Port St. Lucie Pair Face Grand Theft Charges In Alleged Home Hijacking, Rental Scam; Police Probe Continues Into Similar Incident With Another Home

In Port St. Lucie, Florida, the South Florida Sun Sentinel reports:

• Two men each face a grand theft charge after police linked them to a scheme in which a home was rented to a family without the homeowners' knowledge, according to recently obtained records and a detective. Robbie Jay Hughes, 36, and Issiac Rivers, 46, were arrested Monday after police accused them of renting a home in foreclosure to a family in September 2009.

***

• Hughes eventually refunded nearly all of the rental money and didn't want the renters to speak with police about the matter. [... Detective Kim] Bailey said Hughes is suspected of renting out another home under similar circumstances but the homeowners in that case declined to press charges. [...] Bailey said she's investigating the men in connection with a similar incident at another home in the city.

For the story, see Two men arrested in rental of foreclosed Port St. Lucie home to family.

Couple Cops Plea In Rent Skimming Scam; Agreed To Take Over Payments On Seller's Existing Loan, Then Stiffed Bank; Allowed Home To Go Into Foreclosure

In Jackson County, Michigan, The Jackson Citizen Patriot reports:

• Jackson-area minister and State Farm Insurance agent Tony R. Jackson and his wife, Alisa Jackson, have to pay $4,113 back to a couple whom police said they defrauded. [...] The Jacksons were accused of taking money from a couple who wanted to sell their home in Blackman Township.

• The couple believed Tony Jackson, 41, and Alisa Jackson, 42, would rent out the house; pay the mortgage, taxes and insurance; and ultimately transfer its ownership to the tenants, a Blackman Township Public Safety detective said in September. Some mortgage payments were made, but the payments stopped and the home [...] went into foreclosure, Detective Chris Boulter said.(1)

For the story, see Minister, wife must pay back money from housing scheme.

(1) Reportedly, the two also have to each pay $750 in fines and do 50 hours of community service for their roles in a housing scheme, said Jackson County District Judge Michael Klaeren, who sentenced them [...]. Both earlier pleaded no contest to larceny of more than $200 but less than $1,000, a misdemeanor. The two originally were charged with felony counts of larceny by conversion, but the greater charges were dismissed in exchange for their pleas, Klaeren reportedly said.

Wisconsin Woman Faces Forgery Charges For Swiping & Uttering Checks Tied To Co-Worker's HELOC Account

In Sheboygan County, Wisconsin, the Sheboygan Press reports:

• Sheboygan County authorities have issued a warrant for a Milwaukee woman accused of stealing $4,000 in home equity from a Washington County resident. A criminal complaint issued with the warrant [...] charges Brenity A. Gayton, 24, with uttering a forgery, a felony punishable by up to three years in prison. She allegedly cashed the forged check in Sheboygan.

• According to the complaint: The theft was reported in August when a former co-worker of Gayton’s discovered his home equity line of credit had been used up. He told Washington County authorities that five checks tied to that line had been stolen from his house around the time Gayton visited him to sign employment-related paperwork. A surveillance photo from Wells Fargo Bank, [...] shows Gayton cashing one of the five checks, made out to herself for $4,000.

Source: Woman charged with stealing home equity.

Now-Defunct Rogue Bank Used Cosmetic Fix-Up, Easy Rent-To-Own Terms To Unload Multi-Flipped, Multi-Foreclosed "Hellhole" On Unwitting Family

In Atlanta, Georgia, The Atlanta Journal Constitution reports:

• Alexis Preston and her mother were thrilled last year when they found a home in Atlanta’s West End neighborhood large enough for their extended family of 13. They agreed to a lease-to-own deal to rent the neatly painted 12-bedroom house for $2,100 a month from the property’s owner through foreclosure, Omni National Bank. The renovation contractor even showed the house off to the bank’s executives and other visitors, she said.

• But her family soon discovered the spruced up 84-year-old home wasn’t what it appeared to be. Three days after they moved in last February, the house flooded during a rainstorm, beginning a nearly yearlong battle with repeated flooding, mold, water damage, roof leaks, buckling floors and months-long power outages.

• “It went from a dream home to a hellhole,” Preston, 27, said of the house, now owned by the Federal Deposit Insurance Corp. after Omni failed in March. Mold contamination sickened many members of the family. They lived for months by candlelight, with kerosene heaters and no air conditioning, after Omni failed in March, leaving behind more than $4,000 in unpaid power bills. “I was just sick all the time. Throwing up. Cold,” said Preston, who is pregnant. They finally gave up and moved out in December.

• What the family hadn’t seen hidden beneath the house’s neatly painted walls was a history of neglect and shoddy repairs — much of it financed with ever-escalating mortgages from Omni, which repossessed the home three times in two years. The house was a boarded-up haven for squatters and drug users for most of the past decade, said Barry Bennett, who lives across Lawton Street from the house. Contractors began working on it less than two years ago, but they clearly didn’t do a good job, he said. “It ain’t in good condition now,” said Bennett, who last year waded waist-deep through the house’s flooded basement to help rescue Preston’s children.

• On paper, however, the house underwent a more dramatic transformation. Between 2006 and 2008, it nearly doubled in value, according to Fulton County tax records. During that period, Omni repossessed the house three times, at values that rose from $160,000 to $308,875. By the time the string of sales of the Lawton Street house ended in 2008, its value on Omni’s books had risen to as much as three times the value of similar houses in the neighborhood, said Brent Brewer, a civil engineer who lives two blocks away.

• Most of that dramatic rise occurred while the house sat vacant and windowless, with huge sections of its exterior walls torn away. “No construction was happening,” said Brewer, a member of 30310 Mortgage Task Force, a neighborhood group battling property-flippers in the hard-hit area. “It just sat.”(1)

Source: 'From dream home to hellhole'.

Go here for video of "hellhole" house.

(1) Another recent Atlanta Journal Constitution story reports that there is a federal fraud probe ongoing into Omni National Bank's operations. See Bank leaves trail of flipping, fraud:

• [T]he number of Omni-related arrests has reached four, including the bank’s co-founder, Jeffrey L. Levine, who pleaded guilty to bank fraud two weeks ago. [...] More people may be charged in the wide-ranging probe of Omni, and the charges already filed suggest fraud pervaded the bank’s operation.

• Federal prosecutors said in court filings that bank records, for instance, were routinely doctored to hide losses, and a loan officer took kickbacks in return for doling out loans. The bank allowed people to “flip” houses three, four and even five times, artificially inflating their value, prosecutors said.

Loan Servicer Causes Home To Be Sold In Foreclosure Sale Despite Fully Paid Off Loan & Recorded Satisfaction Of Mortgage

The Indiana Court of Appeals recently reversed a lower court ruling, and remanded the matter back to it for trial in a case where loan servicer Ocwen Bank allegedly foreclosed on a home despite the fact that:

• the loan holder's (JPMorgan Chase) records show the loan was paid in full,
• the homeowner/couple had proof that the mortgage was paid off - namely a recorded satisfaction of mortgage - received from JPMorgan Chase, and
• there was evidence that they never received notification of the initiation of the foreclosure action against them and may have been improperly served with the lawsuit (ie. "sewer service").

The Indiana appeals court begins its ruling with the following brief summary of this fiasco:

• The Kafkaesque character of this litigation is difficult to deny. Having failed to receive a summons that may have been improperly served upon them, Marilyn and Michael Elliott learned that a default judgment had been entered against them, foreclosing on their home because of a mortgage that was allegedly in default. The home was sold in a sheriff's sale to the lending bank.

• Feeling confused and suspicious, they turned to the Indiana Attorney General, who directed them to file a complaint with the Comptroller of the Currency. The Comptroller's investigation revealed that Chase Bank, the ostensible plaintiff herein, is entirely unaware of the foreclosure proceeding. Moreover, Chase's records show that the mortgage was paid in full in 2001. Chase, therefore, executed and recorded a satisfaction of mortgage.

