Staten Island DA Charges NJ Man w/ Felony Grand Larceny In Alleged Sale Leaseback, Foreclosure Rescue Ripoff That Victimized 86-Year Old Homeowner

In Staten Island, New York, the Staten Island Advance reports:

• It was supposed to be a "mortgage rescue" operation: An 86-year-old woman and her daughter put their trust in a New Jersey accountant who promised to help keep them in their family home. Except the accountant was running a complex deed-theft scam, authorities say, and the Richmond grandmother finds herself living in a home that no longer belongs to her, still fighting to stave off the foreclosure the accountant was supposed to prevent.(1)

• Earlier this week, District Attorney Daniel Donovan's office charged Alejandro Alonzo, 58, of North Bergen, with felony grand larceny, accusing him of orchestrating the scheme and pocketing more than $30,000 in the process. "This transaction was structured to make it look like a refinancing," said Jeff Gentes, a staff attorney with the Homeowner Defense Project of Staten Island Legal Services in St. George, who represents the original homeowner. "But in reality, they're selling their house." And Alonzo, who was supposed to have used the proceeds of the sale to make good on a year's worth of mortgage payments, instead made off with the cash, Gentes said.(2)

For more, see Grandmother at risk of losing her home (Mortgage 'savior' was a wolf in sheep's clothing, prosecutors say).

(1) Some guidance to those seeking an approach to undoing bogus sale leaseback, foreclosure rescue scams on behalf of financially strapped homeowners who have been screwed over in these equity stripping rackets can be found in a couple of 2008 Brooklyn, New York lower court rulings favorable to the scammed homeowners and obtained on their behalf by the non-profit law firm, Brooklyn Legal Services Corporation A. See Brooklyn Court Rulings Void Deeds & Subsequent Mortgages Used To Drain Home Equity In Bogus Sale Leaseback Foreclosure Rescue Scams.

(2) Criminal prosecution alone will not be of much help to the scammed homeowner in attempting to recover from this ripoff. Undoing a scam like this in order to return the scammed homeowner to her financial position before Alonzo arranged the sale leaseback, foreclosure rescue transaction that stripped her home equity will probably require the homeowner to bring a civil lawsuit in which she attempts to:

• Void the title transfer as one procured by fraud, or recharacterize the title transfer as an equitable mortgage; and

• Assert that the lender providing the financing for the equity stripping transaction (ie. Countrywide) was, by reason of the scammed homeowner's continued possession of her home, on notice of the scam and, accordingly, not entitled to protection of the recording statutes as a bona fide purchaser / bona fide encumbrancer (and, thereby, subjecting the lender's mortgage lien to cancellation as well - except to the extent that the loan proceeds were applied to satisfy any existing mortgages, in which case the lender would be entitled to subrogate itself to (ie. step into the shoes of) those existing mortgage holders with respect to their rights in the property).

The unavailability of bona fide purchaser protection to real estate purchasers and lenders when a seller of real estate remains in possession of the premises sold has, arguably, been best expressed by the California Supreme Court in Pell v. McElroy, 36 Cal. 268, 1868 Cal. LEXIS 186 (1868):

• The simple, independent fact of possession is sufficient to raise a presumption of interest in the premises on behalf of the occupant. And we can discover no just or rational ground for giving to this fact less significance as notice to a party purchasing the legal title from one not in possession, in consequence of the fact that such occupant had by deed divested himself of the legal title.

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• An absolute deed divests the grantor not only of his legal title, but right of possession; and when such grantor is found in the exclusive possession of the granted premises long after the delivery of his deed, here is a fact antagonistic to the fact and legal effect of the deed; and we cannot appreciate the justice, sound reason, or policy of a rule which would authorize a subsequent purchaser, while such fact of possession continues, to give controlling prominence to the fact and legal effect of the deed, in utter disregard of the other notorious prominent antagonistic fact of exclusive possession in the original grantor. He cannot be regarded a purchaser in good faith who negligently or willfully closes his eyes to visible pertinent facts, indicating adverse interest in or incumbrances upon the estate he seeks to acquire, and indulges in possibilities or probabilities, and acts upon doubtful presumptions, when by the exercise of prudent, reasonable diligence he could fully inform himself of the real facts of the case.

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• The continued exclusive possession of a vendor after his formal conveyance of the legal title is a fact in conflict with the legal effect of his deed, and is presumptive evidence that he still retains an interest in the premises, and is sufficient to put a purchaser upon inquiry, and subject him to the general rule heretofore announced in case of the party in possession being a stranger to the title as of record.

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Courts in other states have taken positions consistent with the foregoing. For example:

Illinois:

Life Savings & Loan Association v. Bryant, 125 Ill. App. 3d 1012, 81 Ill. Dec. 577, 467 N.E.2d 277 (1st Dist. 1984):

• Illinois courts have uniformly held that the actual occupation of land is equivalent to the recording of the instrument under which the occupant claims interest in the property. (Bullard v. Turner (1934), 357 Ill. 279, 192 N.E. 223; Beals v. Cryer (1981), 99 Ill. App. 3d 842, 426 N.E.2d 253). The open and visible possession of land by the equitable owner is sufficient to charge a mortgagee with notice of the rights of such owner, and the mortgagee will take subject to the rights of the person in possession. Williams v. Spitzer (1903), 203 Ill. 505, 68 N.E. 49.

