75-Year Old Chicago Woman Fights To Get Back Home Ripped Off In Straw Buyer, Equity Stripping Foreclosure Rescue Scam

In Chicago, Illinois, WLS-TV Channel 7 reports:

• A Chicago woman is battling to keep the home she has owned for 40 years. Lessie Towns is a victim of mortgage fraud, and she could lose her home, despite the fact she has never missed a mortgage payment. Towns, who is 75 years old, raised five children as a single mother in her South Side home. Four years ago, she was astonished to discover that her home was in foreclosure. She says she was current with her payments, although her lender had changed hands. Then came a cold-call visit from a lender who knew about the pending foreclosure.

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• She signed what she thought was a refinancing agreement with Oak Brook based Trust One Mortgage. She was regularly making payments until she found the company's south suburban office empty and padlocked. Then, Lessie Towns discovered she no longer owned her home. It had been sold, investigators say, at least twice to straw buyers who made a profit.

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• Last month, [the Illinois Dept. of Financial and Professional Regulation] revoked the licenses of Trust One Mortgage and its owner, Paul Shelton, saying the alleged fraud scheme involved Lessie Towns and at least 13 other homeowners. Towns was back in court Friday in the fight to keep her home. [...] Her attorney is optimistic Towns will win the fight to keep her home, but it's been a very emotional fight for the homeowner who technically does not own her home. [...] Lessie Towns' effort to stay in her home is set for a court ruling July 14.(1)

For the story, see Chicago owner loses home in mortgage scam.

(1) Any attempt by the financially strapped homeowner to successfully void her unwitting title transfer, as well as the subsequent title transfers (and any mortgage liens created incident thereto) to subsequent purchasers and encumbrancers could turn on whether the subsequent purchasers and encumbrancers can be charged with inquiry notice of the alleged fraud and/or any other unrecorded rights (ie. equitable mortgage) the scammed homeowners can establish that they had at the time of the relevant conveyances.

Under Illinois law, the continued open and visible possession of the home by the scammed homeowners after being duped by the foreclosure rescue operator may be sufficient to charge those subsequently acquiring title and security interests in the home with notice of the fraud, and thereby disqualifying them from bona fide purchaser status. An Illinois appeals court ruling in Life Savings & Loan Association v. Bryant, 125 Ill. App. 3d 1012, 81 Ill. Dec. 577, 467 N.E.2d 277 (1st Dist. 1984) addresses this point:

• Illinois courts have uniformly held that the actual occupation of land is equivalent to the recording of the instrument under which the occupant claims interest in the property. (Bullard v. Turner (1934), 357 Ill. 279, 192 N.E. 223; Beals v. Cryer (1981), 99 Ill. App. 3d 842, 426 N.E.2d 253). The open and visible possession of land by the equitable owner is sufficient to charge a mortgagee with notice of the rights of such owner, and the mortgagee will take subject to the rights of the person in possession. Williams v. Spitzer (1903), 203 Ill. 505, 68 N.E. 49.

Likewise, citing heavily to the Illinois state case law, a Federal bankruptcy court in In re Cutty's-Gurnee, Inc., 133 B.R. 934 (Bankr. N.D. Ill. 1991) made this observation on the effect of continued possession on subsequent purchasers and encumbrancers:

• It is clear that where a physical inspection of the property would reveal an adverse interest or where there is a party in possession other than the record title owner, the subsequent lien claimant has a duty to inquire of the possessor as to his interest and is charged with knowledge of the facts discoverable from such an inquiry or inspection. Miller [v. Bullington], 381 Ill. [238] at 244, 44 N.E.2d [850] at 853; Burnex Oil Co. v. Floyd, 106 Ill. App. 2d 16, 23, 245 N.E.2d 539, 544 (1st Dist. 1969); In re Ehrlich, 59 Bankr. 646, 650 (Bankr. N.D. Ill. 1986).

Go here for more on the effect of continued possesion on bona fide purchaser/encumbrancer in Illinois.

For cases that support the proposition that possession of real estate by one other than the seller is enough to trigger this imposition of the duty to inquire as to possible unrecorded rights of the possessor, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.