• Notwithstanding the satisfaction of mortgage, Chase's loan servicer—Ocwen Bank—continued to prosecute this action in Chase's name, attempting to force the Elliotts out of their home even though there has never been a trial and the lending bank has declared that the mortgage was paid in full. Finding this situation untenable, we reverse and remand for trial.

For the facts of the case and the rest of the ruling, see Elliott v. JPMorgan Chase Bank, No. 30A01-0907-CV-356, (Ind. Ct of App., February 3, 2010) (case also available here).

A Case Study In Sleazy "Tag Team" Tactics Used By Real Estate Agent & Attorney To Illegally Intimidate Family From Foreclosed Home

In New Haven, Connecticut, a recent New Haven Independent story reports on the recent action by the Connecticut Attorney General in targeting at least 30 law firms, real estate agencies and lenders with cease and desist orders in connection with sleazy practices designed to intimidate tenants out of recently foreclosed homes.

Reportedly, some foreclosure attorneys and real estate agents statewide are allegedly working in tandem to illegally force these tenants to vacate, in violation of the federal Protecting Tenants At Foreclosure Act. Their alleged conduct centers on intimidating letters being sent to the renters that create the impression that they are facing imminent eviction, coupled with "cash-for-keys" offers in amouts for less than the minimum required by Connecticut law.

The story profiles the experience of one local resident who, along with his wife and three children, have been allegedly subjected to this harassment. The contents of one threatening letter from the lender's real estate agent to the family shortly after the foreclosure reportedly contained the following text at the top of the correspondence:

• VERY IMPORTANT !!!!!!!! THE BANK NOW OWNS THIS PROPERTY—YOU WILL BE REQUIRED TO VACATE THE PREMISES SHORTLY—THERE MIGHT BE MONEY TO HELP YOU MOVE OUT, BUT YOU WILL NEED TO CONTACT ME WITHIN 48 HOURS AT THE NUMBER LISTED BELOW.

The problem with this all-caps message is that it creates a false sense of urgency that suggests that the tenants have to leave immediately when, in fact, the Protecting Tenants At Foreclosure Act expressly provides that tenants have 90 days from the receipt of proper notice from the foreclosing lender or until the completion of their lease to move out, whichever is later.

Shortly thereafter, another letter was reportedly received by the family, this time from the foreclosing lender's attorney containing, in part, the following language:

• You must vacate and surrender possession of the Premises to U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR THE STRUCTURED ASSET INVESTMENT LOAN TRUST, 2006-BNC3 unless you provide acceptable evidence to the undersigned law firm that you are a bona fide tenant pursuant to Section 702(a)(2)(A) of the Federal “Protecting Tenants at Foreclosure Act of 2009."

An additional false sense of urgency is created when an intimidating letter sent by a real estate agent is followed by another one from an attorney (this is an old debt collector trick that has been ruled by courts to be illegal - designed to create the impression that the process against the consumer is moving forward ("the walls are closing in on the consumer") and legal action is imminent unless the consumer succumbs to whatever demands on them have been made).

The following excerpt describes the position of local legal services attorneys, as well as the tenant's feelings about what is going on here:

• [The letter from the attorney is] not written as if “they care about the person understanding it,” [attorney Amy] Marx said. It’s written, she argued, like a credit card disclosure statement. Not only is the form of the letter problematic, the content of it is wrong also, Marx said. The letter asks Torres to prove he is a tenant of the building. It’s obvious [the lender's attorney] knows he and his family are tenants, she said. The letter was sent to them at the apartment by certified mail.

• The letter [also] uses the phrase “within ninety (90) days,” suggesting the Torres family may have less than the full 90 days they are allowed by law, Marx said. The letter further threatens that if the Torres family does not leave, the bank may seek “damages caused by your unlawful detention of the Premises.”

• “Get out of here immediately or you’re going to be stuck with a big legal bill,” Marx translated. She said such a threat is illegal. But Torres didn’t know that. Until Monday, when his lawyer explained his rights, he thought he could be evicted at any minute. Fearing that he was about to be evicted, and in need of money for a deposit on a new apartment, Torres signed a cash-for-keys agreement with American Home Mortgage Servicing, Inc. on Jan. 15. He agreed to move out on Jan. 31 in exchange for $1,500.

• That was another illegal action, according to his lawyers. The law states that tenants must receive at least $2,000 under a cash-for-keys agreement, said attorney Amy Eppler-Epstein. Just days after he signed the agreement, Torres received yet another letter. This one was from legal aid, informing him of the federal law and advising him of his rights. That’s how he ended up in the offices of legal aid, with attorneys working on his case.

***

• Torres’ experience is a case-study of the problem the attorney general is trying to combat, she said. “This is exactly what [Connecticut Attorney General] Richard Blumenthal is issuing cease and desist orders on today,” she said. Eppler-Epstein characterized the communications from the realtor and [the] attorney [] as “intimidating and untruthful action.” What they’re doing is scaring people, she said. “It’s just wrong.”

• Torres, speaking in Spanish, said the letters from the realtor and the lawyer frightened him. He said he signed the cash-for-keys agreement for fear that he and his family would be evicted and left with nothing. Torres has been unemployed for several months. He said he was working for a construction company in Branford but got laid off. He’s hoping he’ll get rehired when the warmer weather comes. In the meantime he’s been looking for work and collecting unemployment, he said.

For the story, see Blumenthal Puts Bankers, Lawyers On Notice.

Violators Of New Law Prohibiting Bullying Of New Jersey Renters Out Of Foreclosed Homes Subject To Triple Damages, Payment Of Tenant's Legal Fees

In Trenton, New Jersey, NewJerseyNewsRoom.com reports:

• Lost in the change of state government leadership last month was the signing by Gov. Jon Corzine of a new law designed to strengthens notification requirements for tenants living in a foreclosed property.

• Under the new law, buyers of a foreclosed residential property are required to notify tenants of the ownership change and that they are not required to vacate.

• Similarly, creditors engaged in an ongoing foreclosure proceeding are required to include a notice to residents that a foreclosure action has been initiated and that the ownership of the property may change, but that tenants are not required to vacate the premises in the event of a foreclosure.

• Buyers of a foreclosed property also are prohibited from engaging in any communication designed to persuade a tenant to vacate the property unless they make a bona fide monetary offer. Any acceptance of such an offer will be contingent upon the tenant having at least five business days to review its terms in writing, and by providing a signed acceptance. Violators will subject to either triple damages or a penalty of $2,000 plus attorney fees.

For more, see New law protects New Jersey tenants from foreclosure (Renters cannot be forced out when property changes hands).

Florida AG Targets California Loan Modification Operation With Civil Suit; Allegedly Used Local Notaries To Act As "Company Representatives"

From the Office of the Florida Attorney General:

• Attorney General Bill McCollum [] announced that his office has filed a lawsuit against a California company providing loan modification services to homeowners facing foreclosure. According to the lawsuit filed [] in Orange County, 21st Century Legal Services, Inc. allegedly charges consumers up-front fees in violation of Florida’s Foreclosure Rescue Fraud Prevention Act. [...] An investigation conducted by the Attorney General’s Economic Crimes Division revealed that 21st Century Legal Services charges an up-front fee as high as $2,500 to homeowners seeking loan modification services. Additionally, consumers have complained that the company has not performed the promised services and that consumers are unable to get refunds.

• The complaint alleges that, after initial contact is made with a homeowner, the company arranges for a "company representative" to visit the consumer at home. These representatives are, in fact, local notaries hired by the company to travel to the consumer’s home and execute the necessary sales agreements. The lawsuit states that the company instructed the notaries not to provide consumers with a copy of the written agreements, in direct violation of Florida law.

• Other states have sued 21st Century Legal Services, and the FBI raided several of the company’s California offices in mid-September.

For the Florida AG press release, see California Company Sued for Foreclosure Rescue Fraud.

For the lawsuit, see State of Florida v. 21st Century Legal Services, Inc. et al.

