Thursday, October 21, 2010

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

posted by Home Equity Theft Reporter at 4:00 AM

Monday, December 13, 2010

Colorado AG Announces Two Civil Lawsuits Targeting Alleged Sale Leaseback, Equity Stripping Foreclosure Rescue Ripoff Operations

From the Office of the Colorado Attorney General:
  • Colorado Attorney General John Suthers announced [last week] that his office has filed separate lawsuits against three businesses and five individuals accused of defrauding homeowners in Denver, Boulder, Broomfield and Adams counties through deceptive foreclosure rescue schemes. [...] All of these defendants are suspected of defrauding homeowners out of substantial equity in their homes through an elaborate foreclosure rescue scheme in violation of the Colorado Foreclosure Protection Act.

  • According to the complaints filed in Denver District Court, consumers facing foreclosure were approached by the defendants with a proposal to save their homes. The defendants promised to use the equity in the homes to halt the foreclosures and, in some cases, to make improvements to the properties.

  • Homeowners were instructed to transfer title to their properties to investors arranged by defendants,(2) who would then lease the properties back to the original homeowner with an option to repurchase their homes. The complaints allege that many homeowners were subsequently evicted and that none of them were ever able to exercise their repurchase options. All of the equity in their homes was lost to the defendants.(3)

For the Colorado Attorney General press release, see Attorney General announces lawsuits against individuals, companies engaged in fraudulent foreclosure rescue activities.

(1) The first complaint, State of Colorado v. Lynn, et ano., charges Jason L. Lynn (DOB: 3/10/1977) and Lynn’s company, Superior Financial Group.

The second complaint, State of Colorado v. Brunner, et al., charges Patrick C. Brunner (DOB: 7/27/1979), Brunner’s company, Platinum Financial Group, Jerry Ohu (DOB: 6/10/1974), Ohu’s company, Fortune Financial Group, Gregory D. Hoffman (DOB: 8/21/1969) and William J. Schultz (DOB: 7/29/1974).

(2) According to the civil lawsuits filed by the Colorado Attorney General, the sale leaseback peddlers arranged for a sale of the homes to investors, converting any of the home equity into cash by financing the deal with a mortgage loan from a financial institution, and subsequently using assignments to divert those net proceeds into their own pockets.

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

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

(3) Although this action was brought as a civil lawsuit in which no criminal allegations have been made, the sale leaseback arrangements alleged by the Colorado AG, which employ the use of a third party investor to obtain institutional financing to sap the equity out of the target homes, appear to be simliar in nature to those deals that have been the subject of criminal prosecutions by various law enforcement authorities. See Criminal Prosecutions Of Sale Leaseback Peddlers In Equity Stripping Foreclosure Rescue Deals.

posted by Home Equity Theft Reporter at 4:00 AM

Tuesday, September 07, 2010

F'closure Rescue Operator At It Again As DC AG Slams Sale Leaseback Peddler w/ Suit Seeking To Void Title Transfers Violating Consumer Protection Law

From the Office of the District of Columbia Attorney General:

  • Attorney General Peter Nickles announced [] that the District has filed a Superior Court enforcement action against Vincent L. Abell, charging that he engaged in foreclosure rescue transactions that violated the District’s consumer protection law. The District’s complaint asks the Court to rescind the unlawful transactions.

  • According to the District’s complaint, Abell misled homeowners into believing that they were being offered loans that would prevent them from losing their homes to foreclosure. Instead, Abell had the homeowners sign documents that transferred the homes’ titles to him and converted the homeowners into Abell’s tenants.

  • Through these transactions, Abell obtained all of the equity in the homes for only a small fraction of its value. The homeowners victimized by Abell’s practices have typically been financially unsophisticated and desperate to save their homes from foreclosure. “We will not allow District homeowners to be preyed upon in this way,” Attorney General Nickles said.(1)(2)(3)

  • The District has also alleged that Abell sold condominium apartments in DC without posting the bonds or letters of credit required by District law.

For the DC AG press release, see Attorney General’s Office Files Action Against Foreclosure Rescue Scam.

For the DC AG's lawsuit, see District of Columbia v. Abell.

