In Central Florida, the St. Petersburg Times
recently ran an investigative report on a local foreclosure rescue operator promoting sale leaseback arrangements to homeowners facing foreclosure in which title and all rights to the home would be transferred to a so-called "family trust'' with an unrelated trustee.
- [O]f the 106 people who signed up for [owner of Foreclosure Prevention Corp. Gideon] Rechnitz's "foreclosure prevention program,'' nearly half lost their homes anyway. Many were confused by the legal documents he asked them to sign and were unable to meet the stringent rental and buyback conditions.(1)
- The most complex — and confusing — part of the program was the transfer of ownership. Instead of simply selling to Rechnitz, the homeowner signed a warranty deed that gave title and all rights to a "family trust,'' with Rechnitz or his Garco Inc., listed as trustee. That meant Rechnitz could sell the property or do anything else he wanted with it.
- Keeping the seller's name on the trust also was a major benefit to Rechnitz. The bank might not realize the property had been sold, and thus Rechnitz could make payments without triggering a due-on-sale clause, requiring the mortgage to be immediately paid in full.(2)
For more, see Homeowners' safety net really wasn't.
(1) According to the story, closing statements obtained by the Times show that the homeowners received no money from the sale, partly because they were assessed extra fees that included several thousand dollars for "preforeclosure administration'' that went to Profitmax — a company of which Rechnitz, 61, is the sole officer and director. Reportedly, sellers were also assessed a fee of as much as $3,000 that went to Recnitz' associate Thomas S. Cook for "foreclosure intervention.'' Cook sometimes notarized the legal documents himself even though state law forbids notary publics from notarizing transactions in which they have a financial interest, the story states. At least one homeowner's closing statement shows he was assessed $31,415 for "reinstatement'' and $6,100 in fees to Cook and Rechnitz, according to the report.
(2) Based on the details in the story describing the sale leaseback deals with some of the homeowners facing foreclosure, the deals described therein could be ripe for recharacterization as equitable mortgages (and, possibly in some cases, usurious equitable mortgages), even if no fraud on the part of the foreclosure rescue operator is proved. (Go here for posts on some of the case law on equitable mortgage and usury in Florida).
Further, as of October 1, 2008, the recently passed Florida Foreclosure Fraud Protection Act (HB 643) creates a rebuttable presumption that any foreclosure rescue transaction in Florida involving a lease option or other type of repurchase agreement is an equitable mortgage (see Florida Statute Sec. 501.1377(6)).