Federal Appeals Court OKs $20K Court Sanction Against Real Estate Operator With History Of Abusing Court System With Groundless Lawsuits In Connection With Running Rent Skimming Racket

In a recent ruling from a Federal appeals court, a trial court's sanction award of $20,000 was affirmed against a real estate operator who was apparently in the business of buying foreclosures for low stated dollar amounts where the foreclosing entity was a homeowner association holding a lien subordinate to an existing mortgage.

More specifically, the purchaser of property subject to the existing mortgage had a long history of buying properties in these situations, and then delaying foreclosures of the existing mortgages in order to 'milk' the properties for as much rent as it could squeeze out them (ie. referred to by some as a rent skimming racket), according to the court ruling.

In addition. in this particular case, the real estate operator sought to squeeze additional money (ie. "key" money) directly from the bank (in what seemingly resembled a shakedown/ extortion payoff ) by threatening to cloud the title to the collateral unless the bank coughed up the cash, according to the court ruling.

An excerpt from the appeals court ruling describing the findings of the trial court:

• The court described DTND as "a frequent litigator in Texas federal and state courts" whose "business model appears to consist entirely of purchasing deeply discounted homes at homeowners association foreclosure sales, collecting rental income from the properties, and then, when superior purchase-money mortgage lien holders attempt to foreclose, filing civil actions in state court attempting to halt the foreclosure."
  
  Reviewing DTND's litigation history in federal court since 2011(1) — which included seventeen cases that "have been dismissed with prejudice pursuant to a motion to dismiss" and thirty that "have been voluntary dismissed or dismissed without prejudice with [DTND's] consent" — the court observed that "four of the lawsuits that were dismissed on the merits included claims under the DTPA and TDCA arising out of a bank's failure to notify [DTND] of a right to cure."[2] The court concluded that "[DTND's] apparent wish to avoid a determination on the merits is less than surprising because its legal theories are frivolous."
  
  The district court determined that sanctions were warranted based on DTND's litigation history and its conduct in this case. DTND's counsel had offered to "release [DTND's] claims to the property for $20,000" and told Citi that "even if our lawsuit is dismissed fully and finally, we can more than likely create a bar to the selling of the home. We have been paid off by Title Companies because they are very wary of issuing a title insurance policy when we have a recorded deed."
  
  Based in part on that statement, the court found "that this action was filed with knowledge of its groundlessness and for the purposes of harassment and delay" in violation of Texas Rule of Civil Procedure 13 and Chapter 10 of the Texas Civil Practice and Remedies Code. The court imposed a $20,000 sanction against DTND and its law firm "to deter DTND and its counsel from continuing to file groundless, harassing lawsuits." DTND maintains that the court lacked jurisdiction to impose sanctions and alternatively that the sanctions are an abuse of discretion..

For the entire appeals court ruling, see DTND Sierra Inv., LLC v. Citimortgage, Inc., Case No. 14-51141 (5th Cir. Sept. 4, 2015).

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(1) Go here for links to a slew of other litigation involving this outfit.