Use Of "Cash Back, No Money Down" R/E Acquisition Technique The Focus Of Suit As Elderly Couple Allege Buyer Screwed Them Out Of Their Home Equity

In Tampa, Florida, the St. Petersburg Times reports on the story of an elderly couple who claim they had their home equity ripped out from under them by a buyer using a real estate financing technique (or, more specifically, an over-financing technique that some may consider a form of equity stripping) that's been made famous over the last 3+ decades by a batallion of peddlers of "No Money Down" real estate investment books, tapes & seminars:

• A retired couple who sold their longtime homestead to Buddy Johnson sued the former Hillsborough elections supervisor Friday, alleging that he committed fraud by secretly altering the terms of the sales contract.

• Cecil and Nita Bass, who sold their 20-acre family land to Johnson two years ago for $800,000, say Johnson defrauded them in a conspiracy involving a title company and the Plant City bank whose president, at the time, was the treasurer for Johnson's re-election campaign.

• Johnson changed the sales contract, the lawsuit says, to obtain financing in excess of the amount allowed under the contract's terms, enabling him to walk away from the closing with $158,177 in cash "for his own personal benefit."

• The Basses say Johnson signed documents representing that he would finance $760,000 of the $800,000 purchase price: $240,000 from Sunshine State Savings(1) in Plant City and $520,000 in a second mortgage from the Basses.

• Instead, the suit says, Johnson negotiated a $400,000 loan from the federally-insured thrift and kept the Basses in the dark about it. In all, he got $920,000 in loans on the $800,000 purchase, allowing him to take a six-figure sum away at closing.

For more, see Lawsuit accuses Buddy Johnson of fraud in land financing.

For story updates, see:

• 4-16-09 - Buddy Johnson foreclosure filing could cost elderly couple $520,000,
• 4-17-09 - Ex-election boss faces foreclosure lawsuit.

(1) Any attempt by the screwed over homeowners to void the mortgage by Johnson to Sunshine State will turn on whether Sunshine's status as a bona fide purchaser / encumbrancer can be successfully attacked and overcome. Even if Sunshine didn't participate in the alleged fraud and had no knowledge thereof, it may nevertheless find itself as being "on notice" of the alleged fraud and, consequently, lose the protection of the recording statutes, leaving its mortgage interest in the real estate subject to being voided. See Flanigan's Enters. v. Shoppes at 18th & Commer., Inc., 954 So. 2d 758; 2007 Fla. App. LEXIS 7065; 32 Fla. L. Weekly D 1241 (4th DCA 2007) (The court, in addressing the bona fide purchaser issue, stated: "If a person has information that would lead a reasonable man to make further inquiry for his own protection, but fails to further investigate and learn what the inquiry would reasonably have uncovered, the person must suffer the consequence of his neglect." [citations and internal quotations omitted]).