Sunday, June 19, 2011

Failure To Name Scam-Financing Lender As Defendant In Suit To Undo Sale Leaseback Equity Stripping Ripoff Leads To Never-Ending Litigation Marathon

An Indiana sale leaseback ripoff transaction that dates back to 2002 has been the subject of multiple rounds of court proceedings over the last eight years, and was the subject of a recent ruling by the Indiana Court of Appeals. In a nutshell:
  1. One, Swafford (the home owner), who was unable to obtain conventional financing through a mortgage company, asked one, Seitzinger, the agent of the mortgage company, if she could help him save his home from foreclosure.


  2. Seitzinger contacted Hodges, her brother, who proposed a sale leaseback arrangement, whereby Swafford sold the home to Hodges, and where a land contract between Swafford and Hodges was contemporaneously entered into to effect the planned repurchase by Swafford.


  3. The total effective sale price paid by Hodges to Swafford was $39,514.17, and the contemporaneous buy back agreement (the land contract) required Swafford to repurchase his home for $59,000.00, with interest at the rate of 8.50 percent per annum.


  4. As part of consummating the transaction, Hodges obtained an institutional mortgage loan for $57,400, paying Swafford $39,514.17 (all but $4,000 going to pay off existing liens/debts), and pocketing the balance.


  5. In 2003, a year after the deal was done, and after some disagreements that arose, Swafford filed a lawsuit against Hodges & Seitzinger to rescind the deal, alleging violations of the federal Truth in Lending Act, the federal Home Ownership and Equity Protection Act, the federal Real Estate Settlement Procedures Act, the Indiana Deceptive Consumer Sales Act, among other claims.


  6. When filing the suit, however, Swafford failed to name, as an additional defendant, the holder of the mortgage loan that financed Hodges' purchase from Swafford.


  7. Swafford ultimately prevailed in Round 1 of this litigation, with the sale leaseback being voided by the trial court. Among other things, Swafford recovered title to his home, subject to the mortgage loan Hodges obtained to finance the sale leaseback, and Hodges was instructed to continue making payments on said loan.


  8. In Round Two, the ruling of the trial court was affirmed on appeal. See Hodges v. Swafford, 863 N.E.2d 881, amended on reh'g, 868 N.E.2d 1179 (Ind. Ct. App. 2007).


  9. At some point after losing Round 2, Hodges stopped making the payments he was ordered to make to the mortgage lender, and the lender began Round 3 of this battle by filing a foreclosure action against both Hodges, the sale leaseback peddler, and homeowner Swafford.


  10. In Round 3, the trial court concluded that because the transaction between Swafford (the homeowner) and Hodges (the sale leaseback peddler) had been rescinded, Hodges had no interest in the property when he obtained his loan, and as a result, the mortgage never attached to Swafford's home.


  11. The trial court therefore concluded that the Bank could not foreclose on the property; however, it was entitled to summary judgment against sale leaseback peddler Hodges for the remaining amount due and owing under the mortgage loan. Homeowner Swafford (now with a home free & clear of Hodges' mortgage) was dismissed from the foreclosure action.


  12. Unsatisfied with this result, the bank commenced Round 4 and filed this appeal.

After an analysis of the federal Truth in Lending Act, the Indiana Court of Appeals ruled that the mortgage loan made to Hodges by the lender was not void ab initio, but merely voidable. Accordingly, it reversed the trial court finding that the mortgage did not attach at the time the sale leaseback was consummated, seemingly resulting in a reinstatement of the mortgage as a lien on Swafford's home.

However, the appeals court then went further, and instructed the trial judge to begin Round 5 of this seemingly never-ending mess by holding off on proceeding with a foreclosure sale of Swafford's home until certain issues have been addressed, as explained in the following excerpt (bold text is my emphasis):

  • It does not necessarily follow, however, that the Bank is entitled to foreclose on the mortgage. We believe that substantial genuine issues of material fact remain regarding the equities of this case, and the interplay between those equities and the Bank's security interest in Swafford's property.

    Because Swafford has already paid off the amount he owed to the Hodgeses, it may be inequitable to allow the Bank to foreclose on the mortgage and thereby deprive Swafford of ownership of the property.

    On the other hand, it may be inequitable to cut off the Bank's right to foreclose on the mortgage based on the Hodgeses' wrongdoing, assuming the Bank was not in a position where it knew or should have known of that wrongdoing.

    We find it particularly troubling that the Bank was not joined as a necessary party to Swafford's action to enforce his right to rescind under the TILA. It seems evident on the face of the record that the Bank was a necessary party to any action seeking to transfer title to the property subject to the Bank's mortgage. See In re Paternity of C.M.R., 871 N.E.2d 346, 349 (Ind. Ct. App. 2007) (noting that a necessary party as one who must be joined in the action for a just adjudication).

    If the Bank had been made a party to the underlying litigation, the parties may have been able to reach a settlement or, if no settlement could be reached, the trial court could have fashioned a complete and appropriate, equitable remedy at a much earlier time.

    If Swafford was aware of the Bank's interest in the property during the course of his suit to enforce his right to rescind under TILA, but nevertheless chose not to join the Bank, he may be estopped from denying the Bank's interest. See Zoller v. Zoller, 858 N.E.2d 124, 127 (Ind. Ct. App. 2006) (noting that all forms of estoppel "are based upon the same underlying concept: a person who, by deed or conduct, has induced another to act in a particular manner will not be permitted to adopt an inconsistent position, attitude, or course of conduct that causes injury to the other.").

    Likewise, if the Bank was aware of the litigation and chose not to intervene, it may be estopped from asserting any right to enforce or reform the terms of the mortgage. See id..

    Swafford's level of sophistication ("a retired laborer, has a sixth grade education and is illiterate, except that he can read numbers and sign his name") and whether he was aware that the Hodgeses intended to finance their loan to Swafford by mortgaging the property, together with the extent to which the Bank's assignor knew or should have known of Swafford's interest in the property at or about the time the Hodgeses executed the promissory note and mortgage at issue will also be very relevant in balancing these equities.(1)

    For all of these reasons, we reverse and remand with instructions for the trial court to receive additional evidence on whether any legal or equitable remedy is available to the Bank, and if so, what the terms of that remedy should be

    Reversed and remanded with instructions.

For the Indiana appeals court ruling in Round 4 of this continuing litigation marathon, see Wells Fargo Bank, N.A. v. Hodges, No. 55A01-1007-MF-334 (Ind. Ct. App. June 10, 2011) (unpublished).

(1) In suggesting that a determination should be made of the extent, if any, to which the bank "knew or should have known of Swafford's interest in the property at or about the time the Hodgeses executed the promissory note and mortgage at issue ...", it may be that the appeals court is telegraphing to the parties that the bank, by reason of Swafford's retained and continued possession of the premises at the time the bank financed the sale leaseback and thereafter, may have been been on notice of Swafford's ownership interest in the premises at that time. In such case, and assuming the bank failed to conduct a physical inspection of the premises in ascertaining the rights of persons in possession, Swafford may be able to successfully void the bank's mortgage and eliminate the lien thereof from his home after all.

Indiana case law appears to support the proposition that a lender's failure to examine the premises prior to making a mortgage loan will leave it vulnerable to the unrecorded rights and equities of the occupants, and without the protection of the recording statutes as a bona fide purchaser / bona fide mortgagee, as one disappointed Indiana lender sadly learned last year. Thomas v. Thomas, 923 N.E.2d 465 (Ind. Ct. App. 2010):

  • "[T]o qualify as a bona fide purchaser,[[1]] one has to purchase in good faith, for a valuable consideration, and without notice of the outstanding rights of others." Kumar v. Bay Bridge, LLC, 903 N.E.2d 114, 116 (Ind.Ct.App.2009) (citation omitted). "The theory behind the bona fide purchaser defense is that every reasonable effort should be made to protect a purchaser of legal title for a valuable consideration without notice of a legal defect." Id. (citation omitted).