See also WTTG-TV Channel 5: DC Files Enforcement Action Against Foreclosure Rescue Scam, which also includes the story of DC resident Maria-Theresa Wilson, who was screwed over by Abell a couple of years back. She ended up suing him and scored a $3.3 million judgment against him, his company and a confederate named Calvin Baltimore. The judgment was upheld on appeal in a recent ruling. See Modern Mgmt Co. v. Wilson, 997 A.2d 37; 2010 D.C. App. LEXIS 283 (D.C. June 3, 2010).

(1) A 1988 ruling of the District of Columbia Court of Appeals supports the proposition that a home equity ripoff involving a sale of real estate with a contemporaneous leaseback of the premises to the seller, coupled with a right to buy back the property may be nothing more than a disguised usurious equitable mortgage masquerading as a true sale. See Browner v. Dist. of Columbia, 549 A.2d 1107 (D.C. 1988) (bold text is my emphasis and [alterations added], neither of which appear in the original text):

  • Moreover, if the transactions were in fact sales, as [the foreclosure rescue operators] contend, they were surely most extraordinary ones. When a homeowner sells his home, which is usually his most valuable possession, one would expect at least some measure of bargaining over the sales price. Here, there was none. In each instance, what the [foreclosure rescue operators] characterize as the "sales" price bore no relation whatever to the value of the equity. It is absurd to suggest that Mrs. Carroll would knowingly sell her home, in which she had an equity of more than $36,500.00, for $8,100.00. None of the "sellers" had placed his or her home on the market or expressed the slightest interest in selling it. Each "seller" remained in possession after the purported sale, and [the foreclosure rescue operators] were indeed depicting their service as one that would enable their clients to "save" their homes from foreclosure. Although the transaction also lacked one of the common characteristics of a loan -- an evaluation of the borrower's credit -- no such investigation was needed because the home itself, which in each case was worth far more than the amount expended by the [foreclosure rescue operators], served as their security.

  • It was therefore altogether reasonable for the trial judge to find that the depiction of each of these transactions as a sale and lease back was a transparent sham which masked an unlawful loan.

(2) For other stories on Vincent Abell and his foreclosure rescue racket, see:

(3) For more on equity stripping scams, generally, see DREAMS FORECLOSED: The Rampant Theft of Americans' Homes Through Equity-stripping Foreclosure 'Rescue' Scams.

posted by Home Equity Theft Reporter at 4:02 AM

Monday, March 09, 2009

400 Sale Leasebacks Are Disguised Equitable Mortgages, Says AZ AG In Invoking State Consumer Fraud Act, TILA In Suit Against Foreclosure Rescue Firm

From the Office of Arizona Attorney General Terry Goddard:
  • Attorney General Terry Goddard [Thursday] announced that he has filed a lawsuit against an alleged foreclosure rescue operation believed to have defrauded approximately 400 Arizonans of their homes.(1) This action comes as part of Goddard’s crackdown on con artists who prey upon vulnerable homeowners struggling to avoid foreclosure. "Instead of offering legitimate help to homeowners, this operation misled and exploited them to turn a handsome profit," Goddard said. "The housing crisis has given rise to a number of rescue scams, and we are going after them aggressively."

***

Among the allegations made in the lawsuit are:

  • Falsely and deceptively representing to homeowners that they would save their homes when, in fact, the defendants structured the transactions to take ownership and equity away from homeowners for the benefit and profit of defendants,(2)

  • Misleading homeowners and circumventing and concealing from them the defendants’ obligations and homeowners’ rights and remedies under a mortgage loan agreement,

  • Evading the protections of the Federal Truth in Lending Act (TILA) which required defendants to disclose the annual percentage rate of the mortgage and the homeowner’s right to rescind the transaction within three days of receiving notification of the right.(3)

For more, see Terry Goddard Files Lawsuit to Stop Foreclosure Rescue Operation.

