D.C. Resident Victimized By Bogus Sale Leaseback Foreclosure Rescue; Family Home For Over A Century Lost In Scam

In Washington, D.C., Washington City Paper reports:

• There’s long been an O’Brien on Acker Place, and Anita O’Brien wants to keep it that way. Her great-grandfather, Lewis, purchased the redbrick rowhouse at 660 Acker—a one-block street with narrow brick sidewalks and thin trees—in 1902. The Capitol Hill property drifted among relatives until her grandfather bought it during the Great Depression. Her father grew up there, traveling up its well-worn wooden staircase to the three small bedrooms above. And nearly 25 years ago, Anita O’Brien moved in herself with her three children. Unfortunately, right now, she’s not sure who owns it—but she knows it’s not her. O’Brien is the target of a foreclosure “rescue.”

• In 2004, she defaulted on a refinancing loan. After the bank began foreclosure proceedings on her house, the 59-year-old was approached by a woman who said she would take the title of the house, pay O’Brien’s mortgage, then sell the home back to her later. In the meantime, she could keep living there and pay a more reasonable rent. O’Brien agreed. But four years later the home went into foreclosure again—and this time, she had no legal rights to it.(1)

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• “These kinds of cases have been around a long time,” says Wendy Weinberg, a lawyer with the Legal Aid Society of the District of Columbia. “They’ve just gotten a lot worse.” "The profile is mixed,” says Weinberg. The schemes range from highly organized operations involving hundreds of properties, many individuals, and millions in equity, to one-time, opportunistic deals. “On the smaller scale, you sometimes see family members doing it to each other,” says Weinberg. “Particularly you sometimes have grandchildren or children stealing title of the home from an olderperson, either from getting power of attorney or misrepresenting what the documents are.”(2)(3)

For more, see Title Wave: Where Not to Turn for Foreclosure Assistance.

(1) According to the story, when the transfer occurred on October 18, 2004, O'Brien had an outstanding loan of $149,001, according to foreclosure filings. For the next few years, O’Brien paid rent to India Rogers and Taofik Gbadomosi, up to $1,500 a month. They, in turn, were supposed to be paying her mortgage. But in September of last year, yet another foreclosure notice on the property was filed, saying that $416,075 was owed. O’Brien was stunned—there was nearly $267,000 more tacked onto her outstanding loan. It appeared Gbadomosi and Rogers had borrowed against the value of her house.

(2) In similar Washington, D.C. home equity ripoffs, see:

• D.C. Appeals Case Provides Roadmap For Obtaining Triple Damages Plus Punitives Against Foreclosure Rescue, Equity Stripper,
• Foreclosure Rescue Victim Wins $3.3+ Million Verdict Against D.C. Operator.

In addition, a 1988 ruling of the District of Columbia Court of Appeals supports the proposition that a home equity ripoff involving a sale of real estate with a contemporaneous leaseback of the premises to the seller, coupled with a right to buy back the property is nothing more than an usurious equitable mortgage. In Browner v. Dist. of Columbia, 549 A.2d 1107 (D.C. 1988), the D.C. high court made the following observation on the foreclosure rescue, equity stripping sale leaseback arrangements it considered:

• Moreover, if the transactions were in fact sales, as [the foreclosure rescue operators] contend, they were surely most extraordinary ones. When a homeowner sells his home, which is usually his most valuable possession, one would expect at least some measure of bargaining over the sales price. Here, there was none. In each instance, what the [foreclosure rescue operators] characterize as the "sales" price bore no relation whatever to the value of the equity. It is absurd to suggest that Mrs. Carroll would knowingly sell her home, in which she had an equity of more than $36,500.00, for $8,100.00. None of the "sellers" had placed his or her home on the market or expressed the slightest interest in selling it. Each "seller" remained in possession after the purported sale, and [the foreclosure rescue operators] were indeed depicting their service as one that would enable their clients to "save" their homes from foreclosure. Although the transaction also lacked one of the common characteristics of a loan -- an evaluation of the borrower's credit -- no such investigation was needed because the home itself, which in each case was worth far more than the amount expended by the [foreclosure rescue operators], served as their security. It was therefore altogether reasonable for the trial judge to find that the depiction of each of these transactions as a sale and lease back was a transparent sham which masked an unlawful loan.

See also, Sale Leaseback Recharacterization As Loan Results In Criminal Conviction.

(3) Inasmuch as Ms. O'Brien never relinquished and continues to maintain possession of her home, it may be that a successful attempt on her part to establish either that:

• she was defrauded out of her home, or
• the sale leaseback was nothing more than an equitable mortgage

could result in defeating the rights of any subsequent purchaser and mortgage lender on the basis that neither qualify for status as bona fide purchasers. Generally, when property is either sold or mortgaged subject to the occupancy and possession by another, the purchaser/lender is charged with a duty to inquire of the occupants as to the nature of their possession. Where such an inquiry would have uncovered the fraud by a foreclosure rescue operator, the purchaser's (or lender's) failure to make such an inquiry legally places it on notice of the fraud, thereby disqualifying it from the protection of the recording statutes as a bona fide purchaser. The bottom line in such an event would be that, after an adjudication in court that the transaction constituted a fraud or equitable mortgage, the ownership in Ms. O'Brien's home could likely be reinstated in her name, and the subsequent conveyances, and any subsequent mortgages, would be voided.

See, for example, Martinez v. Affordable Hous. Network, Inc., Case No. 04SC421, 123 P.3d 1201; 2005 Colo. LEXIS 1075 (Colo. 2005) (may require free regestration to FindLaw.com).

For case law addressing the effect of possession of real estate by an occupant other than the vendor and a real estate purchaser's duty to investigate when seeking the protection of the recording statutes as a bona fide purchaser, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.

See also, Ownership Interest Under Equitable Mortgage Defeats Interest Of Subsequent Buyer; Lack Of Knowledge Not Enough To Sustain Bona Fide Purchaser Status.