The 'Piling On' Continues For S. Fla. Foreclosure Mill As Fired Workers File Suit, Seek Class Action Status For Getting The Axe Without Proper Notice

In Plantation, Florida, The Miami Herald reports:

• Four former employees of the Law Firm of David J. Stern and its' related foreclosure processing company -- DJSP Enterprises, have filed a federal lawsuit claiming they were not given proper notice before being fired. The employees allege Stern violated the Worker Adjustment and Retraining Notification Act, or WARN, which mandates that employers give employees 60 days notice before being terminated.(1) [...] Attorneys for the employees are asking for the case to be given class action status.

For more, see Former employees suing prominent Broward attorney.

(1) The Worker Adjustment and Retraining Notification Act (WARN) protects workers, their families, and communities by requiring most employers with 100 or more employees to provide notification 60 calendar days in advance of plant closings and mass layoffs. Employees entitled to notice under WARN include managers and supervisors, as well as hourly and salaried workers. WARN requires that notice also be given to employees' representatives, the local chief elected official, and the state dislocated worker unit.

Troubles Faced By Unraveling S. Florida Foreclosure Mill A Blessing For 100s Of Homeowners As Some Cases Involving Law Firm Put On Indefinite Hold

In Central Florida, the St. Petersburg Times reports:

• Hundreds of mortgage mediation cases in the Tampa Bay area and other parts of Florida have been put on indefinite hold because of growing problems at a law firm that once represented many of the nation's biggest banks.

• Beset by allegations of sloppy and fraudulent documentation, the David J. Stern Law Firm has lost some of its lender clients and must withdraw from their foreclosure cases. Until the banks hire new lawyers, efforts to mediate agreements with homeowners in those cases cannot continue.

• The delay is a mixed blessing for the homeowners. They will be able to stay in their houses longer, though likely at the cost of mounting interest and late fees. But the need to withdraw from so many cases marks another chapter in the stunning decline of the Stern firm, which once handled a fifth of all Florida foreclosures and made its founder a multimilllionaire.

For more, see Mortgage mediation cases on hold as fraud allegations unravel David J. Stern Law Firm.

Vegas Feds Say Woman Used Fraudulent Deeds In Foreclosure Rescue Ripoffs & Squatter Scams

The following allegations are set forth in a criminal indictment filed in U.S. District Court, Las Vegas, Nevada:

• From in or about late 2007, to in or about November 2009, KAREN TAPPERT offered, by word of mouth, a mortgage rescue service, but the way she ''rescued'' mortgages was by recording fraudulent deeds that purported to convey the property from the true title holder to an entity that she controlled.

***

• TAPPERT also engaged in a 'Squatter's scheme' whereby, she squatted on abandoned properties in which she had no ownership right. From in or around December 25, 2009, to at least February 2010, TAPPERT found properties that had already been foreclosed upon, and filed fraudulent deeds that purported to convey the property from the true title
  holder to an entity that she controlled. TAPPERT gained use of the property and, if she could, either rented out the property - or sold it.

For the indictment, see U.S. v. Tappert.

Virginia Feds Bag Operator Of Alleged Mortgage Elimination Racket Resulting In $10M+ In Losses

From the Office of the U.S. Attorney (Alexandria, Virginia):

• A federal grand jury [] indicted Linda Sadr, 51, of Manassas, Va., for her alleged involvement in a “mortgage elimination” scheme that caused more than $10 million in losses.

***

• According to the federal indictment, from 2004 through 2008, Sadr is accused of marketing a scheme known as a “Mortgage Elimination Program.” Sadr allegedly falsely represented to potential homeowner clients that lenders were acting illegally with regard to refinanced mortgages and that she could obtain a discharge of newly refinanced loans because of the lenders’ illegal actions.

• Sadr allegedly proposed that she, acting through her businesses, would represent homeowner clients and challenge the lenders for their purportedly illegal actions, and any monetary settlements obtained from successful challenges against the lenders would be applied against the balances due on the refinanced mortgages, thereby eliminating the mortgages.(1)

• In general, those homeowner clients with sufficient equity in their homes who participated in the Mortgage Elimination Program were allegedly required to refinance their mortgages with maximum cash-out refinance loans.

• Subsequent to settlement, individual homeowner clients were required to pay 10 to 15 percent of the proceeds of the cash-out refinance loan as a fee to Sadr or to one of the entities she controlled. Clients were also required to give Sadr the equivalent of 12 to 18 months of advance mortgage payments to be held in “escrow,” an amount that Sadr allegedly claimed she would use to pay the refinanced mortgages for the homeowner clients until their mortgages were eliminated.

For more, see Manassas Woman Indicted for Alleged Mortgage Elimination Scheme.

(1) Presumably, the purported challenges to the mortgages were somehow based on alleged violations of the Federal Truth In Lending Act and the Home Ownership and Equity Protection Act (and, possibly, any applicable Virginia consumer lending statute).

FBI Manhunt For Hawaiian Sale Leaseback Peddlers Continues; Couple Who Copped Pleas To Ripping Off Homeowners Failed To Show Up For Sentencing

In Honolulu, Hawaii, the Honolulu Star Advertiser reports:

• What ever happened to the FBI manhunt for an Oahu couple who never showed up for sentencing in a mortgage fraud scam?

• FBI agents continue chasing leads and have expanded the search for John and Julieanne Dimitrion to the mainland. "Our fugitive investigation has indicated that they have some personal contacts in the Washington, D.C., area and the West Coast of the U.S. mainland," said FBI Special Agent Tom Simon in Honolulu.

***

• The FBI launched the manhunt after the couple failed to show up for sentencing at U.S. District Court on July 6. The Dimitrions pleaded guilty in April to operating a fraud scheme that led to several families losing their homes, the FBI said.

• The couple persuaded distressed homeowners to sign over their properties, promising to invest the proceeds of the home sales. Instead, they spent the money on themselves. Losses to their victims exceeded $1 million.

For the story, see FBI continues search for couple behind mortgage scam.

For an earlier post on this story, see Federal Judge Issues Arrest Warrants For Foreclosure Rescue Scammers For Failing To Appear At Sentencing In Sale Leaseback, Equity Stripping Ripoff.

Housing Lawyers To Lawmakers: Flood Of Phony Foreclosure Documents Have Created Chaos In The Courts!

Bloomberg News reports:

• Mortgage lenders and their servicers, by flooding courts with falsified foreclosure documents, have created chaos in the judicial system, housing lawyers told lawmakers. “As we allow the mortgage loan industry to circumvent the rule of law, we show that corporate interests can get away with such massive dishonesty,” said Thomas A. Cox, a foreclosure- defense lawyer. “We thereby encourage more of it.”

• Cox, who works for Maine Attorneys Saving Homes, a legal aid service in Portland, made his remarks in written testimony prepared for a House Judiciary Committee hearing(1) on the causes of the foreclosure crisis. He and other witnesses scheduled to testify today described a chaotic system in which mortgage lenders routinely committed perjury and covered up mistakes. “There is a persistent refusal in the servicing industry to be honest about its conduct,” Cox said.

***

• James A. Kowalski, a Jacksonville, Florida, foreclosure defense lawyer, described a homeowner who is facing simultaneous foreclosure lawsuits filed by two different trustees both claiming to own the same loan. [...] In separate court filings Kowalski provided to the committee, Wells Fargo and U.S. Bank each claimed that [a Kowalski client's] loan had been signed over to them. “It’s a bedrock securitization problem,” Kowalski said in an interview before today’s hearing. “Once we allowed the securitization model and the concept of the securitized trust servicer to run the show, we ended up going down this road.” Cox said mortgage-backed securities have created “utter chaos” and raised doubts about who has the right to foreclose.

• Judge F. Dana Winslow, who has presided over more than 1,000 foreclosures as a New York State Supreme Court justice, said judges might have “inadvertently contributed to the creation of the foreclosure crisis by accepting, without question, the submissions of lending institutions seeking foreclosure.” That could be changing, Winslow said in his prepared testimony. “Courts have come to recognize the need to scrutinize the evidentiary submission of lenders and their agents,” Winslow said.

For the story, see Lapses in Home Foreclosure Documentation Said to Cause `Chaos' in Courts.

(1) For more on this congressional hearing, including the link to the webcast video, see Foreclosed Justice: Causes and Effects of the Foreclosure Crisis.

