Saturday, March 14, 2009

Brooklyn DA's Office Joins Other Prosecutors With New Unit Specializing In Real Estate Crimes

In Brooklyn, New York, The New York Times reports:

  • With an array of real estate crimes, ranging from deed forgery to mortgage fraud schemes, adding to foreclosure rates in Brooklyn neighborhoods, the borough’s district attorney, Charles J. Hynes, says the time has come for a specialized unit to investigate and prosecute them.

***

  • Mr. Hynes said the new 12-member unit would be financed for two years with $875,000 in federal money and would help people like Levi Latham, 75, a Brooklyn retiree whose house was, in effect, stolen by a woman who took Mr. Latham’s personal information, a prosecutor said. After executing and recording a false deed, the woman is now listed as the owner of the house.

***

  • Similar units have been created by prosecutors in other regions with high foreclosure rates, providing a sketch of how the housing crisis has unfolded around the country. An eight-member unit in the office of the Suffolk County district attorney, Thomas J. Spota, recently arrested more than two dozen people in a $9 million mortgage fraud scheme. In Prince George’s County, Md., a two-member unit in the office of the county state’s attorney, Glenn F. Ivey, is handling dozens of cases in the aftermath of a housing boom that resulted in hasty and often dubious mortgages. In Cuyahoga County, Ohio, one of the centers of the national foreclosure crisis, the authorities have prosecuted 219 people since January 2007, said Ryan Miday, a spokesman for the county prosecutor, Bill Mason.

For more, see Brooklyn Establishes Real Estate Crime Unit. DeedGammaTheft

400 Sale Leasebacks Are Disguised Equitable Mortgages, Says AZ AG In Invoking State Consumer Fraud Act, TILA In Suit Against Foreclosure Rescue Firm

From the Office of Arizona Attorney General Terry Goddard:

  • Attorney General Terry Goddard [Thursday] announced that he has filed a lawsuit against an alleged foreclosure rescue operation believed to have defrauded approximately 400 Arizonans of their homes.(1) This action comes as part of Goddard’s crackdown on con artists who prey upon vulnerable homeowners struggling to avoid foreclosure. "Instead of offering legitimate help to homeowners, this operation misled and exploited them to turn a handsome profit," Goddard said. "The housing crisis has given rise to a number of rescue scams, and we are going after them aggressively."

***

Among the allegations made in the lawsuit are:

  • Falsely and deceptively representing to homeowners that they would save their homes when, in fact, the defendants structured the transactions to take ownership and equity away from homeowners for the benefit and profit of defendants,(2)

  • Misleading homeowners and circumventing and concealing from them the defendants’ obligations and homeowners’ rights and remedies under a mortgage loan agreement,

  • Evading the protections of the Federal Truth in Lending Act (TILA) which required defendants to disclose the annual percentage rate of the mortgage and the homeowner’s right to rescind the transaction within three days of receiving notification of the right.(3)

For more, see Terry Goddard Files Lawsuit to Stop Foreclosure Rescue Operation.

For the lawsuit, including details of how the alleged foreclosure rescue scheme operated, see State of Arizona v. Winer, et al.(4)

(1) The state AG alleged violations of the following Arizona laws:

In addition, the Arizona AG asserts that the sale leasebacks are loans/equitable mortgages pursuant to A.R.S. §33-702(A), A.R.S. §6-901, A.R.S. §6-941, and Merryweather v. Pendleton, 91 Ariz. 334, 372 P.2d 335 (1962). In the Merryweather case, the Arizona Supreme Court cited English common law dating back over 500 years when making the following observation, "The ruse of an absolute deed or deed with an option to repurchase has long been used in attempts to cut off a mortgagor's equity of redemption. Equity courts created the concept of equitable mortgages to avoid such abuses". Y.B. 9 Edw. IV 25, 34 (1470).

(2) In a 2006 Washington, D.C. case, the court rejected a foreclosure rescue operator's claim that the D.C. consumer protection statute was inapplicable. Specifically, the operator attempted to characterize the relationship between himself and a homeowner facing foreclosure as "a purchaser-seller relationship in which the [homeowner], in an arm's length transaction, sold her house to him in circumstances admittedly unfavorable to her but not of his making." The court found that, by presenting himself to the homeowner as a "foreclosure specialist" who would aid her in keeping her home -- and not as a prospective buyer, a merchant-consumer relationship was created, thereby making the D.C. consumer protection statute applicable. Byrd v. Jackson, No. 04-CV-940, 902 A.2d 778; 2006 D.C. App. LEXIS 362 (2006).

It appears that any attempt by the foreclosure rescue operator targeted in the Arizona AG's lawsuit to claim that the state Consumer Fraud Act is inapplicable in this case could very well meet with the same outcome as in the D.C. case.

(3) The sale leaseback arrangements in this case apparently did not violate any applicable state usury statute, since the complaint contains no allegation thereof. In Arizona, contractual arrangements that are found by a court to be nothing more than disguised loans masquerading as sale leasebacks (and other buyback arrangements) are subject to any applicable state usury statute. See SAL Leasing v. State ex rel. Napolitano, 198 Ariz. 434; 10 P.3d 1221 (Ariz. Ct. App. 2000).

(4) Last year, the Massachusetts Attorney General's office took a similar approach in the pursuit of a foreclosure rescue operator accused of scamming 26 homeowners out of the equity in their homes. Like the Arizona AG, the Massachusetts AG also invoked its state's consumer protection statutes and the equitable mortgage doctrine; and it alleged violations of the Federal Truth In Lending Act, among other state law violations. It was also alleged in that case that the sale-leaseback arrangements were usurious equitable mortgages (See Complaint - Commonwealth of Massachusetts v. Sohmer, paragraphs 68-70 and paragraphs 123-126). The Massachusetts AG ultimately reached a satisfactory settlement with the foreclosure rescue operator and the mortgage lenders involved in, and providing the financing for, the associated equity stripping transactions. See Massachusetts AG press release: Bankruptcy Court Approves Settlement Between Attorney General’s Office and Ten Mortgage Lenders and Servicers Involved in Foreclosure Rescue Transactions. Go here for the earlier posts on the Massachusetts equity stripping case.

Appeals Court Reverses $3M+ Jury Award To Equity Stripping Victims; Homeowners Forced To "Settle" For Triple Damages Under State Consumer Fraud Act

In a 2004 case, the Colorado Court of Appeals reversed a $3+ million jury verdict (which included $1.5 million in punitive damages) in favor of a Colorado couple who were victimized in a foreclosure rescue scam. In its ruling, the appellate court found that the damages awarded by the jury on six separate claims were duplicative. Accordingly, the court let stand only one of the awards and disallowed the remainder. That award, in the amount of $247,000 representing actual damages against those participating in the foreclosure rescue scam for violation of the Colorado Consumer Protection Act (CCPA), §6-1-101, et seq., was then tripled (for clear and convincing evidence of the existence of bad faith conduct on the part of the scammers) pursuant to §6-1-113 of the CCPA. Accordingly, the final award to the aggrieved homeowners was limited to $741,000.(1)

Source: Martinez v. Affordable Hous. Network, Inc., 109 P.3d 983, 2004 Colo. App. LEXIS 867 (Colo. Ct. App. 2004), rev'd on other grounds by Martinez v. Affordable Hous. Network, Inc., 123 P.3d 1201; 2005 Colo. LEXIS 1075 (Colo. 2005).

(1) 6-1-113(2)(b) entitles the winning homeowners to an additional award to cover their legal fees and court costs.