FTC Proposes Rule Banning Upfront Fees For Loan Mods; Applies Nationwide, Limited Exemption For Attorneys In Consumer Bankruptcy, Other Proceedings

The Federal Trade Commission announced:

• The Federal Trade Commission moved to protect distressed homeowners from the promoters of bogus foreclosure rescue and mortgage modification services by proposing a new rule that would forbid companies to charge up-front for these services. Instead, companies could only collect payment after providing services.

***

• The proposed rules would apply to for-profit companies that, in exchange for a fee, offer to work with lenders and servicers on behalf of consumers to modify the terms of mortgage loans or to take other steps to avoid foreclosure on those loans. The proposed rules generally exempt entities that own or service mortgage loans. Attorneys would have a limited exemption from the proposed advance fee ban if they represent consumers in a bankruptcy or other legal proceeding.

For the entire press release, see FTC Proposes Rule That Would Bar Mortgage Relief Companies From Charging Up-Front Fees.

For the text of the Federal Register Notice, see Notice of Proposed Rulemaking: Mortgage Assistance Relief Services.

Ohio AG Says Two Calif. Loan Modification Outfits Bilked Homeowners, Failed To Deliver Services In Separate Suits; Scores $81K+ Judgment Against 3rd

From the Office of the Ohio Attorney General:

• Ohio Attorney General Richard Cordray this week named United Law Group, Inc. (ULG), a California law firm founded by California attorney Sean Alan Rutledge, in a lawsuit for bilking Ohioans who faced foreclosure out of thousands of dollars.(1) The lawsuit alleges that the law firm promised foreclosure rescue and legal services to save homes and collected upfront fees but failed to deliver. In at least one instance a consumer was forced into foreclosure. ULG’s attorneys are not licensed to practice law in Ohio and never filed any court documents or provided legal representation on behalf of their clients.

***

• In a separate action [], Cordray filed a lawsuit against Guardian Services Group, also based in California, for promising foreclosure rescue services to Ohioans, accepting upfront fees and never delivering. The suit, filed in Montgomery County Common Pleas Court, accuses the company of charging consumers thousands of dollars and refusing to provide refunds even though the services were never provided.

***

• In early January, Cordray secured a judgment of $81,894 against Michael Brotherton, who operated Financial Emergency, Inc., a rescue business in Greene County. The judgment, filed in the Common Pleas Court of Greene County, stemmed from a lawsuit filed in June charging Brotherton with promising to negotiate debt settlements and loan modifications, collecting upfront fees for up to $1,269 and then failing to deliver. The court ordered full reimbursement to the five victims named in the case.

For the Ohio AG press release, see Cordray Sues two California Rescue Operations for Scamming Ohioans Facing Foreclosure.

For the lawsuits, see:

• State of Ohio v. United Law Group, Inc.,
• State of Ohio v. G Services Group LLC.,
• $81,894 Judgment - State of Ohio v. Brotherton.

(1) According to the press release, in November 2009, the State Bar Court of California ruled that ULG founder Sean Alan Rutledge was to be involuntarily enrolled as an inactive member of the State Bar of California for his conduct, which was found by the court to pose “a substantial threat of harm to his clients or the public.”

Brooklyn Developer Accused Of Selling Condos & Failing To Provide Deeds To Buyers Says Rabbi Deceased For 15 Years "Blessed" Deal

In Brooklyn, New York, the Daily News reports:

• The rebbe made him do it. A Brooklyn developer accused of fleecing dozens of Hasidic families in a massive subprime mortgage fraud scheme took cover behind a divine defense on Tuesday. Eliyahu Ezagui's lawyer told jurors his client received "a blessing" from the late Rabbi Menachem Schneerson to build affordable housing for the Lubavitcher community in Crown Heights.

• "It was a mitzvah to him, a Hebrew word that means a good deed and an obligation," defense lawyer Susan Necheles said in her opening statement in Brooklyn Federal Court. Schneerson is considered by some followers to be their Messiah, and thousands of Hasidim from all over still make a pilgrimage to his grave site 15 years after his death.

• Assistant U.S. Attorney William Schaeffer said Ezagui was nothing but a crook who scammed $2.6 million from condominium buyers and more than $10 million from banks. "Family after family who trusted the defendant are fighting against foreclosure of the homes they bought from him," Schaeffer told the jury.

• Prosecutors built a criminal case against Ezagui after the Daily News revealed in 2008 how he allegedly conned buyers into purchasing condos, then refused to hand over the deeds when the construction was completed. Instead, Ezagui allegedly gave the deeds to family members - including his wife, father and mother - who applied for mortgages on condos the victims thought they owned.(1)

For the story, see Apartment scam developer Eliyahu Ezagui says rebbe backed him.

(1) See Builder flees & 40 Hasidic families face eviction in Brooklyn swindle.

Connecticut AG Fires Warning Shot At Lawyers, Lenders, Real Estate Agents Using Sleazy Tactics To Illegally Drive Tenants From Foreclosed Homes

In Hartford, Connecticut, the Hartford Courant reports:

• New state and federal laws passed last year are supposed to protect renters in foreclosed properties from getting tossed out with little or no notice. But the state attorney general and legal aid lawyers said Monday there is strong evidence that those laws are being violated — and hundreds, perhaps thousands, of tenants have been pressured to leave sooner than legally required. Attorney General Richard Blumenthal said he has sent warnings to 30 law firms, real estate agencies, banks and loan servicers — urging them to follow the law or face further legal action.(1)

***

• The federal law [the Protecting Tenants At Foreclosure Act] gives tenants 90 days to move out of a foreclosed property or until the end of their lease, whichever is later. The tenants must be current on their rent. A state law, also passed last year, gives those doing the foreclosing the option of offering $2,000 or double the security deposit to the tenant to move out sooner, the so-called "cash for keys" program.

For more, see Blumenthal: Laws Protecting Tenants Are Violated.

See also:

• Connecticut AG press release, see Attorney General Warns Law Firms, Banks and Real Estate Companies To Stop Illegal Evictions,
• New Haven Independent: Blumenthal Puts Bankers, Lawyers On Notice.

(1) In coordination with legal assistance attorneys, Blumenthal has sent cease-and-desist letters to at least 30 companies that may have engaged in eviction practices that violate the Protecting Tenants At Foreclosure Act, his press release states. Blumenthal is notifying the companies of their legal obligations and requesting that they follow this federal law. Blumenthal was joined at a press conference this week by legal aid lawyers from New Haven Legal Assistance Association, Greater Hartford Legal Aid, Legal Assistance Resource Center of Connecticut, Connecticut Legal Services and Statewide Legal Services, as well as tenants who have faced unlawful evictions.

For a copy of the statute, see Protecting Tenants at Foreclosure Act of 2009.

Oregon Regulator Issues C&D Order, $250K Fine Against Foreclosure Rescue Operator For Alleged Securities Violations Tied To Sale Leasebacks

From the Oregon Department of Consumer and Business Services:

• The Oregon Department of Consumer and Business Services (DCBS) issued a cease-and-desist order and assessed $250,000 in fines against Anthony "Tony" Schwartz and two businesses he controlled for selling interests in foreclosed homes he seized in a complex foreclosure rescue scheme.

• Schwartz, who owned REI Exchange, LLC and TMG Ventures, Inc. in the Portland area, raised nearly $850,000 by convincing buyers to purchase fractional interests in real estate ―land trusts from the sale of homes seized from owners unable to repay their loans. Schwartz, who was not licensed to sell securities, falsely represented that the unusual, unsecured investments were safe. In addition to the fines, Schwartz is prohibited from raising capital, formally or informally, from other individuals for use or investment on their behalf.

***

• Under a series of complex legal documents, Schwartz lent money to struggling homeowners – some facing imminent foreclosure. In exchange for the home’s title, Schwartz made payments on behalf of the homeowner but would take the home when the homeowner failed to repay the loan. Schwartz claimed the right to seize and sell a house and then pocket – in some cases – significant equity.(1)

For the DCBS press release, see State sanctions promoter of "foreclosure rescue" scheme (Tony Schwartz promised to help distressed homeowners, then illegally sold interests in homes).