    There is no dispute that Benjamin failed to file a lis pendens notice when he filed his quiet title action against Richard on September 12, 2001. The trial court, however, concluded that Trustcorp did not qualify as a bona fide mortgagee because it did not act in good faith and had constructive notice of Benjamin's lawsuit. Trustcorp contends that these conclusions were erroneous. The record supports conclusions that Trustcorp did not act in good faith and can be imputed with notice of Richard's fraud and Benjamin's lawsuit.

    The Indiana Supreme Court has squarely held that "one who fails to examine land which he is about to purchase, and to inquire as to the rights of one in possession, is not acting in good faith and will not be treated as a bona fide purchaser."
    Mishawaka, St. Joseph Loan & Trust Co. v. Neu, 209 Ind. 433, 443, 196 N.E. 85, 90 (1935).

    Regarding notice of competing claims, the Court also held that "means of knowledge, with the duty of using them, are equal to knowledge itself." Id. The Indiana Supreme Court has also held that possession of land puts the world on notice that the possessor may have a claim of ownership and right to possession. See
    Olds v. Hitzemann, 220 Ind. 300, 308, 42 N.E.2d 35, 38 (1942) ("[Appellees] were still in possession of their land, and their possession was notice to the world of their claims to ownership and right to possession.").

    Quite simply, it is undisputed that Benjamin was in possession of the property in question and that Trustcorp nonetheless did nothing to ascertain his rights to it. It is apparent that even a cursory investigation would have quickly uncovered both Richard's fraud and Benjamin's claims on the home. Under the circumstances, Trustcorp cannot have been a bona fide mortgagee, and we therefore affirm the trial court's judgment in this regard.

(By the way, in footnote 1 of Thomas v. Thomas, the appeals court gives this reminder that, in Indiana, "[t]he law regarding bona fide purchasers applies with equal force to mortgagees. See, e.g., Weathersby v. JPMorgan Chase Bank, N.A., 906 N.E.2d 904, 910 (Ind. Ct. App. 2009).")

See also, Failure To Inspect Property & Inquire Into Rights Of Parties In Possession Prior To Making Loan Leaves Indiana Lender With Voided Mortgage.

See Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire for case law in other states addressing the effect of possession and a real estate purchaser's or lender's duty to inquire into the rights of the occupants when seeking the protection of the recording statutes as a bona fide purchaser or bona fide mortgagee/lender/encumbrancer.

89-Year Old Stroke Victim Recovers Title To $800K Home After Judge Voids Deeds Used In Swindle By Her Purported Preacher

In Pomona County, California, The Downey Patriot reports:
  • A Pomona Superior Court judge last week granted a motion filed by the district attorney's office on behalf of an elderly victim whose home was swindled three years ago by a so-called church bishop who duped the Claremont woman into signing over the grant deed of her home.
  • Judge Steven Blades granted the motion to declare the two grant deeds in this case "null and void and of no legal effect," deputy district attorney James Daloisio said.
  • "The objective of this motion was to free up this 89-year-old stroke victim's property so that she could use her equity to execute a reverse mortgage as she has no substantial means of support and requires constant medical care," Daloisio said.
  • Leroy Dowd, a 74-year-old self-styled bishop who operated the now-defunct Triumph Church of God in south Los Angeles, allegedly met the victim through church in December 2006. Dowd told the victim that he could help her secure widow's benefits from Medicare and Social Security.
  • Under this guise, he tricked her into signing over the grant deed to her $800,000 home, which was paid in full, prosecutors said. Eight days later, Dowd sold the house to straw buyer Bessie Mae Moore, 63, who borrowed $800,000 from victim lender MortgageIt. At closing, Dowd walked away with more than $775,000, authorities said.
  • Dowd pleaded guilty in May 2010 to one count of grand theft of personal property and was immediately sentenced to three years in state prison. He was ordered to pay $800,000 in restitution.(1) Moore pleaded no contest in December 2008 to one misdemeanor count of obtaining money, labor or property by false pretenses. She was sentenced to 98 days in county jail.
  • The prosecutor gave credit to the Claremont Police Department, who investigated the case, for working quickly enough to avoid foreclosure. The district attorney's office worked closely with the Los Angeles County Tax Assessor's fraud investigation unit to reinstate the prior assessed value of the house.

For the story, see Elderly victim recovers home pilfered by phony bishop.

(1) The story is silent as to what happened to the mortgage lender and the $800K trust deed/mortgage it holds. If the trust deed was also voided, it probably required the consent and sign off by the lender (it would be difficult to believe that a judge in a criminal proceeding would have the necessary jurisdiction over the current trust deed holder (who itself was a victim, and not a party to the criminal proceeding) to unilaterally void its trust deed. Judgments and orders issued by a court lacking jurisdiction (either subject matter, or personal) are void ab initio). If the trust deed was also voided, the lender would be entitled to the $800K in restitution.

Had the trust deed not been voided, the judge's voiding of the scammer's grant deed would simply result in the homeowner's recovery of her home title subject to the loan that financed the scam, and it would be up to the victimized homeowner to file a civil lawsuit to quiet title to nullify the lender's lien on the home. See Unwinding An Abusive Or Fraudulent Real Estate Transaction? Determining If The Deed Is Void, Or Merely Voidable for some California case law on the issue of whether the trust deed in this case is absolutely void/void ab initio, or merely voidable.

If the trust deed that came into being as a result of this ripoff is found to be merely voidable (as opposed to absolutely void/void ab initio), it would then be up to the victimized homeowner to assert that the lender, at the time it originated the loan, had a duty to inspect the premises to ascertain the occupancy status of the premises, and by its failure to do so, her continued occupancy before, during, and after the scam was perpetrated was sufficient to place the lender on notice of any of her unrecorded rights or equities in the premises. See California Bona Fide Purchaser, Possession, Duty Of Inquiry.

Sale Leaseback Peddler Cops Plea For Role In 'Head' Nationwide Equity Stripping Foreclosure Rescue Scam

From the Office of the U.S. Attorney (Sacramento, California):
  • [L]eonard Bernot, 46, of Laguna Hills, pleaded guilty [] to conspiracy to commit mail fraud for his part in a wide-ranging "foreclosure rescue" scheme involving Head Financial Services Inc.
  • Originally indicted on February 28, 2008, Bernot and 10 other defendants were charged with conspiring to defraud financially distressed homeowners by promising them that their homes could be saved from foreclosure and their credit repaired if the names of straw buyers were added to, or replaced on, the homes' property titles.(1)
  • Bernot and others allegedly would obtain mortgage loans on each of the homes, thereby extracting substantial equity, a scheme sometimes referred to as "equity stripping."
  • Often, the homeowners were left paying "rent" to the conspirators. The rent would often be nearly as much as the prior mortgage payment the homeowner had been unable to pay. When the homeowners were unable to keep up with the payments, they were often evicted from their homes.
  • The cases of several co-defendants, including Charles Head, the founder of Head Financial Services Inc., are still pending. [...] Bernot will be sentenced [] on September 1, 2011.

For the U.S. Attorney press release, see U.S. Attorney Announces Results of Mortgage Fraud Prosecutions in 12 Months Since Operation Stolen Dreams.