Prepared testimony from witnesses on the chaos cretaed in the courts by lenders, their loan servicers, and their out-of-control foreclosure mill law firms:

• Hon. F. Dana Winslow, Nassau County Supreme Court Justice, New York State Supreme Court, Mineola, NY;
• James A. Kowalski, Jr., Law Offices of James A. Kowalski, Jr., PL, Jacksonville, FL;
• Thomas A. Cox, Volunteer Program Coordinator, Maine Attorneys Saving Homes Project, Portland, ME;
• Vanessa G. Fluker, Vanessa G. Fluker, Esq., PLLC, Detroit, MI;
• Christopher L. Peterson, Associate Dean for Academic Affairs/Professor of Law, S.J. Quinney College of Law - University of Utah, Salt Lake City, UT.

'Zombie Debt' Buyers Begin To Drive Flood Of Collection Lawsuits In Courts Throughout Country

The Wall Street Journal reports:

• Across the nation, there is a surge in lawsuits against people who aren't paying their bills, driven by the debt-buying industry that has boomed in the past three years as a sea of souring loans and credit-card obligations have become cheaper and cheaper to buy amid hard economic times.

• Handing debt over to collectors is an important step in cleaning up the financial system, but the explosion in lawsuits—many for small sums—creates problems for the legal system. "There exists a real danger that the courts will be perceived as mere extensions of collection agencies," says Thomas Donnelly, an associate judge in Cook County, Ill.

• There are no nationwide figures available, but a survey of 20 judges across the nation by The Wall Street Journal yielded anecdotes of court calendars choked with debt-collection suits. For example, Judge Donnelly says he has heard as many as 400 cases a day, filed by debt buyers, debt collectors and their attorneys who have often lugged their filings to his courtroom in crates.(1)

***

• Just like the current flap over foreclosures, debt buyers have run into trouble with judges in several states for taking shortcuts with papers filed in collection cases. "Everyone is hysterical about the robo-signing" by a mortgage-company worker who testified that he signed foreclosure documents without reviewing details of each case, says Ira Rheingold, president of the National Association of Consumer Advocates. "What's overlooked is that…the scale in collection cases far exceeds what we're focused on now."

***

• Roughly 94% of collection cases filed against borrowers result in default judgments in favor of the debt buyer, according to industry estimates. The majority of borrowers don't have a lawyer, some don't know they are even being sued, and others don't appear in court, say judges.

• A growing number of cases brought by debt buyers are plagued by sloppy, incomplete or even false documentation of debts, according to the 20 judges around the country interviewed by the Journal. Mistakes might arise from the way that debt flows from the lender to the debt buyers. Bulk purchases of consumer debts sometimes include just a spreadsheet listing each person's name and the amount owed. Sales agreements usually limit how much additional information the buyer may request about the original debt.

For more, see Boom in Debt Buying Fuels Another Boom—in Lawsuits.

(1) Excepting states with generous homestead exemption laws, judgments obtained in these collection suits generally end up becoming liens on the home and any other real estate owned by the debtor.

Texas AG: Racket Targeted Unsophisticated 'Owner-Financed' Mortgage Holders By Sneaking Obscure Clauses Into Purchase Contracts To Facillitate Ripoffs

From the Office of the Texas Attorney General:

• Texas Attorney General Greg Abbott is charging two Lubbock mortgage companies and their owners with orchestrating a complex scheme to defraud Texas property owners. The State’s enforcement action names Enhance Mortgage Corp. and Templeton Mortgage Co. Inc. as defendants and charges both with violating the Texas Deceptive Trade Practices Act.

• According to court documents filed by the State, Enhance and Templeton primarily targeted former property owners who had previously self-financed the sale of their property to independent purchasers.(1)

***

• According to state investigators, the defendants contacted former property owners who lacked knowledge about real estate transactions and offered to buy their owner-financed mortgages. Court documents indicate the defendants would offer to pay landowners up-front cash in exchange for their owner-financed mortgages—and therefore the right to receive monthly mortgage payments. Some of the former property owners were retirement-aged. State investigators believe they were targeted because they were likely to be enticed by the promise of up-front cash rather than a 20 to 30-year payment stream.

• Under Texas law, it is generally legal to purchase and sell interests in real property, including the rights of owner-financed mortgages. However, the defendants are charged with perpetrating a complex scheme that relied upon obscure contractual provisions to defraud former property owners with little or no financial or legal expertise.(2)

For the Texas AG press release, see Attorney General Abbott Takes Enforcement Action Against Lubbock Mortgage Firms (Enhance Mortgage Corp. and its affiliate, Templeton Mortgage Co. deceived former property owners in mortgage-purchase scheme).

For the lawsuit, see State of Texas v. Enhance Mortgage Corporation, Inc., et al.

(1) According to the Texas Attorney General, under such an arrangement, which is known as an owner-financed mortgage, the seller agrees to receive mortgage payments from the buyer over time—rather than requiring the buyer to get a bank loan and pay the entire purchase price up front. Once the owner-financed mortgage transaction is complete, the buyer takes possession of the property. As the financer of the transaction, the seller retains an ownership interest in the property, which includes the right to receive monthly mortgage payments from the buyer.

(2) In one example described by the Texas Attorney General, one former property owner had previously sold his property to a buyer, who still owed $76,500 under the terms of the owner-financed mortgage. The defendants offered to pay the former property owner $30,000 cash in exchange for the right to receive the full $76,500 in future mortgage payments. Once the former property owner agreed to the $30,000 offer, the defendants drew up a contract and had the underlying property appraised.

Unbeknownst to the former property owner, the contract provided that the defendant’s cash purchase price would be reduced if the property’s appraisal amount was less than the purchase amount—despite the fact that the mortgage would still yield the same amount of money regardless of the property value. After learning that he would be paid the lower appraised amount—rather than the original $30,000 agreed-upon price—the former property owner attempted to reject the deal. In response, the defendants filed a lawsuit against the former property owner in an attempt to force him to accept the lower amount of money.

At one point, defendants Enhance and Templeton had as many as 75 lawsuits on file in the Lubbock County District Court. According to state investigators, the scheme orchestrated by Enhance and Templeton was specifically designed to defraud individuals who lacked knowledge or experience about complex real estate transactions. The State’s enforcement action alleges that the defendants’ dealings with the former property owners were not only deceptive—but that they violated Texas property laws.

Boston Feds Charge Fugitive In Scheme To Rip Off Massachusetts Man Of $2.8M+ Waterfront Property

From the Office of the U.S. Attorney (Boston, Massachusetts):

• A New York fugitive from justice was charged [] in federal court with mail and wire fraud in connection with a scheme to defraud a Massachusetts man of his Hyannis waterfront property. MICHAEL HOWARD CLOTT, aka MICHAEL HOWARD, 58, currently in custody in New York, was charged in an indictment with three counts of mail fraud and three counts of wire fraud.

• The indictment alleges that while a fugitive from the New York case, Clott spent several months on Cape Cod from December 2009 through April 2010, during which he engaged in a scheme to defraud a Massachusetts man of a property valued at more than $2.8 million.

• According to the charges, Clott used the alias “Michael Howard,” and represented to others that he was an attorney and financial executive who specialized in purchasing, repairing and marketing bank-owned real estate. Clott persuaded a local real estate broker to sell a client’s property for half the asking price, then give the sale proceeds to Clott who would use his financial expertise to generate an after-tax benefit for the client equivalent to the client’s asking price.

• The indictment further alleges that instead of using the proceeds for the client’s benefit, Clott manipulated others to unwittingly assist in negotiating the proceeds check to enable him to deposit the funds in an account for Clott’s personal benefit. According to the indictment, Clott’s scheme was discovered in time to secure the funds before Clott could further disburse or conceal them.

For the U.S. Attorney press release, see Fugitive Charged With Defrauding Man Of Cape Cod Property.

Unwitting Investors, Novice Would-Be Homebuyers Allegedly Victimized By Massive Midwest "Rent-To-Own" Real Estate Ripoff

National Public Radio reports:

• An investment offer pitched to several thousand Canadians and Americans in 2008 on a traveling investment infomercial/seminar circuit has gone terribly wrong. Several companies offered buyers what they pitched as an opportunity to take advantage of the foreclosure crisis: buying foreclosed homes at low prices and then collecting payments on a rent-to-own basis from people who would live in those houses. Legal documents show about 1,200 properties across the Midwest were sold to investors from the U.S. and Canada, but deeds were rarely transferred.

For more, see Thousands Duped By Midwest Housing Scam.

Head Of Virginia-Based Loan Modification Outfit Hit With Multiple Felony Charges Accusing Him Of Ripping Off Homeowners Seeking House Payment Help

In Prince George's County, Maryland, the Business Gazette reports:

• A Virginia man has been accused of targeting Maryland residents for fraudulent mortage loan modifications that caused some residents to have their homes foreclosed. A Prince George's County grand jury indicted Howard Shmuckler, 67, of Virginia Beach on Tuesday on 10 counts of aggregate theft over $500, 10 counts of conspiracy to commit theft, and 10 violations of operating a credit business without a license, according to Prince Geroge's County's state's attorney's office.

