Saturday, February 20, 2010

Rent Scammers Among Those Targeted By Brooklyn DA In Recent Real Estate Scam Sweep

In Brooklyn, New York, the New York Daily News recent report on indictments obtained by the Brooklyn District Attorney against 12 people in unrelated real estate scams described the following alleged rent scams ensnared by his probe:

  • Earl Davis placed an ad on Craigslist and collected a full year's rent in advance after giving the victim a forged lease,

  • Correction Officer Margareth Blanc collected more than $30,000 in federal rent subsidies with forged applications while living in her sister's apartment,

  • Deric Nelson worked a phony deed scam, making it look like he owned a building he'd already sold - then renting vacant apartments.

Reportedly, in one of the "phony landlord" rent scams, the suspect allegedly pocketed $16,250.(1)

Source: 3 lawyers and correction officer among 12 charged with real estate fraud.

See also, See also, Kings County District Attorney press release: Kings County District Attorney Charles J. Hynes, New York State Senator Carl Kruger And United States Senator Charles E. Schumer Announce Charges Against 12 People, For Real Estate And Mortgage Fraud.

(1) In addition, a fourth suspect, Todd Graham, was bagged on charges of Attempted Grand Larceny in the Third Degree and Grand Larceny in the Fourth Degree, for allegedly placing an ad on Craigslist for a rental apartment in a building he neither owned nor managed, and then pocketing the first month’s rent and security deposit from two different people, for the same apartment, according to the Brooklyn DA's office.

Unwitting Couple Purchase Property Once Used As Meth Lab; Now Face F'closure After Making 3+ Years Of House Payments On Toxic Home Used For One Week

In Prattville, Alabama, the Montgomery Advertiser reports:

  • The only room in this one-story house safe enough for human inhabitation is a small, non-ventilated room with a toilet, and even that is toxic. Brenda Maitland bought the house, hidden just off Alabama 59, about four years ago. It is where she, her husband and two young daughters were going to swim, ride their new horse, plant a garden -- make a home.

  • But just after a week of living there, Maitland's youngest daughter got sick: sore throat, earaches, watery eyes, burning skin. They were the same symptoms that Brenda Maitland came down with while scrubbing the house the week before the family moved in. "I thought it was the flu," she said. The people who lived there before them were heavy smokers -- so it could have been from that, the family thought.

  • But they learned it was far more than that. They learned they had bought a home that the previous owners had used as a methamphetamine lab. Standing outside the home recently -- the doors are locked, and nobody is allowed inside because of the toxicity level -- Maitland talked about when she found the house on-line.(1)


  • The Maitlands wish they had found out about this before moving in. The family has since paid their mortgage every month for three and a half years as advised by their attorney. About $1,200 a month -- more than $50,000 was spent on a house they lived in for just more than a week. They stopped making the payments in July, and the house was foreclosed a few months after.

For more, see Home hazardous: Family's residence in Prattville had been used as a meth lab.

For a story on meth-lab related lawsuits, see The National Law Journal: Meth Lab Residue in Homes Triggers Litigation (Lawsuits over contaminated homes focus on failure to disclose issue).

Go here for other posts on home-based meth lab horror stories.

(1) According to the story, they took six months to find the home after moving from Texas. It had grape and blueberry bushes, a green house, a pool. Azaleas lined the front sidewalk. Dogwoods welcomed them home. Before moving in, the family spent about $10,000 on hardwood floors, new furniture, a computer, stereo equipment. But it wasn't just the family that was coming in contact with the toxins. Not only did the poisons coat the house, they also coated many of the possessions that the family brought into it. The Maitlands were advised not only to leave the house as quickly as possible but to abandon most of their furniture and clothing. "I was told to keep everything in the house," Maitland said. "When the house was put under foreclosure in December, the flooring and everything that was in the house was toxic, so that has been removed and destroyed."

Signing Over Deed & Handing Over Keys To Distressed NYC Rental Complex Not As Easy As It Sounds; Proposed Transfer Estimated To Cost $90M In Fees

In New York City, Bloomberg reports:

  • Tishman Speyer Properties LP and BlackRock Inc. haven’t handed Manhattan’s biggest apartment complex to creditors as they pledged two weeks ago, in part because of questions over payment of about $90 million in taxes. The companies said Jan. 25 they would cede control of Stuyvesant Town-Peter Cooper Village to lenders after missing a payment on the $3 billion mortgage.

  • Even in foreclosure, any property transfer in Manhattan requires payment of city and state taxes, and Tishman is negotiating with CWCapital, the special servicer for the senior debt, over who must pay them, said Rafael Cestero, New York City’s commissioner of Housing Preservation and Development. “The reality is they can’t just turn back the keys,” Cestero said in an interview. “There are some impediments.”

  • Under New York law, the party that owns the property and is getting rid of it must pay the taxes on the transfer, according to Owen Stone, a spokesman for the New York City Department of Finance. Otherwise, the burden shifts to the receiver of the property, he said. “CW doesn’t want to pay the $100 million so they’re going to have to negotiate this,” said Cestero, estimating the taxes. “They have not initiated foreclosure proceedings.” Transfer taxes for the city and the state equal 3.025 percent of the “consideration,” or the price of the real property, said Joshua Stein, a partner in the real estate practice group of law firm Latham & Watkins LLP in New York.

