Bankruptcy Judge Hammers Mass. Money Lender Accused Of Predatory Practices In Piling Up Loan Charges, Wrestling Property Ownership Away From Borrowers

In Worcester, Massachusetts, the Worcester Telegram & Gazette reports:

• A loan repayment demanded at gunpoint, effective interest rates exceeding 41 percent and a near decade-long litany of coercion and strong-arm tactics left two borrowers “between the proverbial rock and a hard place,” according to a federal judge’s ruling that comes down hard on a controversial Marlboro lending firm and its president.

• U.S. Bankruptcy Court Judge Joel B. Rosenthal’s decision last week in favor of two corporations controlled by area real estate developers David D. Depietri of Southboro and Robert Depietri Jr. of Worcester marked the first time complaints against LBM Financial LLC and its owner, Marcello M. Mallegni, were aired in a trial and ruled upon by a judge. In his decision, Judge Rosenthal declared that LBM and Mr. Mallegni used a variety of “unscrupulous, to say the least” tactics to ensnare the Depietri brothers’ corporations, 201 Forest Street LLC and 219 Forest Street LLC, into a cycle of ever-increasing default interest and late fees.

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• The ruling had been anxiously awaited by those who have filed more than a dozen state and federal lawsuits that accuse LBM and people associated with it of using similar tactics — including loan sharking, racketeering, extortion and fraud — in transactions they had with the firm.(1) The underlying intent of LBM and its principals, the lawsuits allege, was to wrest control of development projects through foreclosure, or, at the very least, force delays to run up the cost of those loans by piling on fees, penalties and default interest rates.(2) “This is exactly what they did to me,” said Barnstable developer Robert M. Bradley, who has a pending federal racketeering lawsuit against LBM, Mr. Mallegni and others. His experiences, he added, “absolutely mirror those made in this case, only tenfold.”

For more, see ‘Unscrupulous’ loan tactics cited (LBM Financial and owner Mallegni fined $1.1M).

For Judge Rosenthal's recent ruling in this matter, see 219 Forest Street LLC et al v. LBM Financial, LLC et al (6-30-2009).

Go here for Judge Rosenthal's April 8, 2009 ruling resulting in the discharge of one of the mortgages in this case pursuant to the application of Massachusetts "Obsolete Mortgages Statute" - M.G.L. ch 260, section 33.

Go here for other posts on accusations of strong arm money lending practices made against these "hard money" lenders.

(1) According to the story, many of the state and federal lawsuits filed against Mr. Mallegni and LBM also name David G. “Duddie” Massad, chairman and primary owner of Commerce Bank, as a defendant.

(2) An earlier Worcester Telegram & Gazette story (see Strong-arm tactics are alleged - LBM Financial target of complaints) reports, in the following excerpt, how LBM Financial routinely dodges the application of the Massachusetts criminal usury statute in lending transactions by availing itself of a huge loophole in the state's law that allows a lender to charge more than the maximum interest rate, provided that it notifies the state attorney general in writing ahead of time about it (see M.G.L. Chapter 271: Section 49(d). Criminal usury). Keep in mind that actually obtaining approval to make these loans from the state attorney general (or any other government authority, for that matter) is not necessary; you merely have to let the AG's office know, in writing, that you're going to do so.

• The state usury law dating back to the 1970s ostensibly caps the maximum legal interest rate at 20 percent, but also allows lenders to charge higher rates if they notify the state attorney general’s office in writing. LBM filed notifications announcing its intention to charge interest rates above the usury limit on loans in 1997, 2000, 2002, 2005, 2006, 2007 and 2008, according to records on file at the attorney general’s office. The one- or two-page notification letters, signed by Mr. Mallegni, don’t say exactly how far above the usury limit the company intended to set its interest rates. “All that the statute requires is that if a business is going to lend above a certain rate, they must file with this office,” said Melissa Sherman, a spokeswoman for Attorney General Martha Coakley. “We do approve these, but serve more as a depository for such notices.”

Go here for an example of an LBM Financial letter informing the Massachusetts AG it will be charging usurious rates.