NFL Cornerback, Pastor Accused In Alleged San Diego-Area Equity Stripping, Foreclosure Rescue Scam
- A professional football player and a pastor are both accused of preying on San Diegans facing foreclosure, 10News reported. According to court records obtained by 10News, the player and pastor ran a foreclosure rescue scam with the player's mother. A civil complaint was filed against Baltimore Ravens cornerback Anwar Phillips, who is accused of playing a role in a local foreclosure scam.
- The complaint said the [homeowners] met one of the foreclosure group's members at a local church who was a pastor. The group promised to be the answer to their financial prayers. "This group promised to save these people's house by temporarily putting someone on the title, and they would be able to get the house back in a couple of months," said [homeowners' attorney Mike] Vallee. However, their prayers were left unanswered, and Vallee said the [homeowners] are victims of an equity draining scam.
- In the alleged scheme, a troubled homeowner transfers the title of the home to so-called rescuers, who then take out a new mortgage and pocket the equity. "What they ended up doing is stripping out somewhere between $90,000 to $120,000 of equity, quit paying the loan and now the people are facing foreclosure again," said
For more, see NFL Player Accused In Local Foreclosure Scam.
(1) If the homeowners who were allegedly defrauded out of their home equity can demonstrate that they were unaware of the nature of what they were signing, this could, under California law, constitute grounds for declaring the deed void from the time it was executed ("void ab initio" - for those who speak Latin), thereby leading to voiding the foreclosing mortgage as well. See Schiavon v. Arnaudo Bros., 84 Cal. App. 4th 374; Cal.Rptr.2d 801 (Cal. App 6th Dist. 2000):
- "A deed is void if the grantor's signature is forged or if the grantor is unaware of the nature of what he or she is signing. (Erickson v. Bohne, 130 Cal.App.2d  at pp. 555-556)."
The Schiavon case goes on to say that "where the grantor is aware of what he or she is executing, but has been induced to do so through fraudulent misrepresentations[,]" then such a deed is not void, but is merely voidable.
In the event the deed is found to be merely voidable, the homeowners victimized by the alleged fraud can still attempt to void or cancel the deed to the purported buyer, and the mortgage obtained by the buyer. However, central to such an effort would be the ability to:
- prove the buyer and/or lender either participated in, or had actual knowledge of, the fraud, or
- assuming the buyer and/or the lender neither participated in, nor had actual knowledge of, the fraud, impute upon them notice of the fraud and/or any other unrecorded rights and equities (ie. equitable mortgage) the victimized homeowners may have had at the time of the conveyance.
Lack of participation in the fraud, and lack of any actual knowledge thereof, by subsequent purchasers & encumbrancers is not enough to sustain a claim of bona fide purchaser / encumbrancer. In this case, the homeowners' continued possession of the property after signing away the deed may have triggered a duty to inquire, upon both the buyer, and the buyer's mortgage lender, into the nature of the homeowners' continued occupancy in their home. For support for this proposition under California law, see Pell v. McElroy, 36 Cal. 268, 1868 Cal. LEXIS 186 (Cal. 1868), where the California Supreme Court ruled:
- The continued exclusive possession of a vendor after his formal conveyance of the legal title is a fact in conflict with the legal effect of his deed, and is presumptive evidence that he still retains an interest in the premises, and is sufficient to put a purchaser upon inquiry, and subject him to the general rule heretofore announced in case of the party in possession being a stranger to the title as of record.
The obligation of a subsequent purchaser to inquire into the rights of the seller when the seller retains exclusive possession after the conveyance also applies to a subsequent encumbrancer/mortgage lender. See J. R. Garrett Co. v. States, 3 Cal.2d 379, 44 P.2d 538 (Cal. 1935):
- As a general rule, possession of real property is constructive notice to any intending purchaser or encumbrancer of said property. This rule is so well established that citation of authority is hardly necessary.
The obligation of a subsequent purchaser or encumbrancer to inquire is summarized by these excerpts from Pell v. McElroy:
- The fact of open, notorious, and exclusive possession and occupation of lands by a stranger to a vendor's title, as of record, at the time of a purchase from and conveyance by such vendor out of possession, is sufficient to put such purchaser upon inquiry as to the legal and equitable rights of the party so in possession, and such vendee is presumed to have purchased and taken a conveyance from the vendor with full notice of all the legal and equitable rights in the premises of such party in possession and in subordination to these rights; and this presumption is only to be overcome or rebutted by clear and explicit proof on the part of such purchaser, or those claiming under him, of diligent, unavailing effort by the vendee to discover or obtain actual notice of any legal or equitable rights in the premises in behalf of the party in possession. And when the location of the lands is such as to render personal application to and inquiry of the occupant practicable, a purchaser failing to make such application and inquiry is no more entitled to be regarded a purchaser in good faith than if he had so inquired and ascertained the real facts of the case.
In Scheerer v. Cuddy, 85 Cal. 270, 24 P. 713; (Cal. 1890), the California Supreme Court made this statement regarding a purchaser's duty to know who is in possession of the property he/she is purchasing:
- Whether the respondent knew of the appellant's possession, or not, is immaterial. It was his duty to know who was in possession of the property before making the purchase, and his purchase without ascertaining the fact must be regarded as the strongest evidence of bad faith on his part. The burden of making the proper inquiry was cast upon him by the mere fact of actual possession on the part of the appellant. If it were allowed that by failing to acquaint himself with the fact of possession on the part of another than the vendor the vendee could avoid the effect of the rule above stated, he could purposely avoid any inquiry on the subject, and thereby evade the rule and its consequences entirely.
For a California case applying the bona fide purchaser doctrine and the purchaser's duty to inquire of persons in possession in the context of an equitable mortgage, see Hyde v. Mangan, 88 Cal. 319, 26 P. 180 (1891).
For more on the aforementioned points, see:
- Unwinding An Abusive Or Fraudulent Real Estate Transaction? Determining If The Deed Is Void, Or Merely Voidable?,
- California Bona Fide Purchaser, Possession, Duty Of Inquiry,
- Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire,
- California Equitable Mortgage.
- California Civ. Code §§ 18,19 and § 2925. sale leaseback