For more, see Stuyvesant Town Ownership Hinges on $90 Million Tax.

Friday, February 19, 2010

Report: $200M Central Florida Mortgage Fraud Probe In The Pipeline; Ringleader, Title Agent Come Clean; Cooperate With Feds In Effort To Sack Others

In Central Florida, the Sarasota Herald Tribune reports:

  • Craig Adams, orchestrator of one of the largest real estate fraud rings in Florida history, has secretly spent more than a year and a half as an FBI informant, helping build cases against the people he once recruited into his schemes, the Herald-Tribune has learned. Federal court records show Adams has agreed to plead guilty to conspiracy charges at a later date and has pledged his help in an attempt to earn leniency. In at least one instance, Adams wore a wire to record a conversation with a key business associate.

  • So far he has laid bare at least $200 million in fraudulent property deals, incriminated more than 30 of his former business partners and given the FBI enough evidence to arrest his longtime title agent, Lisa Rotolo, the court records show. Adams' role as informant is described in a federal criminal complaint related to Rotolo's April arrest. [... Husband] Jay Rotolo told the Herald-Tribune his wife is also cooperating with what U.S. Attorney Brian Albritton's office calls an ongoing investigation.

  • "My wife has been working with the FBI for a year now," Jay Rotolo said. "Do you know what kind of a position this story puts her in? Yes, she got her finger in a mess, but we have never profited from any of this." The Rotolo complaint and supporting affidavit provide a glimpse into what could become the FBI's largest mortgage fraud case in Florida.

For more, see FBI builds its case in flipping schemes.

Go here for Federal complaint against Lisa Rotolo.

For earlier Sarasota Herald Tribune stories on this probe, see:

Illinois AG Targets Pair Of Mortgage Brokerages For Alleged Use Of Deceptive Marketing Practices In Peddling Reverse Mortgages To Seniors

From the Office of the Illinois Attorney General:

  • Attorney General Lisa Madigan [...] filed lawsuits against two mortgage brokers for using unfair and deceptive marketing practices to solicit seniors for reverse mortgages. “These companies used extremely misleading language in their advertising, sometimes even disguising their loans as government benefits that borrowers don’t have to repay,” Madigan said.

  • Many consumers have reported that they didn’t even know these offers were for reverse mortgages or a loan of any kind. That is unacceptable. Reverse mortgages are complex loans that should be taken out only after a consumer has had an opportunity to carefully consider his or her financial future and consult with a qualified housing counselor.”(1)

For the Illinois AG press release, see Madigan Sues Two Reverse Mortgage Brokers for Using Deceptive Marketing Practices To Target Seniors.

See also, Courthouse News Service: Illinois Company Scams Seniors, State Says.

For one of the lawsuits, see The People of the State of Illinois v. Hartland Mortgage Centers, Inc. (available online courtesy of Courthouse News Service).

(1) Madigan lawsuits targeted Woodridge, Ill.-based Hartland Mortgage Centers, Inc. (filed in Cook County) and Irvine, Calif.-based American Advisors Group, Inc., and its company president, Reza Jahangiri (filed in Sangamon County). Among the allegations made in the lawsuits is the use of solicitations that:

  • make a series of claims that falsely imply that seniors could be eligible for lifetime monthly income or lump-sum payments that are part of government benefit programs offered to all seniors. In fact, however, the defendants are offering loans that must eventually be repaid,

  • include false claims such as: “President Obama’s Economic Stimulus Plan Helps Seniors. If you are 62 years of age or older, you may be eligible to take advantage of an important U.S. Government Insured Program” and “The United States Congress has authorized a Reverse Lending program you do NOT have to pay back as long as you live in your home!”,

  • mislead consumers into believing that the reverse mortgages would only be offered for a short time, with many of the defendants’ mailers including purported “expiration dates.”

Law Firm Uses "Reverse Foreclosure" To Stick Foot-Dragging Lender With Title To Unwanted Condo Unit; Has 82 More Cases In Pipeline

In Miami, Florida, Historic City Times reports:

  • In a process known as a “reverse foreclosure,” a Miami-Dade Circuit Court judge has forced a bank to take title to a property from a homeowners association. “It’s new, and it addresses what we think is a huge problem in Florida,” according to published reports from attorney Ben Solomon who represented the South Miami-Dade homeowners association in the case.

  • When the owner [in one case] stopped paying their monthly maintenance fee, the association foreclosed on the home, however, because of the bank’s lien, they could not sell it. The bank had foreclosed but hadn’t pursued the case for a period of 2 1/2 years, leaving the association stuck with a home — and no one paying dues.

  • Solomon said his firm is telling the judge that as the defendants in the bank’s foreclosure proceedings; they want a summary judgment — against themselves. Next, they request an immediate sale date; waiving their rights to a waiting period. Reportedly, Solomon’s firm has filed another 82 similar “reverse foreclosure” requests in courts around the state.

  • The association in this case has 3,000 homes and owns title to about a dozen of them through foreclosures, Solomon said. The reverse foreclosure can only be filed after a homeowner is out of the picture and the home is legally the property of the homeowner association. “That waiting period protects the consumer, but banks are taking advantage of the judicial backlog, and then in many cases they are canceling the sale date and resetting it”, according to Solomon. “What we did was tell the judge, we don’t need more time.” HSBC Bank USA, which acted as trustee in the case, declined to comment. Circuit Judge Jerald Bagley granted the homeowners association motion, and the title was awarded to the bank the same day.