• Although residents across Maryland fell victim to the scam, the charges were brought against Shmuckler in Prince George's County because some victims lived in the county, and the county state's attorney's office has a prosecutor dedicated to mortgage fraud cases, said Shannon M. Davis, a spokeswoman for the Maryland Department of Labor, Licensing and Regulation.

***

• Fees between $1,750 and $6,000 were paid up front by homeowners to render services, and more than $1.2 million was collected in total by the business, according to the regulatory office. Some of the residents who paid Shmuckler's company lost their homes to foreclosure due to the scam, authorities said.

For the story, see Man indicted for scamming Maryland homeowners (279 homeowners paid company for mortgage services they never received).

See also NBC Washington: Mortgage Relief Scam Alleged in Prince George's County.

For an earlier post on Shmuckler, see Northern Virginia Loan Modification Firm The Target Of Media Scrutiny, Customer Protests.

Central Florida Non-Profit Law Firm Says Foreclosure Mill Broke "Fair Debt", State Consumer Laws; Seeks Class Action Status For Clients In Foreclosure

In Sarasota, Florida, the Sarasota Herald Tribune reports:

• A man fighting to save his North Port home is the latest to challenge the law office of David J. Stern, a onetime powerhouse firm handling foreclosures and now struggling under accusations it seized homes using sloppy and illegal paperwork.

• Christopher Contreras' lawsuit accuses the law firm of trying to foreclose on his home, and countless other Florida homes, with paperwork signed by a man who has admitted to signing thousands of documents without knowing what they were. The North Port contractor is asking a judge to let other Florida homeowners in the same position join his claim as a class-action lawsuit.

• Contreras and his attorneys say two documents in Contreras' case were signed by Jeffrey Stephans, whose now infamous sworn statement caused GMAC Mortgage to halt foreclosures nationwide in the past few months. Stephans said in a deposition that he signed up to 10,000 documents a month without knowing what information was in a file, or if the information was correct, earning him the name "robo-signer." He also said notaries who were supposed to watch him sign documents were not in the same room.

• Gulfcoast Legal Services(1) attorney Elizabeth Boyle, who is handling Contreras' case, says it is the first try at a class-action case challenging robo-signing at the state level. [...] Stern's firm "prepared a bogus and false assignment of mortgage in an effort to fabricate a chain of title" needed to retake the home about two weeks before filing, according to Contreras' lawsuit.

• Stephans signed documents as an officer of two different companies, and has said he did not know whether the contents of those documents were accurate, Contreras' lawsuit states. The mortgage assignment says it was executed in February and is signed by Stephans as "Vice President of MERS," or the Mortgage Electronic Registry System. In April, Stephans, this time signing as the "Limited Signing Officer" of GMAC, executed an affidavit concerning the amounts Contreras still owed on the home.

• Contreras's suit says the foreclosure case violates the Fair Debt Collection [Practices] Act and state consumer and unfair trade practices laws.

For the story, see Legal tests mount in robo-signings (FORECLOSURES: North Port suit is first to seek class- action case at state level).

(1) Gulfcoast Legal Services is a non-profit corporation providing free legal aid to income eligible residents of the greater Tampa Bay area, with offices in Pinellas, Manatee, Sarasota and Hillsborough Counties. They provide legal help with housing and mortgage foreclosure problems, family or domestic violence issues, immigration matters, SSI/disability and consumer matters. They also provide immigration services to residents of Pasco County, and has a special project to help seniors in Pinellas, Manatee and Sarasota Counties.

Texas Man Pleads Guilty To Using Forged Deeds, Heirship Affidavits To Rip Off Real Estate From The Elderly & Recently Deceased

In Fort Worth, Texas, the Arlington Citizen-Journal reports:

• An Arlington man who stole real estate from the recently deceased and elderly pleaded guilty [] to three counts of mail fraud and one count of conspiracy to commit mail fraud, according to the U.S. attorney's office.

• Norris Lynn Fisher, 62, faces up to 20 years in prison, a $250,000 fine and restitution on each count. Government documents say Fisher acquired at least 100 properties in Tarrant County valued at more than $1 million. Fisher remains in prison. He made a plea agreement with the government that ensures he will cooperate in identifying assets to help make restitution and return properties to the rightful owners.

• Fisher used forgery and elaborate property transfers to illegally acquire dozens of lots and unoccupied properties from January 2004 through this February, according to court documents.

***

• [In one case, a] woman owned three Fort Worth properties that had been "fraudulently conveyed" to a California woman in June 2008, according to court documents. A notary listed on property records told officials that her signature and notary stamp had been forged. (In a July 2009 raid at Fisher's home, authorities seized seven notary stamps, according to court documents.)

For more, see Arlington man pleads guilty in real estate thefts.

For the U.S. Attorney (Northern District of Texas) press release, see Fort Worth Man Admits Running Scheme To Fraudulently Obtain Real Estate (Norris Fisher Faces Up to 80 Years in Federal Prison):

• Fisher conducted research and identified various distressed properties. Fisher preferred to target unoccupied properties or vacant lots belonging to elderly individuals and individuals who had recently died. After he identified a property that he wanted to illegally acquire, Fisher paid people to forge signatures and created a forged warranty deed that fraudulently reflected a transfer of the property from its true owner to a fictitious person.

• If the true owner of the property was deceased, he would create a fraudulent heirship affidavit which falsely claimed that a fictitious person was the heir to the deceased property owner, and therefore entitled to inherit the property.

Crappy Real Estate Titles, Void Foreclosure Judgments Arising From Unchallenged Faulty Legal Process Not A Concern For One Central Florida Chief Judge

In Central Florida, a recent story in the Sarasota Herald Tribune brings more attention to the issue of "crappy titles" that are resulting by reason of judges' 'hands-off' policy of allowing unchallenged foreclosure actions to proceed, despite the mounting evidence of problems in the legal process:

• The vast majority of errors involve homeowners who fell behind or stopped making payments, not people whose homes were seized by mistake. Because of that, problems with foreclosure documents have often been dismissed as technicalities. But experts say a greater threat looms.

• An orderly real estate market depends on the legal transfer of property. Someone who bought a home from a bank that used questionable paperwork might have trouble selling the property. In addition, previous owners may be able to sue to get their house back. Experts expect a flood of legal challenges based on inaccurate documents.(1)

• "Every one of them is suspect. Some of them are clearly criminal. All of them need to be investigated by law enforcement," said Sarasota real estate attorney Michael Belle, who reviews foreclosure filings as part of a court-sponsored program.

The attitude of the chief judge of one Central Florida jurisdiction about the whole paperwork mess as it specifically relates to unchallenged foreclosure cases is described in this excerpt from the story:

• Judges do not question the documents unless homeowners question them first, so they continue to rule in favor of lenders. Twelfth Circuit Chief Judge Lee Haworth said judges must remain neutral in court, and cannot raise possible defenses -- such as bad paperwork -- on behalf of homeowners who choose not to fight, or don't know how to fight, their foreclosure.(2) "The judges will accept, as they do in every case, pleadings that are represented by counsel as legitimate," said Haworth. "It's the defendant's case. ... If they don't want to hire an attorney, that's their business."

For the story, see Shortcuts on the foreclosure paper trail.

(1) The foreclosing lenders' failure to properly establish that it had the right to bring the foreclosure action appears to lead to the conclusion that such an action lacks subject matter jurisdiction, and the judgment rendered therein is null, void, and with no effect.

See Cone v. Benjamin, 157 Fla. 800; 27 So. 2d 90 (Fla. 1946) for one example of legal precedent in Florida supporting the proposition that, with respect to the effect it may have on real estate, a judgment in favor of a party invoking the jurisdiction of the court (ie. the plaintiffs in foreclosure actions) who had no right, title or interest in the real estate, nor any duty to perform with reference thereto, is without jurisdiction, is null and void, and wholly without effect. The relevant excerpts from the Florida Supreme Court ruling in this case follow (bold text is my emphasis, not in the original text):

• Our view is that the decree in the chancery suit, in so far as it directly affected the real estate, or any right or title therein, was void, because the complainant administrator, who invoked the jurisdiction of the court, had no right, title or interest in the real estate, nor any duty to perform with reference thereto. See 39 Am. Jur. 858-863; Lovett v. Lovett, 93 Fla. 611, 112 So. 768.