Go here for other posts on the Head nationwide foreclosure rescue operation.

(1) For the criminal indictments, see:

Maryland Man Gets 13 Months For Violating State Anti-Foreclosure Rescue Law After $8,500 Ripoff Of Homeowner Needing House Payment Help

In Harford County, Maryland, The Baltimore Sun reports:
  • A Baltimore man was sentenced to spend 13 months in jail last week for defrauding a Harford County couple in a mortgage workout scam that a prosecutor says cost them thousands of dollars and may have contributed to the loss of their home.
  • Frank G. Debelius, 54, [...] pleaded guilty June 8 in Harford County Circuit Court to theft of more than $500 and violating the state's Protection of Homeowners in Foreclosure Act. "It's the first mortgage fraud case that has been prosecuted in Harford County," Bill Christoforo, a veteran assistant state's attorney who prosecuted the case, said.

***

  • Debelius told the couple he was with Bay One Mortgage, provided them with his professional card and offered to help them [with their unaffordable mortgage payments], according to the prosecutor. "The long and short of it was this guy said, 'I'm going to do a workout for you with your mortgage company,'" Christoforo said.
  • Debelius told the Rories that he went to their mortgage company and convinced that company to knock $100,000 off the principal of the loan and extend their payments, Christoforo explained. Debelius then told the Rories he needed $8,500 in order to complete the deal, and the Rories made the payment. "He was never in contact with the mortgage holder and never made it happen," Christoforo said.

***

  • The couple's foreclosure troubles ultimately came to the attention of Circuit Court Judge William Carr, who referred the case to the Harford State's Attorney's Office. "Unfortunately it was really too late," Christoforo said. "They lost their home." Christoforo speculated that the $8,500 may have helped the couple keep the home.
  • A nine-count grand jury indictment was handed down against Debelius in June 2010. Last week, Debelius pleaded guilty to two counts and was sentenced to three years in jail, by Circuit Court Judge Emory Plitt Jr., who then suspended one year and 11 months of that sentence. Debelius also received one day credit on his jail sentence. Debelius was ordered to serve four years supervised probation upon his release from jail and to pay restitution.
  • Christoforo said the Rories may not have been Debelius' only victims. He said another woman in Baltimore City has made similar claims against Debelius. "My feeling is there's other cases like this, probably that have gone on or are going on in the [Harford] county," Christoforo said.

For the story, see Harford couple duped in mortgage fraud.

Title Insurance Considerations For Lenders Foreclosing In California

Lexology reports:
  • With mortgage defaults on the rise, a growing number of lenders are being forced to foreclose on their collateral, either judicially or non-judicially, exercising the private power of sale.
  • Once a lender determines that it must take title to the property securing the loan, it is important that the lender understand what title coverage it has and needs during and after the foreclosure process.
  • What protection does a Trustee Sale Guaranty and/or Litigation Guaranty provide the lender? Does the lender’s current Lender’s Title Policy provide it with sufficient protection, or does the lender want to obtain a new Owner’s Title Policy?
  • The following is a description of the title protection that a Trustee Sale Guaranty and Litigation Guaranty provide a California lender and a brief discussion of the factors to consider when deciding whether to obtain an Owner’s Title Policy after a foreclosure sale.

For more, see Title insurance and foreclosure: What type of title coverage do lenders need in connection with a foreclosure in California? (paid subscription required; if no subscription, GO HERE).

Saturday, June 18, 2011

Foot-Dragging Lender Says Bronx Firetrap Tragedy Not Its Problem; Foreclosure Sale Never Took Place Despite Obtaining Court Judgment

In The Bronx, New York, the New York Daily News reports:
  • Nobody will admit to owning the illegal firetrap in the Bronx where a 12-year-old and his parents died in April.(1) The three-family home at 2321 Prospect Ave. in the Bronx had been chopped into 12 illegal single-room-occupancy units when a blaze broke out April 25.


  • City building inspectors filed 11 violations against two entities: Domingo Cedano, whose name appears on the building's deed, and the Bank of New York/Mellon, which has moved to seize the home in foreclosure.


  • Both parties denied ownership [] at a hearing before the city Environmental Control Board to answer some $44,000 in fines. Cedano appeared and then left before the hearing began, but his lawyer, Ingrid Wyllie, insisted he wasn't the owner because a judge had signed a judgment of foreclosure on the property in January.


  • Steven Pasternak, an expediter representing Bank of New York, said the foreclosure wasn't complete, so the building was still Cedano's problem. Administrative Law Judge Malcolm Spector pointed out that property records listed Cedano as owner on the day of the fire, but gave him until next week to produce his foreclosure paperwork.
For more, see Ownership of Bronx firetrap that killed 12-year-old and his parents in dispute. subdividedsubdivided
(1) For earlier posts on this story, see:

Ticket-Lacking 'Lawyer' Buys Delinquent Debts As Price Of Admission To Protracted Foreclosure, Bankruptcy Litigation

In Worcester, Massachusetts, the Worcester Telegram & Gazette reports on a story of a law school graduate who, despite the fact that he's failed the state bar exam five times and is not licensed to practice law, has nevertheless carved out a name for himself as a dogged litigator appearing regularly before the local state and federal courts representing one particularly litigious client, himself:
  • On most days, you can find Ara Eresian Jr. either poring over thick law books at the public law library on Main Street or tending to matters across the street at the state courthouse.
  • The 57-year-old Shrewsbury man has scores of cases on the dockets of state and federal courts, many that have been litigated and appealed for years. His painstakingly researched legal pleadings number in the tens of thousands of pages and counting.
  • But Mr. Eresian is not a lawyer. He is a kind of continual plaintiff who sues over real estate deals in which he claims a stake, usually representing himself. In some cases, Mr. Eresian buys the rights to debts or court judgments as a means of inserting himself into bankruptcy cases or foreclosure proceedings.
  • The would-be lawyer, who holds a law degree but has failed the bar exam five times, stands infamous among local attorneys more for his doggedness in the face of defeat than for his legal acumen. Undeterred by adverse rulings from judges, Mr. Eresian appeals nearly every loss, tying up the subjects of his lawsuits in court for years and leaving them with mounting legal bills.(1)

For more, see Legal fights never end (Who Is Ara Eresian; Why Does He Do It?).

(1) Reportedly, one case (In re Scheffer, Case No. 06-41218-MSH (Bankr. D. Mass. May 25, 2011)) involved a local homeowner/couple who had filed for bankruptcy. Eresian reportedly purchased an unpaid debt to a local heating oil company owed by them, thereby making him a creditor with the legal standing to challenge the couple's bankruptcy protection.

As the story goes, Mr. Eresian's parents, first generation Armenian-Americans originally from Somerville, once owned the home where the couple now live. Eresian apparently grew up in the three-bedroom ranch, which his parents lost to a foreclosure more than two decades ago. In rejecting Eresian's challenge, U.S. Bankruptcy Melvin S. Judge Hoffman characterized Mr. Eresian's case against the couple as a “misguided and obsessive crusade to avenge" that foreclosure, which the couple had nothing to do with. Reportedly, the couple's attorney said his clients were left bewildered by Eresian's legal onslaught that put their home at risk. A few of Judge Hoffman's comments from his ruling:

  • "I find that Mr. Eresian purchased the Peterson Oil claim in order to gain standing so he could more effectively continue his campaign of harassment against the debtors, the unlucky owners of his childhood home. [...] Mr. Eresian has exhibited a pattern of behavior that any reasonable person would find shocking. He has needlessly multiplied litigation in this Court and has saddled the debtors with the need to defend their discharges a year after they were granted."