Prosecutors Looking Into Conduct Of Colorado Man In Alleged Foreclosure Rescue Scam

In Colorado Springs, Colorado, KKTV Channel 11 reports on a local homeowner facing foreclosure who claims that, based on false representations, she unwittingly signed her home over to an area foreclosure rescue operator. The operator allegedly has since rented out the home, is pocketing the rent, and is stiffing the mortgage lender out of its loan payments. The matter has gotten the attention of a Colorado regulator and a local District Attorney's office:

  • Erin Toll, the director of the Colorado Division of Real Estate says, "It just frankly sickens me that people would take advantage of someone who's in a situation like this both financially and emotionally." She warns homeowners to be careful, adding, "You have a giant target painted on your back and hunters will come out and prey on you."

  • Toll says since Zehnder is not a licensed realtor she's turning over [the homoewner's] complaint to the Colorado Attorney General's office. Toll says, "It appears from things I've found on the website that this person has done this before to other people and the Attorney General's office is very interested in this case."

***

  • The El Paso County District Attorney's office [reportedly said] Zehnder was arrested [in the past] for two felonies ... forgery and the filing of false documents ... and received deferred sentences for each. Now the Economic Crimes Division is investigating him again based on [the homoewner's] complaint.(1)

For the story, see Beware of Foreclosure Deals.

(1) If, in fact, it can be proved that the homeowner was tricked into unwittingly signing away the deed to her home by the foreclosure rescue operator, the deed might be considered a forged document triggering the application of the Colorado forgery statute against the operator, despite the fact that the signature on the deed is genuine. See Forgery, 18-5-102(1)(c), Colorado Revised Statutes.

Further, if the homeowner were to prove, in a civil lawsuit, that she was fraudulently deceived about the nature of the document she signed that purportedly conveyed her title to the foreclosure rescue operator, so that she was excusably ignorant about what she signed, there is Colorado law that indicates that the deed she signed could be declared void from the time she signed it ("void ab initio") and, consequently, the home would still belong to her. For Colorado cases addressing the distinction between a deed that is void and a deed that is voidable, in the context of deeds procured by fraud, see:

Delsas v. Centex Home Equity Co., 186 P.3d 141; 2008 Colo. App. LEXIS 674(Colo. App. 2008):

  • If a grantor is aware that the instrument he is executing is a deed and that it will convey his title, but is induced to sign and deliver by fraudulent misrepresentations or undue influence, the deed is voidable and can be relied upon and enforced by a bona fide purchaser. Fallon v. Triangle Management Services, Inc., 169 Cal. App. 3d 1103, 1106, 215 Cal. Rptr. 748, 749-50 (1985) (citation omitted).
  • However, a deed procured by a particular kind of fraud, called fraud in the factum, is void. If a person has been fraudulently deceived about the nature of a document, so that he or she is excusably ignorant about what has been signed, courts recognize "fraud in the factum." Unlike other types of fraud, fraud in the factum yields an instrument that is void, and not merely voidable. Svanidze, 169 P.3d at 266 (citation omitted); see also Upson, 823 P.2d at 706; Dan B. Dobbs, Handbook on the Law of Remedies § 9.6, at 645-46 (2d ed. 1993).

Svanidze v. Kirkendall, 169 P.3d 262; 2007 Colo. App. LEXIS 1515 (Colo. App. 2007):

  • [I]f a person has been fraudulently deceived about the nature of a document, so that he or she is excusably ignorant about what has been signed, courts recognize "fraud in the factum." See Meyers v. Johanningmeier, 735 P.2d 206, 207 (Colo. App. 1987) (explaining relationship between statutory defense against holders in due course of negotiable instruments and the common law defense of fraud in the factum).
  • Unlike other types of fraud, fraud in the factum yields an instrument that is void, and not merely voidable. Akins v. Vermast, 150 Ore. App. 236, 945 P.2d 640, 643 n.7 (Or. Ct. App.), adhered to on reconsideration, 151 Ore. App. 430, 950 P.2d 907 (Or. Ct. App. 1997); Bennion Ins. Co. v. 1st OK Corp., 571 P.2d 1339, 1341-42 (Utah 1977).

Go here for other posts on forgery & forged documents involving genuine signatures. ForgeryGenuineSignatureKappa

Friday, March 13, 2009

Probe Continues Into Pennsylavania Title Company's Failure To Apply Escrow Funds Towards Unpaid Mortgages In Real Estate Closings

In Luzerne County, Pennsylvania, The Times Leader reports:

  • Kerry and John Foose are among the latest victims of Priority Search Inc., a Kingston title search company under investigation by the U.S. Secret Service for keeping money owed to property sellers. The Fooses say their credit is now shot because Priority Search failed to use $78,000 from the buyer of their Wilkes-Barre property to pay off the outstanding mortgage on the property. Priority Search also kept another $9,000 that the couple turned over at the June 2008 closing to pay off the remainder of their old mortgage, Kerry Foose said.(1)

***

  • Since the Secret Service investigation became public in November, dozens of victims have contacted the agency to report claims against Priority Search, said William Slavoski, the agent in charge of the Secret Service Scranton office. [...] Priority Search, which has since closed, is owned by Robert E. Marsh Jr. and Elizabeth Sichler, who was past vice chairwoman of the county Republican Party organization.

For more, see More victims step forward in Kingston title search case (Priority Search investigated for keeping money owed to property sellers).

Go here, Go here, Go here, and Go here for other stories of trust account / escrow account theft of funds.

(1) According to the story, the couple learned in February that their mortgage servicer had reported the unpaid debt, because their credit score plunged. The low credit score has prevented the couple from refinancing the mortgage on their Susquehanna County farm, where they now live. “Now it’s impossible to refinance. We’ve been denied by three lending institutions,” she said. EscrowRipOffAlpha

Analysis Of Recently Enacted California Foreclosure Prevention Act

An article on mondaq.com provides a legal analysis of the California Foreclosure Prevention Act (the "Act"), which was enacted by the state Legislature, and signed by Governor Arnold Schwarzenegger on February 20, 2009.

  • The bill (ABX2 7) was established as Chapter 5 of the 2009-2010 statutes. The Act resulted from Governor Schwarzenegger's legislative proposal to stem foreclosures in California by incentivizing servicers to offer "comprehensive loan modification programs."

For more, see California´s New Law Trading Foreclosure Moratorium For Mortgage Modification.

Legal Bills Pile Up For BC Homeowner In Effort To Get Back Home Stolen From Out From Under Him

In Richmond, British Columbia, canada.com reports:

  • Richmond [Royal Canadian Mounted Police] are investigating what is believed to the city's first-ever case of house theft. Norman Gettel, a retired press operator, had his house literally stolen out from under him in June 2007. One year later, he is still waiting to get back title on the home he has owned since 1985, and the legal bills are piling up. "I'm out quite a few thousand dollars already," he said. "I'm going to spend the money because I want my house back."

***

  • The scheme starts with identity theft and ends with a bank holding the bag on a defaulted mortgage.(1) It also ends with the homeowner having to spend a considerable amount of time, money and effort to get legal title back.

For more, see Scam artists steal house (Richmond RCMP are investigating what is believed to the city's first-ever case of house theft).

Go here, Go here, Go here, Go here, Go here, and Go here for other posts related to deed or refinancing scams by forgery, swindle, power of attorney abuse, etc.