***

• For the reason above pointed out, we hold that, under Section 4898 C.G.L. of 1927, the said chancery decree was ineffective as against these appellants insofar as it authorized the administrator, under the supervisor and director of the County Judge, to distribute the personal property to the known heirs of the husband, and that it was wholly without effect on the title to the real estate.

--------------------------------

In the above-referenced case, Lovett v. Lovett, 93 Fla. 611, 112 So. 768 (Fla. 1927), the Florida Supreme Court discusses what it is for a court to have "subject matter jurisdiction" in a particular case, and concludes its discussion with this summary (bold text is my emphasis, not in the original text):

• So that, when it is said that a Court has jurisdiction of the subject-matter of any given cause, if these words are to be given their full meaning, they imply, generally speaking, (1) that the Court has jurisdictional power to adjudicate the class of cases to which such case belongs; and (2) that its jurisdiction has been invoked in the particular case by lawfully bringing before it the necessary parties to the controversy, and (3) the controversy itself by pleading of some sort sufficient to that end; and (4) when the cause is one in rem, the Court must have judicial power or control over the res, the thing which is the subject of the controversy. This, is a general way, is what we mean when we say that a Court has "jurisdiction of the subject-matter and the parties" to a cause.

Where the party invoking the jurisdiction of the court by filing the foreclosure action fails to establish that it had any right, title or interest in the real estate, or any duty to perform with reference thereto, it seems clear that neither:

• the necessary parties to the controversy have been lawfully brought before the court, nor
• the Court has "judicial power or control over the res, the thing which is the subject of the controversy".

two of the prerequisites for having subject matter jurisdiction over the case that are necessary for rendering valid judgments.

(2) See LYONS: Being neutral doesn't mean being gullible.

Short-Selling Homeowners: Beware Of Lurking Bill Collectors, 'Zombie Debt' Buyers Looking To Squeeze You For Unpaid Mortgage Loan Deficiency Balances

In Phoenix, Arizona, USA Today reports:

• Some former homeowners who went through short sales to avoid foreclosure are finding they are still in debt to their lenders. Because the short-sale concept, which allows people to sell their homes for less than they owe, is designed specifically to help homeowners avoid having to pay their lenders more money, some sellers have been careful to negotiate their deals so the lender, by contract, can't later seek payment. Those who haven't done so are at risk.

***

• Tricia Goldblatt sold her Phoenix home through a short sale last year after losing her job as an executive assistant at an engineering firm. A few months ago, she started receiving calls from a collection agency. "They are telling me I owe $10,000. I did a short sale to get out from under my mortgage," she said. "I don't have that money. I had to move in with my mom."

• Goldblatt said she thought the documents for her short sale specifically stated her liability for both her first and second mortgage would be terminated. But the collection agency said it bought the note on her home-equity loan from her lender and wants to be paid.

***

• [M]any sellers think that once the short sale is completed, they are free of liability. That's when the unwelcome calls can begin. There usually is a lag between a short sale and when a lender will try to collect on unpaid debt or sell it to a collection agency. It was almost a year after Goldblatt's short sale when she was contacted by the collection agency.

For more, see Some homeowners still owe after short sale.

DOJ U.S. Trustee Program Says "Show Me!" Begins Putting The Screws To F'closing Lenders Claiming Legal Standing, Littering Courts w/ Sloppy Paperwork

The New York Times highlights two recent Atlanta, Georgia-area federal bankruptcy court cases evidencing the U.S. Department of Justice's United States Trustee Program and its efforts in stepping up the scrutiny over foreclosing lenders' claims of legal standing in foreclosure actions:

• In both cases, Donald F. Walton, the United States trustee for the region, has intervened, filing motions contending that the banks trying to foreclose have not shown they have the right to do so. The matters involve borrowers operating under Chapter 13 bankruptcy plans overseen by the court in the Northern District of Georgia. In both cases, the banks have filed motions with the bankruptcy court to remove the automatic foreclosure stay that results when a court confirms a debtor’s Chapter 13 repayment plan. If the stay is removed, the banks can foreclose.

• In one case, the borrower had her Chapter 13 plan confirmed by the court early last month. About two weeks later, Wells Fargo asked the court for relief from the stay so that it could foreclose.

• Responding on Nov. 16, Mr. Walton asked the court to deny the bank’s request because it had failed to produce any facts showing that it was entitled to foreclose — either as the holder of the underlying note or as the agent for the holder.

• The other case involves a couple who had their Chapter 13 plan confirmed by the court in March 2009. A month ago, Chase Home Finance, a unit of JPMorgan Chase, asked the court for relief from the automatic stay so that it could start foreclosure proceedings.

• Again, Mr. Walton objected, asking the court to deny the request on the same grounds as argued in the Wells Fargo matter — in this case, that Chase hadn’t proved that it controlled the note on the property.

• Jane Limprecht, a spokeswoman for the trustee program, confirmed that it was ratcheting up its scrutiny on banks’ foreclosure practices.

For more, see Don’t Just Tell Us. Show Us That You Can Foreclose.

Media Probe Draws More Light To Lawlessness In Florida's Court-Run Foreclosure Process

In Central Florida, the Sarasota Herald Tribune reports:

• To get a sense of the lawlessness in Florida's court-run foreclosure process, look no further than public records at the Sarasota and Manatee county courthouses. There, on foreclosure documents open to everyone, is the evidence that at least one law firm's employees repeatedly broke a state law in a rush to push cases through the courthouse so banks could seize people's homes.

• The evidence -- missing signatures and misdated documents that could not have been signed on the dates specified -- can be found on an important document called a "mortgage assignment." The paperwork helps prove a lender has the legal right to seize a property. Without it, a bank would have a costlier and more time-consuming legal path to foreclose, even if a homeowner never makes another mortgage payment.

• Faced with that prospect, employees in David J. Stern's law offices bent and broke the rules designed to ensure the documents judges rely on to award foreclosures are authentic, a Herald-Tribune investigation found.

For more, see Shortcuts on the foreclosure paper trail.

Judges Not Immune To 'Robosigner' Disease; J'ksonville Rubber-Stamper Says 'Rocket Docket' Works "Fine & Fair" While Declining To Be Named For Story

In Duval County, Florida, Financial Times reports:

• “I am required to bring this case to a conclusion. I am setting the date of foreclosure for January 12. I wish you well,” the duty judge told Anthony Bell, who was soaking up his tears with the last tissue from a box placed in front of him at courtroom 58 of the Duval County Courthouse. After eight minutes, that was the end of case 5543, “Wells Fargo Bank versus Anthony Bell”, for a property in Orange Park, Jacksonville.

***

• “The bank was just interested in getting some money back. And the judge, well, he needed to get my case out of the way as quickly as possible,” Mr Bell said as he left the courthouse.

• After dismissing Mr Bell, the judge began signing off on uncontested home repossession cases as fast as his clerk could pile up the folders, sometimes less than a minute per file. Thousands of cases are awaiting judgment and more are filed each day. “We are overbooked, just like airlines,” the judge, who declined to be named, told the Financial Times afterwards. “But it’s all working fine, fine and fair.”

For more, see US fast-tracks foreclosures through courts.

Another Crackpot Claiming 'Adverse Possession' Defense Faces Criminal Charges In Vacant Home Hijacking Scam

In Sarasota, Florida, the Sarasota Herald Tribune reports:

• During Henry VIII's reign in England, a law was written to punish owners who lost track of their land by granting ownership to anyone who put it to good use for a few decades. Now, in one of the most unusual side effects of the mortgage meltdown, police say a local man misused Florida's version of that ancient law to take over homes still in the foreclosure process and rent them out to unsuspecting families.

• Sarasota County Sheriff's detectives say Joel McNair ran a business called "Homes for Americans," in which he researched abandoned homes on the Internet to see if they were in foreclosure. If they were, he would change the locks, move out any furniture inside and rent out the home to a new family, according to arrest reports.

• [P]olice arrested McNair and charged him with fraud and grand theft over $100,000 in what amounted to the theft of two houses. McNair told police that in the past two months, he had taken over and rented out at least 11 houses in Sarasota County alone, and had done the same with more houses in Manatee and Hillsborough counties, according to the report.

• McNair, 60, told police he was simply taking advantage of a Florida statute called the adverse possession law, which allows people to claim the abandoned homes of others if they pay taxes and act like the owners for seven years. It has been on the books in Florida since 1869. "I spend a lot of time and money making sure it's legal," McNair told SNN Local News 6 before his arrest last week.

For more, see Home rental strategy a service or fraud?