  • We’re not saying they need to complete a foreclosure more quickly than normal,” Solomon said. “But there’s no good reason why that lender has taken 2 1/2 years to foreclose on this particular unit.”

Source: Ruling may help homeowner associations.

Name Of Famous Fictional TV Character Invoked In NYC Federal Fair Housing Lawsuit To Describe Alleged Race-Discriminatory Practices At Bronx Co-Op

In New York City, Courthouse News Service reports:

  • A real estate broker barred black people from two large "racially segregated enclaves" in the Bronx, telling them that residents of Silver Beach Gardens and Edgewater Park are "kind of prejudiced" and the co-ops are "Archie Bunker territory," the Fair Housing Justice Center claims in Federal Court.(1) "Silver Beach Gardens and Edgewater Park (the Co-ops) are a throwback of the very worst kind - two racially segregated enclaves with over 1,100 single-family homes occupied almost exclusively by white residents who evidently wish to keep it that way," the complaint states. (Parentheses in complaint.)(2)

For more, see Bronx Co-Op Called 'Archie Bunker Territory.'

For the lawsuit, see Fair Housing Justice Center, Inc. et al. v. Silver Beach Gardens Corporation, et. al.

(1) According to their website, the Fair Housing Justice Center is a 501(c)(3) non-profit group organized to challenge systemic housing discrimination, promote open and inclusive communities, and strengthen fair housing enforcement.

(2) According to the story, the Justice Center says "although the Co-ops purport to 'require' three references from existing Co-op shareholders for applying purchasers, this 'requirement' is not truly applied to whites, who are told that a seller or the sellers' friends - whom the applicants do not otherwise know - can provide the 'references.' "In stark contrast, African-American testers - plaintiffs Justin Carter and Lisa Darden - were told of the strict reference policy, never even offered the opportunity to view available properties, and steered away from the communities because there are very few people of 'any kind of ... ethnic color' living at the Co-ops."

Defendant Amelia Lewis, dba Amelia Lewis Real Estate, allegedly told the tester that she had "raised all three of her children in Edgewater Park" and the co-ops were "very nice ... mostly ethnic Irish, German, Italian ... there's some Puerto Rican, not many." Lewis allegedly told them that when "people of color" bought a house just outside Edgewater 15 to 20 years ago, a cross was burned on their lawn. "Lewis also stated that she had once 'gotten some Spanish in, but they were kinda light, you know' and they had references," the complaint states.

Short Sale, Reverse Mortgage Ripoffs Make FBI's 2010 List Of Top Five Real Estate-Based Scams

From the Office of the FBI (Salt Lake City):

  • Is someone letting you live in a home for free? Did a builder offer you deep discounts to move into a newly constructed house? Has a company offered to refinance your mortgage for a fee?

  • If the answer to any of these questions is “yes,” then you may be a victim of a scam. FBI special agents and the state investigators with the Utah Division of Real Estate have compiled a list of top five mortgage related scams in 2010.

For the FBI's list, see Salt Lake City FBI and Utah Division of Real Estate Name Top Five Mortgage Scams in 2010.

Thursday, February 18, 2010

Brookyn DA To General Public When Seeking Legal Assistance In Real Estate Deals: "Get An Honest Lawyer!"

In a New York Daliy News story on the recent announcement of indictments obtained by Brooklyn District Attorney Charles J. Hynes against a dozen suspects, including three current or former attorneys, allegedly involved in various unrelated, real estate-based swindles, DA Hynes offered some words of wisdom to the general public when seeking legal assistance in real estate transactions, as reflected in this excerpt:

  • "Ordinarily, in real estate deals, you would say, 'Get a lawyer,'" said Hynes. "Now you say, 'Get an honest lawyer.' You have to pay attention to the lawyers you hire, you have to get referrals."

Source: 3 lawyers and correction officer among 12 charged with real estate fraud.

Pennsylvania Lawmakers Consider Making It Easier To Acquire Real Estate Through Adverse Possession; Aim Is To Reduce Blight, Say Supporters

In Pittsburgh, Pennsylvania, the Pittsburgh Post Gazette recently ran a story reporting that the state legislature is considering making it easier for people to acquire real estate through adverse possession. A bill proposes reducing the required time frame for filing an adverse possession lawsuit from 21 to 10 years, and in some rare cases only three years.(1) According to the story:

  • While the idea of taking another's property for one's own use without paying could be considered a hostile act, the spirit of the bill, supporters say, is to reduce blight. They argue that reducing the time frame required to file an adverse possession claim could reduce the likelihood that someone maintaining a home would abandon it, in turn helping stabilize vulnerable neighborhoods and improving the real estate tax base.

  • The Pennsylvania Bar Association, which represents more than 29,000 lawyers throughout the state, is opposed to making it easier for anyone to acquire someone else's property. "The bar's concern is that [the bill], as written, may have the unintended results of encouraging speculators to act as squatters who seize property from distant property owners, and increasing the potential for disputes between and among neighbors and family members as to the title to real property," said Louis Kodumal, an attorney at Vincent B. Mancini & Associates in Media, in southeastern Pennsylvania, in testimony before the state House Urban Affairs Committee in September.

For more, see Proposed change in law would benefit those who live in dwellings they don't own.