In re Cutty's-Gurnee, Inc., 133 B.R. 934 (USBC N.D. Ill. 1991) (applying bona fide purchaser doctrine in the context of an equitable mortgage):

• It is clear that where a physical inspection of the property would reveal an adverse interest or where there is a party in possession other than the record title owner, the subsequent lien claimant has a duty to inquire of the possessor as to his interest and is charged with knowledge of the facts discoverable from such an inquiry or inspection. Miller, 381 Ill. at 244, 44 N.E.2d at 853; Burnex Oil Co. v. Floyd, 106 Ill. App. 2d 16, 23, 245 N.E.2d 539, 544 (1st Dist. 1969); In re Ehrlich, 59 Bankr. 646, 650 (Bankr. N.D. Ill. 1986).

Georgia:

Whiten v. Murray, A04A0655, 267 Ga. App. 417; 599 S.E.2d 346; 2004 Ga. App. LEXIS 671 (2004):

• Possession of land shall constitute notice of the rights or title of the occupant. In order for the possession to have the effect of notice, it must be actual, open, visible, exclusive, and unambiguous. He who takes with notice of an equity takes subject to that equity. Notice sufficient to excite attention and put a party on inquiry shall be notice of everything to which it is afterwards found that such inquiry might have led. Ignorance of a fact, due to negligence, shall be equivalent to knowledge in fixing the rights of the parties. (Citations and punctuation omitted.) Bacote v. Wyckoff, 251 Ga. 862, 866 (2) (310 S.E.2d 520) (1984).

Minnesota:

Stone v. Jetmar Props., LLC, A06-851, 733 N.W.2d 480; 2007 Minn. App. LEXIS 80 (Minn. App. 2007):

• Public policy generally favors allowing a degree of reliance on the title shown in public records. See Nussbaumer v. Fetrow, 556 N.W.2d 595, 599 (Minn. App. 1996), review denied (Minn. Feb. 26, 1997) (stating policy of allowing judgment creditors to rely on record). But the reliance allowed is not absolute. A "party attempting to invoke the doctrine [of equitable estoppel] cannot be negligent and cannot have knowledge of the defect in the title." W. Concord Conservation Club, Inc. v. Chilson, 306 N.W.2d 893, 896 (Minn. 1981). A prospective purchaser is obligated to discover anyone in possession of the land at issue and to "inquire into the nature and extent of the occupant's interest." Id. As a result of this obligation, the purchaser is held to have knowledge of all the "rights of the [possessor] and also of all facts connected therewith which reasonable inquiry would have developed." Claflin v. Commercial State Bank, 487 N.W.2d 242, 248 (Minn. App. 1992), review denied (Minn. Aug. 4, 1992). "In order to have status as a bona fide purchaser the mortgagee's inquiry must be directed to the person in possession; inquiry of the mortgagor, who may have reason to conceal the truth, is not sufficient." Id.

In New York, where the Staten Island Advance story took place, the New York Court of Appeals has enunciated principles not in conflict with California's Pell v. McElroy ruling in this regard. The following excerpt from Phelan v. Brady, 119 N.Y. 587; 23 N.E. 1109; (NY 1890) captures this point:

• At the time of the execution and delivery of the mortgage to the plaintiff, the defendant Mrs. Brady was in the actual possession of the premises under a perfectly valid but unrecorded deed. Her title must, therefore, prevail as against the plaintiff. It matters not, so far as Mrs. Brady is concerned, that the plaintiff in good faith advanced his money upon an apparently perfect record title of the defendant John E. Murphy. Nor is it of any consequence, so far as this question is concerned, whether the plaintiff was in fact ignorant of any right or claim of Mrs. Brady to the premises. It is enough that she was in possession under her deed and the contract of purchase, as that fact operated in law as notice to the plaintiff of all her rights.

• It may be true, as has been argued by the plaintiff's counsel, that when a party takes a conveyance of property situated as this was, occupied by numerous tenants, it would be inconvenient and difficult for him to ascertain the rights or interests that are claimed by all or any of them. But this circumstance cannot change the rule. Actual possession of real estate is sufficient notice to a person proposing to take a mortgage on the property, and to all the world of the existence of any right which the person in possession is able to establish. Governeur v. Lynch, 2 Paige, 300; Bank of Orleans v. Flagg, 3 Barb. 318; Moyer v. Hinman, 14 N. Y. 184; Tuttle v. Jackson, 6 Wend. 213; Trustees of Union College v. Wheeler, 61 N. Y. 88, 98; Cavalli v. Allen, 57 id. 517.)

For a couple of relatively recent New York intermediate appellate court rulings referencing the effect of continued possession of an occupant on the status of a buyer or lender as a bona fide purchaser / bona fide encumbrancer, see:

• Ward v. Ward, 503624,2008 NY Slip Op 4984; 52 A.D.3d 919; 859 N.Y.S.2d 774; 2008 N.Y. App. Div. LEXIS 4816 (App. Div. 3d Dept. 2008;
• Doyle v. Siddo, 31 A.D.3d 697, 818 N.Y.S.2d 474, 2006 N.Y. App. Div. LEXIS 9569 (N.Y. App. Div. 2d Dep't, 2006).

For other states, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.