Maryland Victim Of "Money Store" Equity Stripping Scam Loses Battle Against Lender Seeking Mortgage Foreclosure

The Maryland Court of Special Appeals ruled last week against a homeowner fighting to save her home from foreclosure where her financial predicament was exacerbated by seeking help from a now-defunct foreclosure rescue operator.(1)

The court decision addressed the application of Maryland's Protection of Homeowners in Foreclosure Act (PHIFA), and how it applied as against a foreclosing lender.(2) The court ruled that PHIFA did not void the foreclosure rescue transactions, but rather made them voidable as to persons with notice. The mortgagee, the assignee of the lender who provided the financing in the foreclosure rescue, equity stripping scam, was held to be a bona fide purchaser/lender, and accordingly, was not subject to the homeowner's right of rescission.

In seeking to disqualify the foreclosing lender as a bona fide purchaser/lender without notice, the homeowner contended that the foreclosing lender had notice of the alleged fraudulent scam by reason of the fact that the foreclosure rescue operator, the closing agent, and/or the straw buyer were agents of the lender and their knowledge was imputed to it.

Alternatively, the homeowner contended that the foreclosing lender was on notice of sufficient facts to impose a duty to make appropriate inquiries, and failed to do so, thereby disqualifying it as a bona fide purchaser/lender and preventing it from foreclosing.

The court rejected both contentions.

For the court decision, see Julian v. Buonassissi, No. 2740, Court of Special Appeals of Maryland, 2009 Md. App. LEXIS 2 (January 5, 2009).

(1) The alleged scam was one involving the notorious Metropolitan Money Store, of Lanham, Maryland.
(2) Maryland Code (2005, Supp. 2006), § 7-301, et. seq. of the Real Property Article.