Confessions Of A BofA Robosigner; Says Bank's Foreclosure Operations "Were Chaotic & Stressful," Shudders To Think Of All Docs w/ His Name On Them

In Southern California, CNN Money.com reports:

• It only took him a second to sign each foreclosure document. That's how good [ex-Countrywide Financial employee] Tam Doan got at his job in Bank of America's pre-sale foreclosure department in Southern California. Of course, he didn't have time to actually read the paperwork he was signing, he said, and in some cases, he didn't even know what documents he was putting his pen to. "I had no idea what I was signing," said Doan. "Either you were in or you were out."

***

• Doan approached CNNMoney after the so-called robo-signing scandal came to light last month. After 18 months at Bank of America, he was terminated in early September for failing to follow policy, according to the servicer.

***

• Unlike Countrywide, which he described as orderly, Doan said Bank of America's foreclosure operations were chaotic and stressful. There weren't enough people to do the job and they didn't receive the training needed to do it properly.

***

• While Bank of America has accused him of trying to take advantage of the current media frenzy surrounding robo-signing, he said he is speaking out because the servicer wrongfully terminated him. Now that he's not in the thick of the foreclosure process, Doan said he has had time to reflect on what his actions meant. Each signature likely led to a borrower losing his or her home. While he got numb to that fact while he was on the job, he now feels guilty. "I shudder to think how many foreclosure documents have my name on it," he said.

For more of Doan's confession, see I was a robo-signer.

Media Pounding Continues For California-Based Forensic Loan Audit Peddler; Federal Judge Calls Outfit's Practices "The Blue Ribbon Of Shams!"

ABC World News with Diane Sawyer reports:

• U.S. Loan Auditors and similar outfits are promising to conduct "forensic audits" of mortgage transactions to find evidence of "predatory lending" and fraud, and use that evidence to haul lenders into court and obtain new mortgages at far more favorable interest rates, officials say.

• The companies make "very bold claims" but "in most cases forensic loan audits cannot help homeowners to cancel their mortgages," said James Reilly Dolan, assistant director for financial practices at the Federal Trade Commission.

• In October, California Attorney General Jerry Brown sued U.S. Loan Auditors, its legal arm My U.S. Legal Services and the companies' owners for $60 million, accusing them of scamming hundreds of homeowners out of anywhere from several thousand dollars to, in one case, $55,000.(1)

***

• Sacramento U.S. District Judge John A. Mendez spoke harshly of the company's practices in a separate case brought by Bank of America against U.S. Loan Auditors. "This has sham written all over it. This is the blue ribbon of shams," Mendez said during a hearing in August. Consumers "are spending a whole lot of money for services that aren't delivering anything," he said.

For more, see Officials: New Foreclosure Scam Preys on Desperate Homeowners (Victims Lose Thousands of Dollars -- and Their Homes).

(1) See:

• California AG's press release: Brown Files $60 Million Lawsuit Against Fraudulent Forensic Audit Loan Modification Scam,
• California AG's lawsuit: People v. US Loan Auditors, Inc., et al.

See also Cal. AG Tags Forensic Loan Audit Firm, Others w/ $60M Suit; Says Litigation Mill "Littered Courts w/ 100s Of Suits That Have Scant Chance Of Success."

U.S Loan Auditors has also been hit with a separate lawsuit seking class action status. See:

• Call Kurtis: U.S. Loan Auditors Sued (Former Customers File Class Action Lawsuit, And Claim False Advertising),
• For the class action complaint, see Ma, et al. v. U.S. Loan Auditors, LLC, et al.

Lender's Assembly Line Approach To Foreclosure Transforms $28K Loss Into $42K Loss, Booting Loan-Mod-Seeking Homeowner Onto Street In The Process

The Wall Street Journal's Developments blog recently reported on an interesting account of a foreclosure, titled “Two Cords of Wood,” written by Maine pro bono attorney Thomas A. Cox.
In it, Cox reportedly writes on how second mortgage holder KeyBank refused to restructure the payments on a $28,000 loan for one of his clients, despite the fact that the client was current on the payments on the first mortgage (approximately $50,000) and, instead, coughed up the $50K to buy out the first mortgage, and then foreclosed on the homeowner, spending $4,000 in foreclosure costs in the process.

KeyBank then proceeded to boot Cox's client out of her home, and, with a cold winter approaching, is now stuck with a vacant home now reportedly listed for sale at $44,900.(1)

For the story, see A KeyBank Foreclosure Draws Fire.

(1) If my math is correct, and assuming KeyBank nets at most $40K from the sale of the home listed at $44,900, KeyBank appears to have 'skillfully' transformed a $28,000 loss from a worthless second mortgage that the homeowner was willing to make payments on into a $42,000 loss as a result of its manuever ($50K (1st mtg.) + $4K (f'closure costs) less $40K (est. sale proceeds) equals $14K loss on its sophisticated maneuver. Then add $28K worthless 2nd mortgage to get to $42K).

Don't Be A Tightwad - Cough Up The Cash For That Owner's Title Insurance Policy

Homebuyers looking to shave off a few bucks in closing costs by foregoing the purchase of an owner's title insurance policy(1) are cautioned against it in a recent column by real estate lawyer Harvey S. Jacobs in The Washington Post:

• Many homeowners mistakenly think that because the settlement lawyer did the [title] search and is providing a lender's policy, that the title must be clear. Why waste extra money on an owner's policy? This is an extremely shortsighted view for several reasons.

• First, even though a prudent settlement lawyer will do an exhaustive title search, that search may not uncover the very real risks present in these days of fraudulent foreclosures and/or forged documents.(2)

• Second, the lender's policy does not provide any protection for the owner in the event of a successful claim.

• Third, part of the benefit in a title policy is that the title insurance company assumes the legal costs to defend any claim. Without an owner's policy, the owner must bear his own legal costs to defend any claim, no matter how frivolous.

• Fourth, the marginal cost of buying an owner's policy, when a lender's policy is being issued (a so-called "simultaneous issue") is quite small. You do not pay full premium for owner's and lender's policies when they are being issued simultaneously.

• Finally, an owner's policy may entitle you to discounts off future title policies if you subsequently refinance, or for your buyer if you sell your home within [a certain period] of obtaining your owner's policy.

For more, see Title insurance is essential in protecting your investment.

See also Title Insurance: What Risks Does It Protect A Property Owner Against?

(1) Believe it or not, there are a few real estate agents out there who have been known to give this 'sage' advice to their clients and customers when buying a home, especially where mortgage financing is not needed and the buyer is paying "all-cash." When screening for a real estate agent to work with for a home search, it may not be a bad idea to ask the agent whether it's OK to pass on paying for an owner's title insurance policy as a way save on closing costs, and see how the agent responds. If the agent says it's a good idea to pass on getting the owner's title policy, it may be best to pass on working with that particular agent.

(2) Title losses arise from three principal sources:

• Errors in searching the records,
• Errors in interpreting the legal effect of those records,
• Facts outside the records, known as “off-record risks."

Among the off-record risks, or "hidden hazards," that a title insurance policy protects a homeowner and mortgage lender against are:

• (1) false personation of the true owner of the land, (2) forged deeds, releases, etc., (3) instruments executed under fabricated or expired power of attorney, (4) deeds delivered after death of grantor or grantee, or without consent of grantor, (5) deeds to or from defunct corporations, (6) undisclosed or missing heirs, (7) misinterpretation of wills, (8) deeds by persons of unsound mind, (9) deeds by minors, (10) deeds by aliens, (11) deeds by persons supposedly single but secretly married, (12) birth or adoption of children after date of a will, (13) surviving children omitted from a will, (14) mistakes in recording legal documents, (15) want of jurisdiction of persons in judicial proceedings (ie. where a court lacks subject matter jurisdiction over a case, or where it lacks personal jurisdiction over a defendant, for example, failure to properly serve a defendant with legal process), thereby leading to judgments that are either void or voidable, (16) discovery of will of apparent intestate, (17) errors in indexing, (18) falsification of records, (19) capacity of foreign fiduciaries, (20) claims of creditors against property sold by heirs or devisees, (21) deeds in lieu of foreclosure given under duress, (22) ultra vires deed given under false corporate resolution, (23) easements by prescription not discovered by a survey, (24) deed of community property recited to be separate property, (25) errors in tax records (ie. listing payment against wrong property), (26) deed from a bigamous couple, (27) defective acknowledgements (ie. notary public screw-ups when notarizing legal documents, (28) federal condemnation without filing notice, (29) descriptions apparently, but not actually, adequate, (30) corporation franchise taxes, a lien on all corporate assets, (31) erroneous reports furnished by tax officials, (32) administration of estates of persons absent but not deceased, (33) undisclosed divorce of spouse who conveys as consort's heir, (34) marital rights of spouse purportedly, but not legally, divorced, (35) duress in execution of instruments.