Auctioneer Faces Administrative Charges Over Advertising 'Absoulte' Sale Of Property Subject To $2.3M Mortgage In Foreclosure

In Rapid City, South Dakota, the South Dakota Journal reports:
  • The South Dakota Real Estate Commission is accusing auctioneer Martin Jurisch of unprofessional conduct just a year after he settled to avoid an investigation in a similar case.
  • The commission plans a formal hearing to consider a complaint lodged in February in which the Rapid City auctioneer is accused of advertising an auction as absolutewhen the property was encumbered by $2.3 million in mortgages and was the subject of a pending foreclosure.
  • In an absolute auction, the property must sell to the high bidder no matter how low the price, which in this case put the seller at risk if the sale price wasn’t high enough to pay the mortgages, according to the complaint.
  • The commission’s formal complaint against Jurisch accuses him of six violations of state real estate laws. After the hearing, the commission could issue Jurisch a letter of reprimand, revoke or suspend his license, fine him up to $2,500 or order any combination of the penalties.

For more, see Real Estate Commission accuses auctioneer, former mayor of violations.

(1) Reportedly, Jurisch agreed last year to a settlement to resolve a complaint that he refused to sell 2,909 acres in Bennett County at what was advertised as an absolute auction. A prospective buyer complained Jurisch withdrew the land from sale when the high bid fell short of the amount needed to pay off the property owner’s mortgage.

Judge Dodges Judgment Of Eviction; Coughs Up Cash, Moves Out Of Rented Home After Being Accused Of Stiffing Landlord In Foreclosure Out Of $3,600

In Bridgeport, Connecticut, the Connecticut Post reports:
  • Probate Judge Paul Ganim averted an eviction hearing Wednesday and voluntarily agreed to vacate the Black Rock home he was renting. "We always talked about getting out in June and we are out," Ganim commented.
  • Gayle Gleckler, who owns the single-family house [...] that Ganim and a female companion have been renting since October 2009, claimed Ganim owes her $3,600 in back rent. She filed suit against him in housing court here seeking his eviction.
  • Gleckler's lawyer, Robert Russo, said he has withdrawn the lawsuit since Ganim moved out. He said Ganim is continuing to pay rent while he keeps a storage unit on the front lawn. "This lady was paid, she was under foreclosure and needs to sell the property and I certainly sympathize with her financial plight," said Ganim.

Source: Probate Judge Ganim averts eviction by leaving home.

Broward Judges Asked To Supply Compromising Info Regarding Possible Attempts To Score Post-Bench Employment With Local Foreclosure Mill

In Fort Lauderdale, Florida, Broward Palm Beach New Times reports:
  • Would you trust Broward judges to supply compromising information about themselves? That's what they're being asked to do now, essentially...A few weeks ago, we wrote about outgoing Broward County Chief Judge Victor Tobin leaving his post to join a foreclosure law firm that stands to benefit from policies he crafted.
  • Among Tobin's accomplishment as head honcho at the courthouse is the institution of the "rocket docket," which allows judges to move a foreclosure case forward in the blink of an overworked attorney's eye. (Matt Taibbi wrote a scathing account of the process in Rolling Stone.)
  • Now somebody -- we swear it wasn't us -- has initiated a vast public records request that could reveal whether Tobin or other judges were actively angling for employment based on their current positions.

***

  • As reported on JAABlog, the request filed under Florida's saving-grace public-records laws seeks a broad range of communications from the year preceding Tobin's announcement that he was leaving the bench:

    All records of the judicial branch relating to discussions of employment and career opportunities, salary offers, salary negotiations, benefits, other forms of compensation, employment starting dates, current employment exit strategy, hiring procedures, job applications, letters of recommendation, and/or incentives regarding the employment of judges of the Seventeenth Judicial Circuit to or from any employee or representative of the Law Office of Marshall Watson, including but not limited to emails, letters, meeting minutes, calendar pages.
  • Now that's certainly a hell of a lot of information for anyone to search for... which is why courthouse General Counsel Alexandra V. Rieman is outsourcing the duty of supplying the information to the judges themselves.
  • In an email, she forwarded the request to circuit judges and asked them to supply her with copies of documents matching the description. "If you have any questions," she wrote, "please contact me."
  • Yes, how quickly does the "empty trash" button work??

For the story, see Chief Judge Victor Tobin's Questionable Exit Prompts Massive Public-Records Search.

Judge Accused Of Fixing Foreclosure Case Found Guilty Of Corruption Charges; Co-Defendant Facing 22 Years Copped Earlier Plea & Testified Against Him

In Akron, Ohio, WEWS-TV Channel 5 reports:
  • The Cuyahoga County judge charged in the county corruption investigation for allegedly fixing a foreclosure case has been found guilty on three of the five charges he was facing. The federal jury returned the verdict against Judge Steven Terry shortly before 2 p.m. Monday in Akron. Terry, who was facing five charges, was found guilty of counts one, three and four – which were related to conspiracy to commit mail fraud and mail fraud.

***

  • During closing arguments Friday, the prosecutor said there are recorded phone conversations between Terry and former Cuyahoga County Auditor Frank Russo that proved Terry was corrupt. [...] Russo, who is facing 22 years in prison after pleading guilty to his role in the corruption scandal, testified earlier this week that he gave campaign contributions to Terry and expected to get benefits, like favorable rulings, in return.(1)

For the story, see Cuyahoga County Judge Steven Terry found guilty of mail fraud in corruption case.

(1) Given his admitted 'track record' of 'expecting benefits', Russo no doubt will be expecting benefits (in the form of a prison sentence 'buydown') for 'bellying up' and giving testimony to sink his robe-wearing confederate.

Cops Pinch Columbus Man Who May Have Used Forged HUD Work Orders To Access Vacant Homes In Central Ohio Burglary Spree

In Delaware County, Ohio, the Westerville News & Public Opinion reports:
  • The Delaware County Sheriff's Department has arrested a man suspected in 20 recent burglaries of vacant homes across Central Ohio, including 10 in Delaware County.Sheriff reports said Monte Shoemaker, 24, of Martinsburg Drive in Columbus, was arrested last Wednesday, June 1 after Cottage Realty, Inc. agent Dave Schulte saw two suspects entering one of his vacant properties on Dauer Court in Powell and called police.

***

  • When deputies found Shoemaker in the home, they retrieved keys to multiple homes along with out-of-state work orders for recently burglarized homes, according to reports. After further investigation, the [Housing] and Urban Development work orders that Shoemaker had been presenting to receive keys to homes were determined to be fake, according to reports.

***

  • On Monday, June 6, Sheriff Walter L. Davis III confirmed the department had found evidence to link Shoemaker to many recent burglaries of model homes in Delaware and Franklin counties.
  • "The suspect can be linked to at least 10 (burglaries) in Delaware and we believe we're going on 10 in Franklin County -- a total of 20 burglaries in Central Ohio," he said "We're currently going through facts, data and evidence." Shoemaker has not yet been charged with the multiple breaking and entering crimes aside from the June 1 incident, according to Delaware County Municipal Court records.

For more, see Suspect may have used fake work orders to enter houses (A Columbus man is a suspect in 20 burglaries of vacant homes across Franklin and Delaware counties).