(1) According to the story, the Oregon Mortgage Rescue Fraud Protection Act of 2008 protects homeowners from such foreclosure rescue schemes by requiring those who purchase a homeowner’s equity in order to avoid foreclosure to ensure the homeowner has the ability to buy back the home and entitling the homeowner to a share of the proceeds if the home is resold quickly. Schwartz’s activities reportedly occurred before the law took effect.

Mortgage Voided As Lender Fails To Make Inquiries Of Persons In Possession; Unrecorded Rights Of Occupants Take Priority Over Lender's Recorded Lien

In the United Kingdom, Lexology.com reports on a British court case involving the application of the bona fide purchaser doctrine in which a mortgage lender found itself left holding the bag due to its failure to inquire into the rights and equities of persons in possession of a home who were not the record owners/borrowers before making a secured loan to the latter:

• A lender that does not make enquiries of persons known to be in occupation of a property runs the risk that such persons' interests in the property, if any, may override that of the lender.

• This was the position in HSBC Bank Plc v Dyche & Anor. The Dyches bought Mrs Dyche's parents' property for £25,000 (which was less than its market value) with the benefit of a loan from Lloyds Bank for £17,000. The reason for the transaction was to avoid the property being sold by Mrs Dyche's father's trustee in bankruptcy. The parents continued to reside in the property as their home and paid the loan sum, plus interest to the Dyches so that the Lloyds' mortgage was redeemed.

• Contrary to the agreement between the parties, the property was not transferred back to the parents following payment but, following her divorce, was transferred into Mrs Dyche's sole name. She took out a loan with HSBC providing HSBC with a forged assured shorthold tenancy agreement showing her father as tenant. Mrs Dyche became bankrupt and HSBC sought possession of the property.

• The court dismissed HSBC's claim holding that the Dyches had held the property on constructive trust for the parents and that Mrs Dyche's father (the surviving parent) was solely beneficially entitled to the property. His interest overrode HSBC's interest as he was in actual occupation throughout. He was entitled to a transfer of the property to him free of the mortgage.

• Things to Consider: Lender's solicitors [ie. attorneys] should make enquiry of any one known to be in occupation of a property. As per the CML Handbook, a signed deed or form of consent to the lender's interest taking priority should be obtained from any occupier aged 17 or over who is not a party to the mortgage. Failure to make such enquiry here meant HSBC assumed the risk of the tenancy agreement turning out to be forged, so losing their security.

Source: Make enquiries of occupiers (requires subscription; if no subscription, go here - then click link for the story).

For some of the U.S. case law on this issue, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.

For some of the basics on the bona fide purchaser doctrine, see The Bona Fide Purchaser for Value of a Legal Estate Without Notice.

Delaware AG Levels 21-Count Indictment Against Alleged Foreclosure Rescue Racket Using "Divine" Cover In Sale Leaseback, Equity Stripping Ripoff

In Dover, Delaware, ConsumerAffairs.com reports:

• Master Builders for Christ and Vision Builders Christian Center, along with three of its principals, have been charged in a 21-count indictment in Delaware, on charges of running a massive mortgage rescue scam. Warrants have been issued for the arrest of Jamaar Manlove, Larry Manlove, and Rhonda Manlove, and racketeering liens have been placed on their assets. Delaware Attorney General Beau Biden says the case is believed to be one of the largest mortgage rescue fraud indictments in the state's history.(1)

• The indictment alleges that Jamaar Manlove ran a criminal enterprise involving theft, money laundering, and forgery in which he preyed on vulnerable homeowners who faced imminent foreclosure. In these scams, struggling homeowners are convinced to sell their homes to third parties to avoid foreclosure, based on the false promise that they can repurchase their homes through a complex sale/lease-back arrangement when their financial situations improve.(2) In reality, this never happens. Instead, these schemes impose huge hidden fees that take thousands of dollars of equity away from homeowners, and they ultimately lose their homes, unable to obtain financing to repurchase their home.

For the story, see Church Groups Indicted in Delaware Mortgage Rescue Scheme (Largest foreclosure rescue scam in state history, attorney general says).

See also, The News Journal: Pastors accused in mortgage scheme (Middletown couple face charges in rescue scam).

(1) According to a story in The News Journal, the Web site for the church features pictures of the smiling Manloves, professions of faith and descriptions of the church's mission to be "a trailblazer in the world of business and government" whose "message of faith will heal the broken hearted, preach wealth to the poor. ..." The About Us section of the Web site states, "Our integrity is above reproach, and we overcome all life's challenges by maximizing every circumstance and obstacle that we would encounter."

(2) Reportedly, prosecutors have so far identified four victims in the criminal case, plus a fifth victim in a separate but related civil action, with an estimated loss of about $280,000. The Attorney General's Office believes more may have been victimized, and the losses will rise as the investigation proceeds.

Closing Attorney Gets Back-To-Back Boot From State Bars; Accused Of Misappropriating $500K+ Of Client Cash In Rhode Island, $350K+ In Bay State

In Providence, Rhode Island, The Providence Journal reports:

• A Needham, Mass., lawyer is the latest attorney to be disbarred by the Rhode Island Supreme Court for allegedly mishandling a mortgage refinancing. The high court on Jan. 19 barred David L. Spector from practicing in the state for allegedly misappropriating more than $500,000 that was supposed to be paid to banks in connection with four refinancings, including one for a Westerly resident, Doris Krakow, according to according to David D. Curtin, the high court’s disciplinary counsel.(1)

***

• Spector was disbarred in Massachusetts on Jan. 22. His Massachusetts law license was temporarily suspended in March 2009 after three clients complained that he had wrongfully converted $350,525 to his own use instead of paying off lenders. The specifics of the Massachusetts cases have not been publicly disclosed.

For the story, see Attorney disbarred in mortgage payment case.

(1) Spector pocketed $150,369 from ING Bank that should have been forwarded to Washington Mutual Bank to pay off an existing mortgage for Krakow, Curtin reportedly said. As a result, Krakow is now struggling with two mortgages for her Westerly home, but is negotiating with her title insurance company to cover the money Spector allegedly took, Curtin reportedly said. Spector, who consented to disbarment, has not been criminally charged, Curtin said, but Krakow has filed a complaint with the Rhode Island State Police, the story states.

State police charged two disbarred lawyers in the past two weeks with misappropriating money from real estate transactions. Robert D. Natal faces 11 felony counts for mishandling $1.1 million. Todd M. Amaral, a correctional officer at the Adult Correctional Institutions who lost his license to practice law last October, too, was charged with two counts of unlawful appropriation and two counts of forgery. See Rhode Island State Cops Probe Allegations Of Lawyers w/ Sticky Fingers; Bag Two Suspected Of Swiping Client Cash, At Least Seven Others In Crosshairs.

Six Face 82-Count Indictment In Alleged Long Island "Pay Stub Factory" Mortgage Scam; Racket Scored $6M In Fraudulently Obtained Loans On 21 Homes: DA

In Suffolk County, New York, Newsday reports:

• A Brentwood woman ran a "pay-stub factory" to help real estate officers and a Mastic Beach woman steal nearly $6 million in a mortgage fraud scheme involving 21 properties, Suffolk prosecutors said [last week]. Irma Tocco, 60, generated hundreds of fake pay stubs and W-2 income-tax forms for straw buyers, who used the phony documents to obtain loans, prosecutors said.

For more, see Brentwood woman helped real estate firms steal $6M (requires paid subscription).

See also, Long Island Press: DA: 6 Stole $6M in Suffolk Mortgage Fraud Scheme.

State Consumer Fraud Act Yields Triple Damages Award For Homeowners In Bogus Sale Leaseback Equity Stripping Racket

A ruling by a Federal bankruptcy court in New Jersey recently awarded at least $690,000 in damages against a foreclosure rescue operator who peddled a sale leaseback arrangement to a financially strapped homeowner/couple purportedly intended to save them from the loss of their home. (The attorney who handled the closing in this ripoff also found himself sucked into the financial quicksand).