For the lawsuit, including details of how the alleged foreclosure rescue scheme operated, see State of Arizona v. Winer, et al.(4)

(1) The state AG alleged violations of the following Arizona laws:

In addition, the Arizona AG asserts that the sale leasebacks are loans/equitable mortgages pursuant to A.R.S. §33-702(A), A.R.S. §6-901, A.R.S. §6-941, and Merryweather v. Pendleton, 91 Ariz. 334, 372 P.2d 335 (1962). In the Merryweather case, the Arizona Supreme Court cited English common law dating back over 500 years when making the following observation, "The ruse of an absolute deed or deed with an option to repurchase has long been used in attempts to cut off a mortgagor's equity of redemption. Equity courts created the concept of equitable mortgages to avoid such abuses". Y.B. 9 Edw. IV 25, 34 (1470).

(2) In a 2006 Washington, D.C. case, the court rejected a foreclosure rescue operator's claim that the D.C. consumer protection statute was inapplicable. Specifically, the operator attempted to characterize the relationship between himself and a homeowner facing foreclosure as "a purchaser-seller relationship in which the [homeowner], in an arm's length transaction, sold her house to him in circumstances admittedly unfavorable to her but not of his making." The court found that, by presenting himself to the homeowner as a "foreclosure specialist" who would aid her in keeping her home -- and not as a prospective buyer, a merchant-consumer relationship was created, thereby making the D.C. consumer protection statute applicable. Byrd v. Jackson, No. 04-CV-940, 902 A.2d 778; 2006 D.C. App. LEXIS 362 (2006).

It appears that any attempt by the foreclosure rescue operator targeted in the Arizona AG's lawsuit to claim that the state Consumer Fraud Act is inapplicable in this case could very well meet with the same outcome as in the D.C. case.

(3) The sale leaseback arrangements in this case apparently did not violate any applicable state usury statute, since the complaint contains no allegation thereof. In Arizona, contractual arrangements that are found by a court to be nothing more than disguised loans masquerading as sale leasebacks (and other buyback arrangements) are subject to any applicable state usury statute. See SAL Leasing v. State ex rel. Napolitano, 198 Ariz. 434; 10 P.3d 1221 (Ariz. Ct. App. 2000).

(4) Last year, the Massachusetts Attorney General's office took a similar approach in the pursuit of a foreclosure rescue operator accused of scamming 26 homeowners out of the equity in their homes. Like the Arizona AG, the Massachusetts AG also invoked its state's consumer protection statutes and the equitable mortgage doctrine; and it alleged violations of the Federal Truth In Lending Act, among other state law violations. It was also alleged in that case that the sale-leaseback arrangements were usurious equitable mortgages (See Complaint - Commonwealth of Massachusetts v. Sohmer, paragraphs 68-70 and paragraphs 123-126). The Massachusetts AG ultimately reached a satisfactory settlement with the foreclosure rescue operator and the mortgage lenders involved in, and providing the financing for, the associated equity stripping transactions. See Massachusetts AG press release: Bankruptcy Court Approves Settlement Between Attorney General’s Office and Ten Mortgage Lenders and Servicers Involved in Foreclosure Rescue Transactions. Go here for the earlier posts on the Massachusetts equity stripping case.

posted by Home Equity Theft Reporter at 4:15 AM

Tuesday, April 22, 2008

Washington State AG Settles Suit With Florida-Based Upfront Fee Foreclosure Rescue Operator

The Washington State Attorney General’s Office announced yesterday:
  • Approximately 200 Washington consumers who paid for a service that they thought would help save their homes from foreclosure will receive partial refunds under a new settlement announced [yesterday] by the Washington Attorney General’s Office. The homeowners each paid $1,200-$1,500 to Foreclosure Assistance Solutions LLC, of Clearwater, Fla. More than 70 percent of homeowners who signed up with Foreclosure Assistance Solutions ended up losing their homes anyway. The company went out of business in fall 2007. [...] The Attorney General’s Office accused the company of violating the state’s Consumer Protection Act, Credit Services Organization Act and Commercial Telephone Solicitation Act.

***

  • Foreclosure Assistance Solutions did not admit to any wrongdoing in the settlement but agreed to pay $78,125 in restitution to Washington consumers, as well as $20,000 in attorneys’ fees. The settlement also includes injunctive provisions limiting how the company does business, should it offer services again in the future, as well as an additional $100,000 in civil penalties for failure to comply with the agreement.

