Thursday, October 21, 2010

Colorado AG: Sale Leaseback Peddler Stripped $1M+ In Equity By Targeting Financially Unsophisticated, Vulnerable Homeowners In F'closure Rescue Racket

Courthouse News Service reports:
  • Jason L. Lynn, now of Marion, Ohio,(1) and his company, Superior Financial Group, of Superior, Colo., defrauded people through "unlawful foreclosure consulting services," the Colorado attorney general claims in Denver County Court.(2) The state filed a similar complaint against Patrick Brunner, Jerry Ohu, Gregory Hoffman, William Schultz, Fortune Financial Group, and Platinum Financial Group, in the same court.(3)

Source: Foreclosure Scams (5th story from top).

For the lawsuit, see State of Colorado v. Lynn, et ano.

(1) According to the lawsuit, Lynn was a resident of Colorado until in or around September 2009, at which point it appears that he decided to skip town. The AG has tracked him down residing, upon information and belief, at 975 Champagne Drive, Marion, Ohio 43302, the suit states.

(2) According to the lawsuit, the Colorado AG seeks to permanently enjoin Defendants, including Jason L. Lynn, individually, from engaging in deceptive trade practices, to obtain civil penalties and restitution, to disgorge unjust proceeds, and to recover attorney fees and costs. The suit alleges violations of the Colorado Consumer Protection Act, C.R.S. §§ 6-1-10 1 6-1-1120, and further alleges that Lynn is a "foreclosure consultant" within the meaning ofthe Colorado Foreclosure Protection Act, C.R.S. §§ 6-1-1101 to 6-1-1120.

The following excerpt from the Colorado AG's lawsuit (paragraphs 23-31) sets forth the general allegations made against Lynn (bold text is my emphasis, not in the original text):

  • 23. Beginning in 2005 and continuing through 2007, Jason Lynn, acting through his company Superior Financial Group, LLC, targeted financially unsophisticated and vulnerable Colorado homeowners in foreclosure and obtained more than $1,000,000 of equity through unlawful foreclosure consulting services involving sale-leaseback schemes. Lynn executed this scheme through the use of disparate bargaining power and inadequate disclosures. Homeowners not only lost all their equity to Lynn but in some cases their homes to eviction.

    24. Lynn promised victims that they could save their homes from foreclosure by selling them to Lynn's investors and then leasing the home from the investor for two years with an option to repurchase it. Upon information and belief, nearly all the homeowners were unable to repurchase the home, in part because significant amounts of equity were stripped from the home for Lynn's personal use and to compensate his investors, and the repurchase price was therefore unreasonable.

    25. Rather than provide meaningful assistance to homeowners, Lynn obtained substantial equity from the homeowners at closing without disclosing the amount and purpose of the sales proceed assignment to Lynn.

    26. Through advertisements on television and in newspapers and through referrals, Lynn targeted financially unsophisticated and vulnerable homeowners who had significant equity in their homes as a result of lengthy ownership, but nevertheless faced foreclosure because of economic hardship or personal tragedy.

    27. Lynn induced these homeowners to sell their homes to avoid a foreclosure sale, stay in their longtime homes, and have a opportunity to resume ownership. Some of the homeowners had spent many years, and some decades, in their homes and wanted to remain and once again repurchase their homes--and where thus susceptible to Lynn's deception and predatory conduct.

    28. After determining the amount of equity that could be obtained based on the existing mortgage and the estimated value, Lynn approached homeowners with a sale contract and a lease agreement containing an option to repurchase the property. Homeowners were not allowed to negotiate the sale price of their home or the repurchase price. Rather, Lynn misled the homeowners to believe that working with Superior Financial Group, LLC was the best way to save their home. Through deceptive, false, and misleading conduct, Lynn induced the victims to sign the sale contract and lease agreement.

    29. Lynn promised the victims that once they sell the home, they would remain in the home as a tenant with the option to repurchase the home when their credit or financial condition improved. Lynn informed the victims that he would use the equity from the sale, which was transferred at closing to Superior Financial Group, LLC through a proceed assignment, to assist the homeowners with rent payments and repairs. At no time, however, did Lynn disclose the actual purpose or amount of the proceed assignment. Moreover, he did not disclose that he himself would use the homeowner's equity for his personal use.

    30. At the closing, the homeowner victims would assign, without warning or disclosure, all the equity in their home through a proceed assignment to Superior Financial Group, LLC, which was presented to them for the first time at the closing.

    31. Lynn obtained equity from the victims up to $106,994 per transaction. The victims not only lost substantial equity in their homes as a result of this scheme, but many also lost the homes when they were evicted or forced to leave when the investor allowed the home to go into foreclosure.

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This type of foreclosure rescue scam is the kind of title transfer where the deed conveying title that has been successfully attacked in Colorado through application of the state consumer protection statute, and has led to an award of triple damages on behalf of the victimized homeowner. See Appeals Court Reverses $3M+ Jury Award To Equity Stripping Victims; Homeowners Forced To "Settle" For Triple Damages ($741K) Under State Consumer Fraud Act.

A successful attack on a sale leaseback scam perpetrated on a homeowner could also conceivably result in the voiding of the mortgage loan that financed the equity stripping scam upon a finding that the lender is not entitled to the protection of the state recording statutes as a bona fide purchaser due to its failure to inquire of the occupants of the property that were in open possession thereof into any unrecorded rights and/or equities they may have.

See, for example, Martinez v. Affordable Hous. Network, Inc., 123 P.3d 1201; 2005 Colo. LEXIS 1075 (Colo. 2005), in which the Colorado Supreme Court applied the bona fide purchaser doctrine in a sale leaseback, foreclosure rescue scam:

  • It is well settled in Colorado that, with certain exceptions inapplicable here, possession of real estate is sufficient to put an interested person on inquiry notice of any legal or equitable claim the person or persons in open, notorious, and exclusive possession of the property may have. See Hitchens v. Milner Land, Coal & Townsite Co., 65 Colo. 597, 601, 178 P. 575, 576 (1919);  Colburn v. Gilcrest, 60 Colo. 92, 94, 151 P. 909, 910 (1915);  Yates v. Hurd, 8 Colo. 343, 344, 8 P. 575, 576 (1885);  Tiger v. Anderson, 976 P.2d 308, 310 (Colo.App.1998).

Such a result was recently achieved in a recent Minnesota case applying the applicable state consumer protection statute involving a similar fact pattern. See Minn. Sale Leaseback, Equity Stripping Victim Wins Back Free & Clear Home With Help From Non-Profit Law Firm As Judge Voids Sale & Subsequent Mortgage.

(3) Attorneys General in Massachusetts, Arizona, Maryland and Washington State have enjoyed recent success in bringing civil lawsuits prosecuting sale leaseback foreclosure rescue peddlers by invoking their respective state consumer protection statutes, See:

The New Jersey Attorney General's Office has also brought civil lawsuits in sale leaseback cases which are currently pending:

The Feds, state and local law enforcement authorities have all brought criminal prosecutions in equity stripping, sale leaseback cases cases involving the use of third party investor/straw buyers in the process of pocketing the equity out of a victim's home. See, for example, the following posts for the year 2010:

It goes without saying that if there was any fraud committed by Jason Lynn in obtaining the mortgages for his straw buyer investors in his Colorado civil case, he makes for a nice juicy target for a criminal prosecution by the Colorado Feds.

posted by Home Equity Theft Reporter at 4:00 AM