Monday, January 29, 2007

The Equitable Mortgage Doctrine, The Truth In Lending Laws, Usury & Foreclosure Rescue

Foreclosure rescue operators are being sued by financially strapped homeowners around the country for the "sale leaseback" / "lease buyback" arrangements they are entering into. They appear to be represented by consumer protection attorneys. The approach for bringing these actions appears to be pretty straightforward. They begin by seeking to have the transaction declared to be an equitable mortgage. If successful, they seem to essentially have a "slam dunk" case as to violations of the disclosure requirements of the Federal Truth In Lending Act ("TILA") (it seems to me that the operators are in a position where they can't comply with the disclosure requirements of the TILA as part of a typical "rescue" sale leaseback / buyback arrangement without necessarily admitting that the transaction is, in fact, a secured loan; in essence, they're "damned if they do comply with the TILA, and damned if they don't").

Further, if the deal is deemed to be an equitable mortgage, the operators' "profit" or "expected profit" is immediately transformed into "interest" on the "deemed" mortgage loan, possibly subject to the Federal Home Ownership and Equity Protection Act of 1994 ("HOEPA") as well as to the civil and criminal usury statutes of your home state. (See Foreclosure Rescue Operator Violates Federal Law, State Usury Law (Tuesday, January 02, 2007), listed here at the Equitable Mortgage index of posts from this blog).

In addition, it appears that proof of actual fraud, deception, excessive overreaching, or any egregious conduct on the part of the operator in dealing with the homeowner is not necessary in having a deed be deemed a mortgage.

To the extent that there is an organized group of people, working together, that makes up a particular foreclosure rescue "operation," and the group typically does these deals as part of their normal course of business, I suppose this may expose the operator and the entire group to possible additional allegations of impropriety (ie. civil conspiracy, civil racketeering).

I have reviewed some of the actual court documents filed in a number of Federal cases from around the country involving foreclosure rescue operators, and for those of you with a strong interest in this area (attorneys, operators, financially strapped homeowners, and anyone else), I suggest that you may want to do the same.

The court documents can all be found on the Federal Courts' PACER system for electronic court filings; click here for login page; registration necessary, you can register from the login page, if needed. The identifying case information follows below.

The court documents I've looked at are from the following U.S. District Court cases:

Moore v. Cycon Enterprises, Inc., et al., Case No. 1:04-cv-800, Western District of Michigan (Southern Division) (decided as to liability and damages against foreclosure rescue operator, order on attorney's fees pending)

Armstrong v. Real Estate International, Inc., et al., Case No. 1:05-cv-05383, Eastern District of New York (Brooklyn Division) (case settled, settlement agreement between homeowner and foreclosure rescue operator filed and made part of the record)
Wilson v. Bel Fury Investment Group, LLC., et al., Case No. 8:04-cv-00640, District of Nebraska (Omaha Division) (case settled privately, no settlement agreement in the record)
Perry v. Queen, et al., Case No. 3:05-cv-00599, Middle District of Tennessee (Nashville Division) (case settled privately, no settlement agreement in the record)
  • Perry First Amended Complaint
  • Perry v. Queen - Memorandum decision on foreclosure rescue operator's Motion to Dismiss. Court applied Tennessee's equitable mortgage doctrine in denying operator's motion to dismiss.
(revised 2-9-07)
(revised 12-10-14)

Sample Appellate Briefs:
(revised 11-13-15)

Equitable Mortgage Sample Complaints

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