Monday, February 8, 2010

State Consumer Fraud Act Yields Triple Damages Award For Homeowners In Bogus Sale Leaseback Equity Stripping Racket

A ruling by a Federal bankruptcy court in New Jersey recently awarded at least $690,000 in damages against a foreclosure rescue operator who peddled a sale leaseback arrangement to a financially strapped homeowner/couple purportedly intended to save them from the loss of their home. (The attorney who handled the closing in this ripoff also found himself sucked into the financial quicksand).

Included in the award were the damages attributable to the foreclosure rescue operator's violation of the New Jersey Consumer Fraud Act (the "CFA"), which allows for a tripling of the actual damages suffered by the victim.(1) The court's application of this statute to the equity stripping ripoff, in which the amount of stripped equity was $116,791.49, resulted in a total damage award for violation of this statute of $350,374.47.

The operator attemped to dodge liability under the CFA by claiming that the victims, by reason of their advanced education, business experience, etc. were sophisticated people, knew what they were doing when they did business with him, and were not misled, deceived, or defrauded in any way. The court addressed this point in the following excerpt (bold text is my emphasis, not in original):

  • Defendant Cleveland argues that the CFA does not apply in this case because the O'Briens are sophisticated and "were not misled in any capacity." He claims that "no such deception, fraud or falsity occurred." There is no statutory exception for sophisticated consumers. Even the most sophisticated consumers are entitled to the protections of the CFA.
  • Additionally, the terms — unconscionable commercial practice, deception, fraud and false promise — are used disjunctively so it is conceivable that a commercial practice might not be fraudulent or deceptive but would, nevertheless, be unconscionable. State v. Hudson Furniture Co., 398 A.2d 900, 902 (N.J. Super. Ct. App. Div. 1979). In fact, the New Jersey legislature amended the CFA in 1971 to add "unconscionable commercial practice" to the prohibited acts evidencing a more expansive reach than fraud alone. 1971 N.J. Laws, ch. 247. "Violation of the act can be shown even though a consumer has not in fact been misled or deceived. It is not necessary to show actual deceit or a fraudulent act; any unconscionable commercial practice is prohibited." Skeer v. EMK Motors, Inc., 455 A.2d 508, 511 (N.J. Super. Ct. App. Div. 1982); Truex v. Ocean Dodge, Inc., 529 A.2d 1017, 1020 (N.J. Super. Ct. App. Div. 1987).
For the ruling, see 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).
See also, New Jersey Law Journal: Real Estate Lawyer Liable for Damages for Role in Client's Mortgage Scam.
(1) Use of a state's consumer fraud / unfair business practices laws is not new when seeking redress against the peddlers of these bogus sale leaseback schemes. See, for example:
  • Hogan & Hartson Wins $3.3 Million Verdict in Pre-Foreclosure Scam Case: After a week-long trial in the District of Columbia Superior Court, an eight-person jury found that the defendants defrauded the plaintiff Maria Wilson and wrongfully took her home for a tiny fraction of its value. The jury also found that the defendants' scheme, in which they approach homeowners facing foreclosure and offer to help them "keep" their homes through a fraudulent sale-leaseback transaction, violated the D.C. Consumer Protection Procedures Act. The jury awarded Wilson compensatory damages of $60,000, and assessed punitive damages totaling $3.3 million against the three defendants. For the factual background on this case, see Appellate Brief: Wilson v. Modern Management, et al. (available online courtesy of Legal Aid Society of the District of Columbia).

  • D.C. Appeals Case Provides Roadmap For Obtaining Triple Damages Plus Punitives Against Foreclosure Rescue, Equity Stripper: The court found that operator had committed multiple violations of the District of Columbia Consumer Protection Procedures Act, D.C. Code §§ 28-3901 et seq. and awarded treble and punitive damages to the estate of Hattie Smith (who the trial judge described as a "frail, elderly and vulnerable widow") who lost $148,175.41 equity in her home. The treble damage calculation on that amount yielded an actual award of $315,026.23, which represented a multiplier of three minus a credit of $129,500 from other settling defendants.

  • Appeals Court Reverses $3M+ Jury Award To Equity Stripping Victims; Homeowners Forced To "Settle" For Triple Damages Under State Consumer Fraud Act: 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 sale leaseback, equity stripping 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. Consequently, the final award to the aggrieved homeowners was limited to $741,000.
  • Foreclosure Rescue Operator Ordered To Return Homes To A Dozen Victims: In a 2005 Nebraska Supreme Court decision, two Omaha area foreclosure rescue operators were ordered to restore title to the homes of a dozen homeowners who the operators fraudulently induced into signing over their home titles, or reimburse them for their damages. In addition, the operators were also ordered to pay approximately $378,000 in attorneys' fees to the lawyers for the victimized homeowners for violations of the Nebraska Consumer Protection Act. For the court ruling, see Eicher v. Mid America Financial Investment Corp., 270 Neb. 370, 702 N.W.2d 792 (2005) (made available online by - may require free registration ).
For a 50-State Report on Unfair and Deceptive Acts and Practices Statutes: see National Consumer Law Center: CONSUMER PROTECTION IN THE STATES.

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