The Washington AG stated that some of the solicitations sent to the homeowners by Foreclosure Assistance Solutions mimicked official government notices. In addition to announcing the settlement in this case, AG Rob McKenna also issued a reminder on the recent passage of legislation, HB 2791, designed to regulate foreclosure rescue operators.

  • The Washington Attorney General’s Office introduced legislation this past session to help protect homeowners from foreclosure rescue scams where the “rescuer” agrees to purchase the distressed property then sell or lease it back to the original homeowner. HB 2791 takes effect June 12, 2008. The new law will require that the purchaser prove the homeowner is able to make the payments and provide a written contract with clearly disclosed terms. The new law gives the homeowner the right to cancel the contract within five business days. It also requires that the original homeowner receive at least 82 percent of the difference between the property’s fair market value and the underlying mortgage should the home be sold to a third party.

For more, see Foreclosure rescue company must refund 200 Washington consumers.

To view the cionsent decree and the original lawsuit in this case, see:

Other posts referencing Foreclosure Assistance Solutions.

Go here for a website possibly created by an unsatisfied customer of Foreclosure Assistance Solutions.

posted by Home Equity Theft Reporter at 9:43 AM

Sunday, April 18, 2010

Oregon Regulators Taking A Close Look Into Portland-Based Foreclosure Rescue Operator Peddling Sale Leaseback Programs

A recent story in The Oregonian [see State regulators open civil investigation into Aspen Capital's mortgage affiliate] reports that the Oregon Department of Consumer and Business Services has commenced a civil investigation into the lending and foreclosure rescue activities of an affiliate of Aspen Capital for possible violations of consumer protection laws. The type of transactions being looked into include sale leaseback programs, an example of which was described in the following excerpt taken from a February 27, 2010 Oregonian story [see Foreclosure rescues by Aspen Capital affiliate -- a lender of last resort -- failed nearly half the time]:

  • Tammy Campbell was distraught. She couldn't find a job and fell behind on her mortgage in 2004. The modest Portland home she bought for its archways and oak floors headed to foreclosure. That's when she got a flier in the mail from an Aspen affiliate. Campbell signed a contract to sell her home to another Aspen affiliate just days before the foreclosure sale.

  • The $109,750 price was below market value, but it was enough to pay off her delinquent loan. The good part: The sale halted the foreclosure and Campbell stayed in her home, renting from an Aspen affiliate. The bad part: She no longer owned her home and her rent cost her more than her old monthly mortgage payment.

  • According to the contract, Campbell paid $719 rent compared with $599 on her mortgage. Irving Potter, lawyer for Aspen Capital and its affiliates, said the company didn't consider whether Campbell could afford the rent. Instead, he said, the company set the rent to ensure an 8 percent annual return. Even though she no longer owned the home, Campbell was required by the contract to pay the maintenance and property taxes. Potter said the company ended up covering the taxes.

  • The Aspen affiliate gave Campbell the option to buy her home back. The price would rise 10 percent a year. Under the contract, the company could put the home on the market if Campbell couldn't buy it back after two years. By buying the home for less than it was worth, the company would profit by selling at market value.

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

Under Oregon case law, this type of transaction has been found by the courts to constitute an equitable mortgage(1), an arrangement where a loan transaction is disguised as a formal sale, combined with:

  • a contemporaneous leaseback of the premises by the financially strapped property owner, and
  • an option to repurchase granted to the property owner.

Disguising a loan transaction in this way is believed by some (erroneously, in many cases) to be a way to: (1) evade state usury statutes, (2) evade the property owner's right of redemption by obviating a foreclosure action - in a sale leaseback, the new owner need only evict the now-ex-homewoner to take possession of the premises, and (3) make off with a distressed property owner's equity by providing for contractual obligations so onerous that they are unconscionable and illusory, coupled with hair-trigger default provisions that result in the property's forefeiture to the operator.

