of the Florida Third District Court of Appeal)

Postscript:

The court in this case reveals the following in a footnote:

• that the homeowner has brought claims against the foreclosure rescue operator under the Federal Truth in Lending Act giving her a right to rescind under 15 U.S.C. § 1635 and Reg. Z 226.23, and damages under 15 U.S.C. § 1640 (a);
• that the arrangement is alleged to be a Home Ownership and Equity Protection Act Amendments (HOEPA) loan under 15 U.S.C. § 1602 (aa) and Reg. Z 226.31, giving right to an additional basis to rescind under § 1635 and enhanced actual damages under § 1640 (a)(4);
• that the arrangement is alleged to violate Florida's usury statute, § 687.02(1), Florida Statutes (2005);
• that the homeowner has brought a quiet title claim; and
• that the homeowner seeks declaratory relief on the basis that enforcing the arrangement as a true "sale lease option" would enforce an illegal equity skimming contract in violation of section 697.08, a third degree felony, which it claims allows Minalla civil damages as being "against public policy.

There seems to be some pretty interesting issues for Florida practitioners in this case, particularly the usury and illegal equity skimming claims coupled with the equitable mortgage / disguised loan issue. This may be a case worth keeping an eye on.
For more on attorney James A. Bonfiglio, see:

• West Palm Beach Attorney Representing "A Dozen" Foreclosure Rescue Victims; and
• Facing foreclosure? Beware of 'rescue firms' offering to help you. equitable mortgage zebra

Another NYC Foreclosure Rescue Federal Lawsuit Settled

A foreclosure rescue lawsuit brought by a couple in a Brooklyn, New York Federal Court was settled privately by the parties involved earlier this year. The homeowners in this case brought suit against foreclosure rescue operator Principle Investors Realty, and individuals Frankie L. Freeman, Edith A. Lorick, attorneys Fred D. Way, III (remember him from yesterday's posts) and Appolo Pitton, and Kevin Waite, who ultimately ended up with the title to the home. When the homeowners approached the operators for help in "saving" their home, they (the foreclosure rescue operator) allegedly proceeded to engage in an equity stripping, foreclosure rescue deal that ultimately forced the homeowners out of their home. According to the allegations contained in the lawsuit:

• "But instead of helping the Hineses save their home, Freeman induced them to transfer their deed to his associate, defendant Edith A. Lorick ("Lorick"), who took out a new mortgage on the property that exceeded the Hines's previous mortgage by more than $100,000; distributed the proceeds of the new mortgage to himself and his co-conspirators; and demanded monthly rental payments from the Hineses that he knew they could not afford. Unable to make the payments, the Hineses were forced to move out of their home."

According to the lawsuit, the property was ultimately sold for $100,000 more than the amount of the subsequent mortgage taken out by Lorick, and nearly $200,000 more than the payoff amount on the homeowners' original mortgage. The homeowners allegedly only received $10,000 in the transaction.

This lawsuit brought claims (not unlike many of the claims brought in those New York cases I reported on in yesterday's posts) against those involved for:

• Equitable Mortgage (NY Real Property Law Sec. 320),
• Violations of the Federal Truth In Lending Act,
• Violations of the Federal Real Estate Settlement Procedures Act,
• Common law fraud,
• Conspiracy to commit fraud,
• Violations of New York State General Business Law Sections 349 & 350 ("The Deceptive Practices Act"),
• Conversion,
• Unjust Enrichment and Constructive Trust,
• Legal Malpractice

Representing the homeowners in this case were attorneys from the firms Chadbourne & Parke, LLP and Patterson Belknap Webb & Tyler LLP.

For the complete lawsuit, see Complaint - Hines-Johnson vs. Principle Investors Realty, Frankie L. Freeman, et al.

Editor's Note:

It's hard not to notice that the attorneys and law firms representing the homeowners who are alleged foreclosure rescue victims are no longer only sole practitioners and attorneys from the non-profit legal services firms. Some law firms that are getting involved in these cases (such as those in this case and in the New York cases I reported on yesterday) appear to be pretty large firms that are better known for corporate law and complex litigation. Further, given the financial straits that these homeowners are invariably in, it's hard to imagine that the cases are being handled on anything other than a pro bono or contingency fee basis. It may very well be that the area of consumer protection law involving the representation of homeowners who have had business dealings with foreclosure rescue operators is becoming an emerging area of law for civil litigators.

For commentary on the emergence of this area of law, see, for example, Litigating Foreclosure Rescue Scams (An Emerging Area of Consumer Law), and my April 5, 2007 post on this point, Litigating Foreclosure Rescue Scams. equitable mortgage zebra

Washington State Assistant AG Has Eye On Foreclosure Rescue Fraud

The News Tribune in Tacoma, Washington has a story on Washington State Assistant Attorney General Dave Huey and his work in the AG's Consumer Protection Division. When asked about the type of lending fraud he is seeing today in the state, he said:

• "We’ve sort of shifted our focus to foreclosure rescue fraud, because that’s where con artists can make a living. They don’t have the inflated values anymore. So now if you’re looking to make your fortune in real estate, you have to find new ways to exploit people, and we’re seeing that in foreclosure rescue scams."

For more, see He’s got your back.

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