(1) The story profiles Kenneth Bumbrey, a Pittsburgh resident who is attempting to use adverse possession to acquire the home he has been living in for the last 23 years. The home was once co-owned by his grandmother and an aunt. Mr. Bumbrey's grandmother's will left her half interest in the property to six beneficiaries and their heirs. The other half interest belonging to the aunt passed to her only child, who ended up with a majority interest. Mr. Bumbrey's mother was one of six beneficiaries under the will. When she died in 1987, her share passed to her five children. As beneficiaries keep dying, their interests passed to their heirs, giving rise to an increasing number of fractional ownership interests in the home, which is currently co-owned by Mr. Bumbrey (who, by my calculation, owns a 1/60 "sliver" of title in the home - 1/2 x 1/6 x 1/5) with relatives scattered around the country (some of whom, he says, he may not even know). "There is just a zillion fractional interests making up now 40 percent of the property," a local housing advocate familiar with the case said.

Brooklyn Duo Dupe Homeowner Into Giving POA To Facilitate Refinance, Then Sell Home Out From Under Her, Says DA

In Brooklyn, New York, WNYC Radio 820 AM recently reported on the Brooklyn District Attorney's announcement of charges against 12 people for a variety of unrelated housing schemes. The following excerpt describes one of the alleged scams:

  • Prosecutors say two of the alleged repeat offenders, Russell Pitt and Nathan Farkas, convinced an unemployed Brooklyn woman to grant them power of attorney so they could refinance her home. Instead, prosecutors say they sold her home and kept the proceeds. Attorneys for both men could not be reached.

Source: Real Estate Scams Flourish in Brooklyn.

See also, Kings County District Attorney press release: Kings County District Attorney Charles J. Hynes, New York State Senator Carl Kruger And United States Senator Charles E. Schumer Announce Charges Against 12 People, For Real Estate And Mortgage Fraud.

St. Louis County Offers Free Service To Battle Real Estate Swindles Involving Use Of Forged Docs & Land Instruments In Home Equity & Title Ripoffs

In St. Louis, Missouri, the St. Louis Globe Democrat includes the following excerpt in a story reporting that mortgage fraud is the top priority of the white collar crime squad of the St. Louis-area FBI:

  • St. Louis County is doing their part in preventing mortgage crime by now offering a free property fraud alert service for residents. County property owners can register their names in the “Property Fraud Alert” through the county’s recorder of deeds web site.

  • Those who enroll will be alerted by their choice of phone or e-mail anytime a document is registered and recorded in their name. St. Louis County Executive Charlie Dooley said he hopes the service will help catch fraud before it’s too late to save residents “headaches and lawyer fees” to get property back.(1)In these economic times there are so many more scams going on,” Dooley said. “For some reason crooks find a hole and they use it against others.”

  • Dooley said signing up is simple and can be done by visiting the Property Fraud Alert web site and selecting St. Louis from the list of counties offering the service. Interested [St. Louis County] residents may also call 1-800-728-3858 to sign up. Aldrich said the county’s property fraud alert service is a good educational tool for the community. “The more information the public has to be aware of mortgage fraud will help prevent it,” he said.

For the story, see FBI: Mortgage fraud fastest growing white collar crime.

(1) At most, a successful criminal prosecution can result in the scammer being tossed in jail, and possibly, a court order compelling the scammer to pay restitution to the victim which, if the scammer is broke, is probably worthless. To go about undoing the mess created by the ripoff and have the title to the property restored in the name of the rightful owner, a victim would have to file a civil lawsuit:

  • to legally establish that the forgery of the deed, mortgage, and/or other land instruments used in the swindle occurred, and, if successful,

Connecticut Real Estate Agent Cops Plea In Short Sale Scam

In Bridgeport, Connecticut, The Bridgeport reports:

  • A Bridgeport man has pleaded guilty to one count of bank fraud stemming from his involvement in a “short sale”(1) mortgage fraud scheme. Sergio Natera, 35, a licensed real estate agent who lives in Bridgeport, admitted his involvement in the crime in Bridgeport federal court on Feb. 11.


  • According to court documents and statements made in court, Natera worked with another real estate agent to defraud Regions Bank, which held two mortgages on a residential property in Bridgeport. On Dec. 5, 2007, the other real estate agent, who was a listing agent for the property, received an offer to purchase the property for a price of $132,500, according to a release from the U.S. Attorney’s Office.

  • However, Natera subsequently communicated to Regions Bank that the highest offer to purchase the property was for $102,375 by BOS Asset Management LLC, an entity that Natera controlled, the release said. The bank reportedly agreed to a short sale of the property for the lower price, and released its mortgages on the property. On June 9, 2008, Natera, through BOS Asset Management, sold the property for $132,500 to the original bidder on the property, according to the release.

For more, see Bridgeport resident pleads guilty to mortgage fraud.

For earlier post on this case, see CT Feds Indict Two In Alleged "Short Sale" Flipping Scam Using Straw Buyers To Dupe Lenders Into Accepting Less Than Full Payment On Underwater Loans.

(1) A short sale transaction involves a mortgage holder or lender entering into an agreement to release a mortgage or lien on real property in exchange for payment of less than the total amount owed on the underlying debt.