(1) According to the story, the sale is on paper only. If any money changes hands, it comes and goes from the same criminal organization's pocket. Nor do the new owners try to take possession of the house. The fraudsters make their money by taking out mortgages on the newly transferred properties. By the time anyone notices something is awry, the thieves have scammed the bank out of hundreds of thousands of dollars. DeedGammaTheft

Georgia Man Facing Foreclosure Charged With Commercial Gambling For Selling Raffle Tickets In Attempt To Sell Home

In Gwinnett County, Georgia, The Atlanta Journal Constitution reports:

  • A Lawrenceville man went from the poor house to the big house this week after he was arrested in connection with a raffle scam. Joseph Imafidon set up a website called Getmyhouse.net luring prospectors to buy raffle tickets for $100 each, said Stacey Bourbonnais, spokeswoman for the Gwinnett County Sheriff’s Department.(1)

  • You can get this house for $100,” the Web site beckons. An appealing photograph shows a four-bedroom, two-and-a-half- bathroom home at 1791 Surrey Hill in Lawrenceville.

For more, see Lawrenceville man busted in house raffle scam.

(1) According to the story, Imafidon allegedly contacted the Sheriff’s Department in December to apply for a raffle license. His request was denied because raffle licenses are only granted to nonprofits or charity events. Bourbonnais said his request did not meet that criteria. Imafidon perpetuated the alleged scam for months despite repeated warnings from the Sheriff’s Department to shut down the website.

Marketing Firm Identifies Loan Modification Opportunities For Attorneys, Others

A recent MarketWatch article describes one company's marketing activities designed to drum up loan modification business for its clients:

  • Your lender refuses to grant relief from your costly mortgage, and you're desperate. Should you respond to any of the growing number of television ads, mailings or phone calls touting loan modifications? The marketers producing the ads represent a broad mix of firms seeking business, including mortgage and real-estate brokers and lawyers.

  • One ad running on several television stations highlights the "crisis on Main Street" and offers a loan modification "help line." JCR Enterprises Inc., a Foothill Ranch, Calif., marketing company, produces the infomercial. JCR receives income from licensing the ad and from commissions paid by the stations on which it airs. Licensees get the phone calls.(1)

  • David Riemann, senior vice president for JCR, says he has about 50 loan-modification licensees, mostly attorneys. To handle a loan modification, those attorneys charge consumers fees ranging anywhere from $995 to $5,000.

Source: Double whammy (Can't pay your mortgage? Some modification offers hurt more than help).

Go here and go here for other posts on issues relating to attorneys, loan modifications, professional ethics issues, and the unlicensed/unauthorized practice of law.

(1) The story refected above is a revision of a story originally published March 2. The revised story notes that it clarifies the manner in which JCR Enterprises is compensated as was described in the original. The manner of compensation, as reflected in the original March 2 version of the story, was described as follows:

  • David Riemann, senior vice president, says that consumers who respond are typically referred to a participating attorney in their area. His company may collect a retainer for processing and handling the call. Plus, JCR gets paid commissions for media and production.

I suspect that someone realized that the state bar associations might have had a serious problem with attorneys participating in the arrangement as originally described, thus the backpedalling.

Judges Are Human, Too

The following stories support the proposition that judges, like the rest of us, are human and that some of them are quite capable of getting into hot water.

  • Pennsylvania: An unprecedented case of judicial corruption is unfolding in Pennsylvania. Several hundred families have filed a class-action lawsuit against two former judges who have pleaded guilty to taking bribes in return for placing youths in privately owned jails. Judges Mark Ciavarella and Michael Conahan are said to have received $2.6 million for ensuring juvenile suspects were jailed in prisons operated by the companies PA Child Care and a sister company, Western PA Child Care. See Penn. Judges Get Kickbacks for Placing Youths in Privately Owned Jails.

  • New York: Supreme Court Justice Joseph S. Alessandro of the Ninth Judicial District in New York and his brother, Bronx Civil Court Judge Francis M. Alessandro, should be removed from office for failing to repay on time a $250,000 loan made to one of Joseph Alessandro's campaigns and for misstating their financial holdings and obligations on disclosure forms and loan applications, the Commission on Judicial Conduct recommended in two decisions made public in February. See N.Y. Agency Recommends Removal of Two Judges Who Are Brothers (Read the Commission's Findings on Justice Joseph Alessandro and Judge Francis Alessandro).

  • New York: A Long Island judge notoriously dubbed "Senator Road Rage" for his horrifying behavior while he was a politician nearly mowed down a traffic agent in Manhattan and then threatened the officer's job, The Post has learned. Court of Claims Judge James J. Lack and his daughter, Katherine, 37, were "barreling down" West 60th Street near the Mandarin Oriental Hotel at about 5 p.m. when they crossed paths with the unlucky agent, sources said. The robed rage-a-holic - who's been involved in dozens of angry driving incidents over the last 20 years - gunned his engine to swerve around the agent, who struck his hand on the passenger's-side mirror, the sources said. See ROAD-RAGE LI JUDGE IS AT IT AGAIN.

  • Texas: The presiding judge of the highest criminal court in Texas has been charged by the state judicial ethics commission. Judge Sharon Keller has been charged over her refusal to allow Michael Richard, a death row prisoner, to file an after-hours appeal in 2007. Keller, a Republican, could be removed from office or reprimanded if she is convicted. The State Commission on Judicial Conduct, in its charging papers, said Keller's "willful and persistent failure" to follow her court's execution-day procedures on Sept. 25, 2007, constituted "incompetence in the performance of duties of office." See Texas judge charged with judicial misconduct.

  • Arkansas: A lawyer accused of trying to defraud a pawnshop out of a lawn mower has pleaded guilty to a misdemeanor charge and surrendered his law license. Donald Warren Senior of Pine Bluff was serving as a special judge in Jefferson County when he signed an order July 16 for Money Corner to release a Land-Pride Finish Mowing Deck to him. Warren claimed he was the owner, although he had not filed a police report on the theft of the machine. See Ark. lawyer enters guilty plea, surrenders license.

For other posts on judges in hot water, go here and go here. knuckleheaded judges zeta

Thursday, March 12, 2009

Oregon Lawmakers To Consider Legalizing The Shift Of The Financial Loss Of Home Equity Thefts Through Use Of Fraudulent POAs Onto The Victim

A 2007 story in California's Contra Costa Times on the California Power of Attorney Act and the ripoff of the elderly using powers of attorney begins as follows:

  • AN OAKLAND WOMAN steals $200,000 from her sick 73-year-old mother's bank account. She blows most of it at Cache Creek Casino. Her life savings gone, the senior now has to get by on Social Security.

  • An East Palo Alto woman is accused of taking out a $200,000 loan on her disabled 92-year-old grandmother's house without her permission. According to San Mateo County prosecutors, she buys herself a champagne-colored Hummer and leaves her disabled grandmother alone for days in a house full of rats.

  • A Stockton woman is hired to take care of a 92-year-old former elementary school principal. She steals more than $100,000 from the elderly woman, spending $12,000 on five decorative gates for her own home.

  • All of these cases have one thing in common: The weapon used to commit the crime, or alleged crime, was a perfectly legal document called a power of attorney.

As I mentioned in one of yesterday's posts, a hearing in the Oregon House Judiciary Committee is scheduled for tomorrow in which advocates for the banking industry will be attempting to push through a proposed bill, based on a model uniform act (Uniform Power of Attorney Act) that, from the standpoint of the victim, could very well lead to the legalizing of the use of this weapon when committing these types of crimes in Oregon.