San Diego Man Facing F'closure Cops Plea To Forging 'Court-Issued' Temporary Injunction In Attempt To Dupe Stiffed Lenders Into Stalling Sale Of Home

In San Diego, California, The San Diego Union Tribune reports:
  • A San Diego man has pleaded guilty to forging the signature of a federal judge and creating a fake order with the hopes of forestalling the foreclosure of his Mission Valley Home. Marc Uribe, 45, entered the plea Wednesday before U.S. Magistrate Judge Cathy Ann Bencivengo.
  • Uribe acknowledged in the plea that he created a falsified court order and forged the signature of a fictional federal judge named Ivan Gonzalez, Assistant U.S. Attorney Robert Huie said.
  • Uribe issued the fake order with a civil lawsuit against various lenders. The forged order instructed the lenders that they were temporarily prohibited from foreclosing on his home.

For the story, see Man pleads guilty to forging a judge's signature.

Chase Left Holding The Bag On Slimy, Snake-Infested Home As Creepy Creatures Force Unwitting Homebuyer, Family To Abandon Abhorrent Abode

In Rexburg, Idaho, The Seattle Times reports:
  • They slithered behind the walls at night and released foul-smelling musk into the drinking water. Ben Sessions once killed 42 in a single day. Shortly after buying their dream home, Sessions and his wife discovered it was infested with thousands of garter snakes. Their growing family lived as if in a horror movie for three months. They abandoned the property, but the home briefly went back on the market more than a year later, and they fear it could attract another unsuspecting buyer.

***

  • Now owned by JP Morgan Chase, it was listed at $114,900 in December, according to Zillow.com, a real-estate data firm. That price fell to $109,200 in January. The Animal Planet network then featured the couple's story in its "Infested" series. The listing was removed, and it has stayed off the market while Chase decided what to do with it.
  • Darcy Donahoe-Wilmot, a Chase spokeswoman in Seattle, said the bank has contracted to have the snakes trapped and released from the house. Once the infestation is gone, the house will be up for sale again and a report will be issued to potential buyers.
  • "We can't list the house until its been taken care of," Donahoe-Wilmot said. An estimate of how much it would cost to remove the snakes and how long the process would take was not available.

For all the gory details, see Idaho family abandons snake-infested house (Shortly after buying their dream home, Ben Sessions and his wife discovered it was infested with thousands of garter snakes. They abandoned the property, but the home briefly went back on the market more than a year later, and they fear it could attract another unsuspecting buyer).

Friday, June 17, 2011

Victimized Couple Gets Little Help From Title Insurer After Discovering Deed To Home May Have Been Forged; Suspect Currently Faces Criminal Trial

In Murrieta, California, KABC-TV Channel 7 reports:
  • A family is being told the house they thought they bought in Murrieta actually belongs to someone else. The family says they can't stop making their mortgage payments. "Even though you've made your payments in full every month, you could get a knock at the door saying get out," said would-be homeowner Charlie Zahari. "If you look at it, we're renters in a house we can't move out of."
  • That was hardly the feeling last summer where there was all the euphoria of buying their first home. They custom painted the girls' bedrooms and sodded the backyard. They stopped making improvements when they found out they're not the legal owners of the home.
  • "We actually got a call from the FBI who said we just wanted to inform you that your house has been part of a deed fraud scheme," Zahari said. Karen Tappert is the person the Zahari's say is responsible for stealing the home and selling it to them. She's facing federal charges,(1) but that does little to help the Zahari's with their situation. They must continue paying for the home or otherwise put their credit at risk. They can also be forced to vacate at any moment.
  • Officials said it started when the original owners of the property vacated the house because they thought the bank was going to foreclose on them. That never happened, and the alleged scam artists swooped in and fraudulently sold it to the Zaharis.
  • The family said neither the title company, First American Title Insurance, nor the bank have done much to help answer how the title company allowed the purchase of the home in the first place.
  • In a statement, First American said, "For privacy reasons we cannot comment on the specifics of Mr. & Mrs. Zahari's claim, however, generally the process of establishing title involves other necessary parties and is dependent on their cooperation. This process can be time consuming and complicated."
  • Bank of America also said they're a victim too and they're working with the title company for a resolution. Tappert's federal trial is under way in Nevada.

Source: FBI informs family they bought stolen house in Murrieta.

Thanks to Deontos for the heads-up on the story.

(1) For more on Karen Tappert's indictment, see Vegas Feds Say Woman Used Fraudulent Deeds In Foreclosure Rescue Ripoffs & Squatter Scams.

Michigan AG Urges All With Knowledge Of Illegal Robosigner Practices To Step Forward As DocX, LPS, Fidelity Get Slammed w/ Subpoenas In Criminal Probe

In Lansing, Michigan, The Grand Rapids Press reports:
  • Michigan Attorney General Bill Schuette issued criminal investigative subpoenas against DocX and three affiliated companies as part of his office's investigation into fraudulent signatures on mortgage documents filed in Michigan.
  • In addition to DocX, which provides mortgage support services, Schuette's office also served investigative subpoenas to Lender Processing Services Inc., Fidelity National Financial Inc. and CT Corporation System, according to an announcement today.
  • Schuette is requesting documents regarding the companies’ processing of foreclosure and/or bankruptcy documents. The subpoenas were approved by the 54B District Court in Ingham County on Monday. The companies have until June 30 to comply.
  • The subpoenas are part of an investigation launched in April after county officials across the state reported suspect documents. The reports were triggered by a 60 Minutesstory revealing that the name Linda Greenwas signed to thousands of mortgage-related documents nationwide, but with many different variations in handwriting.
  • Schuette is investigating whether certain mortgage processing companies permitted such “robosigning” of legal documents filed in connection with Michigan foreclosures. obosigning may also involve individuals signing affidavits to signify that mortgage documentation was properly prepared without ever conducting a proper review of the documents.
  • The attorney general is urging any current or former employees of mortgage servicers or processing companies with information about unlawful practices [to contact] the Corporate Oversight Division at (517) 373-1160.(1)

Source: Michigan AG issues subpoenas in investigation of foreclosure documents with fraudulent signatures.

For the Michigan AG press release, see Schuette Issues Subpoenas in Criminal Probe of Mortgage Processors.

(1) Those thinking about whether to come forward, spill their guts about their roles in the robosigning racket, and essentially, 'roll' on their current/former employers should factor in this admonition, made by a Federal judge, when deciding what to do:

  • When a conspiracy is exposed by an arrest or execution of search warrants, soon-to-be defendants know that the first one to "belly up" and tell what he knows receives the best deal. The pressure is to bargain and bargain early, even if an indictment has not been filed. United States v. Moody, 206 F.3d 609, 617 (6th Cir. 2000) (Wiseman, J., concurring).

One can reasonably believe that the Michigan AG is won't be investing his limited resources in this probe without the view of 'scoring a few high-level scalps.'

Final Defendant Goes Down In Scam Using Rent To Own Racket To Lure, Rip Off Investors, Would-Be Homebuyers On 100+ Homes That Ended Up In Foreclosure

From the Office of the U.S. Attorney (Portland, Oregon):
  • Jennifer Venable, 29, of Beaverton, Oregon, was sentenced by the Honorable Robert E. Jones of the United States District Court on June 8, 2011, to 5 years probation and ordered to pay $15,000 in restitution relative to her January 13, 2011 wire fraud conviction.

***

  • Ms. Venable’s sentencing brings to an end the prosecutions related to the conduct of Jeremy Richardson and his company, Richardson Equities LLC. Richardson’s company ran a “rent-to-own” scheme that promised high profits to investors who purchased homes on behalf of tenants who agreed to purchase the home from the investor at a price greater than the original purchase price when their credit improved.
  • To effect the scheme, the investor would apply for a residential mortgage using inflated asset and income information and lie about the true nature of the loan. Richardson and his associates purchased over 100 homes in the Portland area valued in excess of $35 million.
  • In every case, Richardson and his investors failed to maintain their financial obligations and the properties fell into foreclosure.(1)

For the U.S. Attorney press release, see Sentencing of Real Estate Agent Concludes Prosecution of Mortgage Fraud Scheme.