Wednesday, February 17, 2010

Trio Of "Legal Eagles" Among "Dirty Dozen" Bagged By Brooklyn DA In Unrelated Alleged Real Estate Swiping Scams

In Brooklyn, New York, the Brooklyn Daily Eagle reports:

  • Real estate fraudsters and rogue attorneys exploiting “a new breed of crime” were targeted Thursday by Kings County District Attorney Charles J. Hynes at a press conference announcing several recent mortgage fraud cases in Brooklyn. Hynes’ office has indicted 12 people for real estate crimes allegedly committed over the past several years, and as Hynes pointed out, several of the white-collar fraudsters were attorneys or otherwise close to the court system.


  • In one case, attorney Alan Rocoff is accused of blatantly stealing profits from the auction of a foreclosed church(1) that he was handling as court-appointed referee. Before dying in 2008, Pastor Robert Booker Sr. spent years in court trying to get back $218,000 in profits from the sale of the foreclosed church, which Rocoff auctioned off for $300,000 in 2005.


  • [In a second alleged scam,] One senior citizen and Marine Park homeowner, Jean Kemp, received a phone call in October 2009 demanding that she pay off the mortgage on her property. She thought it was unusual, since Kemp and her husband paid off their mortgage in 1987. “My house has always been my house!” said Kemp, a former banker. After reporting the strange call to state Sen. Carl Kruger (D-Brooklyn), who was at the press conference, Kruger’s attorneys discovered that a new $225,000 mortgage had been filed on the house by suspects Jarret Haber, an attorney, and Victor Koltun, both now charged with grand larceny.

  • Another [alleged] scam, involving a property in Borough Park, was allegedly committed by former attorney Alexander Landy, who was only a member of the bar from 2003 to 2006 before resigning over charges that he stole client funds. Landy allegedly got a $500,000 mortgage from Washington Mutual to buy the property in question. However, he ran the title agency responsible for filing the deed and mortgage, but did neither, and later sold the building without paying Washington Mutual.

For more, see Rogue Attorneys Indicted in Mortgage Scandal.

See also, Kings County District Attorney press release: Kings County District Attorney Charles J. Hynes, New York State Senator Carl Kruger And United States Senator Charles E. Schumer Announce Charges Against 12 People, For Real Estate And Mortgage Fraud.

(1) Some refer to this maneuver as "stealing the surplus." The "surplus" refers to that portion of the proceeds from a foreclosure sale over and above the funds needed to pay off what is owed to the mortgage lender initaiting the legal action. The surplus legally belongs to the foreclosed property owner, subject to any claims of subordinate lienholders, and assuming that neither of the following has already occurred:

(2) At the risk of nauseating regular readers of this blog with this continual reminder, for those who have been screwed out of their money and property by reason of the dishonest conduct (as opposed to careless or incompetent conduct, which doesn't qualify) of their attorneys licensed throughout the U.S. and Canada, and seek to recover some or all of the stolen loot, see:

Maps available courtesy of The National Client Protection Organization, Inc.

Bay Area Man Accused Of Swiping Three Condos Thru Forged Deeds, Then Pocketing $2.2M From Subsequent Refinance

In San Francisco, California, the San Francisco Chronicle reports:

  • A 45-year-old San Francisco tennis instructor has been charged with fraudulently obtaining ownership of three high-rise condominiums and borrowing $2.2 million against them. Winston Lum appeared Friday in San Francisco Superior Court but did not enter a plea to 16 felony counts including charges of grand theft, identity theft and forgery, related to a scheme that prosecutors called "an act of hubris difficult to fathom." Lum, who runs a tennis business called Slam and Bang Tennis, was being held on $7.5 million bail.(1) He does not yet have an attorney.

  • Prosecutors say that starting in January 2009, Lum forged the true owner's signatures on grant deeds for three condominiums at One Rincon Hill, put them in his name and recorded them with the city. He then borrowed $2.2 million against the units, which are worth a total of $7.5 million, prosecutors said.

  • The owner of the properties, identified in a civil lawsuit as Shirley Hwang, had never even met Lum, let alone authorized the transactions, prosecutors said.(2) She sued Lum and his lender, De Witte Mortgage Investors Fund, last year. A trial is set for May. "The whole thing is terrible," said Thomas Mayhew, Hwang's attorney. "Their own forgery expert confirmed that the signature on the deed was not hers ... but they still won't release the mortgage" out of Lum's name.

Source: Tennis teacher accused of condo scam.

(1) Reportedly, Lum was free on $45,000 bail at the time of his arrest while awaiting trial for separate burglary and theft cases, court records show. Those cases are still pending.

(2) Authorities say Hwang became suspicious when she started getting mail for Lum at her home, according to the story. She went to police in March after the management told her she no longer owned the unit in which she lived, the story states.

Loan Mod Outfit Settles Suit w/ State AG Alleging Unlicensed Activity; Agrees To Refund Customer Cash, Pay $5K Penalty, Promises Never To Do It Again

From the Office of the Nevada Attorney General:

  • Nevada Attorney General Catherine Cortez Masto announced [] that an agreement has been reached with Focus 2000 Financial Corporation regarding its unlicensed loan modification program. The State of Nevada has alleged that Focus 2000 Financial Corporation operated a loan modification service without the proper licensing by the Nevada Mortgage Lending Division and took payment for services prior to the completion of the loan modification in violation of Nevada deceptive trade law.