Inasmuch as these types of transactions have been under attack by several other states(2) as being in violation of state consumer protection laws, it would be interesting to see where Oregon regulators come out on this issue.(3)

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

(1) The Oregon Supreme Court, in Umpqua Forest Ind. v. Neenah-Ore. Land Co., 188 Or 605, 217 P2d 219 (1950), pointed to the following factors as indicia that a mortgage, as opposed to a true sale, was intended:

  • the fact that negotiations originated from an application for a loan,
  • the dire financial straits of the grantor,
  • the grantor's continued possession of the property,
  • the intimate business or social relationship of the parties,
  • failure of the grantee to carefully investigate the title of the grantor,
  • failure of the grantee to ascertain the value of the property,
  • inadequacy of consideration, and
  • the lack of bargaining between the parties as to the value of the property with the controlling consideration being the profit inuring to the grantee.

Further indication of intent to create a mortgage is present is: when a deed absolute in form, is accompanied by an option to repurchase, the instruments must be considered together. The option does not of itself convert the transaction into a mortgage, but it is a circumstance to be considered in favor of the existence of a mortgage.

See also these Oregon Court of Appeals rulings which applied these guideposts in evaluating a real estate transaction and concluding that it was an equitable mortgage, and not true sale:

  • Long v. Storms, 50 Or App 39 (1981) (ruled that, as an equitable mortgage, the arrangement was subject to the Federal Truth In Lending Act),
  • Swenson v. Mills, 198 Ore. App. 236, 108 P.3d 77 (Or. Ct. of App. 2005).

This short narrative on the equitable mortgage doctrine in Oregon, appearing on the State of Oregon Division of Finance and Corporate Securities (DFCS) website, also addresses the equitable mortgage doctrine in Oregon.

(2) In Massachusetts, the state Attorney General's office sued and reached a settlement in a case involving 26 real estate transactions that allegedly: (1) involved unfair and deceptive acts and practices under the Massachusetts Consumer Protection Act, and (2) constituted violations of specific state and federal laws and regulations designed to protect consumers from deceptive and unconscionable lending practices. Among the AG's allegations was that the sale leaseback arrangements constituted usurious equitable mortgages. See:

In Arizona, Attorney General Terry Goddard successfully sued an alleged foreclosure rescue operation believed to have defrauded a couple of hundred Arizonans of their homes in violation of, among other statutes, the Arizona Consumer Fraud Act, and alleged that the sale leasebacks were equitable mortgages. See:

The Arizona Attorney General also scored a victory in an earlier case (see Arizona Foreclosure Rescue Operator Ordered To Pay $1.2M In Home Sale, Leaseback Program) in which a foreclosure rescue operator, in lending money to more than 60 homeowners facing foreclosure or in need of money, designed its loans, which it called reverse sales, to evade laws protecting mortgage borrowers by structuring them as an outright sale of the property by the borrower, who then rented back the home with an option to repurchase it. If homeowners were late on a rental payment or unable to repay the loan and funding fee within two years, they could lose their homes and any equity in them. For the Arizona AG press release, see Court Orders Realty Firm to Pay $1.2 Million for Violating Fraud, Banking Laws.

In Washington, the state Attorney General’s Office successfully sued a notorious foreclosure rescue operator, and obtained a court order directing the operator to pay more than $3.2 million to victims he wronged plus $179,000 in penalties for violating the state's Consumer Protection Act. See:

(3) For other reports on sale leaseback, foreclosure rescue programs that have been found to violate the state's consumer protection laws, see: State Consumer Fraud Act Yields Triple Damages Award For Homeowners In Bogus Sale Leaseback Equity Stripping Racket, footnote 1.

posted by Home Equity Theft Reporter at 4:00 AM

Thursday, March 15, 2007

Three Foreclosure Rescue Operators Settle Charges With Washington State AG

(revised 6-8-07)
Washington Attorney General Rob McKenna has announced a settlement reached with three foreclosure rescue operators accused of taking advantage of financially distressed homeowners, according to the Press Release issued by the AG's office. They have also announced the filing of civil charges against two other individuals involved in the matter.

Fiscal Dynamics, Inc. and Cumulative LLC, of Tacoma; and Northwest Assets, of Seattle, have agreed pay a total of $290,000 in consumer restitution. Walt Scamehorn, owner of Fiscal Dynamics and Cumulative, and E. Arliss Morgan, owner of Northwest, have also agreed to the terms of the settlement. While agreeing to make the settlement, all those charged have denied wrongdoing.

