Blind Victim Of Sale Leaseback, Equity Stripping Scam Peddled As A Refinance Now Faces The Boot, Despite "Successful" Civil Prosecution By Illinois AG

In Chicago, Illinois, the Chicago Sun Times reports:

• There's no question that Coleamer Hodges was scammed out of her South Side home. In a 2006 complaint, the Illinois attorney general office used Hodges' tragic situation to illustrate the unlawful business practices at the core of home rescue fraud, in which companies claim to help residents stay in their homes but then actually sell the homes to third parties.

• Platinum Investment Group, Advantage Mortgage Consulting, Christopher Bidigare, Suellen Carpenter and First Chicago Real Estate Group were found by a Cook County judge to have "engaged in conduct that violates the Consumer Fraud Act." Hodges, 43, had turned to Platinum for help refinancing her mortgage. Representatives picked her up, served her lunch and, although Hodges is blind, had her sign paperwork that she was told was for a refinancing deal.

• "A couple of months later, I got a surprise,'' she said. She got a bill for $1,300, which was actually for rent if she wanted to stay in the home because Hodges' home had been transferred to a straw buyer.

• All of the entities and individuals who were involved in the transaction are now barred from acting as "distressed property" consultants. They were also ordered to pay Hodges $50,000 in restitution. But that hasn't helped Hodges. The guilty parties filed for bankruptcy -- and Hodges' $70,000 in home equity is gone. Wells Fargo, the bank that serviced the fraudulent deal, is now demanding to take possession of the property.(1)

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• "We were able to successfully prosecute and put these people out of business, but that is not good enough," said [Illinois Attorney General spokesperson Natalie] Bauer. "The issue today is that Ms. Hodges is in a devastating condition and needs help. Wells Fargo needs to step up and do the right thing."

For more, see Victim of scammers now battling bank.
(1) The fact that Ms. Hodges was blind when she was tricked into signing the deed and leaseback agreement (which was reportedly represented to her to be a "refinance" of her home) could make the conveyance void ab initio, in which case, the deed, any subsequent cionveyances, and the current mortgage encumbering the home securing the loan used to finance the swindle would be considered nullities. See:

• Unwinding An Abusive Or Fraudulent Real Estate Transaction? Determining If The Deed Is Void, Or Merely Voidable;
• More On Void & Voidable Deeds, & Unwinding Deed & Refinancing Scams.

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Alternatively, assuming the deed was not void, but merely voidable, Ms. Hodges continued possession of her home throughout the course of being screwed over by the foreclosure rescue peddler could help her establish a viable claim against the current mortgage holder of the loan that was obtained to pull off this scam.
Illinois case law appears to make clear that her open and visible possession of the home places the lender financing the scam on notice of any rights or equities she may be able to establish. See Life Savings & Loan Association v. Bryant, 125 Ill. App. 3d 1012, 81 Ill. Dec. 577, 467 N.E.2d 277 (1st Dist. 1984) (case available on request, drop me a line at HomeEquityTheft@yahoo.com, don't forget to put case name in subject line):

• 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. [my emphasis added; not in original]

The issue of whether the retention of possession by the grantor of property after it is conveyed constitutes notice of the grantor of his or her interest in the property, and to those claiming under the grantee, under Illinois law is addressed in Fidelity Trust & Savings Bank v. Williams (1936), 285 Ill. App. 131, 1 N.E.2d 739:

• The rule of law which seems to control in a like situation is that the retention of possession by the grantor of the property conveyed is notice of his or her interest in the property, and to those claiming under the grantee, and such rule is laid down in the case of Ford v. Marcall, 107 Ill. 136, wherein the court said: "The law is, as this court has declared in White v. White, 89 Ill. 460, that when the grantor of real estate remains in possession, all persons acquiring title from the grantee are chargeable with notice of all the claims of the grantor."
  
  This rule was followed and approved in the case of Ronan v. Bluhm, 173 Ill. 277, where the court said: "It is proper we should remark, in answer to the discussion upon the point, that as it is conceded by all parties that the said Thomas Ronan did not deliver possession of the premises in question to the grantee, Carbine, but remained in the open and exclusive occupancy thereof, appellee, Bluhm, is deemed, as matter of law, to have taken the conveyance from Carbine with full notice of all the rights and equities of said Ronan in the premises. Illinois Central Railroad Co. v. McCullough, 59 Ill. 166; White v. White, 89 id. 460; Ford v. Marcall, 107 id. 136." It is to be noted from what the court said in this opinion that Bluhm was deemed as a matter of law to have taken the conveyance from Carbine, the grantee of Ronan, with full notice as to all the rights and equities of Ronan in the premises.
  