(1) According to the press release, on May 4, 2010, Jeremy Richardson was sentenced to 37 months in federal custody following his guilty plea to money laundering. In addition to Richardson and Venable, others involved in the rent-to own scheme involved:

  • Nicolas Cooper of Portland, Oregon, who was sentenced to a term of 5 years probation and ordered to pay $102,058 in restitution on May 23, 2011,
  • Andrew Paul Shute of Seattle Washington, who was sentenced to 5 years of probation and ordered to pay $61,332 in restitution following his plea of guilty to wire fraud related to his activities as a mortgage broker on behalf of Richardson; and
  • Tyler Jacob Marsten of Tulsa, Oklahoma, who was sentenced to 5 years probation and ordered to pay $39,549 in restitution following his conviction for bank fraud related to his activities as a mortgage broker on behalf of Richardson.

Would-Be Homebuyers Under Rent-To-Own Deal Get Clipped Out Of $12K Upfront, Monthly Payments As Rent-Skimming Owner Pockets Cash, Stiffs Bank

In St. Charles, Missouri, KTVI-TV Channel 2 reports:
  • If you don't qualify for a conventional home loan, you might want to proceed with caution if lease to own is your only option. We talked with a couple who now have to fight to keep a roof over their hea^ds while battling serious health concerns.
  • Brian and Teresa Wilson understand what it means to have terminal cancer. They didn't expect they'd be fighting health issues and a bad deal on a lease to own agreement for a house.
  • They signed a contract on this house in St. Charles County in February 2011. The family traveled a lot with Brian's job. And they just wanted to settle into their own home. But Brian says they've gotten the shock of their lives. "We've since come to find out that this home is not, is in foreclosure and has not had a current payment made in over seven months."
  • Brian signed a contract and lease agreement with a St. Louis area real estate investor who's come to the attention of the Better Business Bureau. The BBB recommends extreme caution when dealing with Jack l. Roddy, JMZ homes, JMZ Investment Group. Jim Judge of the BBB explains why they started investigating. "We're getting complaints from consumers that are getting into lease to own situations with this company."
  • Wilson says, "It was two months behind going into default in February when I gave him a check for twelve thousand dollars plus we made a thousand dollar rent payment every month on time since then." Four checks written by the Brian were cashed. Jack Roddy had no comment when we called him.

***

  • The Wilsons say they researched the company before signing the contract but saw no red flags. They believe the mortgage is still held by the original owners. Something they just discovered. Teresa was the first to hear the news.

For the story, see Contact 2: Lease to Own Scam.

Would-Be Homebuyer Gets Boot After Paying Rent-Skimming Middleman $6K Upfront, Monthly Payments In Rent To Own Deal; Title Owner Also Left Holding Bag

In El Paso, Texas, KFOX-TV Channel 14 reports:
  • Leticia Ornelas said she's been buying a house for two years only to find out none of her payments ever made it to the mortgage company. Now she's been kicked out of the home and she’s suing the man who supposedly sold her the home, Lorenzo Trujillo.(1)
  • Signs that were targeted towards people with bad credit are what first got Ornelas’ attention. She said she and Trujillo had a plan to fix her credit while buying a Horizon City home; $6,000 down, $695 a month.
  • Once she was approved for a bank loan, a man named Erick Martinez came to her door and told her the house was his and it was under foreclosure. Ornelas had to move out. "I was scared like, what do you mean I'm not buying this house?” Ornelas said. “They told me even the owner wasn't given the payments at all and that's why this house was up for an action."
  • Trujillo spoke with KFOX14 today. He admits that Ornelas’ payments never went to the mortgage company. "We came to an agreement and told her if she’s unhappy, we can buy this house back from her,” said Trujillo.
  • Ornelas is suing Trujillo in small claims court. She doesn’t understand how Trujillo can buy the house back from her when he never sold it to her in the first place.
  • Martinez also has a lawsuit against Trujillo. Martinez said he didn’t realize that no payments had been made to the mortgage company. Martinez originally hired Trujillo to sell the house for him.

Source: Woman Says She Bought A House But Seller Never Paid Mortgage (Woman Sues To Get Money Back After, She Says, She Was Scammed).

(1) This isn't the first time a Lorenzo Trujillo has made the news for involvement in a dubious real estate deal. See August 5, 2009: KFOX-TV Channel 14: Woman Shocked To Find People Living In Her El Paso Home:

  • A former El Paso woman says people are living in her Lower Valley home that she never sold. Tammy Diaz asked a real estate investor to help her sell this home more than two years ago. Diaz moved to Corpus Christi, and almost never heard from him again.
    Diaz in 2007 faced a separation from her husband and impending foreclosure on her home. So she reached out for help.
  • "He made it seem like everything was real perfect, he was going to be able to sell our house for us," said Diaz.
  • Diaz is talking about Lorenzo Trujillo. Diaz was under the impression that Trujillo was going to sell her home in 45 days, but two years later, she said she had gotten no news from Trujillo.

Thursday, June 16, 2011

Appellate Court Foreclosure Reversals Continue As Rubber-Stamping Mississippi Trial Judge Fumbles Ball On Basic Rules Governing Service Of Process

From a recent ruling from the Mississippi Court of Appeals:
  • Deutsche Bank National Trust Company initiated a foreclosure action in the Warren County Chancery Court and attempted to serve Angela Turner by publication.
  • But before doing so, it neither certified Turner was a non-resident of Mississippi nor alleged she could not be located in the state after a diligent inquiry.
  • Because we find service of process did not strictly comply with the governing rules, we reverse the chancellor's refusal to set aside the default judgment she entered on behalf of Deutsche Bank when Turner did not respond. We remand the case for further proceedings.

For the facts of the case, and the court's analysis of the applicable state law on service of process, see Turner v. Deutsche Bank National Trust Company, No. 2009-CA-01601-COA (Miss. Ct. App. June 14, 2011).

(1) From the opinion, reversing the earlier ruling of Warren County Chancery Court Judge Jane R. Weathersby: (bold text is my emphasis):

  • ¶ 8. The issue before us is whether Deutsche Bank's attempted service by publication was sufficient where it failed to certify that Turner was a nonresident or, after a diligent inquiry, could not be located in Mississippi. If service of process was deficient, the default judgment entered against Turner is void and must be set aside. See Caldwell v. Caldwell, 533 So.2d 413, 417-18 (Miss. 1988); Clark, 43 So. 3d at 501 (¶21) (citing Morrison v. Miss. Dep't of Human Servs., 863 So.2d 948, 952 (¶13) (Miss. 2004); Soriano v. Gillespie, 857 So.2d 64, 69-70 (¶22) (Miss. Ct. App. 2003)).

***

  • ¶ 11. Although Deutsche Bank published a summons in the newspaper for three consecutive weeks and filed proof of the publication, Deutsche Bank did not comply with Rule 4(c)(4)(A). It is undisputed that Deutsche Bank never filed a sworn petition or affidavit attesting that Turner was a nonresident or could not be found in Mississippi after a diligent inquiry. Therefore, it follows that Deutsche Bank did not comply with any of the remaining requirements for information that must be included in the petition or affidavit.

