D.C. Appeals Case Provides Roadmap For Obtaining Triple Damages Plus Punitives Against Foreclosure Rescue, Equity Stripper

A 2006 decision of the District of Columbia Court of Appeals may provide a roadmap for how a state's consumer protection laws can be used to obtain significant damages from a foreclosure rescue operator engaged in an equity stripping arrangement. The players in this case are Rodney Byrd, the foreclosure rescue operator, and Hattie Smith, the homeowner. Tina Jackson, Hattie Smith's grandchild, brought the case on behalf of her grandmother's estate.

The fact pattern, in Byrd v. Jackson, No. 04-CV-940, 902 A.2d 778; 2006 D.C. App. LEXIS 362 (2006), is summarized in the first paragraph of the appellate court's opinion:

• Plaintiff-appellee, the grandchild and personal representative of the estate of the deceased Hattie Smith, brought suit against appellant (Byrd) for his conduct in persuading Smith to sign documents which resulted in the sale of her home to a partnership Byrd controlled. After a bench trial, the judge found that Byrd had committed multiple violations of the District of Columbia Consumer Protection Procedures Act, D.C. Code §§ 28-3901 et seq. (2001) (the CPPA or the Act), and awarded treble and punitive damages to the estate.

• The judge found, in essence, that despite representing himself to Smith as a foreclosure specialist who would assist her in retaining ownership of her home, Byrd "orchestrat[ed] ... the sale of [her] property worth $ 200,000" to the partnership he controlled for $ 33,000, then "flip[ped] the property to [a third person] for $ 150,000 from which Byrd would take substantial money." n1

[Opinion, footnote 1: Indeed, the judge found that ultimately Byrd had paid Smith nothing for the property].

In applying the D.C. consumer protection statute, the appellate court rejected the foreclosure rescue operator's attempt to characterize the relationship between himself and the frail, elderly homeowner as "a purchaser-seller relationship in which Smith, in an arm's length transaction, sold her house to him in circumstances admittedly unfavorable to her but not of his making."

The appellate court agreed with the lower court ruling that the relationship between Byrd, who presented himself to the homeowner as a "foreclosure specialist" who would aid her in keeping her home -- and not as a prospective buyer, and Hattie Smith was a merchant-consumer relationship to which the D.C. consumer protection statute was applicable.

• As the [trial] judge concluded, it enabled him to gain Smith's trust by a promise to save her home, after which he "orchestrat[ed]" the scheme to gain title to the home "for a fraction of its value." Both the treble damages, which under the CPPA "serve a remedial rather than a punitive purpose," [...], and the separate punitive damages award -- which the judge assessed after finding Byrd's actions to have been "particularly malicious because . . . calculated to take advantage of a frail, elderly and vulnerable widow" -- are entirely justified on this record.

The trial judge found that Hattie Smith lost $148,175.41 equity in her home, and accordingly based the treble damage calculation on that amount. (The actual award of $315,026.23 represented a multiplier of three minus a credit of $ 129,500 from other settling defendants).(1)

For the opinion, see Byrd v. Jackson, No. 04-CV-940, 902 A.2d 778; 2006 D.C. App. LEXIS 362 (2006).

For the trial court ruling, see Jackson v. Byrd, Civil Action No. 01-ca-825 , 2004 D.C. Super. LEXIS 19 (D.C. Super. Ct., 2004) (link may require free registration at LexisOne Free Case Law).

For a media report on this case, see The Washington Post: Judge Rules Against Foreclosure Rescuer (Investor Ordered to Pay Widow's Estate).

(1) The trial court noted in its ruling that Byrd, who (as a result of a motion filed by Plaintiff) was prohibited from testifying at trial because during his deposition, he invoked his 5th Amendment right to remain silent, was no stranger to the D.C. courts in cases with similar fact patterns:

• This was not the only time Byrd inserted an unconscionable price into a contract to buy the home of a frail elderly person. In Cole v. Herbert (Civ. Action No. 98-9252), Byrd bought a house worth $ 120,000 for $ 8000 by defrauding the personal representative of three elderly people who owned interests in the home. (P Ex. 96) In Crockett v. Byrd (Civ. Action No. 98-1584) Byrd purchased a home worth $ 150,000 for $ 56,000 from an elderly lady suffering from dementia. (P Ex. 73)

• From all of the facts described above, the Court concludes by a preponderance of the evidence that Byrd made and enforced an unconscionable sales price by taking advantage of Smith's frail physical and mental condition. As a self-proclaimed foreclosure specialist, he got this frail elderly woman to trust him with saving her home, and then he took it for himself at an unconscionable price.