DOJ Document 'Scrubbers' Intensify Efforts In Search Of Lenders' Paperwork Screw-Ups, Improper Practices In Homeowners' Chapter 13 Bankruptcy Cases

The Wall Street Journal reports:

• The Justice Department and other federal agencies have intensified their review of the banking industry's foreclosure documentation problems, using their powers over bankruptcy proceedings to scrutinize the treatment of troubled mortgages.

• A key part of the effort is the Justice Department Trustee Program, the federal watchdog overseeing bankruptcies, which has launched a broad review of Chapter 13 bankruptcy filings by homeowners trying to halt foreclosure proceedings.

• A U.S. official said Wednesday that 17 federal Trustee offices around the nation have recently stepped up efforts to scrub Chapter 13 filing documents, looking for documentation errors or improper practices such as inflated fees. Under Chapter 13 bankruptcy, a borrower seeks to halt foreclosure and comes up with a plan to catch up with their mortgage debt within five years.

***

• The increased federal scrutiny puts more pressure on the banking industry, which is already dealing with probes by 50 state attorneys general into allegations of the improper use of "robo-signers" to foreclose on homes. The industry is also bracing for the results of a separate probe by the Federal Housing Administration, which is scrutinizing the way banks process mortgage payments.

For more, see U.S. Looks Deeper Into Foreclosures.

Feds Announce Recent Actions Against Various Alleged Upfront Fee Foreclosure Rescue Rackets

The Federal Trade Commission recently announced:

• The Federal Trade Commission [] announced a series of law enforcement actions as part of the FTC’s continuing crackdown on scams that target homeowners behind in their mortgage payments or facing foreclosure.

• At the FTC’s request, federal courts have halted two allegedly bogus mortgage relief operations that posed as government mortgage assistance programs, pending trial. In addition, 17 marketers have been banned from selling mortgage loan modification and foreclosure relief services under court judgments and settlements in several previously filed law enforcement actions. The FTC has charged another mortgage relief operation with contempt for violating 2008 court orders.

• All of these cases involved alleged false claims that the defendants can obtain dramatically lower mortgage interest rates in exchange for hefty up-front fees.(1)

For the names of the outfits and individuals targeted by the FTC, and the details underlying its actions against these rackets, see FTC Announces Series of Actions Against Mortgage Relief Operations Charged with Deceiving Distressed Homeowners.

(1) Among the outfits' alleged bad acts are:

• Pocketing upfront fees using false claims of high sucess rates and promises to give full refunds if they failed to obtain loan modifications,
• Misrepresenting that they would stop, postpone, or prevent foreclosure,
• Misrepresenting loan and modification terms,
• Misrepresenting their ability to improve someone’s credit history,
• Advising people to stop making mortgage payments,
• Falsely saying that negotiations with their lenders were under way in response to consumers' inquiries,
• Falsely claiming that a lawyer would negotiate the terms of consumers’ home loans with lenders,
• Falsely claiming that only selected customers meeting certain conditions could “qualify” for modification assistance, when in fact, these rackets pocketed upfront fees from pretty much everyone who applied for help,
• Falsely claiming that it had attorneys and forensic accountants on staff,
• Using mailers that falsely peddled loan modification services as federal programs, and having those mailers signed by an attorney in the consumer’s state,
• Misrepresenting themselves as part of the federal government,
• Misrepresenting an affiliation with the federal government,
• Using logos that simulated government seals,
• Falsely claiming to have taken reasonable and appropriate measures to protect consumers’ personal information from unauthorized access,
• Improperly disposing of consumers’ information in unsecured dumpsters,
• Stopped responding to consumers' phone calls or e-mails,
• Disconnecting their businesses' phone numbers,
• Changing the name of their business while continuing to make promises and take money from consumers,
• Using mailers that appear tailored to individual recipients, expressing certainty that the consumers could receive a loan modification by stating that consumers had been “PRE-SELECTED” because their loan situation met the defendants’ criteria, and specifying the consumer’s “New 30 Year Fixed Payment.”

Feds Finalize Rules Regulating Upfront Fee Foreclosure Rescue 'Rackets'

The Federal Trade Commission recently announced:

• Homeowners will be protected by a new Federal Trade Commission rule that bans providers of mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they decide is acceptable. [...] The FTC is issuing the Mortgage Assistance Relief Services (MARS) Rule to protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis.

***

• All provisions of the rule except the advance-fee ban will become effective December 29, 2010. The advance-fee ban provisions will become effective January 31, 2011.

For more, including the ban on advance fees, disclosure requirements, prohibited claims, and the exemption for attorneys, see FTC Issues Final Rule to Protect Struggling Homeowners from Mortgage Relief Scams (Rule Outlaws Advance Fees and False Claims, Requires Clear Disclosures).

Go here for the Text of the Federal Register Notice.

Foreclosure Mills Begin Returning To Court With 'Rehabbed' Paperwork Expecting Judges To Sign Off On Prior Screw-Ups

The Palm Beach Post reports:

• Some large law firms that handle the state's foreclosures are regrouping and re-filing court documents that were pulled earlier this fall, claiming that flaws have been fixed and hoping to move home repossessions forward.

• But foreclosure defense attorneys are crying foul. They say judges shouldn't allow simple do-overs on what they believe amounted to fraud upon the court when attorneys submitted "robo-signed" affidavits or other questionable documents that bank and law firm employees have said were not verified, reviewed or correctly notarized.

• St. Petersburg defense attorney Matt Weidner said the re-filings are placing the courts in an "absurd" position, requiring judges to "bless or at least overlook the fraud committed." "The foreclosure mills and their clients have caused themselves and this entire country a profound mess," Weidner said. "Now they want our courts to sign off on their misdeeds."

For more, see Dormant foreclosure cases in Florida starting to trickle back into courts.

Ruling That Sale Leaseback Was Equitable Mortgage Crucial To $294K Damages Award For Consumer Lending Law Violations In Equity Stripping Scam

A recent ruling from a U.S District Court in Trenton, New Jersey, sitting in an appellate capacity in a bankruptcy matter, affirmed a decision by a U.S. Bankruptcy Court awarding damages of $690,000 (and an additional $34,000+ for the homeowners' legal fees and costs) to a homeowner-couple who were ripped off in a sale leaseback, foreclosure rescue scam.

Of that amount, approximately $294,000 of that amount was attributable to statutory damages for violations of a state consumer lending law: the New Jersey Homeowner Security Act ("HOSA"), and two federal consumer lending laws: the Truth in Lending Act ("TILA") and the Home Ownership and Equity Protection Act ("HOEPA").(1)

For those of you wondering how there can be violations of consumer "lending" laws in a transaction that did not ostensibly involve a loan of any type (ie. the subject transaction involved a sale of the home, coupled with a contemporaneous leaseback of the premises with an option to repurchase the home within a certain time frame), the ripoff victims invoked the equitable mortgage doctrine, which when suucessfully invoked in the context of a sale leaseback deal, will recharacterize the deal as a secured loan.(2)

In the following excerpt, the U.S. District Court addresses this equitable doctrine, as applied in the State of New Jersey (bold text is my emphasis, not in the original text):

• The Court will affirm the Bankruptcy Court's determination that the transaction involved in the present case, although nominally structured as a sale/leaseback transaction, is in actuality an equitable mortgage. "`The whole doctrine of equitable liens or mortgages is founded upon that cardinal maxim of equity which regards as done that which has been agreed to be, and ought to have been, done. . . . The form which an agreement shall take in order to create an equitable lien or mortgage is quite immaterial, for equity looks at the final intent and purpose rather than at the form.'" In re Bridge, 18 F.3d 195, 200 (3d Cir. 1994) (quoting Rutherford Nat'l Bank v. H.R. Bogle & Co., 114 N.J.Eq. 571, 169 A. 180, 182 (N.J. Ch. 1933)). Thus, form is irrelevant, as:
  
  '[t]he doctrine has been firmly established from an early day that when the character of a mortgage has attached at the commencement of the transaction, so that the instrument, whatever be its form, is regarded in equity as a mortgage, that character of mortgage must and will always continue. If the instrument is in its essence a mortgage, the parties cannot by any stipulations, however express and positive, render it anything but a mortgage, or deprive it of the essential attributes belonging to a mortgage in equity.'
  