  • As a result of the settlement, Focus 2000 Financial Corporation will agree to refund all monies paid by homeowners who did not have their loan modification completed and to pay a civil penalty of $5000. Focus 2000 Financial Corporation will provide documentation to show that refunds were paid as promised and has agreed not to engage in any loan modification or other credit repair activities without the proper licenses and permits.

Source: Attorney General Masto Announces Civil Agreement In Mortgage Fraud Case.

Ten Southwest Ohio Homeowners Demand Actual, Punitive Damages From BofA For Stiffing Them On Loan Modification Promises, Says Suit

In Cincinnati, Ohio, Business Courier of Cincinnati reports:

  • Lawyers at the Legal Aid Society of Southwest Ohio have filed a lawsuit against Bank of America, alleging it failed to follow through on promises it made to modify mortgage loans. The lawsuit was filed on behalf of 10 Ohio homeowners who participated in a federal “borrower outreach” program in Cincinnati last October.

  • Bank of America representatives agreed to modify their loans at the event, but it has never honored its commitments, the complaint contends. The homeowners relied on the bank’s promises and representations, missing out on other opportunities to address their financial problems, it said. The lawsuit was filed Feb. 10 in U.S. District Court for the Southern District of Ohio in Cincinnati.

  • Mark Lawson is one of three lawyers at the Legal Aid Society representing the plaintiffs. The homeowners now face imminent foreclosure and damage to their credit ratings, he said in a statement. The lawsuit seeks a court order compelling Bank of America to modify the loans and to pay actual and punitive monetary damages.

Source: Ohio homeowners sue Bank of America over mortgage program.

Alleged $2,500 Loan Modification Ripoff Leaves Denver Senior Facing Foreclosure; Ownership Of Home Of 25 Years In Jeopardy

In Denver, Colorado, KDVR-TV Channel 31 reports:

  • 70-year-old Connie Somerhalder thought she was going to stay in the home she has owned for 25 years. Instead, she just found out she got scammed out of $2500.00 and her home is in foreclosure. "I've been here almost 25 years, then somebody comes along and takes it all away, it hurts," Connie said. Connie lives on her Social Security income. She wanted to modify her existing home loan to reduce her monthly payment and contacted "American Mortgage Consultants," after hearing an advertisement on a local radio station.

  • "I thought they were helping me out."American Mortgage Consultants told Connie she would have to pay $2500.00 up-front, and she was told to stop paying her mortgage and don't contact the bank. "They told me not to contact the bank. They were taking care of everything." Six months later, Connie found out her home was in foreclosure and she had been scammed. "I cried a lot, believe me, I cried a lot," Connie told us.

  • We went looking for answers at the company's Aurora location. The door was locked and when the receptionist opened the door she wouldn't let us in."Please leave," she said. "I only work here. Oliver Maldonado (the company owner) is not here."

For more, see Loan modification scams running rampant in Colo.

New Hampshire Man Faces Charges Of Illegally Pocketing Upfornt Fees, Failing To Make Good On Promises In Separate Loan Modification, Refinance Scams

From the New Hampshire Department of Justice:

  • [Eric W.] Eliason [aka Ricky Masci], 30, of Tamworth New Hampshire, is charged with crimes that occurred in connection with his business, Deaf and Hard of Hearing Mortgage Consultants.(1) The first set of complaints allege that the defendant took up-front money to assist hard of hearing victims in completing a loan modification of their home mortgage. The complaints allege that numerous representations were made to the homeowners that the modification was in process, and then that the modification was denied. It is further alleged that the defendant had never contacted the mortgage company to perform a modification. It is also alleged that Eliason intended to take advantage of the victim’s physical condition that impaired the victim’s ability to manage their property or financial resources or to protect their rights or interests.

  • A second set of complaints allege that the defendant attempted to broker a re-finance of a home loan for another hard of hearing couple. It is alleged that he obtained up-front fees with the promise that in the event the re-finance was not completed, money would be refunded. No loan was obtained, and no money was refunded. Eliason was not licensed to conduct any of these transactions.

For the NHDOJ press release, see Arrest for Class A Felony Theft with extended term of imprisonment, Class B Felony Mortgage Fraud, Class A Misdemeanor Mortgage Fraud.

(1) Eliason faces charges of Theft by Deception, Failure to Obtain a Debt Adjustment License, Untrue Statement and Fraudulent Business Practice; and Failure to Obtain a Mortgage Originators License and Untrue Statements, according to the NHDOJ press release.

Tuesday, February 16, 2010

Role Played By Unlicensed "Broker" In Foreclosure Rescue Ripoff Violates State R/E License Law, Enough To Sink Sale Leaseback, Says C. Fla. Civil Jury

In Sarasota, Florida, the St. Petersburg Times reports:

  • In 2005, Thomas Cook told 68-year-old Yolanda Rodriguez that the St. Petersburg company he worked for could help save her home from foreclosure. Instead, Garco Inc. got the deed to the house, and Rodriguez, who was evicted, lost as much as $200,000 in equity.(1) But on Thursday, a Sarasota County jury found that the transaction that cost Rodriguez her home was invalid because Cook, acting as a broker on the deal, did not have a Florida real estate license.