    ¶ 12. "The rules on service of process are to be strictly construed. If they have not been complied with, the court is without jurisdiction unless the defendant appears of his own volition." Kolikas v. Kolikas,
    821 So.2d 874, 878 (¶16) (Miss. Ct. App. 2002) (internal citation omitted). Actual notice does not cure defective process. See, e.g., Mosby v. Gandy, 375 So.2d 1024, 1027 (Miss. 1979). "Even if a defendant is aware of a suit, the failure to comply with rules for the service of process, coupled with the failure of the defendant voluntarily to appear, prevents a judgment from being entered against him." Sanghi, 759 So. 2d at 1257 (¶33).

***

  • ¶ 15. We need not reach the rule violated in Kolikas because Deutsche Bank violated the more preliminary requirement that it file a sworn petition or affidavit. In the petition or affidavit, the plaintiff must certify to the court, among other things, that the defendant is a nonresident or cannot be found in Mississippi. From a straightforward application of Rule 4(c)(4), we find Deutsche Bank's attempt to serve Turner fell far short of the required notice. And since Turner did not voluntarily appear to defend against the foreclosure suit, the chancery court did not acquire jurisdiction to enter a judgment against her. sewer service

Robosigning Notaries From Now-Defunct Georgia Foreclosure 'Sweatshop' Find Themselves In Local Clerk Of Court's Crosshairs Over Bogus 'Docx' Docs

In Fulton County, Georgia, WSB-TV Channel 2 reports:
  • Fulton County's clerk of court said homeowners from across the country have filed complaints questioning the credentials of notaries who signed their mortgage documents. Cathelene "Tina" Robinson said she's already revoked certifications from several of the notaries involved. "As a notary, your job is to prevent fraud," said Robinson, who commissions all of Fulton County's notaries.
  • The notary affixes his or her seal to a document to verify the signatures on it are authentic. But employees from at least one foreclosure mill said they were turning out documents by the thousands, signing names of fictitious bank representatives.
  • "It's awful. It's terrible. It should not have occurred," said Robinson. She vowed to investigate any claims of notaries misusing their seals. "Once the notary comes in, we do fact finding. We ask questions," she said.
  • In the past three months, Robinson has revoked the certifications of four notaries who worked for an Alpharetta company called Docx. The company is accused of robo-signing hundreds of thousands of foreclosure documents for banks around the country. Channel 2 investigative reporter Jodie Fleischer reviewed Robinson's files and found at least 10 remaining Docx notaries with remaining inquiries.
  • Last year, Robinson's office cleared three notaries of wrongdoing after they insisted they witnessed a valid signature. Robinson couldn't prove them wrong at the time, despite wild variations in the same name, Linda Green, signed on many of the documents.
  • Now Robinson is considering trying to pull all of the Docx documents filed locally to check out the notaries. One told Fleischer that Docx paid for her to become a notary.
  • Notaries are not required to list their employers on the application, and Georgia requires no training or test to become a notary. Robinson would like to see the state tighten its laws. "Anyone that has any concerns as it relates to any person Fulton County commissioned, I would be happy, please contact me so we can investigate," she said.
  • But all Robinson can do is revoke their notary seals. Any criminal prosecution would have to come from the district attorney. There is also an ongoing federal investigation.

For the story, see Official Vows To Investigate Notary Misuse Claims.

Dozens Of Would-Be Illinois Home Buyers Under 'Rent To Own' Deals May Face The Boot Over Landlord's Pending Foreclosure

In Sangamon County, Illinois, The State Journal Register reports:
  • A Sangamon County judge has appointed a receiver to take over stewardship of nearly 130 homes, most in Springfield, while foreclosure actions are pending. The order issued Thursday by Circuit Judge Patrick Londrigan effectively takes the properties away from JSP Investments while State Bank of Lincoln, which says it is owed nearly $6.8 million, attempts to gain title to the properties via a foreclosure action filed in March. That could take several months, according to Phillip Montalvo, the bank’s attorney.
  • In the meantime, The Apartment Mart of Springfield will manage the properties, performing maintenance, collecting rents and evicting tenants when necessary, according to the court order.

***

  • Dozens of the tenants have contracts-for-deed or rent-to-own agreements with JSP, according to court documents. Montalvo said he is not certain just how many tenants have contracts to purchase homes. The bank has discovered that some tenants who had contracts have moved, he said. “The records we have are very, very old,” Montalvo said. Montalvo said he cannot guarantee that tenants still in their homes with rent-to-own agreements will be able to have rent money paid to JSP apply toward purchase.
  • One problem, he said, is most of the rent-to-own contracts were never filed with the Sangamon County recorder’s office. If contracts were recorded before JSP obtained bank financing, tenants have a better shot of having claims honored, he said.(1)

***

  • Montalvo said there are two lessons to be drawn from the case. One is to have rent-to-own contracts filed with the county recorder’s office so tenants can be in a position to have contracts honored. Another is to keep all receipts for rental payments, he said.
  • Linda Stephenson, who signed a rent-to-own agreement for a JSP house on North Ninth Street, said she has receipts, but never had her contract filed with the recorder’s office. She said she signed a rent-to-own contract four years ago and stopped paying rent to JSP two months ago, after learning that her home was in foreclosure through no fault of her own.
  • Nobody knows what’s going to happen,” said Stephenson, whose home with a neatly kept yard and flowerbeds is a bright spot on a street where several houses are in disrepair. "We don’t know if we’re going to lose our home. “I love living here.”

For the story, see Receiver appointed to oversee 130 JSP properties.

(1) If the would-be buyers under the unrecorded rent-to-own deals and contract for deed arrangements took possession of their homes prior to the seller-landlord getting the mortgage loan from the bank, and if said possession was actual, open, and notorious, it may be that the earlier-created, but unrecorded, interests held by the would-be buyers in their homes will trump the lender's later-created, recorded interest in the mortgage.

When determining the priority of competing interests and equities in real estate, the general rule is that the interest that is recorded in the public records first will have priority over later-recorded or unrecorded interests. The determination is made without regard to when the interest was actually created.

However, a frequently overlooked exception to this rule exists where the holder of a later-created, but earlier-recorded interest fails to qualify for status as a bona fide purchaser. Such failure will disqualify the holder of the earlier-recorded interest for the protection afforded by the state recording statutes. In such a case, the holder of the earlier-created, but unrecorded or later-recorded interest will have priority.

Whether the mortgage lender in this case would qualify as a bona fide purchaser (assuming the loan was made after the renters took possession of their homes) would turn on whether or not the lender had 'notice' of the latter's unrecorded rights. If the lender is found to have had 'notice' of the would-be buyers possession, protection as a bona fide purchaser would be unavailable to it (note that, under the law, one can be found to have had 'notice' of a fact, even if he/she did not have actual knowledge of the fact).

In most states, one seeking to acquire an interest in the real estate (either as a buyer or lender) generally has the duty to know who was in possession of the property before making the purchase or secured loan, and to inquire of the occupants into any rights or equities they may hold. In this regard, when an ordinary inspection of the premises by a purchaser or mortgage lender, followed by reasonable inquiry, would reveal the existence of unrecorded rights or equities, then that purchaser or mortgage lender is charged with notice of those rights. Whether or not the buyer or secured lender had actual knowledge (to be distinguished from 'actual notice') of the occupant's possession is generally immaterial. As many courts have observed, if it were allowed that by failing to acquaint oneself with the fact of possession, the buyer or lender could avoid the effect of this rule, one could purposely avoid any inquiry on the subject, and thereby evade the rule and its consequences entirely.