  This rule has been passed upon by the courts of this State, and the law is again discussed and approved in the case of Rock Island & Peoria Ry. Co. v. Dimick, 144 Ill. 628. The court in this opinion said: "The law is well settled in this State, as generally elsewhere, when not changed by the recording acts, that open and exclusive possession of lands, under an apparent claim of ownership, is notice to those subsequently dealing with the title of whatever interest the possessor has in the premises, whether the interest be legal or equitable in its nature. Wade on Notice, sec. 273; Davis v. Hopkins, 15 Ill. 519; Truesdale v. Ford, 37 Ill. 210; Smith v. Jackson's Heirs, 76 Ill. 254; Partridge v. Chapman, 81 Ill. 137. It has been held also in this State, that if the grantor remains in possession after conveyance, purchasers from the grantee are affected with notice of the grantor's rights in the land. White v. White, 89 Ill. 460; Ford v. Marcall, 107 id. 136."
  
  In the case of Porter v. Clark, 23 Ill. App. 567, this rule was also approved, and in discussing the subject matter of the litigation, the court there stated what we regard as pertinent in its application to the instant case. This statement is: "If Porter, knowing as he did that Clark was in possession, had gone to him and inquired as to his rights, he would undoubtedly have been told that the purchase money had not been paid, and that he, Clark, claimed a vendor's lien on the land."

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(Note: The unavailability of bona fide purchaser protection to real estate purchasers and lenders when a seller of real estate remains in continued possession of the premises well after the property is sold has, arguably, been best expressed by the California Supreme Court in Pell v. McElroy, 36 Cal. 268, 1868 Cal. LEXIS 186 (1868). See footnote 2 of this November 15, 2009 post.)

Go here for more on the bona fide purchaser doctrine in Illinois.

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

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Additionally, the circumstances surrounding the conveyance of Ms. Hodges home may have enough elements that can allow an Illinois court to recharacterize the deed transfer and contemporaneous leaseback as an equitable mortgage. See:

• Equitable Mortgage Doctrine In Illinois - Part 1;
• Equitable Mortgage Doctrine In Illinois - Part 2;
• Nave v. Heinzmann, 344 Ill. App. 3d 815; 801 N.E.2d 121; (Ill. App. Ct., 5th Dist., 2003);
• Robinson v. Builders Supply & Lumber Co., 223 Ill. App. 3d 1007, 586 N.E.2d 316 (Ill. App. Ct. 1st Dist. 1991);
• Flack v. McClure, 206 Ill. App. 3d 976, 565 N.E.2d 131, 151 Ill. Dec. 860 (Ill. App. Ct., 1st Dist. 1990).

Among the factors the above Illinois courts have considered when deciding on whether or not to recharacterize a sale as an equitable mortgage are:

• existence of an indebtedness,
• close relationship of the parties,
• prior unsuccessful attempts for loans,
• circumstances surrounding the transaction,
• disparity of the situations of the parties,
• lack of legal assistance,
• unusual type of sale,
• inadequacy of consideration,
• the way the consideration was paid,
• retention of written evidence of the debt,
• belief that the debt remains unpaid,
• an agreement to repurchase, and
• continued exercise of ownership privileges and responsibilities by the seller.

(Note: A recent ruling by a New Jersey Federal bankruptcy court recharacterized a similar sale leaseback, equity stripping ripoff as an equitable mortgage. In re O'Brien (aka O'Brien v. Cleveland), Case No. 03-17448, Adversary Proceeding Case No. 08-1676; (USBC, D. N.J., January 22, 2010))

A recharacterization of the conveyance as an equitable mortgage, coupled with establishing that the current holder of the mortgage was on notice of the scam (and consequently, not a bona fide purchaser) by reason of Ms. Hodges continued possession of the home could ostensibly leave her with rights to her home having priority over the rights of the current mortgage holder. RecentIllinoisBFPStories