  • The verdict paves the way for Rodriguez to get back her 2,300-square-foot Englewood pool home. It could also provide legal ammunition for others who have lost their houses to "foreclosure rescue" companies like Garco and its owner, Gideon Rechnitz, whose real estate license was revoked for alleged fraud in 1990. "A licensed real estate agent would not have been allowed to do anything Thomas Cook did," says Elizabeth Boyle, a Gulfcoast Legal Services attorney who represented Rodriguez.


  • Rodriguez's case is thought to be the first in which a jury verdict hinged on whether someone involved in property transactions for a foreclosure rescue company is subject to the Florida Real Estate License Act.(2) But it is not the first case against Rechnitz and Cook to go to trial. In October, another Sarasota jury awarded $93,467 to Wanda Costa, who claimed the men scammed her out of her Port Charlotte home in violation of Florida's Deceptive and Unfair Trade Practices Act. That verdict is under appeal.

For more, see Second jury finds fault with controversial foreclosure rescue deals.

(1) Reportedly, Rodriguez, now 72, said she stopped paying rent because foreclosure rescue operator Gideon Rechnitz failed to make promised repairs. He evicted her and her deaf brother in 2006 and had all of their possessions, including family photos, loaded into portable storage units, the story states. Rodriguez reportedly said she was unable to retrieve the items because they were stored in Rechnitz's name. Everything was sold at public auction, and brother and sister spent weeks in a Salvation Army shelter and cheap hotels before landing in a small apartment with donated furniture, according to the report.

(2) Florida law defines a broker as someone paid for acting on behalf of another person in real estate transactions. Reportedly, In a sworn deposition before trial, Cook called himself "a broker" and acknowledged he had been paid $1,975 for his dealings with Rodriguez. By finding for Rodriguez on the licensing issue, the verdict voided the entire transaction and set the stage for a March hearing in which Circuit Judge Lee Hayworth could return the deed to her.

Hawaii Feds Win Conviction Of Man Who Used Straw Buyers In Sale Leaseback Foreclosure Rescue Ripoffs; Pocketed $430K+ In Two Equity Stripping Scams

In Honolulu, Hawaii, the Star Bulletin reports:

  • A Nevada businessman was convicted Wednesday of 22 felony counts, for swindling banks and two struggling homeowners on Oahu out of their homes and loan proceeds. A federal jury convicted John Gilbert Mendoza, 58, on one count of conspiracy, 10 counts of mail and wire fraud, two counts of loan fraud, six counts of money laundering and three counts of failure to file a tax return,(1) the U.S. Attorney's Office announced [last] week. Five others have pleaded guilty in connection with the scheme and are awaiting sentencing.

  • U.S. Attorney Florence Nakakuni said the evidence showed Mendoza, president of a Nevada corporation with bank accounts in Hawaii, had befriended Hawaii homeowners facing foreclosure. He told them he had a plan to stop foreclosure proceedings that would allow them to keep their homes.

  • But instead, Mendoza organized the sale of the homes to third-party straw buyers, who took out loans in their names and used falsified information concerning income, who was going to live in the home and who would make monthly payments. After obtaining the loans, Mendoza deposited the proceeds totaling more than $431,000 into his own accounts.
    When the loans were defaulted on, the properties were foreclosed on and sold.

For the story, see Swindler is convicted of 22 felony counts.

For an earlier post announcing the indictments in this case, see Hawaii Feds Indict Five In Alleged Straw Buyer Foreclosure Rescue Scam.

(1) The conviction on the Federal tax charges should serve as a reminder that, if you can't bag the perpetrators of these scams with proof beyond a reasonable doubt on the substantive criminal charges, you can generally count on them to fail to file their tax returns and pay the income tax on the illegal profits thereon. Accordingly, you can nail them for that, the same way the Feds put alleged gangster Al Capone out of commission.

Peddling Bogus Sale Leasebacks To Homeowners In Danger Of Foreclosure Among Criminal Allegations Facing Missouri Pair, Say St. Louis Feds

In St. Louis, Missouri, the St. Louis Business Journal reports:

  • A St. Charles developer and mortgage broker and a Lake St. Louis woman have been indicted on multiple mortgage fraud charges. Jeremy Beadle, 37, of St. Charles, was president of Network Ventures, a business engaged in mortgage processing and real estate brokerage, and also the rehabilitation of real estate properties in need of repairs. Beadle also operated and managed Premier Mortgage Funding, a mortgage brokerage company, owned by Network Ventures. Rebecca Domecillo, 48, of Lake St. Louis, was an officer of Network Ventures and also participated in the operations and management of Premier Mortgage Funding.

Among other allegations:

  • [B]eadle offered to purchase real estate properties from individuals who needed to refinance the mortgages on their residences because they were in danger of foreclosure. Beadle offered to buy these properties for a price in excess of the balance of the existing mortgage and told the sellers they could rent the properties and he would apply the rent payment to the mortgage. But Beadle failed to make the mortgage payments as agreed, and these properties were foreclosed, resulting in losses to the mortgage lenders, according to the indictment.

For more, see St. Charles developer indicted on mortgage fraud charges.