The proposed law reads in a way whereby victims whose houses are sold or encumbered by fraudulent mortgages using a forged power of attorney will NOT be able to void the transaction unless they can prove that the individual handling the transaction had actual knowledge that the POA was forged.

As if it wasn't already difficult for a victim of this type of crime to file a civil lawsuit to undo the effects on their property title of a home equity theft, the propsed law, if passed, will essentially assure the homeowner-victim that recovering his/her home equity by voiding the illegal transaction through civil litigation will be an impossibility. The victimized homeowner may still recover the home, but will be stuck having to pay off the fraudulently obtained mortgage placed on the property by the scammer. While the victim may be entitled to criminal restitution, recovery of the home equity value in this way depends on:

  1. prosecutors filing a criminal action against the alleged scammer (not always the case),
  2. prosecutors obtaining a guilty conviction (not always the case) in which restitution is awarded, and
  3. the now-convicted scammer having the funds to pay the restitution (generally not the case).

Those of you with any interest in curbing the horror stories involving the fraudulent use of powers of attorneys to victimized unwitting homeowners are encouraged to contact the Oregon House Judiciary Committee and tell them how you feel (Jennifer Ranstrom-Smith, Committee Assistant, 503-986-1513 Jennifer.RanstromSmith@state.or.us).

In closing, keep in mind that the proposed bill, while only affecting Oregon, is based on a model uniform act, the Uniform Power of Attorney Act. A successful attempt to sneak this legislation through the Oregon legislature by the banking industry will only encourage industry advocates to do the same in other states.

For the 2007 story in the Contra Costa Times, see Theft of Elder Nation: An editorial series: State needs to revoke "theft license".

This bill to be considered tomorrow by Oregon lawmakers is HB2537; you can obtain a copy via this link.

For yesterday's post, see Banking Industry Advocates Pushing Proposed Bill That Could Encourage More Home Equity Thefts Thru Forged POAs.

Go here for posts on the use of powers of attorney to ripoff the elderly of their home equity.

Go here, Go here, Go here, Go here, Go here, and Go here for other posts related to deed or refinancing scams by forgery, swindle, power of attorney abuse, etc. DeedGammaTheft FinancialAbuseOfElderlyAlpha

More On Loan Modification Firms Hiring Attorneys To Service Its "Clients"

In Eugene, Oregon, a recent article in The Register Guard contained this excerpt on an out-of-state loan modification firm that reportedly employs attorneys to provide services to homeowner-clients seeking to restructure their home mortgage payments:

  • [C]raig Cooper is the Lane County representative of Choice Loan Consulting, which is headquartered in Arizona. [...] His company interviews homeowners and, if both parties agree to go forward, charges a fee of $3,500. “Once we accept a client, we guarantee at least a 10 percent reduction in payment,” Cooper said. “If a 10 percent reduction is not achieved, every penny is refunded.” Choice Loan Consulting has a staff of house attorneys, who are located in Phoenix, and they do all the negotiating and legal modification for clients, Cooper said.

The type of activity described above is currently under investigation in other states for possible ethics violations on the part of the attorneys involved, and for possible violations of laws prohibiting the unlicensed/unauthorized practice of law by the non-attorneys involved. I wonder if the state bars in Oregon and Arizona have caught wind of the arrangement described in this story.

Source: State warns homeowners about loan modification scams.

Go here and go here for other posts on issues relating to attorneys, loan modifications, and the unlicensed/unauthorized practice of law. UnauthPractOfLawKappa

California Appeals Court Upholds Oakland's "Just Cause" Tenant Protection Law

From the Office of the City Attorney, Oakland, California:

  • On Tuesday, March 3, City Attorney John Russo announced that the city has prevailed in a 6-year lawsuit filed by landlords seeking to overturn Oakland’s strong tenant protection law – the Just Cause for Eviction Ordinance [Measure EE].(1) A decision last week by the California Court of Appeal upholds the Just Cause ordinance and affirms the right of tenants to receive significant damages and attorney fees from landlords who break the law.

  • "Oakland has been hit with waves of illegal evictions as a result of the foreclosure crisis," City Attorney Russo said. "Some banks and their agents have routinely violated the law by evicting good tenants from foreclosed apartments and homes without cause."

For the rest of the Oakland City Attorney's press release, see Oakland’s Tenant Protection Law Upheld by Appeals Court.

For the ruling of the California Appeals court, see Rental Housing Association of Northern Alameda County v. City of Oakland.

(1) Measure EE is codified at Oakland Municipal Code chapter 8.22.300 et seq. SkimmingKappaRent

Lenders Refusing To Bid At Foreclosure Sales Leaves Homeowners On The Hook For Housing Court Citations

In Cleveland, Ohio, National Public Radio reports on what reportedly is a growing practice by lenders at Cuyahoga County sheriff sales of refusing to bid on their own foreclosures:

  • [W]hen there's no bid, the lender can either try to sell at another sheriff sale or do nothing. Doing nothing means the foreclosure is not complete. And Cleveland foreclosure attorney Larry Rothenberg says doing nothing is becoming more popular.

  • "Lately, lenders are finding that the costs to purchase property at the sheriff sale and resell it, and the likelihood of finding a buyer weigh against a decision to buy the property. And so it's become more likely than before that lenders are not entering bids at sheriff sales," Rothenberg says.

***

  • [Foreclosed homeowner Sharon Little] found out her name was still on the deed only when she got a summons last October to appear in housing court. [...] Cleveland Housing Court officials say they are now seeing homeowners take matters into their own hands. Little, for instance, wrote up a deed and gave her house to her lender. "That's because it was their house from the jump, so that's what we do — give it right back to them. You can keep your house. I don't want it," Little says.

For more, see Banks Refusing To Take Back Foreclosed Properties.

Go here for other posts on code violation & other problems associated with homes in legal limbo. responsibility code violations foreclosure

Wednesday, March 11, 2009

Banking Industry Advocates Pushing Proposed Bill That Could Encourage More Home Equity Thefts Thru Forged POAs

A hearing in the Oregon House Judiciary Committee is scheduled for this Friday, March 13 in which advocates for the banking industry might be quietly attempting to get away with a fast one by forcing through a proposed bill, based on a model uniform act (Uniform Power of Attorney Act), that could lead to an increase in home equity heists in connection with the use (and abuse) of powers of attorney.

Based on how the proposed law reads, it appears to me that victims whose houses are sold or encumbered by fraudulent mortgages using a forged power of attorney will NOT be able to void the transaction unless they can prove that the individual handling the transaction had actual knowledge that the POA was forged.

The relevant provision in the bill, buried in Section 19(3), follows:

  • (3) A person that in good faith accepts a power of attorney without actual knowledge that the signature is not genuine, that the power of attorney is void, invalid or terminated, that the purported agent's authority is void, invalid or terminated or that the agent is exceeding or improperly exercising the agent's authority may rely upon the power of attorney as if the power of attorney were genuine, valid and still in effect, the agent's authority were genuine, valid and still in effect and the agent had not exceeded and had properly exercised the authority. The person is not required to ensure that the assets of the principal that are paid or delivered to the agent are properly applied.

This bill is HB2537; you can obtain a copy via this link.

Inasmuch as the proposed bill is based on a model uniform act, a successful attempt to sneak this legislation through the Oregon legislature by the banking industry will only encourage industry advocates in other states to do the same.