Included in the award were the damages attributable to the foreclosure rescue operator's violation of the New Jersey Consumer Fraud Act (the "CFA"), which allows for a tripling of the actual damages suffered by the victim.(1) The court's application of this statute to the equity stripping ripoff, in which the amount of stripped equity was $116,791.49, resulted in a total damage award for violation of this statute of $350,374.47.

The operator attemped to dodge liability under the CFA by claiming that the victims, by reason of their advanced education, business experience, etc. were sophisticated people, knew what they were doing when they did business with him, and were not misled, deceived, or defrauded in any way. The court addressed this point in the following excerpt (bold text is my emphasis, not in original):

• Defendant Cleveland argues that the CFA does not apply in this case because the O'Briens are sophisticated and "were not misled in any capacity." He claims that "no such deception, fraud or falsity occurred." There is no statutory exception for sophisticated consumers. Even the most sophisticated consumers are entitled to the protections of the CFA.

• Additionally, the terms — unconscionable commercial practice, deception, fraud and false promise — are used disjunctively so it is conceivable that a commercial practice might not be fraudulent or deceptive but would, nevertheless, be unconscionable. State v. Hudson Furniture Co., 398 A.2d 900, 902 (N.J. Super. Ct. App. Div. 1979). In fact, the New Jersey legislature amended the CFA in 1971 to add "unconscionable commercial practice" to the prohibited acts evidencing a more expansive reach than fraud alone. 1971 N.J. Laws, ch. 247. "Violation of the act can be shown even though a consumer has not in fact been misled or deceived. It is not necessary to show actual deceit or a fraudulent act; any unconscionable commercial practice is prohibited." Skeer v. EMK Motors, Inc., 455 A.2d 508, 511 (N.J. Super. Ct. App. Div. 1982); Truex v. Ocean Dodge, Inc., 529 A.2d 1017, 1020 (N.J. Super. Ct. App. Div. 1987).

For the ruling, see In re O'Brien (aka O'Brien v. Cleveland), Case No. 03-17448, Adversary Proceeding Case No. 08-1676; (USBC, D. N.J., January 22, 2010).

See also, New Jersey Law Journal: Real Estate Lawyer Liable for Damages for Role in Client's Mortgage Scam.

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(1) Use of a state's consumer fraud / unfair business practices laws is not new when seeking redress against the peddlers of these bogus sale leaseback schemes. See, for example:

• Hogan & Hartson Wins $3.3 Million Verdict in Pre-Foreclosure Scam Case: After a week-long trial in the District of Columbia Superior Court, an eight-person jury found that the defendants defrauded the plaintiff Maria Wilson and wrongfully took her home for a tiny fraction of its value. The jury also found that the defendants' scheme, in which they approach homeowners facing foreclosure and offer to help them "keep" their homes through a fraudulent sale-leaseback transaction, violated the D.C. Consumer Protection Procedures Act. The jury awarded Wilson compensatory damages of $60,000, and assessed punitive damages totaling $3.3 million against the three defendants. For the factual background on this case, see Appellate Brief: Wilson v. Modern Management, et al. (available online courtesy of Legal Aid Society of the District of Columbia).

• District Announces Agreement With Title Settlement Company in Mortgage Rescue Scam: Closing agent in the Metropolitan Money Store sale leaseback fiasco that targeted "high-home equity" homeowners facing foreclosure settles for $575,000 with the District of Columbia Attorney General's Office in a lawsuit alleging, among other things, violations of the D.C. Consumer Protection Procedures Act. Go here for the District’s lawsuit.

• D.C. Appeals Case Provides Roadmap For Obtaining Triple Damages Plus Punitives Against Foreclosure Rescue, Equity Stripper: The court found that operator had committed multiple violations of the District of Columbia Consumer Protection Procedures Act, D.C. Code §§ 28-3901 et seq. and awarded treble and punitive damages to the estate of Hattie Smith (who the trial judge described as a "frail, elderly and vulnerable widow") who lost $148,175.41 equity in her home. The treble damage calculation on that amount yielded an actual award of $315,026.23, which represented a multiplier of three minus a credit of $129,500 from other settling defendants.

• Alleged Sale Leaseback, Foreclosure Rescue Scammers To Pay $110K & Restore Title To Property Acquired From Unwitting Homeowners Seeking Help: Howard County, Maryland consumer protection officials use laws prohibiting unfair deceptive trade practices to obtain $110K settlement plus restoration of title to homes in victims' names on behalf of the estate of Betty J. Bullock, who was 63 and legally blind at the time she signed the mortgage papers, and Griselda Mason, then 68. Bullock died in October 2008 of a stroke, before the case settled.

• Foreclosure Rescue Operator To Cough Up $690K+ To Resolve Arizona AG Civil Charges In Alleged Sale Leaseback Equity Stripping Scam: Operator accused of violating, among other laws, the Arizona Consumer Fraud Act, settles with Arizona Attorney General's Office.

• Arizona Foreclosure Rescue Operator Ordered To Pay $1.2M In Home Sale, Leaseback Program: A Phoenix company and its owner were court-ordered to pay $1.2 million in restitution and penalties for violating the Arizona Consumer Fraud Act in a lawsuit brought by the Arizona Attorney General's Office.

• Washington AG Scores Big Win In Bogus Equity Stripping, Land Trust/Sale Leasebacks & Surplus Ripoffs; Foreclosure Rescue Operator Tagged For $4.2M: A Judge ordered a notorious foreclosure rescue scammer to pay more than $3.2 million to victims he wronged plus $179,000 in penalties for violating the State of Washington's Consumer Protection Act.

• Appeals Court Reverses $3M+ Jury Award To Equity Stripping Victims; Homeowners Forced To "Settle" For Triple Damages Under State Consumer Fraud Act: The Colorado Court of Appeals reversed a $3+ million jury verdict (which included $1.5 million in punitive damages) in favor of a Colorado couple who were victimized in a sale leaseback, equity stripping foreclosure rescue scam. In its ruling, the appellate court found that the damages awarded by the jury on six separate claims were duplicative. Accordingly, the court let stand only one of the awards and disallowed the remainder. That award, in the amount of $247,000 representing actual damages against those participating in the foreclosure rescue scam for violation of the Colorado Consumer Protection Act (CCPA), §6-1-101, et seq., was then tripled (for clear and convincing evidence of the existence of bad faith conduct on the part of the scammers) pursuant to §6-1-113 of the CCPA. Consequently, the final award to the aggrieved homeowners was limited to $741,000.

• Foreclosure Rescue Operator Ordered To Return Homes To A Dozen Victims: In a 2005 Nebraska Supreme Court decision, two Omaha area foreclosure rescue operators were ordered to restore title to the homes of a dozen homeowners who the operators fraudulently induced into signing over their home titles, or reimburse them for their damages. In addition, the operators were also ordered to pay approximately $378,000 in attorneys' fees to the lawyers for the victimized homeowners for violations of the Nebraska Consumer Protection Act. For the court ruling, see Eicher v. Mid America Financial Investment Corp., 270 Neb. 370, 702 N.W.2d 792 (2005) (made available online by Findlaw.com - may require free registration ).

For a 50-State Report on Unfair and Deceptive Acts and Practices Statutes: see National Consumer Law Center: CONSUMER PROTECTION IN THE STATES.

Focus Shifts To Special Servicer As Overleveraged Landlord Of 11,000 Unit NYC Apartment Complex Readies To "Mail In The Keys"

In New York City, Crain's New York Business reports:

• In the coming weeks, control of Stuyvesant Town/Peter Cooper Village will pass from one of New York's most glamorous and powerful real estate families to a company that most people have never heard of, a major player in an industry that few even know exists. [...] Stepping into the breach will be CW Capital, a special servicer. Such companies work out troubled-property loans to salvage whatever it can for lenders.