A U.S. Bankruptcy Judge (In Re Polo Builders, Inc., 433 B.R. 700 (Bankr. N.D. Ill. E. Div. 2010)) recently observed that "[i]t has long been settled in Illinois ... that possession of property is notice of whatever rights to the property the party in possession claims ...", and emphasized this point in a footnote by adding: "So long, in fact, that more than a century ago the Illinois Supreme Court described the rule as "too well settled to call for the citation of authorities" citing Mason v. Mullahey, 145 Ill. 383, 388, 34 N.E. 36, 36 (1893)." Cases too numerous to list here support this proposition in the state. See:

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

For those in neighboring Missouri, support for this proposition can be found in (bold text is my emphasis):

Obernay v. Chamberlin, 506 SW 2d 446 (Mo. 1974):

  • The leading Missouri case on this subject is Drey v. Doyle, 99 Mo. 459, 12 S.W. 287, wherein the court stated: "Now from the line of former adjudications of this court it is plain to be seen that the notice which will postpone a recorded instrument, affecting real estate, to a prior unrecorded one, must be actual notice. Such notice may be shown by direct evidence, or it may be inferred from facts and circumstances. The question is one of fact, and is to be determined like any other fact.

    Circumstances coming to the knowledge of the subsequent purchaser, which would put a prudent person upon inquiry, should go to the jury as evidence of notice. In short any evidence tending to show knowledge of the prior unrecorded instrument should be received as evidence of notice. The inference to be drawn from the facts and circumstances is one of fact and not of law.

    Possession and knowledge thereof will, in ordinary cases, be good proof of notice of the title under which the party in possession claims. Such evidence, under other circumstances, will be of little value."

    The Missouri cases on this subject are treated at length in an article on possession as notice, appearing in 16 Mo.L.Rev. 142 (April, 1951).

Hayward v. Arnold, 779 SW 2d 342 (Mo. App. W.D. 1989):

Janss v. Pearman, 863 SW 2d 643 (Mo. App. S.D. 1993):

See also, Hart v. Parrish, 244 SW 2d 105 (Mo. 1951):

  • Plaintiff Hart was familiar with property and knew defendant-respondent Lillian Parrish, widow of Charles H. Parrish, was in possession, "living on the property." In these circumstances, it should not be held Mittler had no notice of the fraud upon which defendant Lillian has relied for cancellation.

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

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

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

By the way, a discussion that may be helpful in understanding the concepts of 'actual notice', 'actual knowledge', and the 'duty to inquire' can be found in this excerpt from Hatcher v. Hall, 292 SW 2d 619 (Mo. App. S.D. 1956) (bold text is my emphasis):

  • It is true that, as our courts have reiterated many times, notice is regarded in law as actual where the person sought to be charged therewith either knows of the existence of the particular fact in question or is conscious of having the means of knowing it, even though such means may not be employed by him;[12] and that, since notice does not mean positive information brought directly home to the person sought to be affected thereby, whatever fairly is sufficient to put an ordinarily prudent person on inquiry constitutes notice to him of such facts as would be disclosed by reasonable pursuit and proper inquiry.[13]

    For, justice is not so indulgent as to encourage one to shut his eyes to circumstances which would excite the zetetic impulse in an ordinarily prudent individual [Drey v. Doyle
    , 99 Mo. 459, 469, 12 S.W. 287, 289] or to throw away the key to the door of exploration through which the facts reasonably might be ascertained [Barrett v. Davis, 104 Mo. 549, 561, 16 S.W. 377, 380; James v. Hutchinson, Mo.App., 211 S.W.2d 507, 511]; and, from early times, our courts "have always recognized that the still small voice of suggestion, emanating as it will from contiguous facts and surrounding circumstances, pregnant with inference and provocative of inquiry, is as potent to impart notice as a presidential proclamation, or an army with banners." Connecticut Mut. Life Ins. Co. v. Smith, 117 Mo. 261, 292-293, 22 S.W. 623, 629; Adams v. Gossom, 228 Mo. 566, 583, 129 S.W. 16, 21.

    However, one is put on inquiry and charged with notice of the facts which would be disclosed thereby, only when "`the inquiry becomes a duty, and the failure to make it a negligent omission'" [Laughlin v. Findlay
    , 324 Mo. 1021, 1024, 25 S.W.2d 464, 465(1)];[14] or, as otherwise stated, "`(w)here there is a duty of finding out and knowing, negligent ignorance has the same effect in law as actual knowledge.'"[15]

    Whether the circumstances are sufficient to give rise to a duty of further inquiry is ordinarily a question of fact[16] [at least where the evidence is conflicting or is such that more than one inference of fact might be drawn therefrom (Merrill on Notice, Vol. 1, Section 64, p. 61)], frequently fraught with appreciable difficulty and always determinable in the light of the circumstances of the particular case under consideration;[17] and whether, when one is put on inquiry, the exercise of common prudence and ordinary diligence [Edwards v. Carondelet Milling Co., 108 Mo. App. 275, 287, 83 S.W. 764, 768; Kitchen v. St. Louis, K. C. & N. Ry. Co.
    , 69 Mo. 224, 265] in further investigation would have led to discovery of the information, knowledge of which is sought to be charged, likewise usually becomes a question of fact.[18]

Lawsuit: Home Buyer Took Possession Of Premises Pre-Closing, Rented To Tenants, Then Refused To Close

In Beaumont, Texas, The Southeast Texas Record reports:
  • A woman has filed suit against the couple who she claims promised to buy real estate from her, placed tenants in the property, then reneged on their original offer to purchase the property.
  • Mary Ross Stinebrickner claims she agreed to sell property at 4340 Chaison St. in Beaumont to defendants Rex and Kathy Johnson. The Johnsons signed an agreement to sell real estate form on July 8, 2010, according to the complaint filed May 25 in Jefferson County District Court.
  • After signing the form but before the closing on the property, the Johnsons took possession of the property and placed tenants in it, the suit states. At the closing, however, the defendants refused to sign the deed of trust and lien note, the complaint says. They have also refused to evict their tenants from the property, Stinebrickner claims.
  • As a result, the Johnsons are making rent money from property that Stinebrickner still owns and is making tax payments on, according to the complaint.

For the story, see Owner claims buyer reneged on property sale.

Ex-Bug Board Commish Cops Plea To Using Dead Man's ID To Score Double Homestead Exemption; Ordered To Cough Up $60K In Back Real Estate Taxes, Fines

The Florida Keys Keynoter reports:
  • When all is said and done, former Florida Keys Mosquito Control Board Commissioner Charles Langstaff will end up paying more than $60,000 in back taxes for his homestead exemption fraud. Langstaff, 66, pleaded guilty Monday to the misdemeanor in Levy County and was ordered to pay more than $14,000 to that county.
  • Langstaff, a commissioner from 1998 until 2010, admitted using the Social Security number of a dead Islamorada man to secure a homestead exemption on his Morriston property near Gainesville. He was a longtime employee at Beyer Funeral Home in Key Largo.

***

  • [Levy County State Attorney's Office's lead investigator Spencer] Mann said Langstaff's agreement would settle only Levy County's lien against his Levy County property.
  • According to the Monroe County Tax Collector's Office, Langstaff still has a $45,683 lien on his Key Largo home for claiming the exemption while he lived in Levy.
  • [Monroe County] Tax Collector Danise Henriquez said her office filed the lien in both Levy and Monroe counties. [...] Henriquez added that Langstaff's homestead exemptions have been revoked from both of his properties. "He is going to have to file [for an exemption] wherever he is going to reside," she said.

For the story, see Former bug-board member in hole for $60,000.