Those of you with any interest in curbing the home equity theft horror stories are encouraged to contact the Oregon House Judiciary Committee and tell them how you feel (Jennifer Ranstrom-Smith, Committee Assistant, 503-986-1513 Jennifer.RanstromSmith@state.or.us). (You might even want to e-mail them the following links that illustrate the rampant nature of deed and equity thefts throughout the country).

Go here for posts on the use of powers of attorney to ripoff the elderly of their home equity.

Go here, Go here, Go here, Go here, Go here, and Go here for other posts related to deed or refinancing scams by forgery, swindle, power of attorney abuse, etc. DeedGammaTheft

Use Of Power Of Attorney By Non-Lawyer Assisting Homeowner In Foreclosure Actions Does Not Insulate Against UPL Charges

An Ohio court decision of the state Supreme Court addressing the issue of unauthorized practice of law ("UPL") described the activities of a non-attorney doing business as Kennedy, Katz & Rose and its approach in soliciting business with people facing foreclosure and other debt collection actions (case law links require free registration at FindLaw.com):

  • [I]n his business, respondent [a non-attorney] searched a Hamilton County court index for recent filings of foreclosure proceedings and debt collection lawsuits. Respondent then mailed letters to the defendants in these debt related lawsuits requesting that they hire him to settle the cases. The letters contained a statement that Kennedy, Katz & Rose did not include attorneys and that the business could not represent the debtors or advise them in legal proceedings.

  • When a defendant expressed interest in becoming a client, respondent had the defendant sign a power of attorney and a work agreement authorizing the respondent's business to negotiate a settlement in exchange for compensation. Respondent then would send a letter to the attorney representing the plaintiff in the debt-related litigation in an effort to settle the dispute.

In finding that the conduct constituted the unauthorized practice of law, the Ohio Supreme Court said the following:

  • [A]s we recently held, the practice of law includes "making representations to creditors on behalf of third parties, and advising persons of their rights, and the terms and conditions of settlement." Cincinnati Bar Assn. v. Cromwell (1998), 82 Ohio St. 3d 255, 256, 695 N.E.2d 243, 244. Neither respondent's statements in his solicitation letters that he was not an attorney and was not giving legal advice nor the powers of attorney executed by his clients insulated respondent, a non-attorney, from the unauthorized practice of law. See Akron Bar Assn. v. Miller (1997). 80 Ohio St. 3d 6. 8-9, 684 N.E.2d 288, 291; Richland Cty. Bar Assn. v. Clapp (1998), 84 Ohio St. 3d 276, 278, 703 N.E.2d 771, 772.

Source: Cincinnati Bar Ass'n v. Telford, No. 98-2558, 85 Ohio St. 3d 111; 707 N.E.2d 462; 1999 Ohio LEXIS 688 (1999).

Go here and go here for other posts on issues relating to attorneys, loan modifications, professional ethics, and the unlicensed/unauthorized practice of law. UnauthPractOfLawKappa

Lender Compliance With Central Florida Foreclosure Court Mediation Unknown As Understaffing Impedes Effective Monitoring

In Central Florida, the Bradenton Herald reports:

  • Three months after lenders were first required to offer meetings with local borrowers before foreclosing on their primary homes, no one — not even the judge who mandated it — knows how well lenders are complying. That’s because no one is checking, the area’s top judge acknowledged Tuesday. “Ideally, we’d be verifying it, but we and the clerks are so short-handed that we’re not monitoring it to the degree I’d like,” 12th Judicial Circuit Chief Judge Lee Haworth said.(1)

For more, see No one watching circuit judge’s foreclosure mandate.

Go here for other posts on the foreclosure mediation program in Florida's 12th Judicial Circuit (Manatee, Sarasota, and Desoto Counties).

(1) According to the story, since Dec. 1, Haworth has required lenders filing foreclosure suits against homesteaded property in Manatee, Sarasota and DeSoto counties to offer “conciliation conferences” to homeowners. The conferences, which are voluntary and optional for homeowners, are designed to explore possible ways of avoiding foreclosure such as refinancing or modifying the loan.

Ohio AG: Watch Out For Phony "Stimulus Vouchers" - Solicitations Containing The Words "Federal" & "Tax Benefits" - Foreclosure Rescue Scams

From the Ohio Attorney General's Office:

  • [I]n 2008, the Ohio Attorney General’s office received more than 25,000 consumer complaints. [...] Many of the complaints filed involve old predatory practices tailored to current issues, catching Ohioans off-guard. The AG’s Office has seen a recent trend in federal stimulus package scams with companies purporting to send “stimulus vouchers” and use words such as “federal” or “tax benefits” to mislead consumers into believing that they are associated with the government. Another hot topic for scam artists is foreclosure rescue packages.

For the Ohio AG press release, see Consumer Scams Rise as Economic Conditions Decline (Cordray, State, Local Agencies Kick Off National Consumer Protection Week).

Tuesday, March 10, 2009

Courts Obligated To Address Jurisdictional Issues Before Reaching Merits Of A Case

A 2006 ruling of a New York appellate court serves as a reminder that a trial court's jurisdiction to entertain a dispute is a threshold matter and, accordingly, a trial court has the obligation to address this issue before proceeeding forward to rule on the merits of the case.

The appeals court ruled that it was error for a trial court to grant a judgment in a foreclosure action before first addressing whether the defendant/homeowner was properly served with legal process:

  • [W]ith respect to that branch of the defendant's motion which was to dismiss the complaint on jurisdictional grounds, the defendant's sworn denial of receipt of process was sufficient to rebut the proffered affidavit of service and the plaintiff, therefore, was required to establish personal jurisdiction by a preponderance of the evidence at a hearing (see Schwerner v Sagonas, 28 AD3d 468, 811 NYS2d 595 [2006]; Bankers Trust Co. of Cal. v Tsoukas, 303 AD2d 343, 343-344, 756 NYS2d 92 [2003]; Kingsland Group v Pose, 296 AD2d 440, 744 NYS2d 715 [2002]).

  • It is "axiomatic that the failure to serve process in an action leaves the court without personal jurisdiction over the defendant, and all subsequent proceedings are thereby rendered null and void" (McMullen v Arnone, 79 AD2d 496, 499, 437 NYS2d 373 [1981). Accordingly, the Supreme Court erred in determining the plaintiff's motion before resolving the threshold issue of jurisdiction (see Pena v Mittleman, 179 AD2d 607, 579 NYS2d 359 [1992]).

For the court's ruling, see Elm Mgt. Corp. v. Sprung, 2006 NY Slip Op 7446; 33 A.D.3d 753; 823 N.Y.S.2d 187; 2006 N.Y. App. Div. LEXIS 12494 (App. Div. 2nd Dept. 2006).

Homeowners Bombard California State Bar With Complaints Against Attorneys Doing Loan Modifications; Calls Up To 1,000/Month, Says Official

In San Francisco, California, KCBS Radio 740 AM reports:

  • As the Obama Administration kicks off a $75 billion loan modification plan, the California State Bar is reporting a high number of calls regarding lawyers who may be crossing the line when working with loan modification specialists. It's prompted the Bar to take the unusual move of issuing an "ethics alert".(1)

  • California law prohibits foreclosure consultants from taking fees up front. Lawyers, on the other hand can, so often they're asked by foreclosure specialists to work with them and split the fees, but that's against the rules.

  • "It's possible that lawyers have gone to law school and have gone through the ethics portion of their admissions requirements and don't realize that they're not supposed to split fees with non-lawyers. For those lawyers that don't know that, this is helpful," said Russell Weiner, who is deputy trial counsel with the State Bar.

