Elderly Chicago Woman Recovers Home Of 40 Years Swindled In Sale Leaseback Foreclosure Rescue Scam; Disgraced Peddler Faces No Criminal Charges

In Chicago, Illinois, WLS-TV Channel 7 reports:

• A woman who nearly lost her South Side residence in a mortgage rescue scheme gets to keep the home she has lived in for the last 40 years. The man who operated the mortgage company is now banned from working in the mortgage business in Illinois for life. Lessie Towns launched a fight in court to keep her home. She won and her case [and] triggered a new law to better protect homeowners.

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• Five years ago Towns was facing foreclosure, and she signed what she thought was a refinancing agreement that would keep her in her home. That agreement, state investigators say, was with Oak Brook-based Trust One Mortgage and its President Paul Shelton.

• "Mr. Shelton was essentially coordinating a mortgage-rescue scheme, whereby he would be [convincing] home owners to eventually sign over their homes," said Brent Adams, Illinois Department of Financial and Professional Regulation secretary. "Those homes would be sold to a straw buyer and effectively flipped at a higher appraised value." Towns continued to live in her home completely unaware it had been sold twice to straw buyers who failed to pay the mortgage. Then, one evening, sheriff's police come to evict the owner.

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• Towns got mad, went to court, and earlier this year won a settlement that allows her to stay in her home.(1)

For the story, see Victory for South Side victim of mortgage fraud.

For earlier WLS-TV reports on this story, see:

• Chicago owner loses home in mortgage scam,
• Woman allegedly swindled out of home allowed to stay.

(1) This story is illustrative of how a homeowner scammed in a sale leaseback foreclosure rescue scam can retain ownership of his/her home, even if the home is subsequently sold or mortgaged to an unwitting third party.

In this case, the scammed homeowner retained and maintained continued possession of her home after signing the 'ripoff' documents conveying title to another. In Illinois (as well as in most other jurisdictions), any subsequent purchaser of the home, or lender acquiring a security interest in the home, has a duty to conduct a physical inspection of the home, and 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 purchaser or 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.

Failure to make such inspections or inquiries will disqualify the subsequent purchaser or lender from the protections accorded a bona fide purchaser or bona fide encumbrancer, and accordingly, will leave any interest in the property acquired by them subject and subordinate to any legal rights or equities in the premises the occupants in possession thereof can establish.

For more on the duty of a subsequent purchaser or encumbrancer to conduct inspections and make the appropriate inquiries of persons in possession of real estate in Illinois (for which there is case law dating back 150+ years), see:

• Illinois Bona Fide Purchaser, Possession, Duty Of Inquiry (for Illinois Supreme Court cases),
• Illinois Bona Fide Purchaser, Possession, Duty Of Inquiry - State Appellate Cases, Federal Cases.

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

For some insights on the various legal theories and startegies to attacking this type of scam in civil litigation brought on behalf of the screwed-over homeowner, see:

• Foreclosure Rescue Scams I (part of a larger work from the National Consumer Law Center),
• Foreclosure Rescue Scams II (work made available online by the State of Washington Office of the Attorney General).