***

• CW Capital will need all of its skills to sort out the wreckage left by the implosion of the largest single residential real estate purchase in history. Lenders who have lost billions of dollars as the property's value shriveled by more than half are jockeying to reclaim what's left of their doomed investments. Meanwhile, prospective buyers are circling, tenants are demanding that services be maintained and that they get a seat in the negotiations, and politicians are vowing to protect the complex's rent-regulated status. “Figuring out the future [of Stuy Town] won't be a simple process, and it won't necessarily be a fast process,” says Dan Garodnick, a City Council member who lives in the complex.(1)

For more, see Picking up pieces at Stuyvesant Town (Special servicer will lead the lenders).

(1) According to the story, one problem facing the servicer is dealing with the affected scores of investors around the world who now find themselves trapped in a giant maze of often competing interests. Like most big real estate deals of the boom years, the debt that helped finance the $5.4 billion Stuy Town deal was reportedly diced up and sold to a variety of investors, each with different rights, depending on the risk incurred.

A touchier problem will be figuring out how much rent can be charged and what rebates are due tenants, following last year's court ruling that the former landlord had illegally jacked up rents on roughly 4,000 units, the story states (see Walls Closing In On Beleaguered Owners Of 11,000 Unit NYC Apartment Complex As State High Court Hammers Landlord For Illegal Rent Increases).

Go here for other posts on the Stuyvesant Town / Peter Cooper Village predatory equity implosion.

NYC Judge: "Rubber Stamp" Method Out-Of-Bounds When Granting Judgment To Zombie Debt Buyers Against Unwitting Consumers; Calls Racket "A Game Of Odds"

In a 2007 court ruling, New York City Civil Court Judge Philip S. Straniere expresses a concern with the growing number of creditors appearing before him seeking judgments against consumers who have allegedly defaulted on credit card debt, and who have failed to make an appearance during the proceedings.

In denying judgment to a creditor in one case, Judge Straniere provides a thorough examination of the procedure that should be applied by judges in New York (and possibly outside New York as well) when scrutinizing creditors in the determination of whether or not to grant judgments on account of the allegedly delinquent debts. His examination may be useful to those consumers (and the attorneys who represent them) being sued by creditors (especially those who are less-than-affectionately referred to as "zombie debt buyers") in attempts to thwart their efforts.(1)

Straniere begins his ruling by providing the following background [all bold text is my emphasis, not in the original; text broken up and enumerated for ease of reading; all citations omitted]:

• Over the past several years this Court has received a plethora of confirmation of arbitration award petitions. These special proceedings commenced by a variety of creditors or their assignees seek judgments validating previously issued arbitration awards against parties who allegedly defaulted on credit card debt payments. In most of these cases the respondents have failed to answer.

• It is almost never apparent, from the filings, (1) what type of process was effectuated on the debtor to notify them of the arbitration proceedings, (2) whether the debtor participated at all in the underlying arbitration, (3) what evidence, if any, the arbitrator considered, (4) what claims the arbitrator ruled upon, and (5) what figures the arbitrator used in calculating each award.

• While the modern day creditor seeks no pound of flesh as did Shakespeare's Shylock in the "Merchant of Venice," the judiciary continues to provide an important role in safeguarding consumer rights and in overseeing the fairness of the debt collection process. As such, this Court does not consider its function to merely rubber stamp confirmation of arbitration petitions.

• A trial court does not have a "mandatory, ministerial duty to grant motion[s] for default judgment on every properly verified complaint on which there has been default; [the] court retains [the] discretionary obligation to determine whether [the] applicant has met th[eir] burden of stating [a] prima facie cause of action," and the same is true for arbitration confirmations pursuant to CPLR Article 75.

• Specifically, "an arbitration award may be confirmed upon nonappearance of the respondent only when the petitioner makes a prima facie showing with admissible evidence that the award is entitled to confirmation." If petitioner fails to establish a prima facie case the confirmation petition must be denied.

• Despite the absence of objections by most of the defaulting respondents, in the interest of justice, this Court chooses to analyze the prima facie showing of each of the petitioners' applications. As a result of such undertaking, the Court often discovers fatal procedural and substantive defects inherent within the petitions.

• The Court is aware of how the market for the sale of debt currently works, where large sums of defaulted debt are purchased, by a small number of firms, for between .04 and .06 cents on the dollar. The incentive therefore, for the firm purchasing the debt, is to herd these cases into arbitration and churn out papers seeking their confirmation as quickly as possible. The entire industry is a game of odds, and in the end as long as enough awards are confirmed to make up for the initial sale and costs of operation the purchase is deemed a successful business venture.

• However, during this process mistakes are made, mistakes that may seriously impact consumers and their credit. The petition at bar is a specimen replete with such defects and the Court takes this opportunity to analyze the filing in detail, in hopes to persuade creditors, not simply to take more care in dotting their "i"s and crossing their "t"s in their filings, but to assure a minimum level of due process to the respondents.

• Why is this debt sold for such a cheap price? Certainly part of the reason is the poor prospects of payment these creditors expect from the defaulting individuals given their past delinquent payment history, while another part is undoubtably to avoid additional costs associated with debt collection. Further yet, is the simple fact that the proof required to obtain a judgment in the creditor's favor is lacking, usually as a result of poor record keeping on the part of the creditor.

• This decision reviews applicable New York cases on confirmation of arbitration awards, and provides additional principles to guide the process. In doing so, it is expected that judicial economy will be served, and more importantly, that the rights, particularly due process, of all parties will be adequately addressed and protected.(2)

For the specific facts of this case, Judge Starniere's examination of the applicable Federal and state law, and his application of the law to the facts in this case, see MBNA Am. Bank, N.A. v Nelson, 2007 NY Slip Op 51200(U), 15 Misc 3d 1148(A) (Civ. Ct. City of New York, Richmond Cty. 2007).

Go here for other posts on zombie debt.

(1) Keep in mind that once a creditor obtains a judgment against a consumer, the recording of the judgment will usually operate to create a lien against any real estate owned by the alleged debtor, and which could result in a forced sale of the property (subject to applicable homestead exemptions under state and Federal bankruptcy law). See Ohio Woman Concerned Over Claim Of Lien On Home For "Zombie" Debt That's Not Hers. For those without real estate, the judgment creditor can still go after wages, bank accounts, and other assets (again, subject to any applicable exemptions under state or Federal bankruptcy law).

(2) Attempts at tightening up the law in this area are being made. See NYC Lawmakers Move To Toughen Regs On Debt Scavengers Buying Up, Filing Lawsuits To Collect "Zombie Debt"

For a post regarding the use of "sewer service" in connection with the filing of lawsuits by zombie debt buyers, see 35 Law Firms Named In Suit Seeking To Void 100,000+ Money Judgments; 20+ Add'l Firms Currently In NY AG's Crosshairs In Ongoing "Sewer Service" Probe.

See also, Justice Disserved, a 2008 report by MFY Legal Services (a nonprofit provider of free legal services in New York) that documents statistics of victims of improper service who had judgments unknowingly entered against them, often to devastating effect.

Family Cops Pleas For Roles In Tax, Bankruptcy Fraud Scam For Hiding Profits, Property Interests In Connection With Hundreds Of Flipped Foreclosures

From the Office of the U.S. Attorney (Greenbelt, Maryland):

• Minh-Vu Hoang, age 59, of Bethesda, Maryland, pleaded guilty [...] to conspiracy to defraud the Internal Revenue Service and the U.S. Bankruptcy Trustee in connection with a scheme to conceal millions in profits earned from the purchase and sale of foreclosure properties.(1)

***

• According to Hoang’s plea agreement, Minh-Vu Hoang, her husband and other family members purchased property at foreclosure auctions beginning in 1999, and resold some of the properties at a profit. Hoang and others deposited and withdrew money from an escrow account for the purchase and sale of properties, and transferred money from the escrow account to business entities they controlled in order to conceal Hoang’s financial interests in the properties. From 2000 to 2005, Hoang and others purchased and sold hundreds of foreclosure properties using the names of their agents or business entities to conceal their involvement in the purchase and sale of the properties, and thereby avoid taxes.