  • He says just a few months ago they started getting calls from people complaining about hiring a lawyer to help with loan modification, only to wind up losing the house. Those calls are now up to a thousand a month. He says if a lawyer does hire a so called mortgage specialist, or non-lawyer to work on a case, he or she must supervise them.

  • The worst offense Weiner says he's seen is lawyers who are letting non-lawyer[s] use their name to get clients in the door. "For a lawyer to basically sell their name to make it look like a lawyer is basically handling their case when they're not, that is pretty significant," said Weiner.

Source: CA Bar Sounds Ethics Siren Over Foreclosures.

Go here and go here for other posts on issues relating to attorneys' professional ethics and the unlicensed/unauthorized practice of law in the context of loan modifications and foreclosure rescue.

(1) See ETHICS ALERT: Legal Services to Distressed Homeowners and Foreclosure Consultants on Loan Modifications. UnauthPractOfLawKappa

Orlando Loan Modification, Foreclosure Rescue Firm Shuts Down Amid State AG Probe, Reopens Under A Different Name

In Orlando, Florida, WFTV Channel 9 reports:

  • A foreclosure rescue firm, that Action 9 first exposed last year, is back in business with a new name. Homeowners claim they've been taken for thousands. She was the face of hope---at least many homeowners thought Nanci Hubsch was going to save them from foreclosure. [... One homeowner said] she was told the company ["Fix the Foreclosure"] was HUD government approved to negotiate with lenders to lower monthly payments.---but we found it's not.

***

  • Since Action 9 first exposed the company, the Attorney General has launched a formal investigation of unfair and deceptive trade ... But we found Nancy Hubsch has already changed company names---and she's running new ads. Her company is now called the American Housing Counsel---and it's website is HUD rights.com---even though it's not a federal HUD approved agency. It's business address is a virtual office in a downtown tower.

For more, see Action 9 Exposes Foreclosure Company.

Go here for a summary of the allegations regarding AG's probe into Fix the Foreclosure.

Monday, March 9, 2009

Florida AG: 40+ Active Investigations Into Loan Modification, Foreclosure Rescue Firms

From the Florida Attorney General's Office:

  • Attorney General Bill McCollum [Tuesday] issued a consumer advisory as part of National Consumer Protection Week on foreclosure "rescue" services and loan modification offers, the most frequent subject of complaints to the Attorney General's Office during 2008. Within the last year, the Attorney General's has reviewed information on over 200 foreclosure rescue businesses and has over 40 active investigations into potential violations of Florida's Foreclosure Fraud Protection Act, a new law supported last year by the Attorney General. Several lawsuits have been filed throughout the state, including one against a South Florida company which allegedly defrauded several hundred homeowners out of more than $1 million collectively.

For more, see Homeowners encouraged to look for warning signs, avoid common scams.

NFL Cornerback, Pastor Accused In Alleged San Diego-Area Equity Stripping, Foreclosure Rescue Scam

In San Diego, California, KGTV Channel 10 reports:

  • A professional football player and a pastor are both accused of preying on San Diegans facing foreclosure, 10News reported. According to court records obtained by 10News, the player and pastor ran a foreclosure rescue scam with the player's mother. A civil complaint was filed against Baltimore Ravens cornerback Anwar Phillips, who is accused of playing a role in a local foreclosure scam.

***

  • The complaint said the [homeowners] met one of the foreclosure group's members at a local church who was a pastor. The group promised to be the answer to their financial prayers. "This group promised to save these people's house by temporarily putting someone on the title, and they would be able to get the house back in a couple of months," said [homeowners' attorney Mike] Vallee. However, their prayers were left unanswered, and Vallee said the [homeowners] are victims of an equity draining scam.

  • In the alleged scheme, a troubled homeowner transfers the title of the home to so-called rescuers, who then take out a new mortgage and pocket the equity. "What they ended up doing is stripping out somewhere between $90,000 to $120,000 of equity, quit paying the loan and now the people are facing foreclosure again," said Vallee.(1)

For more, see NFL Player Accused In Local Foreclosure Scam.

(1) If the homeowners who were allegedly defrauded out of their home equity can demonstrate that they were unaware of the nature of what they were signing, this could, under California law, constitute grounds for declaring the deed void from the time it was executed ("void ab initio" - for those who speak Latin), thereby leading to voiding the foreclosing mortgage as well. See Schiavon v. Arnaudo Bros., 84 Cal. App. 4th 374; Cal.Rptr.2d 801 (Cal. App 6th Dist. 2000):

  • "A deed is void if the grantor's signature is forged or if the grantor is unaware of the nature of what he or she is signing. (Erickson v. Bohne, 130 Cal.App.2d [553] at pp. 555-556)."

The Schiavon case goes on to say that "where the grantor is aware of what he or she is executing, but has been induced to do so through fraudulent misrepresentations[,]" then such a deed is not void, but is merely voidable.

In the event the deed is found to be merely voidable, the homeowners victimized by the alleged fraud can still attempt to void or cancel the deed to the purported buyer, and the mortgage obtained by the buyer. However, central to such an effort would be the ability to:

  • prove the buyer and/or lender either participated in, or had actual knowledge of, the fraud, or
  • assuming the buyer and/or the lender neither participated in, nor had actual knowledge of, the fraud, impute upon them notice of the fraud and/or any other unrecorded rights and equities (ie. equitable mortgage) the victimized homeowners may have had at the time of the conveyance.

Lack of participation in the fraud, and lack of any actual knowledge thereof, by subsequent purchasers & encumbrancers is not enough to sustain a claim of bona fide purchaser / encumbrancer. In this case, the homeowners' continued possession of the property after signing away the deed may have triggered a duty to inquire, upon both the buyer, and the buyer's mortgage lender, into the nature of the homeowners' continued occupancy in their home. For support for this proposition under California law, see Pell v. McElroy, 36 Cal. 268, 1868 Cal. LEXIS 186 (Cal. 1868), where the California Supreme Court ruled:

  • 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.

The obligation of a subsequent purchaser to inquire into the rights of the seller when the seller retains exclusive possession after the conveyance also applies to a subsequent encumbrancer/mortgage lender. See J. R. Garrett Co. v. States, 3 Cal.2d 379, 44 P.2d 538 (Cal. 1935):

  • As a general rule, possession of real property is constructive notice to any intending purchaser or encumbrancer of said property. This rule is so well established that citation of authority is hardly necessary.

The obligation of a subsequent purchaser or encumbrancer to inquire is summarized by these excerpts from Pell v. McElroy:

  • The fact of open, notorious, and exclusive possession and occupation of lands by a stranger to a vendor's title, as of record, at the time of a purchase from and conveyance by such vendor out of possession, is sufficient to put such purchaser upon inquiry as to the legal and equitable rights of the party so in possession, and such vendee is presumed to have purchased and taken a conveyance from the vendor with full notice of all the legal and equitable rights in the premises of such party in possession and in subordination to these rights; and this presumption is only to be overcome or rebutted by clear and explicit proof on the part of such purchaser, or those claiming under him, of diligent, unavailing effort by the vendee to discover or obtain actual notice of any legal or equitable rights in the premises in behalf of the party in possession. And when the location of the lands is such as to render personal application to and inquiry of the occupant practicable, a purchaser failing to make such application and inquiry is no more entitled to be regarded a purchaser in good faith than if he had so inquired and ascertained the real facts of the case.