The operators were charged, in a civil lawsuit filed by the AG in December, with unfair or deceptive acts or practices involving "overage plays" (attempts to scam homeowners out of the surplus money, or "overage" that results when the proceeds of a foreclosure sale exceeds the amount owed to the foreclosing mortgagee), "partial interest trusts", and abuses and omissions when undertaking to act as a fiduciary. In addition, they were also accused of colluding to manipulate sale prices at a public auction and deceptive advertising.

Reportedly, more than 100 consumers may be entitled to receive restitution.

The new charges filed by the AG's office are against Joseph Kaiser, of Tacoma, and Tina Worthey, of Burien.

To read more, see the Washington AG's Press Release.

Click here for a copy of the Civil Complaint - State of Washington vs. Fiscal Dynamics, Inc., et al. (Describes in detail the nature of the alleged conduct)

See also Washington Attorney General Sues, Settles with Real Estate Investors for Mortgage Foreclosure "Rescue" Violations, report on All American Patriots news service.

See also 3 'foreclosure rescue' firms agree to settle, reported by the Seattle Post-Intelligencer.

Note:
Thanks to the Washington AG's office for making their civil complaint available online.
.

posted by Home Equity Theft Reporter at 9:13 AM

Tuesday, June 23, 2009

State AG Probe Focuses On Central Florida Man With Involvement In Dubious Sale Leaseback, Foreclosure Rescue Deals

In Central Florida, the St. Petersburg Times reports:
  • For scores of desperate Tampa Bay homeowners, it seemed like a lifeline — Gideon Rechnitz would help bring their mortgage payments up to date and save their homes from foreclosure. But now the Florida Attorney General's Office is investigating whether Rechnitz misrepresented himself and his St. Petersburg-based companies in a foreclosure rescue scheme that enabled him to acquire dozens of houses at below-market value.(1)(2)

***

  • As the St. Petersburg Times reported last year, Rechnitz, 62, told homeowners that investors would buy their houses, make the payments and stop the foreclosure proceedings. The sellers could then rent back their homes with an option to repurchase them in two years. In an interview for that story, Rechnitz said that he explained all facets of the "program" and even videotaped closings to make sure the sellers understood. But many homeowners were confused by the documents he asked them to sign and could not meet the stringent rental and buyback conditions.

***

  • Rechnitz said in the fall that his foreclosure rescue business had slowed considerably in 2008 because it was harder to find people [...] with substantial [home] equity. But as home­owners who got 100 percent financing now struggle to renegotiate their mortgage terms, state records show he recently started a new company — Loan Modification Enterprises.

For more, see Attorney general investigating fraud in foreclosure 'rescue' operation.

(1) According to the story, the current investigation is not the first involving Rechnitz. The Florida Bar conducted a probe involving conduct that could constitute the unauthorized practice of law in connection with an alleged "rescue" of a Bradenton home. Rechnitz admitted no wrongdoing, but later signed a cease-and-desist affidavit. In the 1980s, the Federal Trade Commission sued Rechnitz for deceptive trade practices in connection with timeshare marketing program. He admitted no wrongdoing, but agreed to refund $1.25 million to customers. He reportedly also lost his Florida real estate license. He also reportedly faces two lawsuits in Sarasota County, including one by 71-year-old Yolanda Rodriguez, who claims that in 2006 Rechnitz improperly evicted her and her deaf brother from their home, which he acknowledged in a deposition was worth far more than the $150,000 Rodriguez owed on her mortgage, according to the report.

