Voiding A Title Transfer In A Foreclosure Rescue Transaction

Past posts dealing with attempts to void a title transfer by a financially strapped homeowner to a foreclosure rescue operator have usually focused on invoking state law claims of "equitable mortgage" to have a deed, absolute in form, be declared a mortgage. Such cases have generally involved a leaseback of the home to the homeowner coupled with a buy back option. In many (if not most) states, the homeowner need not prove fraud when making equitable mortgage claims.

In this post, I want to touch on another approach to voiding a transfer by a homeowner. This approach is one where a "buyer" (or "grantee") acquires title to property through the use of fraud or deception and generally will apply in any case where fraud or deception is used to acquire title to property (not limited to foreclosure rescue transactions).

My approach in this post will be to refer to online sources of information, including my prior posts, to bring attention to several stories where claiming fraud and deception was used in an attempt to void a title transfer.

Nebraska case

In a February 01, 2007 post, I discussed a case where the Nebraska Supreme Court ruled that 12 homeowners who were victimized by a foreclosure rescue operator were entitled to their homes back. In that case, the homeowners' action was based on allegations of fraud, civil conspiracy, unjust enrichment, rescission, and violations of Nebraska’s Consumer Protection Act and Uniform Deceptive Trade Practices Act.

The case turned, not on what was contained in the written agreements between the parties, but rather, it turned on the court testimony of the parties. The homeowners all testified that the operators offered to loan them money to stop foreclosure so that they (the homeowners) could keep their homes, but never disclosed that the operators were actually taking title to the homes. The operators testified to the contrary, asserting that the terms of the transaction were fully explained to each plaintiff, that each plaintiff understood that he or she was conveying title to the home to defendants, and that the written agreements all unambiguously reflected a sale and not a loan. In ruling in favor of the homeowners, the court made a specific finding that the homeowners' testimony was credible and that of the operators was not.

This case also reminds us that the rule that "one who signs a contract is bound by its terms" does not apply where the execution of the instrument was induced by fraud. This point can't be emphasized enough because there are too many people who think that the written contract will always take precedence over what is said orally, and on this basis, will do or say anything they can to "steamroll" financially strapped homeowners into unwittingly signing away their homes.

For the original post, which contains links to online media reports, see Foreclosure Rescue Operator Ordered To Return Homes To A Dozen Victims.

For the actual reported court case, see Eicher v. Mid America Financial Investment Corp.. 270 Neb. 370, 702 N.W.2d 792 (2005) (made available online by Findlaw.com)

In addition to the above, and procedural issues outside the scope of this blog, the court case includes a discussion of Nebraska law that allowed for:

• a finding of a civil conspiracy, in spite of the fact that the only bad actors involved were two individual operators and their corporation that they used to do business (ie. there was no intricate, far-reaching conspiracy here involving corrupt appraisers, mortgage brokers, title closers, straw buyers, straw home repair companies, and others), and

• a $378,000 fee award (imposed on the foreclosure rescue operator) to the private attorneys successfully representing the homeowners; said award was based on an attorney fee provision contained in the state Consumer Protection Act; and also involved the application of a "contingency fee" or "lodestar" multiplier that increased the "lodestar amount" (the base attorney fee) by 30 percent.

Rhode Island case

In a November 24, 2006 post, I reported on a media reports on a case where the Rhode Island Attorney General reached a settlement in a civil lawsuit brought against a foreclosure rescue operator for violations of the state Unfair Trade Practices and Consumer Protection Act in connection with 16 properties acquired homes from financially distressed homeowners under the guise of a foreclosure rescue 'buy back' program. The settlement required that the operators return at least two of the homes back to their owners, cease their foreclosure rescue activities, and prohibited a sale or transfer of the remaining homes enrolled in the 'buy back' program (the media reports did not disclose the ultimate resolution of the remaining properties).

For the online reports on this case, see:

• Foreclosure “rescue” program shut down by R.I. judge,
• AG Lynch takes action against unscrupulous scam costing Rhode Island residents their homes,
• Ex-homeowner testifies: "I didn't want to sell. . .' (A Central Falls foreclosure company is under attack by the attorney general's office for alleged deceptive trade practices)

For the original post, see Rhode Island Attorney General Settles Suit With 'Rescue' Company; Judge Orders Return of Homes, Operations Shut Down.