• On May 10, 2005, Minh-Vu Hoang filed for a voluntary petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Maryland. On May 27, 2005, Minh-Vu Hoang filed several false schedules and a false Statement of Financial Affairs with the Bankruptcy Court, in support of her petition. In her Schedules, Minh-Vu Hoang reported a financial interest in only six properties, knowing that she had an interest in other properties, and further reported income in 2003 and 2004 of only $96,000 each year, knowing that her income for those years was substantially higher. She also failed to report her interest in various bank accounts.

For the rest of the press release, see Leader Pleads Guilty in Family Scheme to Conceal Millions in Profits from the Purchase and Sale of Foreclosed Properties (Concealed from IRS Millions of Dollars of Profits Made from “Flipping” Hundreds of Properties Bought at Foreclosure Auctions).

(1) Minh-Vu Hoang's husband and other family members also copped pleas for their roles in the fraud, according to the U.S. Attorney press release.

Blind Victim Of Sale Leaseback, Equity Stripping Scam Peddled As A Refinance Now Faces The Boot, Despite "Successful" Civil Prosecution By Illinois AG

In Chicago, Illinois, the Chicago Sun Times reports:

• There's no question that Coleamer Hodges was scammed out of her South Side home. In a 2006 complaint, the Illinois attorney general office used Hodges' tragic situation to illustrate the unlawful business practices at the core of home rescue fraud, in which companies claim to help residents stay in their homes but then actually sell the homes to third parties.

• Platinum Investment Group, Advantage Mortgage Consulting, Christopher Bidigare, Suellen Carpenter and First Chicago Real Estate Group were found by a Cook County judge to have "engaged in conduct that violates the Consumer Fraud Act." Hodges, 43, had turned to Platinum for help refinancing her mortgage. Representatives picked her up, served her lunch and, although Hodges is blind, had her sign paperwork that she was told was for a refinancing deal.

• "A couple of months later, I got a surprise,'' she said. She got a bill for $1,300, which was actually for rent if she wanted to stay in the home because Hodges' home had been transferred to a straw buyer.

• All of the entities and individuals who were involved in the transaction are now barred from acting as "distressed property" consultants. They were also ordered to pay Hodges $50,000 in restitution. But that hasn't helped Hodges. The guilty parties filed for bankruptcy -- and Hodges' $70,000 in home equity is gone. Wells Fargo, the bank that serviced the fraudulent deal, is now demanding to take possession of the property.(1)

***

• "We were able to successfully prosecute and put these people out of business, but that is not good enough," said [Illinois Attorney General spokesperson Natalie] Bauer. "The issue today is that Ms. Hodges is in a devastating condition and needs help. Wells Fargo needs to step up and do the right thing."

For more, see Victim of scammers now battling bank.

(1) The fact that Ms. Hodges was blind when she was tricked into signing the deed and leaseback agreement (which was reportedly represented to her to be a "refinance" of her home) could make the conveyance void ab initio, in which case, the deed, any subsequent cionveyances, and the current mortgage encumbering the home securing the loan used to finance the swindle would be considered nullities. See:

• Unwinding An Abusive Or Fraudulent Real Estate Transaction? Determining If The Deed Is Void, Or Merely Voidable;
• More On Void & Voidable Deeds, & Unwinding Deed & Refinancing Scams.

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Alternatively, assuming the deed was not void, but merely voidable, Ms. Hodges continued possession of her home throughout the course of being screwed over by the foreclosure rescue peddler could help her establish a viable claim against the current mortgage holder of the loan that was obtained to pull off this scam.

Illinois case law appears to make clear that her open and visible possession of the home places the lender financing the scam on notice of any rights or equities she may be able to establish. See Life Savings & Loan Association v. Bryant, 125 Ill. App. 3d 1012, 81 Ill. Dec. 577, 467 N.E.2d 277 (1st Dist. 1984) (case available on request, drop me a line at HomeEquityTheft@yahoo.com, don't forget to put case name in subject line):

• 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. [my emphasis added; not in original]

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The issue of whether the retention of possession by the grantor of property after it is conveyed constitutes notice of the grantor of his or her interest in the property, and to those claiming under the grantee, under Illinois law is addressed in Fidelity Trust & Savings Bank v. Williams (1936), 285 Ill. App. 131, 1 N.E.2d 739:

• The rule of law which seems to control in a like situation is that the retention of possession by the grantor of the property conveyed is notice of his or her interest in the property, and to those claiming under the grantee, and such rule is laid down in the case of Ford v. Marcall, 107 Ill. 136, wherein the court said: "The law is, as this court has declared in White v. White, 89 Ill. 460, that when the grantor of real estate remains in possession, all persons acquiring title from the grantee are chargeable with notice of all the claims of the grantor."

• This rule was followed and approved in the case of Ronan v. Bluhm, 173 Ill. 277, where the court said: "It is proper we should remark, in answer to the discussion upon the point, that as it is conceded by all parties that the said Thomas Ronan did not deliver possession of the premises in question to the grantee, Carbine, but remained in the open and exclusive occupancy thereof, appellee, Bluhm, is deemed, as matter of law, to have taken the conveyance from Carbine with full notice of all the rights and equities of said Ronan in the premises. Illinois Central Railroad Co. v. McCullough, 59 Ill. 166; White v. White, 89 id. 460; Ford v. Marcall, 107 id. 136." It is to be noted from what the court said in this opinion that Bluhm was deemed as a matter of law to have taken the conveyance from Carbine, the grantee of Ronan, with full notice as to all the rights and equities of Ronan in the premises.

• This rule has been passed upon by the courts of this State, and the law is again discussed and approved in the case of Rock Island & Peoria Ry. Co. v. Dimick, 144 Ill. 628. The court in this opinion said: "The law is well settled in this State, as generally elsewhere, when not changed by the recording acts, that open and exclusive possession of lands, under an apparent claim of ownership, is notice to those subsequently dealing with the title of whatever interest the possessor has in the premises, whether the interest be legal or equitable in its nature. Wade on Notice, sec. 273; Davis v. Hopkins, 15 Ill. 519; Truesdale v. Ford, 37 Ill. 210; Smith v. Jackson's Heirs, 76 Ill. 254; Partridge v. Chapman, 81 Ill. 137. It has been held also in this State, that if the grantor remains in possession after conveyance, purchasers from the grantee are affected with notice of the grantor's rights in the land. White v. White, 89 Ill. 460; Ford v. Marcall, 107 id. 136."

• In the case of Porter v. Clark, 23 Ill. App. 567, this rule was also approved, and in discussing the subject matter of the litigation, the court there stated what we regard as pertinent in its application to the instant case. This statement is: "If Porter, knowing as he did that Clark was in possession, had gone to him and inquired as to his rights, he would undoubtedly have been told that the purchase money had not been paid, and that he, Clark, claimed a vendor's lien on the land."

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(Note: The unavailability of bona fide purchaser protection to real estate purchasers and lenders when a seller of real estate remains in continued possession of the premises well after the property is sold has, arguably, been best expressed by the California Supreme Court in Pell v. McElroy, 36 Cal. 268, 1868 Cal. LEXIS 186 (1868). See footnote 2 of this November 15, 2009 post.)

Go here for more on the bona fide purchaser doctrine in Illinois.

For other states, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.

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Additionally, the circumstances surrounding the conveyance of Ms. Hodges home may have enough elements that can allow an Illinois court to recharacterize the deed transfer and contemporaneous leaseback as an equitable mortgage. See:

• Equitable Mortgage Doctrine In Illinois - Part 1;
• Equitable Mortgage Doctrine In Illinois - Part 2;
• Nave v. Heinzmann, 344 Ill. App. 3d 815; 801 N.E.2d 121; (Ill. App. Ct., 5th Dist., 2003);
• Robinson v. Builders Supply & Lumber Co., 223 Ill. App. 3d 1007, 586 N.E.2d 316 (Ill. App. Ct. 1st Dist. 1991);
• Flack v. McClure, 206 Ill. App. 3d 976, 565 N.E.2d 131, 151 Ill. Dec. 860 (Ill. App. Ct., 1st Dist. 1990).