  Johnson v. Novastar Mortgage, Inc., 698 F.Supp.2d 463, 469 (D.N.J. 2010) (quoting Humble Oil & Refining Co. v. Doerr, 123 N.J.Super. 530, 303 A.2d 898, 906-07 (Ch. Div. 1973)). In fact, "New Jersey courts have repeatedly found that sale-leaseback arrangements made to avoid foreclosure are in fact equitable mortgages." Id.

• The Bankruptcy Court thus did not err in its determination that the transaction at issue is an equitable mortgage. The Bankruptcy Court based this determination on a number of factors:
  
  (1) Cleveland Development's solicitation letter to the Plaintiffs contains ... telling terminology .... (2) The `Lease Agreement Buyback' provides for sale proceeds to be disbursed to the Plaintiff upon cancellation of the agreement. (3) The property had a value of over $800,000; however, the Defendant `purchased' it for only $555,232. (4) The O'Briens have the option to repurchase their home for $650,483.83. (5) The O'Briens were not represented by counsel in the transaction. (6) The O'Briens were in financial distress .... (7) The Plaintiffs' intent was that this transaction was a loan, secured by their home ....
  
  O'Brien, 423 B.R at 491.

• Although Appellants claim that "at all times, Plaintiffs and Cleveland intended the transaction to be a sale/leaseback with an option to repurchase" (Appellants' Br. at 32), the Court agrees with the Bankruptcy Court that the evidence shows "the transaction was meant to refinance the mortgage allowing [Appellee] to keep his home." O'Brien, 423 B.R. at 492. It is of no matter that "the documents memorializing the transaction clearly memorialize the parties' intent to effectuate a sale of the Property to Cleveland, the subsequent lease of the Property by Cleveland to Plaintiffs, and the eventual repurchase of the Property by Plaintiffs." (Appellants' Br. at 32.)

• Rather, "`[t]he rule is firmly established that a deed absolute on its face intended only as security for a loan will be decreed to be operative as a mortgage. Equity will look beyond the written instrument and explore the character of the transaction and the contemporaneous intentions of the parties.'" James Talcott, Inc. v. Roto American Corp., 123 N.J.Super. 183, 202 (Ch. Div. 1973) (quoting Vreeland v. Dawson, 55 N.J.Super. 456, 465 (Ch. Div. 1959)).

• The Court joins the Bankruptcy Court in looking beyond the written instrument here to the actual character of the transaction. Furthermore, Appellants' arguments regarding the intent of the parties does not change the Court's decision. Rather, courts look to the "final intent" of the parties; in the present case the final intent was clearly that Appellees keep their home.

• Thus, this Court does not find clear error in the Bankruptcy Court's determination that the transaction at issue was an equitable mortgage.(3)

For the ruling of the District Court, see Cleveland v. O'Brien (aka O'Brien III), Civ. No. 10-3169 (GEB), (D. N.J., November 12, 2010), affirming:

• In re O'Brien (aka O'Brien I), 423 B.R. 477 (Bankr. D.N.J. 2010) (as to the approximately $690,000 in actual and statutory damages), and

• In re O'Brien (aka O'Brien II), unpublished (Bankr. D. N.J., 2010) (as to the homeowners' attorney fees of $33,932.50 for 81.5 hours of work and $627.50 in costs).

(1) Another chunk of the damages awarded to the homeowner-couple was attributable to violations of the New Jersey Consumer Fraud Act ("CFA"), for treble damages in the amount of $350,374.47 (representing the amount of home equity the couple was screwed out of, $116,791.49, and then multiplied by three as mandated by the CFA).

Asserting claims under state statutes prohibiting unfair and deceptive practices as was done in this case is not unusual in sale leaseback foreclosure rescue scam cases (see footnote 3 of this post). For an overview of such state statutes throughout the U.S., see CONSUMER PROTECTION IN THE STATES: A 50-State Report on Unfair and Deceptive Acts and Practices Statutes.

(2) See generally:

• When is a Sale-Leaseback an Equitable Mortgage?,
• Sale-Leasebacks: Things May Not Be What They Seem,
• Online References On Sale Leaseback Recharacterization.

(3) In footnote 7 of the ruling, the District Court makes the following additional observation on the application of the equitable mortgage doctrine in New Jersey in another recent case:

• The Court notes that the Bankruptcy Court's decision has recently been utilized by another Judge in this District in finding that a sale-leaseback transaction similar to the one at issue was actually an equitable mortgage. Johnson, 698 F.Supp. at 465. In Johnson v. Novastar Mortgage, Inc., the court persuasively used what it refers to as the "O'Brien factors" in determining that the sale-leaseback arrangement at issue was actually an equitable mortgage; specifically, the Court considered:
  
  (1) Statements by the homeowner or representations by the purchaser indicating an intention that the homeowner continue ownership; (2) A substantial disparity between the value received by the homeowner and the actual value of the property; (3) Existence of an option to repurchase; (4) The homeowner's continued possession of the property; (5) The homeowner's continuing duty to bear ownership responsibilities, such as paying real estate taxes or performing property maintenance; (6) Disparity in bargaining power and sophistication, including the homeowner's lack of representation by counsel; (7) Evidence showing an irregular purchase process, including the fact that the property was not listed for sale or that the parties did not conduct an appraisal or investigate title; and (8) Financial distress of the homeowner, including the imminence of foreclosure and prior unsuccessful attempts to obtain loans.
  
  Id. at 469-70.
  
  While not determinative, Johnson's reliance on the Bankruptcy Court's decision is probative.

The court rulings referenced herein appear to add weight to the proposition that, whether it's through civil lawsuits brought by victims, suits brought by the state Attorney General's office, or criminal probes (by the FBI) and prosecutions (by the U.S. Attorney's office), the State of New Jersey is a hostile environment for sale leaseback peddlers looking to rip off financially strapped homeowners of their home equity with this type of foreclosure rescue scam. For more on this point, see NJ An Unfriendly Place For Sale Leaseback Peddlers As Judge Slams Another Operator With $225K In Triple Damages, $50K+ In Homeowners' Legal Fees, footnote 1.

Void & Voidable Land Documents Used In Home Equity Scams

In an attempting to unwind/undo/void an abusive or fraudulent real estate transaction (ie. foreclosure rescue sale leasebacks, fraudulent inducement in the execution of a deed, forgeries, other real estate swindles), one of the initial determinations generally to be made (particularly when one seeks to restore title to property in the name of the scammed homeowner) is whether the contract, deed, or mortgage placed on the property contemporaneously with the scam (or at some point thereafter) is absolutely/wholly void (ie. void ab initio), or whether it is merely voidable. Further, in the case of a contract, deed, or contemporaneous/subsequent mortgage that is merely voidable, whether that instrument can be cancelled will turn on whether the grantee or lender qualifies as a bona fide purchaser or bona fide encumbrancer.

A June, 2010 ruling by the Maryland Court of Appeals (the state's highest court) in the context of a sale leaseback foreclosure rescue ripoff addressed the void vs. voidable question, and the implications to a bona fide purchaser, in the following excerpt (beginning at page 25 of the ruling, bold text is my emphasis not in the original text; text of court footnotes omitted):

• The distinction between a transaction being deemed void and voidable is clearly an important one. A void contract “is not a contract at all,” Restatement (Second) of Contracts §7 cmt. a (1981), and all parties, present and future, would be equally allowed to avoid the contract. See United States for the Use of the Trane Co. v. Bond, 322 Md. 170, 179-80, 586 A.2d 734, 738 (1991); Monumental Building Ass’n v. Herman, 33 Md. 128, 132 (1870); Harding v. Ja Laur Corp., 20 Md. App. 209, 214, 315 A.2d 132, 135 (1974) (“A deed obtained through fraud, deceit or trickery is voidable as between the parties thereto, but not as to a bona fide purchaser. A forged deed, on the other hand, is void ab initio.”).

• A voidable contract, on the other hand, is “one where one or more parties thereto have the power, by a manifestation of election to do so, to avoid the legal relations created by the contract, or by ratification of the contract to extinguish the power of avoidance.” Restatement (Second) of Contracts § 7 (1981); see Coopersmith v. Isherwood, 219 Md. 455, 461, 150 A.2d 243, 247 (1959) (adopting Restatement of Contracts § 13 (1932), precursor to § 7).