California case

In a January 20, 2007 post, I reported on a Northern California case where a woman was victimized in a foreclosure rescue transaction. While the matter wasn't resolved at the time of the original media report and may still be in litigation, the article reported that the civil lawsuit brought by the victimized homeowner alleged the following against one or more of the defendants:

• violations of California's Home Equity Sales Contract Act,
• violations of California's Mortgage Foreclosure Consultants Act,
• fraud,
• civil conspiracy to commit fraud and unfair business practices,
• intentional infliction of emotional distress, and
• undue influence.

For the original online article, see Mortgage fraud cases multiply, hit more homeowners (Homeowner sues pastor, others)

For the original post, see Northern California Woman's Unwitting Sale Of Home Leads To Lawsuit

Florida case

There is a 2006 Florida appellate court case involving a homeowner in financial difficulty who signed over his home to another. In exchange, financing was to be arranged by the new title owner and/or a related party in order to refinance the existing mortgage on the home. Further, the homeowner claimed that there was an oral understanding whereby the now former homeowner would have the title to his home deeded back to him upon either his satisfaction or assumption of the newly arranged financing (the new title owner denied the existence of any such oral agreement). When the time came to deed back the home, the new title owner refused to do so.

The homeowner filed an action alleging, among other claims, claims for:

• fraud in the inducement, and
• constructive trust.

The trial court dismissed these claims.

The Florida appellate court, in reversing and remanding the case back to the lower court for further proceedings, held that Florida's Statute of Frauds does not bar claims for equitable relief such as this and, accordingly, directed the lower court to allow the case to continue and allow the homeowner the chance to provide oral evidence to support his claim that there was an oral agreement between the parties to deed back the home to him upon him either satisfying or assuming the new financing.

The key point in this case is that it reminds us that (at least in Florida, and probably most other places, and not unlike the Nebraska case above) when dealing with the sale of real estate, the rule that "contracts must be in writing" and that oral evidence cannot be used to affect the written contract is not an absolute rule; there are exceptions. One of the exceptions is where there is a lawsuit filed that makes a request for equitable relief, as there was in this case. Here, the homeowner alleged that fraud was involved in getting him to sign over the title to his home and sought the imposition of a constructive trust on the property involved.

In such a case, the court is required to consider any oral testimony provided by the parties and any other witnesses when determining whether to void a transaction for fraud or impose a constructive trust on the property involved.

More specifically, the court quoted from a decision of the Florida Supreme Court, saying:

• "The rule is well established in Florida and elsewhere to the effect that when a person acquires title to property through the influence of a confidential relationship or otherwise obtains an advantage which he should not in good conscience be permitted to retain, a court of equity will prevent the abuse of the confidence and grant relief on the broad principle that one should not be permitted to be unjustly enriched under such circumstances at the expense of another." (quoting from Williams v. Grogan, 100 So.2d 407, 410 (Fla. 1958))

• "The Court proceeded to explain that the court of equity will grant relief in such instances by imposing a constructive trust "which is created by operation of law" and "is not within the statute of frauds and may be proved by parol evidence." Id."

To see the entire 2006 Florida appellate court case, see Guest v. Claycomb, 932 So. 2d 567 (Fla. App. Ct. 5th Dist. 2006) (case available online courtesy of Florida's Fifth District Court of Appeal)

Washington State case

The decision in this case dealt with the procedural aspects of a case that happened to involve a financially strapped property owner who had signed over title to his property to an "investor" and received a leaseback of the property and a buy back option. It doesn't address the substantive issues that were claimed, but since it contains information that may be of some value to somebody involved in a foreclosure rescue situation, I've chosen to include something about this case here.

The property owner sued the investor to void the transaction on lack of capacity, fraud, negligent misrepresentation and usury. A couple of the claims were dismissed by the trial court, and the remainder were the subject of a bench trial, where the court ruled against the homeowner.

After the court's oral ruling, the homeowner filed a "Memorandum in Favor of Plaintiff's Version of Proposed Findings", which pointed out that the court's oral ruling was not binding and requested the court consider the alternative theories of lack of consideration, equitable mortgage, and unconscionable adhesion contract based on the evidence presented at trial. The lower court refused to consider the homeowners' request to amend and proceeded to enter written findings of fact and conclusions of law and a judgment quieting title to the investor and evicting the property owner.

In reversing and remanding the case back to the lower court for further proceedings, the Washington Court of Appeals concluded that the trial court abused its discretion in refusing to consider the property owners' CR 15(b) motion to amend the pleadings and the alternative theories of lack of consideration, equitable mortgage, and adhesion.

To read the case, see Hernandez v. Carpenter, 130 Wn. App. 1035, 2005 Wash. App. LEXIS 3391 (2005) (case available online courtesy of Findlaw.com).

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