Court Stalls Eviction Of Elderly Chicago Woman Victimized In Sale Leaseback, Foreclosure Rescue Ripoff While She Fights To Recover Home

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

• A 75-year-old Chicago woman will be allowed to stay in her South Side home - at least for now. Lessie Town's bungalow is threatened by foreclosure. Towns and others say she is the innocent victim of mortgage rescue fraud. Lessie Towns will be able to stay - for now - in her South Side home of 40 years.

• Four years ago, Ms Towns, who is 75, was facing foreclosure, and she signed what she thought was a refinancing agreement to keep her home. In reality, the papers she signed authorized the sale of her home.(1) [...] Towns continued to live in what she thought was her home even though it had been sold, not once, but twice. "Ms. Towns home was sold for a fraction of its value and the cost was jacked up and sold to another person and the person in the middle collected all that windfall. This was a classic mortgage rescue scheme," said Brent Adams, Illinois Department of Financial and Professional Regulations.

• Facing possible eviction, Lessie Towns won a small victory in court on Tuesday. The foreclosure action against her will continue, but she'll be allowed to stay in her home while she attempts to prove she did not know she was selling her home when she signed her name four years ago. [...] Ms. Towns still faces what her attorney concedes is a serious challenge. For Ms. Towns bears the burden of proving to the court that she didn't know she was selling her home.(2)

• No criminal charges have been filed in this case though the department of finance and professional regulation and the attorney general's office are investigating over a dozen similar cases involving the same lender.

For the story, see Woman allegedly swindled out of home allowed to stay.

For an earlier story on this case, see Chicago owner loses home in mortgage scam.

(1) Of the foreclosure rescue operator that ripped off her client, Sabrina Herrell, Towns' attorney, said "I think they understood that she doesn't understand certain terminology and they used that to their advantage to get what they wanted."

(2) Any attempt to successfully void both her unwitting title transfer to the straw buyer and any 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.