Alleged Strong-Arming Massachusetts Mortgage Lender The Target Of Developers' Lawsuits

Stories of overreaching money lenders looking to squeeze property owners for high interest and fees, if not their real estate, are not limited to foreclosure rescue operators scamming unsophisticated homeowners, as a recent Massachusetts story in the Worcester Telegram & Gazette News reports:

• At least six real estate developers who borrowed money from a Marlboro-based investment firm with ties to prominent Worcester businessman David G. “Duddie” Massad now claim they were later strong-armed by the company under threat of financial ruin to make unusual payments, do costly favors or sign over an ownership interest in property.

• Their stories of LBM Financial LLC allegedly driving them to the brink of foreclosure or bankruptcy with exorbitant interest rates — and then taking advantage of their financial vulnerability — mirror racketeering complaints filed against LBM, Mr. Massad and others in a series of civil suits recently combined into one action in U.S. District Court.

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• In a general scenario alleged by six developers identified by the Telegram & Gazette, [developer Bernard J.] Laverty said he first borrowed from the Marlboro firm about five years ago based in part on promises that, once he got his projects started, it would help him get a traditional bank loan at a far lower interest rate than the 16 percent charged by LBM. But the promised bank loan never came, he said, and the company stymied his efforts to refinance his debt. Mr. Laverty said he eventually fell behind on his payments to LBM, triggering a default interest rate as well as a series of penalties and fees that drove up his effective interest rate to a budget-busting 32 percent. Then came the demands, he said. “It was, ‘If you don’t do this, we’re going to do that.’ Either I agree to do whatever they say or they foreclose on all my stuff, and I’m out of business,” Mr. Laverty said. “It was a nightmare.”

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• Worcester developers Nicholas J. Fiorillo and Robert Depietri Jr. were the first to lodge racketeering allegations against LBM, Mr. Massad, Mr. [Marcello M.] Mallegni and others in court. A federal judge last month combined their lawsuits into one megasuit seeking $118 million in damages. Mr. Fiorillo previously sued, making similar allegations, in Worcester Superior Court, but eventually lost that case.

For more, see Strong-arm tactics are alleged (LBM Financial target of complaints).

For story update, see Fourth racketeering lawsuit filed (Massad, Mallegni accused by Marshfield man).

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Editor's Note:

In "The law is a ass" department, Massachusetts has an interesting usury statute (M.G.L. Chapter 271: Section 49. Criminal usury) that, while it prohibits charging usurious rates on loans, it apparently also provides that it's okay to do so provided you give the Massachusetts Attorney General advanced notice that you're going to do it (M.G.L Ch. 271, Sec. 49(d)). As it relates to this story, it appears that LBM Financial did just that. Go here to read the LBM Financial letter telling the Massachusetts AG it will be charging usurious rates.

("The law is a ass" - quote courtesy of Mr. Bumble, from CHARLES DICKENS, Oliver Twist, chapter 51, p. 489 (1970). First published serially 1837–1839.)