Among the factors the above Illinois courts have considered when deciding on whether or not to recharacterize a sale as an equitable mortgage are:

• existence of an indebtedness,
• close relationship of the parties,
• prior unsuccessful attempts for loans,
• circumstances surrounding the transaction,
• disparity of the situations of the parties,
• lack of legal assistance,
• unusual type of sale,
• inadequacy of consideration,
• the way the consideration was paid,
• retention of written evidence of the debt,
• belief that the debt remains unpaid,
• an agreement to repurchase, and
• continued exercise of ownership privileges and responsibilities by the seller.

(Note: A recent ruling by a New Jersey Federal bankruptcy court recharacterized a similar sale leaseback, equity stripping ripoff as an equitable mortgage. In re O'Brien (aka O'Brien v. Cleveland), Case No. 03-17448, Adversary Proceeding Case No. 08-1676; (USBC, D. N.J., January 22, 2010))

A recharacterization of the conveyance as an equitable mortgage, coupled with establishing that the current holder of the mortgage was on notice of the scam (and consequently, not a bona fide purchaser) by reason of Ms. Hodges continued possession of the home could ostensibly leave her with rights to her home having priority over the rights of the current mortgage holder.

California Sets New Records For Real Estate License Revocations, Surrenders As Illegal Foreclosure Rescue & Loan Modification Rackets Rage On

The California Department of Real Estate recently announced in a press release:

• The California State Department of Real Estate (DRE), the state department that issues licenses to real estate professionals and protects consumers in real estate transactions, revoked a record number of real estate licenses for cause in 2009. The DRE also accepted another record number of license surrenders from licensees facing disciplinary action. All told, over 775 licensees had their license revoked or simply surrendered their licenses while facing accusations.

***

• The down turn in the real estate market is a big reason disciplinary actions are up. “With so many people struggling to stay in their homes, foreclosure rescue and loan modification scams have risen dramatically,” DRE Commissioner Jeff Davi said. "And what is even more unsettling, a majority of offenders involved in loan modification scams are not even licensed, which limits a consumer’s ability to obtain restitution or verify the legitimacy of a business,” Davi added.

***

• [A] consumer who is defrauded by a licensee and obtains a fraud judgment in civil court, but is unable to collect on the judgment, may be able to receive restitution from the DRE. The DRE administers a recovery account for fraud victims that can pay a victim up to $50,000 for a transaction. The payout from the recovery account is capped at $250,000 for each licensee. Those victims who have been defrauded by unlicensed perpetrators cannot make a claim against the department’s recovery account.(2)

For the press release, see California Department of Real Estate Revokes Record Number of Real Estate Licenses.

(1) In 2009, the DRE initiated over 2,000 investigations involving loan modification complaints, which represents 25% of all cases set-up. The DRE issued over 180 Desist and Refrain orders to nearly 348 different respondents performing loan modification services, ordering them to stop or change their business practices. Of the 348 Desist and Refrain order respondents, approximately 60% were not licensed and ordered to cease licensed activity - which included offering loan modification services. In addition, nearly 100 real estate licensees have been accused of violating the real estate law in connection with loan modification complaints. Many of the completed cases have been referred to law enforcement agencies for criminal prosecution. In order to help inform consumers to stay away from the bad actors, the DRE posts on its website all the recipients of Desist and Refrain orders and Accusations in loan modification complaints along with a copy of the order.

(2) For more on the California Dept. of Real Estate victim's fund, which enables a person who has been defrauded or had trust funds converted by a California licensed real estate broker or salesperson in a transaction requiring that license, and who satisfies specified requirements (California Business and Professions Code Section 10471 et seq.) to recover at least some of his or her actual loss when the licensee has insufficient personal assets to pay for that loss, see:

• Real Estate Recovery Account - General Information (English) (Spanish) (Chinese),
• Real Estate Recovery Account - Instructions to Claimants,
• Real Estate Recovery Account - Links to Other Forms.

Upstate NY Judge Emphasizes Importance Of Scrutinizing Foreclosing Lenders For Proper Standing In Cases Involving Unrepresented Homeowners

In a recent court ruling in Allegany County, New York involving a foreclosure action that was dismissed without prejudice (ie. with a right to refile), and which involved "the usual suspects" (ie. sloppy lender, foreclosure mill law firm, homeowner unrepresented by legal counsel - there was no indication that the homeowner even appeared in the case), Justice Timothy J. Walker discusses the significance of standing and real party in interest in foreclosure litigation and analyzes the applicable law in New York in connection thereto.

He closes with the following excerpt which deserves noting, in which he emphasizes the importance of judges exhibiting the necessary initiative to scrutinize the status of the plaintiffs bringing these foreclosure actions in cases involving homeowners unrepresented by legal counsel:

• Today, with multiple and (and often unrecorded) assignments of mortgage obligations and multiple securitizations often related to the same debt, the courts should carefully scrutinize the status of parties who claim the right to enforce these mortgage obligations.

• For the unrepresented homeowner, the issues of standing and real party in interest status of the foreclosing party are never considered. Without such scrutiny, there is a risk that the courts will give the judicial "seal of approval" to foreclosures against unrepresented homeowners who have little, if any, understanding of these issues, much less the legal significance thereof. To quote my colleague in Kings County, "[a]llowing this case to proceed on behalf of a plaintiff without standing at the commencement of the action would [also] open the door to potential fraud and place in jeopardy the integrity of title to the property to be foreclosed." [my emhasis added; not in original] [Citigroup Global Markets Realty Corp. v. Bowling, 25 Misc 3d 1244; 2009 NY Slip OP 52567U (Kings County, December 18, 2009)].(1)(2)

For the court ruling, see Deutsche Bank Natl. Trust Co. v McRae, 2010 NY Slip Op 20020 [Allegany County, January 25, 2010].

Thanks to both "LL" and to mortgage servicing fraud watchdog Mike Dillon over at GetDShirtz.com for the combined heads-up on this court ruling.

(1) In Citigroup Global Markets Realty Corp. v. Bowling, Kings County (Brooklyn), NY Supreme Court Justice Carolyn E. Demarest dismissed a foreclosure action, without prejudice, where the foreclosing lender screw-ups involved both:

• a failure to properly serve the homeowner (ie. "sewer service" - process server was found to have improperly utilized "nail & mail" method of service), and
• a "standing-lacking" foreclosing entity that initiated the legal action.

(2) An example of "the integrity of title to the property to be foreclosed" being "place[d] in jeopardy" when the foreclosing entity lacks proper authority to foreclose is the mess currently going on in Massachusetts involving the apparently faulty titles to homes that have been foreclosed over the last several years throughout the entire state due to the screw-ups of the foreclosing lenders and their attorneys in the foreclosure process. See:

• Massachusetts Court Ruling Gums Up Resales Of Foreclosed Homes Across State; Title Insurance Unavailable For Clouded Ownership Due To Faulty Paperwork;
• Lenders' Problem "Entirely Of Their Own Making" Says Judge In Affirming Earlier Ruling That Puts Title To Foreclosed Massachusetts Homes Into Question,
• Thousands Of Foreclosures Are Void, Says Massachusetts Class Action Demanding Lenders & Their Lawyers Prove Note Ownership.

In addition, in the following excerpt from a June 24, 2009 story in the South Florida Daily Business Review (see Judge grapples with her discovery of 15,000 unserved foreclosure cases), Miami-Dade Judge Jennifer D. Bailey similarly alluded to possible future title problems to homes going through the foreclosure process when the screw-ups relate to the failure to properly serve the homeowners with the foreclosure lawsuit (ie. the summons and complaint) when the foreclosing entity initiates the legal action:

• “It all starts with service. If people don’t get served, all we’re doing is buying ourselves a bunch of title cases in six years,” the judge said [my emphasis added; not in the original].

See also, Recently Discovered Flaw in Recording System Clouds Titles on Previously Foreclosed Properties.