(2) In May, a Washington State jury hammered a foreclosure rescue operator similarly suspected of ripping off the home equity of financially strapped homeowners in a civil lawsuit brought by the Washington Attorney General's office (see Pay time for notorious foreclosure rescue scammer - Attorney General announces major victory in state’s case with Washington man who promised help but took homes). The jury found that the business practices engaged in by the operator violated the state Consumer Protection Act. See Washington AG Scores Big Win In Bogus Equity Stripping, Land Trust/Sale Leasebacks & Surplus Ripoffs; Foreclosure Rescue Operator Tagged For $4.2M.

posted by Home Equity Theft Reporter at 4:06 AM

Wednesday, February 03, 2010

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

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

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

The operator attemped to dodge liability under the CFA by claiming that the victims, by reason of their advanced education, business experience, etc. were sophisticated people, knew what they were doing when they did business with him, and were not misled, deceived, or defrauded in any way. The court addressed this point in the following excerpt (bold text is my emphasis, not in original):
  • Defendant Cleveland argues that the CFA does not apply in this case because the O'Briens are sophisticated and "were not misled in any capacity." He claims that "no such deception, fraud or falsity occurred." There is no statutory exception for sophisticated consumers. Even the most sophisticated consumers are entitled to the protections of the CFA.

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

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

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

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

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

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

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

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

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

posted by Home Equity Theft Reporter at 4:02 AM

Tuesday, October 21, 2008

NJ AG Targets 39 In Suits Alleging Equity Stripping, Sale Leaseback Scams; Involved $13.5M In Bogus Loans & 48 Homeowners Screwed Out Of $3M+, Says AG

In Bergen County, New Jersey, The Star Ledger reports:
  • Forty-eight New Jersey property owners have lost more than $3 million in home equity through "foreclosure rescue" schemes operated by Vest Financial and JP Global Property Management Inc., according to civil lawsuits filed by the state Attorney General's office.

  • The lawsuits accuse the two companies, as well as 37 mortgage loan providers, mortgage industry employees, lawyers and others of violating the state's Consumer Fraud Act and the Racketeer Influenced and Corrupt Organizations Act. The state is seeking restitution for the property owners, penalties and permanent bans to keep them offering similar schemes to others.

***

  • [New Jersey Attorney General Anne] Milgram said the companies preyed on desperate homeowners behind on their mortgages by persuading them to sell their properties to third-party investors as part of complex "sale and lease-back" schemes. [...] Vest Financial and JP Global never followed through on their promises. Instead, Milgram said, the companies stripped the homes of their equity value through the scheme and left the homeowners with no means to pay rent and with ruined credit histories.

For more, see State accuses firms of running predatory 'foreclosure rescue' schemes.

See also: Legal Newsline: Milgram: Foreclosure rescue schemes nothing but fraud ("Milgram says the defendants used predatory foreclosure rescue schemes to convince homeowners to sign over their homes, obtained at least $13.5 million in fraudulent loans and stole at least $3 million in homeowner equity.").

From the New Jersey Attorney General's office:

Go here for criminal prosecutions of foreclosure rescue operators.

For more on equity stripping scams, generally, see Dreams Foreclosed: The Rampant Theft of Americans' Homes Through Equity-stripping Foreclosure 'Rescue' Scams (4.61 MB approx.).

(1) The Defendants in this lawsuit are: Vest Financial, formerly of Paramus; Metropolitan Mortgage Services, Inc., of Cliffside Park; Alex Armani of Cliffside Park; Sohrab Moussavian of Englewood; Anthony Scordo III of West Orange; Felix Nihamin, an attorney who resides in Franklin Lakes and practices in New York City; Francis A. Ciambrone, an attorney with law offices in Paramus; Rhys A. Herrmann, of Belleville; JP Global Property Management LLC of Bloomfield; Peter H. Eckhardt, Jr. of Livingston; Philip Altieri of Flemington; Kristopher Pilone of Manalapan; DBK Realty Investments LLC of Edison; Tom A. Andriopoulos of Washington Township (Bergen County); Settlement Source, LLC of Edison; Vivian M. Ruiz of Hillsdale; and Glen B. Thompson, New York City.

