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
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).
See also, New Jersey Law Journal: Real Estate Lawyer Liable for Damages for Role in Client's Mortgage Scam.
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(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).
- District Announces Agreement With Title Settlement Company in Mortgage Rescue Scam: Closing agent in the Metropolitan Money Store sale leaseback fiasco that targeted "high-home equity" homeowners facing foreclosure settles for $575,000 with the District of Columbia Attorney General's Office in a lawsuit alleging, among other things, violations of the D.C. Consumer Protection Procedures Act. Go here for the District’s lawsuit.
- 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.
- Alleged Sale Leaseback, Foreclosure Rescue Scammers To Pay $110K & Restore Title To Property Acquired From Unwitting Homeowners Seeking Help: Howard County, Maryland consumer protection officials use laws prohibiting unfair deceptive trade practices to obtain $110K settlement plus restoration of title to homes in victims' names on behalf of the estate of Betty J. Bullock, who was 63 and legally blind at the time she signed the mortgage papers, and Griselda Mason, then 68. Bullock died in October 2008 of a stroke, before the case settled.
- Foreclosure Rescue Operator To Cough Up $690K+ To Resolve Arizona AG Civil Charges In Alleged Sale Leaseback Equity Stripping Scam: Operator accused of violating, among other laws, the Arizona Consumer Fraud Act, settles with Arizona Attorney General's Office.
- Arizona Foreclosure Rescue Operator Ordered To Pay $1.2M In Home Sale, Leaseback Program: A Phoenix company and its owner were court-ordered to pay $1.2 million in restitution and penalties for violating the Arizona Consumer Fraud Act in a lawsuit brought by the Arizona Attorney General's Office.
- Washington AG Scores Big Win In Bogus Equity Stripping, Land Trust/Sale Leasebacks & Surplus Ripoffs; Foreclosure Rescue Operator Tagged For $4.2M: A Judge ordered a notorious foreclosure rescue scammer to pay more than $3.2 million to victims he wronged plus $179,000 in penalties for violating the State of Washington's Consumer Protection Act.
- 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 Findlaw.com - may require free registration ).
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