Tuesday, November 16, 2010

'Lender' Targets Cash-Strapped, High-Equity Homeowners For Easy Profits; Tactics Embarrassing, Undermine Industry Reputation, Says Hard Money Lender

In Seattle, Washington, The Seattle Times reports:
  • Emiel Kandi forever changed the lives of a pregnant hairdresser, a jobless mechanic and a single mom when he loaned them money. These unsophisticated, desperate borrowers thought a short-term loan from the well-dressed professional could save them from financial collapse or foreclosure. But the very asset they were trying to hold on to — their home — was what Kandi was determined to take.

  • Kandi is the lender of last resort for some people who've been turned down by banks because of poor credit or limited income. He says his requirement for a borrower is merely "a pulse and a legal ability to sign." He admits he charges borrowers as much as he can get away with — 45 percent interest in one case — and makes it clear to them that if they fail to comply with the loan agreements, he will take their property. "I am a wolf," he explained.

  • A Seattle Times examination of numerous Kandi loan deals shows that they are set up so he can quickly take borrowers' homes and in some cases flip them for a profit. And he gets away with it. "He's in the business of taking people's property," said Martin Burns, a lawyer who sued Kandi on behalf of the mechanic. "He finds vulnerable people and exploits them."(1)


  • Established hard-money lenders, some of whom handle multimillion-dollar loans, say people like Kandi undermine the reputation of their industry. "They are trying to fly under the radar with these tactics that are embarrassing," said John Odegard, president of Seattle Funding Group, the Northwest's largest private lending company. "It isn't at all what our industry represents." Erik Egger, co-president of WADOT Capital, one of at least two dozen hard-money lenders that offer loans in the state, said no reputable lender would use a quitclaim deed to secure a loan. "It circumvents foreclosure," he said. "Those borrowers can be put in a bad situation."(2)

For more, including the stories of a couple of the victims, see Lender seizes desperate borrowers' homes (A Seattle Times examination of numerous Emiel Kandi loan deals shows that they are set up so he can quickly take borrowers' homes and in some cases flip them for a profit. And he gets away with it).

(1) Reportedly, one of Kandi's common practices is to have his victims sign over their title to the property using a quitclaim deed, writing the loan as a purported 'commercial' (as opposed to a 'consumer') loan in attempt to dodge certain consumer protections, and employing 'hair-trigger' default clauses in the loan agreement that allow him to take possession of the house immediately using the deed after a missed payment without going through foreclosure, which includes a 190-day waiting period and several consumer protections, the story states.

In one case, Kandi reportedly had a homeowner sign a promissory note for $170,000, even though he was getting only $17,000, and a quit claim deed to the home. Six days after a purported default (a point that was disputed by the parties), Kandi used the quitclaim deed to record a new owner of the property, a company in his mother's name, and subsequently flipped it for $235,000, walking away with more than $200,000.

After a lawsuit was filed by the homeowner, a court determined Kandi had violated the Washington State Consumer Protection Act by using "unfair and deceptive practices" and ordered Kandi to pay the homeowner $211,538, an amount Kandi has yet to pay, the story states. See Marsh v. Kandi, et al, NO. 9-2-11247-4 (Wn. Sup. Ct. Pierce County, October 20, 2010).

In another lawsuit (see Provost v. Kandi, et al., NO. 09-2-15191-6 SEA, May 30, 2010), Kandi was found to have violated the Washington Criminal Profiteering Act (RCW 9A.82), The Credit Services Act (RCW 19.134) the Distressed Property Act (RCW 61.34), and the Usury Act (RCW 19.52). In addition to $110,000+ in net damages, the victim was awarded her home back free and clear as a result of a successful action to quiet title.

Other homeowners who borrowed from Kandi have had different outcomes. A single mother of two children took out a loan for $5,000, missed a payment, and lost her Graham home and $70,000 in equity. In another case, a Puyallup woman who borrowed from Kandi filed a lawsuit against him, but lost.

For whatever its worth, in addition to other legal theories that are available to unwind or undo these type of home equity ripoffs, the judiciary in the State of Washington has a long history dating back over a century of recognizing the equitable mortgage doctrine, which when applicable, disregards the signing over of a deed in a racket like this and treats the entire deal as a loan secured by a mortgage. See Equitable Mortgage Doctrine In Washington State.

(2) A similar type of home equity ripoff was successfully prosecuted last year in a civil lawsuit alleging violations of the state Consumer Protection Act brought by the Washington State Attorney General's Office. See Washington AG Scores Big Win In Bogus Equity Stripping, Land Trust/Sale Leasebacks & Surplus Ripoffs; Foreclosure Rescue Operator Tagged For $4.2M (for the lawsuit setting forth the allegations, see State of Washington v. Kaiser, et al.).

For more on combatting home equity scams in court, see Foreclosure Rescue Scams, as well as this summary of legal theories available in undoing or unwinding these types of home equity scams (the latter made available online by the Washington State Attorney General's Office).