(2) The Defendants in this lawsuit are: JP Global Property Management; Jeremy P. Sorvino of Waldwick; Jeffrey M. Malen of Ringwood; Peter Eckhardt, Jr.; Christopher William Eckhardt of Washington Township, (Bergen County); Anthony Scordo III of West Orange; Nihamin; Michael J. Andalaft, an attorney with law offices in Cedar Grove; Capital Hill Mortgage, Inc.; Stanley Capital Mortgage Company, Inc. of Englewood Cliffs; Rhys A. Herrmann of Belleville; Brendan Joseph Flynn of Fort Lee; Maryann E. Sorvino of Ridgewood; Frances B. Benna of Elmwood Park; Vincent F. Latorre of Kenilworth; Jennifer R. Kortman of Livingston; Rebecca A. Kortman of Chatham; William McVeigh of Wharton; Mauricio V. Almeida of Colonia; and Thompson.

posted by Home Equity Theft Reporter at 4:50 AM

Monday, March 19, 2007

New Jersey AG, Consumer Affairs Director Warn Against Foreclosure Rescue Scams Involving "Surplus Funds"

New Jersey Attorney General Stuart Rabner and Acting Consumer Affairs Director Stephen B. Nolan recently issued a warning to New Jersey residents about a foreclosure rescue scam involving "surplus funds", the money that represents that portion of the sale proceeds of a foreclosure sale that is left over after the proceeds are first applied to paying off the amount owed to a foreclosing mortgage lender and, (apparently) in New Jersey, any unpaid real estate taxes, according to a Press Release from the New Jersey AG's office.

These surplus funds, also referred to as the "surplus money", "excess funds" or "overage" (and possibly other terms), represent the homeowner's equity in his/her home that they are entitled to claim after the foreclosure sale takes place. Therefore, and contrary to what some foreclosure rescue operators will falsely have people believe, when a homeowner loses his/her home in a foreclosure sale, the home equity, if any, is not necessarily lost. If the sale price exceeds the amount owed, the balance (ie. the surplus funds) is typically held in an account by the court that ordered the sale and it simply sits there until the homeowner comes forward and claims it (or until a scam artist comes forward, forges or otherwise tricks the homeowner into signing the necessary paperwork, and steals it - see, for example, Arrests Made in South Florida Foreclosure Scams, involving an alleged theft of foreclosure surplus funds that may have victimized at least 20 Florida homeowners).

Further, because of the significant increase in third party investors attending and bidding at these foreclosure sales throughout the U.S. over the last few years (in large part due to the spike in property values in many parts of the country during the early 2000's; in some part due to the "foreclosure investing" infomercials on late night cable TV), the sale prices at these foreclosure sales have typically come pretty close to full fair market value (unlike the old days when an investor could pick up a pretty good deal at a significant discount at these forced sales). As a result, it has been quite common for there to be surplus funds left over after a foreclosure sale took place and a foreclosing lender got paid off on its outstanding loan.

Due to the fact that many homeowners are unaware of their rights to the surplus money, a profit opportunity is open for both the ethical and the unethical to capitalize on the recovery of these surplus funds. This is the case in spite of the fact that, at least in New Jersey, homeowners can obtain the surplus funds on their own simply by filing a simple form and paying less than $100 (if you're a New Jersey resident, more information is available from the New Jersey Superior Court Trust Fund Unit at 609-292-3937; my guess is that other local court systems throughout the rest of the U.S. have some type of system for assisting homeowners recover their surplus funds).

The unethical and the con artists who have gotten into this area of foreclosure rescue have engaged in one of two forms of this scam (which can be thought of as a creative form of "equity stripping") and which are described in the Press Release. To read more, see Consumers Cautioned About “Surplus Funds” Scams Amid Rising Foreclosure Filings.

For concise, one page brochures warning against scams involving the surplus money left after a foreclosure sale, see:

To read about the recent legal action settled by the Washington State Attorney General against three foreclosure rescue operators involving a "surplus funds" scam, see More On AG McKenna's Settlement With Foreclosure Rescue Operators.

Click here to Watch the TV report on the Washington case on Channel 4 KOMO-TV

Editor's Note:

I suspect that, because of the general downturn in values in the real estate market recently, more and more lenders will be foreclosing on homes on which they're owed more than what the properties are worth; these properties are said to be "upside down". In these cases, the foreclosing mortgage lenders will be stuck buying these "upside down" properties themselves at a foreclosure auction or forced into allowing the properties to be sold to third party bidders at said auction for less than the amount owed. Accordingly, in these cases there will be no surplus funds for homeowners to claim.
(corrected 3-22-07)
.

posted by Home Equity Theft Reporter at 8:06 AM