• We have long recognized that contracts obtained by fraud are not absolutely void, but are “voidable at the election of the parties affected by the fraud” and “binding until properly avoided.” Urner v. Sollenberger, 89 Md. 316, 332, 334, 43 A. 810, 811-12 (1899); see also Iseli v. Clapp, 254 Md. 664, 669-72, 255 A.2d 315, 318-19 (1969) (holding that a foreclosure rescue scam victim’s deed was voidable, but not as against innocent third parties); Hoffman v. Seth, 207 Md. 234, 239, 114 A.2d 58, 60 (1955) (stating that an agreement or conveyance procured by a false representation of a material fact is voidable, but not void); Wicklein v. Kidd, 149 Md. 412, 424-25, 131 A. 780, 784-85 (1926).15

• The distinction between a void contract and a voidable one is especially important in situations involving deeds; once a deed is considered void ab initio or of no legal effect, there are lasting consequences to everyone in the subsequent chain of title. As a result, we have been circumspect at common law16 in finding a deed void ab initio and have limited our rulings regarding voidness to circumstances that go to the face of the deed, e.g., forgery. See Maskell v. Hill, 189 Md. 327, 335, 55 A.2d 842, 845 (1947) (holding that a forged deed is a nullity); see also Harding, 20 Md. App. at 214, 315 A.2d at 135 (“A forged deed . . . is void ab initio.”). In Harding, our intermediate appellate court discussed how a forged deed, void from inception, does not protect bona fide purchasers:
  
  [T]here can be no bona fide holder of title under a forged deed. A forged deed, unlike one procured by fraud, deceit or trickery is void from its inception. The distinction between a deed obtained by fraud and one that has been forged is readily apparent. In a fraudulent deed an innocent purchaser is protected because the fraud practiced upon the signatory to such a deed is brought into play, at least in part, by some act or omission on the part of the person whom the fraud is perpetrated. He has helped in some degree to set into motion the very fraud about which he later complains. A forged deed, on the other hand, does not necessarily involve any action on the part of the person against whom the forgery is committed. So that if a person has two deeds presented to him, and he thinks he is signing one but in actuality, because of fraud, deceit or trickery he signs the other, a bona fide purchaser, without notice is protected. On the other hand, if a person is presented with a deed, and he signs that deed but the deed is thereafter altered e.g. through a change in the description or affixing the signature page to another deed, that is forgery and a subsequent purchaser takes no title.
  
  Id. at 215, 315 A.2d at 136.

• With respect to alleged violations of statutes, we have recognized that not all contracts that transgress in that regard are necessarily void, but are dependent upon legislative intent. See Beard v. American Agency Life Ins. Co., 314 Md. 235, 254-55, 550 A.2d 677,686-87 (1988); DeReggi Constr. Co. v. Mate, 130 Md. App. 648, 663-65, 747 A.2d 743, 751-52 (2000) (holding that a violation of the Consumer Protection Act will not render a contract unenforceable without proof of injury or damage). As we recognized in Lester v. Howard Bank, 33 Md. 558, 564 (1871), we examine the statute as a whole:
  
  “[B]efore the rule can be applied in any case of a statute prohibiting or enjoining things to be done, with a prohibition and a penalty only for doing a thing which it forbids, . . . the statute must be examined as a whole to find out whether or not the makers of it meant that a contract in contravention of it should be void, or that it was not so to be. In other words, whatever may be the structure of the statute in respect to prohibition and penalty, or penalty alone, that is not to be taken as granted that the Legislature meant that contracts in contravention of it were to be void, in the sense that they were
  not to be enforced in a court of justice.”
  
  Id., quoting Harris v. Runnels, 53 U.S. 79, 84, 13 L. Ed. 901, 903 (1851).

• Hudson v. Maryland State Housing Co., 207 Md. 320, 114 A.2d 421 (1955) and Romm v. Flax, 340 Md. 690, 668 A.2d 1 (1995) are particularly instructive in determining whether failure to comply with a statutory provision renders a deed voidable or void.

For more of the court ruling, see Julian v. Buonassissi, 414 Md. 641; 997 A.2d 104 (Md. 2010).

By the way, the bottom line in this case was that the court:

• Found the contract (and therefore the deed) used in pulling off the scam was merely voidable, and not void ab initio upon proof of violations of the Maryland Protection of Homeowners in Foreclosure Act,

• Found that the foreclosure rescue scam victim's failure to file a supersedeas bond to stay the ratification by the trial court of the foreclosure sale of property in which she had been in the chain of title, did not moot an appeal where the purchaser at the sale does not qualify for protection as a bona fide purchaser, and

• Remanded the case back to the trial court to determine whether the assignee of an original mortgagee, who bought at the foreclosure sale, had notice of the alleged defect surrounding the foreclosure rescue scam prior to the foreclosure sale.

See The Maryland Daily Record: Foreclosure appeal revived by Maryland Court of Appeals despite failure to post bond for some (easier-to-read) background on this ruling.

Go here for more on void and voidable deeds. DeedVoidVoidable

85-Year Old Victim Of Convicted Sale Leaseback, Equity Stripping Peddler Temporarily Dodges The Boot As Judge Grants '11th Hour' Stay Of Eviction

In Winter Park, Florida, the Orlando Sentinel reports:

• In an unfortunate era marked by foreclosures, short sales and evictions, thousands of distressed Central Floridians struggle every day to hold onto their homes. Genevieve Barbour is one of them. The 85-year-old faces eviction from the Winter Park home she has lived in for about 46 years.

• But the way Barbour lost her home is what makes her story unlike most any other foreclosure case. In reality, she doesn't own any part of her home today. She is barely a tenant. That's because she was swindled out of her large, tri-level on leafy Worthington Drive back in May 2007, during the real-estate boom.

• This month, she testified at the sentencing of John Pavao, the head of an "equity skimming" or "equity stripping" scheme that robbed Barbour and other vulnerable seniors of homeowner values built up over decades. A judge sent Pavao to prison for 10 years as a result. His daughter Shastine, another felon involved in the racketeering scam, received a lengthy probation sentence.

• But now, a little more than three years after Barbour unwittingly signed a document used by the unscrupulous group to claim her home, lending and loan servicing institutions are working to remove the woman from the residence, according to documents mailed to her home.

***

• She asks a basic question: How can she be kicked out of a home that was sold from under her and without her knowledge — transactions that led to people being convicted of felonies? "They proved it was fraud, it was a felony," Barbour said. "They put the guy in jail, and I still lost my home."

***

• When told about the Barbour situation [], Orange Circuit Judge Stan Strickland, who oversaw part of the foreclosure matter but not the final judgment, immediately halted all proceedings in the case, including the eviction. It should give Barbour time to get representation and sort out the legal mess, he said.(1) "I don't think it's written anywhere that I have to sit on my hands when I know something is wrong," Strickland said. "I'd rather err on the side of caution here and not have a woman thrown out."

For more, see Elderly Winter Park woman deals with scam aftermath — and possible eviction.

(1) This story serves as a reminder that, even when the scammer gets convicted on criminal charges connected to this type of home equity ripoff, the burden is still on the victim to file a civil lawsuit against the scammer and any other party that may have acquired an interest in the property as part of, or subsequent to, the swindle if the recovery of title to the home is desired.

In this case and others (assuming the scammed homeowner can't establish that the conveyance is absolutely void, such as in the case involving forged land documents - in which case all subsequently acquired interests in the home are also absolutely void) where the scammed homeowner retains and maintains continued possession of the home after signing the 'ripoff' documents conveying title to another, a strong case can arguably be made that a successful attempt to void the title conveyance to the scammer could also lead to the voiding of any subsequent mortgage placed on the home, even if the lender had no actual knowledge of the scam and claims to have the protection of the recording statutes as a bona fide purchaser.

In Florida, (as well as in most other jurisdictions), any subsequent purchaser of the home, or lender acquiring a security interest in the home, has a duty to conduct a physical inspection of the home, and where a physical inspection of the property would reveal an adverse interest or where there is a party in possession other than the record title owner, the subsequent purchaser or lien claimant has a duty to inquire of the possessor as to his interest and is charged with knowledge of the facts discoverable from such an inquiry or inspection.

Failure to make such inspections or inquiries will:

• leave the subsequent purchaser's or subsequent lender's interest in the property subject and subordinate to any legal rights and equities that the scammed victim can establish, and

• disqualify the subsequent purchaser or lender from the protections accorded a bona fide purchaser or bona fide encumbrancer.

For more on the duty of a subsequent purchaser or encumbrancer to conduct inspections and make the appropriate inquiries of persons in possession of real estate in Florida, (for which there is case law dating back over a century), see:

• Florida Bona Fide Purchaser, Possession, Duty Of Inquiry.

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

For some insights on the various legal theories and startegies to attacking this type of scam in litigation brought on behalf of the screwed-over homeowner, see:

• Foreclosure Rescue Scams I (part of a larger work from the National Consumer Law Center),
• Foreclosure Rescue Scams II (work made available online by the State of Washington Office of the Attorney General).