In Scheerer v. Cuddy, 85 Cal. 270, 24 P. 713; (Cal. 1890), the California Supreme Court made this statement regarding a purchaser's duty to know who is in possession of the property he/she is purchasing:

  • Whether the respondent knew of the appellant's possession, or not, is immaterial. It was his duty to know who was in possession of the property before making the purchase, and his purchase without ascertaining the fact must be regarded as the strongest evidence of bad faith on his part. The burden of making the proper inquiry was cast upon him by the mere fact of actual possession on the part of the appellant. If it were allowed that by failing to acquaint himself with the fact of possession on the part of another than the vendor the vendee could avoid the effect of the rule above stated, he could purposely avoid any inquiry on the subject, and thereby evade the rule and its consequences entirely.

For a California case applying the bona fide purchaser doctrine and the purchaser's duty to inquire of persons in possession in the context of an equitable mortgage, see Hyde v. Mangan, 88 Cal. 319, 26 P. 180 (1891).

For more on the aforementioned points, see:

More On Void & Voidable Deeds, & Unwinding Deed & Refinancing Scams

An earlier post touched on the distinction between a deed that is void (void from the moment it is executed, "void ab initio" - a nullity) and a deed that is voidable (defined generally as a deed that, while possessing some defect, is nevertheless valid until the defect is raised as an issue, and the deed is successfully challenged and voided). See Unwinding An Abusive Or Fraudulent Real Estate Transaction? Determining If The Deed Is Void, Or Merely Voidable?

The post contained excerpts from California case law that essentially said that a deed containing a signature that is not genuine and is a forgery, is void, whereas a deed containing a genuine signature from the grantor, but was procured through fraudulent means, may be either void or voidable, depending on the state of mind of the grantor. The rule with respect to deeds that are procured by fraudulent means, according to the above-referenced California case law, depend on the grantor's state of mind when signing the instrument, and can be described as follows:

  • If a grantor is aware that the instrument he/she is executing is a deed and that it will convey title, but is induced to sign and deliver by fraudulent misrepresentations or undue influence, the deed is voidable and can be relied upon and enforced by a bona fide purchaser. Conversely, if the grantor is unaware of the nature of what he or she is signing and had no intention of conveying title to the real estate, the deed is void (in the same way as if the signature was actually forged), and a subsequent purchaser or encumbrancer, no matter how innocent, will hold no title or lien.

Subsequent to my earlier post, I stumbled into Colorado cases, excerpts that follow below, that say the same thing as the California cases. Specifically, the cases say that, in the context of a deed procured by fraud, the deed will be considered void if the person has been fraudulently deceived about the nature of the document, so that he or she is excusably ignorant about what has been signed, and is referred to therein as "fraud in the factum." Said another way, the deed in this situation will be treated as a forgery, despite the fact that the signature on the deed is genuine.

I emphasize this point because, in so many media reports, homeowners in foreclosure who unwittingly signed away their homes in equity stripping, foreclosure rescue scams have claimed that they were unaware that they were transferring title to their homes, recall signing numerous legal documents that were referred to or described as refinancing documents, and claim that they decided to do business with the foreclosure rescue operator that approached them because it represented itself as a firm of "foreclosure specialists" who help homeowners "save" their homes from foreclosure.

While the cases in California and Colorado are obviously not binding outside the borders of those two states, they nonetheless may be considered persuasive precedent. Further, they deserve careful analysis by anyone looking to unwind a foreclosure rescue scam (or any other deed or refinancing scam, for that matter) in that these cases may, in fact, reflect what the case law holds in other jurisdictions.

********************

(Any bold text is my emphasis, not in the original.)

Delsas v. Centex Home Equity Co., 186 P.3d 141; 2008 Colo. App. LEXIS 674 (Colo. App. 2008):

  • There is an important difference between a void deed and one that is voidable. A void deed is a nullity, invalid ab initio, or from the beginning, for any purpose. It does not, and cannot, convey title, even if recorded. Empire Ranch & Cattle Co. v. Coldren, 51 Colo. 115, 121, 117 P. 1005, 1007 (1911). The interest of a good faith purchaser under a void deed is not protected. See Upson v. Goodland State Bank & Trust Co., 823 P.2d 704, 706 (Colo. 1992).

  • In contrast, a voidable deed conveys property and creates legal title unless, and until, it is set aside by the court. 23 Am. Jur. 2d Deeds § 162 (Mar. 2008); see Logue v. Von Almen, 379 Ill. 208, 224, 40 N.E.2d 73, 81-82 (1941); Dent v. Calhoun, 326 So. 2d 320, 321-22 (Miss. 1976).

  • The interest of a good faith purchaser who asserts ownership under a voidable deed will be protected. "[T]he distinction between void and voidable deeds becomes highly important in its consequences to third persons, 'because nothing can be founded upon a deed that is absolutely void, whereas from those which are only voidable, fair titles may flow.'" Medlin v. Buford, 115 N. C. 260, 20 S.E. 463, 463 (1894) (quoting Somes v. Brewer, 19 Mass. (2 Pick.) 184, 203, 2 Pick. 184 (1824)).

  • Courts have developed rules to determine what sorts of defects render a deed void or voidable, and which defects have no effect. For example, a forged deed is void. Upson, 823 P.2d at 705-06. Generally, deeds obtained by fraud are voidable. Svanidze v. Kirkendall, 169 P.3d 262, 266 (Colo. App. 2007). Thus, the interest of a good faith purchaser in a deed voidable because of fraud will be protected.

  • A deed obtained as a result of fraud committed against the grantor or by use of undue influence by the grantee may be rescinded by the grantor. If a grantor is aware that the instrument he is executing is a deed and that it will convey his title, but is induced to sign and deliver by fraudulent misrepresentations or undue influence, the deed is voidable and can be relied upon and enforced by a bona fide purchaser. Fallon v. Triangle Management Services, Inc., 169 Cal. App. 3d 1103, 1106, 215 Cal. Rptr. 748, 749-50 (1985) (citation omitted).

  • However, a deed procured by a particular kind of fraud, called fraud in the factum, is void. If a person has been fraudulently deceived about the nature of a document, so that he or she is excusably ignorant about what has been signed, courts recognize "fraud in the factum." Unlike other types of fraud, fraud in the factum yields an instrument that is void, and not merely voidable. Svanidze, 169 P.3d at 266 (citation omitted); see also Upson, 823 P.2d at 706; Dan B. Dobbs, Handbook on the Law of Remedies § 9.6, at 645-46 (2d ed. 1993).

Svanidze v. Kirkendall, 169 P.3d 262; 2007 Colo. App. LEXIS 1515 (Colo. App. 2007):

  • Plaintiffs assert that § 38-30-144(2) offers no protection to bona fide purchasers or encumbrancers if the pertinent corporate instrument has been forged. And they assert that, in this case, the warranty deed was forged because it was "obtained by fraud." We accept the legal premise of plaintiffs' argument but reject the factual premise. The undisputed evidence shows that the deed was not forged or otherwise void.

  • It is well established that a forged deed is void and conveys no title. Upson v. Goodland State Bank & Trust Co., 823 P.2d 704, 705 (Colo. 1992). It is similarly clear that fraudulent acts generally render a deed voidable, but not void. See Bray v. Trower, 87 Colo. 240, 247, 286 P. 275, 278 (1930); Sec. Servs., Ltd. v. Equity Mgmt., Inc., 851 P.2d 921, 924 (Colo. App. 1993). If a deed is voidable for fraud, it will convey good title to a bona fide purchaser. See Martinez v. Affordable Housing Network, Inc., 123 P.3d 1201, 1205 (Colo. 2005); Sec. Servs., Ltd. v. Equity Mgmt., Inc., supra, 851 P.2d at 924.

