Central Florida Homeowners File Suit Against Foreclosure Rescue Operator; Others

A group of eleven Central Florida homeowners filed suit earlier this month against foreclosure rescue operator Peter Porcelli and a group of at least 16 other individuals and companies in which they allege having been scammed out of their home equity. They allege that the operators targeted homeowners with significant equity in their home who were facing temporary financial distress.

The typical equity stripping, foreclosure rescue transaction generally involves a home sale by a financially hard-up homeowner, coupled with a leaseback of the home, and an option to repurchase it at a future date. According to the lawsuit (paragraphs 46 through 54) filed in this case, however:

1. the money advanced by the foreclosure rescue operator actually took the form of a loan, and not a home sale with leaseback and repurchase option,
2. while most homeowners needed only a few thousand dollars to avoid foreclosure, loans were arranged that incorporated finance charges, origination fees, and underwriting fees that doubled or tripled the size of the loan,
3. the charges and fees were received by the operators and the others involved in the alleged conspiracy,
4. in some cases, the loans arranged had effective annual interest rates of 500% or greater. In all cases, they exceeded the 45% threshold set in Fla. Stat. Chapter 687 for criminal usury,
5. in addition to the criminally usurious interest rates, the loans incorporated a purchase option for the benefit of the lender, effective upon the default of the borrower; the option purchase price was calculated by subtracting the current equity in the home from the estimated value of the home, thereby allowing the purported option purchaser to obtain all the equity in the home by simply paying off any liens senior to its own, with little or no money going to the homeowner. Because of the criminal usury, the homeowners found it difficult or impossible to avoid default, thereby triggering the lender’s option and effectively forfeiting all of the homeowner’s equity. One member of the alleged conspiracy was an attorney who aided the operators in enforcing these purchase options by filing lawsuits for specific performance in state court against the financially strapped homeowners.

The suit also alleges that one of the entities used in the alleged scam was held out as a non-profit entity to enhance the lure to its prospective targets.

The lawsuit sets forth the following six counts:

1. Civil Rico, (18 USC § 1961 et seq.),
2. Truth In Lending (15 USC § 1601 et seq.),
3. Unlawful Mortgage Brokering & Mortgage Lending (Fla Stat. Chapter 494),
4. Usury (Fla. Stat. Chapter 687),
5. Declaratory Judgment,
6. Civil Conspiracy.

In addition to actual and punitive damages, the suit asks for declarations that (1) the loans are unenforceable, and (2) that the plaintiffs are the true owners of the homes involved in the alleged scam, thereby voiding any title transfers and mortgage loans against the homes that resulted as a result of the alleged scam.

In addition to the "usual suspects" being named as defendants, the suit also names title insurance underwriter First American Title Insurance Company.

Representing the homeowners is Michael Alex Wasylik Esq., with the law firm Ricardo & Wasylik PL, Dade City, Florida.

To view a copy of the lawsuit, see Heise, et al. vs. Porcelli, et al. (U.S. District Court, M.D. Fla.).

For media reports from the St. Petersburg Times related to this story, see:

• Victims strike back at shady lenders (The companies promised foreclosure protection only to wind up taking the homes themselves) (10-13-07),
• Facing new fields of fraud (Guilty in one scam, an Oldsmar man is scrutinized in a high-risk loan scheme that preyed on those facing foreclosure) (5-20-07).

Peter Porcelli currently awaits an October 29 felony sentencing in Federal Court on an unrelated scam.

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

Note: A financial arrangement similar to that described in this case (where a so-called "money lender" also acquires an option to buy the property in question at a price well below market value) was ruled to be a device used to circumvent the Virginia state usury law that the Virginia Supreme Court prohibited in Carter v. Hook, 116 Va. 812; 83 S.E. 386 (Va. 1914). Go here for more on the Use Of Devices To Circumvent Usury Statutes - Virginia.

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

Allegations of racketeering (RICO) act violations, requests for punitive damages, and the naming of title insurance companies as defendants in these alleged equity stripping real estate scams seem to be occurring with more frequency. See, for example, the following recent lawsuits targeting the Maryland-based foreclosure rescue scammer, Metropolitan Money Store:

• Brown, et al. vs. Fordham, Jackson, Metropolitan Money Store, et al. (First American Title also named as a defendant in this case, as well as the local title insurance agents who issued the title policies),
• Winston vs. Daniels, Fordham & Fordham, Metropolitan Money Store et al. (both Southern Title Insurance Corportation, the title insurance underwriter and the policy-issuing title agent named as additional defendants),
• Proctor, et al. v. Metropolitan Money Store, et al. (names both Chicago Title Insurance Company and Southern Title Insurance Corportation (title company underwriters), as well as the policy-issuing title agents as defendants).