Two Phoenix Cops Shelved On Administrative Leave After Agreeing To $458K Settlement With AZ AG For Roles In Alleged Illegal Sale Leaseback Deals

From the Office of the Arizona Attorney General:

• Attorney General Terry Goddard [last week] announced a judgment totaling $458,000 in civil penalties and restitution(1) for consumers as a result of a mortgage fraud investigation and lawsuit. [..] On November 24, 2010, Goddard filed a lawsuit(2) on behalf of his Office and the Arizona Department of Financial Institutions against Lee Brent Shaw of Gilbert and Mark Tallman of Chandler and their limited liability companies, Better Choice Investments, LLC, and Better Solutions, LLC, alleging that they defrauded some 148 Arizonans of their homes. Both Shaw and Tallman are also Phoenix Police Officers.

The Associated Press reports that Shaw and Tallman have been put on administrative leave after agreeing to the settlement, and further reports that a police statement says an internal investigation is now under way. See 2 Phoenix officers on leave after settling suit with AG that accused them of mortgage fraud.

For the Arizona AG press release, see Goddard Announces $458,000 Judgment in Fraud Case Involving Two Police Officers.

For the lawsuit and the consent judgments in this case, see:

• Lawsuit,
• Consent Judgment-Shaw,
• Consent Judgment-Tallman,
• Consent Judgment-Better Choice Better Solutions.

See also 2 Sale Leaseback Peddling Cops Accused Of Consumer Fraud Violations; "Equitable Mortgages" Required Disclosures Under TILA, HOEPA: Arizona AG for an earlier post on this story.

(1) According to the terms of the settlement, the defendants must:

• Pay $310,000 in restitution to homeowners victimized by their scheme.
• Pay $148,000 in civil penalties to the Attorney General’s Office and the Arizona Department of Financial Institutions.
• Pay $27,717 in costs and attorney’s fees.
• Refrain from participating as a director or officer in any financial institution or enterprise licensed by the Arizona Department of Financial Institutions.
• Refrain from engaging in any activity requiring the issuance of a license under the authority of the Arizona Department of Financial Institutions.
• Refrain from any ownership interest in a sale-leaseback transaction.

It sounds like the duo got a pretty good deal from the state AG's office. Unlike this suit involving multiple sale leaseback deals and 100+ alleged victims, a recent New Jersey civil lawsuit resulted in a significantly higher monetary award and related to only one sale leaseback deal with one homeowner-couple. See NJ Federal Judge Upholds Ruling Awarding $690K To Homeowner Screwed Out Of $116K In Sale Leaseback Scam; OK's Add'l $34K For Victims' Attorney Fees.

Substantially all of the court-awarded damages granted to the homeowner-couple in the New Jersey case were attibutable to actual damages for the stripped equity and statutory damages for violations of the Federal Truth In Lending Act, Federal Home Ownership and Equity Protection Act, and a state consmer lending law.

Presumably, the settlement with the Arizona Attorney General also insulates the pair from any possible criminal liability that may have possibly arisen from their alleged activities. See Criminal Prosecutions Of Sale Leaseback Peddlers In Equity Stripping Foreclosure Rescue Deals for those incidents that led to criminal prosecutions in sale leaseback deals.

For some insights on the various legal theories and strategies to attacking this type of scam in civil lawsuits brought on behalf of screwed-over homeowners, 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),
• DREAMS FORECLOSED: The Rampant Theft of Americans' Homes Through Equity-stripping Foreclosure 'Rescue' Scams (a publication from the National Consumer Law Center).

(2) According to the Arizona AG's press release:

The lawsuit alleged that between 2003 and 2007, the two defendants, through their Better Choice Investments, LLC, purchased sale-leaseback transactions from solicitors who had convinced homeowners to sell their homes for far less than the market value, promising to save them from foreclosure.

The solicitors persuaded struggling homeowners to deed them their homes in return for assuming their monthly mortgage payments and paying off the full value of their delinquent payments, often using funds advanced by defendants. The lease agreement provided for a monthly fee equivalent to the mortgage payment to remain in the home as a renter. Neither the owner’s mortgage lender nor servicer was notified of the transfer of title.

After the initial paperwork was signed, the deal was quickly turned over to defendants Shaw and Tallman, in return for a commission paid to the solicitors. The defendants recruited a pool of investors willing to assume co-ownership and refinance, for a 50 percent share in the profits.

The owners-turned-renters had the option to repurchase the house within one year for a fee of approximately $15,000, if they met all of the conditions of the sale-leaseback agreement. If the owner-turned-renter violated any of the conditions, such as by making a late rental payment or being evicted, the option to repurchase the home became void and the individual was subject to immediate eviction.

Almost all of the owners-turned-renters proved unable to repurchase their properties, at which time the defendants sold or refinanced the home at full market value, earning profits in the tens of thousands of dollars.