  • If a person has been fraudulently deceived about the nature of a document, so that he or she is excusably ignorant about what has been signed, courts recognize "fraud in the factum." See Meyers v. Johanningmeier, 735 P.2d 206, 207 (Colo. App. 1987) (explaining relationship between statutory defense against holders in due course of negotiable instruments and the common law defense of fraud in the factum). Unlike other types of fraud, fraud in the factum yields an instrument that is void, and not merely voidable. Akins v. Vermast, 150 Ore. App. 236, 945 P.2d 640, 643 n.7 (Or. Ct. App.), adhered to on reconsideration, 151 Ore. App. 430, 950 P.2d 907 (Or. Ct. App. 1997); Bennion Ins. Co. v. 1st OK Corp., 571 P.2d 1339, 1341-42 (Utah 1977).

  • Here, plaintiffs did not allege fraud in the factum. They did not dispute that Warren signed the deed, knowing that it would convey an interest in real property. Therefore, even if Warren and her husband defrauded the corporation as plaintiffs allege, the deed was merely voidable and conveyed good title [...]

******************

Addendum:

While it is made clear in these cases that a bona fide purchaser or encumbrancer's interest is protected by the recording statutes when it is acquired from one with a voidable title, a victim of a foreclosure rescue scam looking to undo the transaction and the associated damage is not without recourse in such a situation.

Where a subsequent buyer or mortgage lender, who neither participated in, nor had knowledge of the scam, attempts to assert the protection of the recording statutes by claiming the status of bona fide purchaser/encumbrancer, their entitlement to that protection will depend on whether "inquiry notice" will operate to impute knowledge to the buyer or lender where the circumstances surrounding the transaction are such that they would have aroused the suspicions of an ordinary purchaser.

An illustration of this can be found in Martinez v. Affordable Hous. Network, Inc., Case No. 04SC421, 123 P.3d 1201; 2005 Colo. LEXIS 1075 (Colo. 2005). The Colorado Supreme Court ruled that, while the deed in the foreclosure rescue scam at issue was found to be voidable, and not void, the subsequent purchaser acquiring his interest from the foreclosure rescue operator was not entitled to the protections accorded a bona fide purchaser. The court ruled that, because the possession of the home involved was still in the exclusive possession of the financially strapped homeowners who were victimized in the scam, knowledge of the scam was imputed to the purchaser, despite the lack of proof that he either participated in, or had knowledge of, the scam. Among other things, the Colorado Supreme Court stated:

  • It is well settled in Colorado that, with certain exceptions inapplicable here, possession of real estate is sufficient to put an interested person on inquiry notice of any legal or equitable claim the person or persons in open, notorious, and exclusive possession of the property may have.

Go here for more on Bona Fide Purchaser, Possession & Duty Of Inquiry; and here for case law on California Bona Fide Purchaser, Possession, Duty Of Inquiry.

Go here for more on void and voidable deeds. DeedVoidVoidable

Sunday, March 8, 2009

Current, Former L.I. Local Municipal Officials Accused Of Swiping 4-Acre Parcel; Used Unlawful Tax Deed Scheme, Says Developer In Civil RICO Suit

In Nassau County, Long Island, Newsday reports:

  • A developer has filed a civil racketeering lawsuit against a dozen Freeport Village and former Nassau County officials, accusing them of conspiring to take by unlawful means a 4-acre parcel he owns. The suit claims that Freeport Mayor William Glacken and his brother-in-law, village attorney Harrison J. Edwards, plotted with former Nassau deputy treasurer Keith Sernick and others between 2000 and 2004 to take the property through an unlawful tax deed scheme. The defendants acquired the property, which the owner subsequently retrieved through court action.

For more, see Suit accuses Freeport, Nassau officials of land scheme.

Vegas Loan Modification Firm Shuts Down Amid Suspicions Of Unlicensed Practice Of Law

In Las Vegas, Nevada, KLAS-TV Channel 8 reports:

  • A local company that claims it can stop foreclosures closed its doors Monday. A sign posted at the U.S. Justice Foundation tells clients it is filing for bankruptcy, but the I-Team has learned that's only part of the story. The I-Team has been looking at the U.S. Justice Foundation, and its owner Jack Ferm, for some time. So has the state Attorney General's Office, the District Court, the Federal Court, and the state bar.

  • The company claims it can stop foreclosures by helping people to sue their mortgage companies themselves. Though it's unclear how many if any of those suits have been successful, they've captured the courts attention. Ferm has been ordered by both the state and the federal court to explain why he shouldn't be held in contempt for practicing law without a license. He is not an attorney.

For more, see Mortgage Relief Company Closes Amid Investigation.

For story updates, see:

Scammer Sentenced For Hate Crime For Targeting Now-Deceased Elderly Alzheimer's Victim In Theft Of Home Equity

In Jamaica, Queens, the New York Post reports:

  • A former Long Islander was sentenced on hate-crime charges yesterday for pulling a brazen, $800,000 mortgage scam on a 94-year-old Alzheimer's victim, officials said.(1) Alexandra Gilmore, 37, will have to serve two to six years behind bars for the cruel con job because New York hate-crime laws apply to victims targeted because of their age, said Queens District Attorney Richard Brown.

For the story, see 'ALZHEIMER' SCAMMER GETS 2 YRS.

Go here for the Queens DA press release: Long Island Woman Is Sentenced In Hate Crime For Targeting 93-Year Old Queens Man In $800,000 Mortgage Fraud Scheme (Receives Two To Six Years In Prison).

Go here, Go here, Go here, Go here, Go here, and Go here for other posts related to deed or refinancing scams by forgery, swindle, power of attorney abuse, etc.

(1) According to the story, Gilmore first went after Artee McKoy, a Jamaica resident and friend of her late father, in 2004, when she posed as his daughter and took out a $150,000 mortgage on his [...] home. Not satisfied with that haul, she took out a second, $420,000 mortgage on the home without McKoy's knowledge. In 2005, Gilmore expanded her con, stealing McKoy's house away by teaming up with a "straw buyer" and forging the elderly man's name on documents of sale. The phony buyer - who officials say is Rebecca Tharpe, 31, of Brentwood, LI - got a mortgage on the home for $395,000. The pair then allegedly split the dough. The house was eventually put into foreclosure. McKoy died last Christmas Eve. DeedGammaTheft

State Legislator Proposes Law To Protect Texas Homesteads From Homeowner Association Lien Foreclosures

In Austin, Texas, The Dallas Morning News reports:

  • Homeowners associations in Texas would lose their power to foreclose on individual homeowners for nonpayment of dues and other fees under a proposed constitutional amendment filed Friday by a Dallas-area lawmaker. [...] "Things have gotten out of control with homeowners associations," [Rep. Burt Solomons, R-Carrollton] said.(1)

***

  • Solomons' proposal, which is expected to be opposed by HOA groups, would submit a constitutional amendment to Texas voters that would prohibit foreclosures by associations on homesteads within their jurisdiction.

For more, see Proposed constitutional amendment would prohibit HOA foreclosures.

(1) According to the story, Solomons said the plight of many Texans in HOAs has been illustrated in news stories, such as when a Frisco homeowner was threatened with fines by his association in August for parking his Ford F-150 pickup in his driveway. HOA rules there required that nonluxury trucks be kept in the garage.