Pennsylvania Attorney First To Cop Plea In Alleged Sale Leaseback, Equity Stripping Ripoff Targeting Homeowners Seeking Foreclosure Rescue

In Philadelphia, Pennsylvania, the Philadelphia Daily News reports:

  • A Doylestown lawyer admitted his guilt [] in federal court in connection with a $14.6 million mortgage-fraud scheme that victimized 35 homeowners from fall 2004 to June 2007. Stephen G. Doherty, 43, pleaded guilty to 15 counts of conspiracy, wire fraud and related bankruptcy and money-laundering offenses. U.S. District Judge Mary McLaughlin set sentencing for May 24.(1)


  • In fall 2004, Doherty mailed advertisements to distressed homeowners and referred respondents to co-defendant Edward McCusker, who owned a mortgage company. McCusker, who has pleaded not guilty in the case, allegedly told homeowners he could save their homes by getting a mortgage in someone else's name for a year, while they leased the house back at a rent they could afford.

  • Instead, court papers said McCusker, of New Hope, arranged for the homeowner's residence to be transferred to a straw purchaser, used fake documents to obtain a mortgage in the name of the straw purchaser and took proceeds of sales for himself and co-defendants.

For more, see Lawyer admits mortgage scam.

For the indictment, see U.S. v. McCusker, et al.

For an earlier post on the related indictment in this case, see Philly Feds: Two Lawyers Among Five Who Ran Bogus Sale Leaseback, Equity Stripping Racket Clipping 35 Homeowners Of $14.6M; Civil Suit Pending.

(1) According to the story, the government alleged that Doherty and four others targeted homeowners facing foreclosure, promised to help them save their homes, engaged in real-estate transactions with straw purchasers and obtained dozens of bogus mortgages. Reportedly, authorities said most of the victims did not ultimately lose their homes in the scheme. Doherty, a bankruptcy lawyer, admitted involvement with four mortgage scams involving homeowners in Chalfont, Quakertown, Perkasie and Lumberville. The Perkasie and Lumberville homeowners were clients of Doherty, the story states.

Mortgage company owner Edward McCusker and his wife, Jacqueline, of New Hope, Doherty's law partner Jeffrey Bennett, of Springfield, and John Bariana, of Mullica Hill, N.J. have pleaded not guilty. The criminal probe in this case may have been triggered by an earlier-filed civil lawsuit brought by some of the victims of this alleged scam against Doherty and others. See The Intelligencer: Suit claims 9 are victims of mortgage scheme. foreclosure rescue

Failure To Allege Charging Of Excessive Interest In Sale Leaseback, Foreclosure Rescue Suit Fatal To Usury Claim

In a recent ruling awarding a six-figure judgment to a New Jersey homeowner/couple who were swindled in an equity stripping, foreclosure rescue ripoff, a Federal bankruptcy judge recharacterized a sale leaseback as an equitable mortgage, and granted relief on most of the Plaintiff/homeowners' claims. However, he refused to grant relief on a claim that the equitable mortgage violated the state usury statute. The judge's reason, according to the written ruling, follows:

  • Plaintiffs' pre-trial brief raises for the first time the allegation that this transaction violates the state criminal usury law. N.J. STAT. ANN. §2C:21-19. By Plaintiffs' calculation the annual interest rate could be as high as 227% . Charging interest over 30% per annum [in New Jersey] is a crime. They ask the court to treat their contract with Cleveland as illegal and refuse to enforce it. As a remedy they seek a return of their property and damages. This theory was not plead in the complaint and the court will not grant any relief based on the alleged violation of the state criminal usury statute.

The judge's refusal to grant relief on the homeowners' usury claim was based strictly on procedural grounds, and, given their success on other claims in the suit, may not have affected the total award they could have reasonably expected to obtain anyway. However, the ruling nevertheless serves as a reminder that, in any attempt to undo this type of deal by asserting that the arrangement was an equitable mortgage (ie. a loan disguised as a sale leaseback), it's a good idea to plead in the complaint that, if applicable, the state usury statute was violated(1).

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).

(1) Especially in states where certain violations of usury statutes render the debt unenforceable. For example, in Florida, willfully and knowingly charging interest on a loan in excess of 45% is a felony criminal offense and could ostensibly obliterate the foreclosure rescue operator's entire investment in the deal. Sec. 687.071(3), 687.071(7), Florida Statutes.

Monday, February 15, 2010

Fla. High Court Enacts Procedural Rules To Apply In Residential F'closre Mediations; Seeks To Tamp Down Use Of "Lost Note" Affidavits, "Sewer Service"

In Tallahassee, Florida, The Associated Press reports:

  • Lenders will be required to pick up the tab for investigating and verifying ownership and then try mediation before foreclosing Florida home mortgages under new rules approved Thursday by the Florida Supreme Court.(1) The rules are designed to help Florida's judicial system better cope with a flood of foreclosures. They follow a December administrative order by Chief Justice Peggy telling local judges to adopt a uniform mediation program.(2)


  • The rules and corresponding legal forms were proposed by a pair of Florida Bar panels. "They found that many cases were being filed by plaintiffs that didn't' own the mortgages any more," said Miami lawyer Mark Romance, who chairs the Civil Procedures Rules Committee. Romance said other cases were being filed against people who no longer owned the homes.

For the story, see Justices Adopt Fla. Foreclosure Mediation Rules (Supreme Court requires mediation to help cope with flood of Florida foreclosure cases).

(1) The court's new rules address the ever-proliferating use of "lost note" affidavits by foreclosing lenders' attorneys, and "sewer service" engaged in by process servers delivering the lawsuits to homeowners (see Case No. SC09-1460 and Case No. SC09-1579 (consolidated): In Re: Amendments To The Florida Rules Of Civil Procedure, pp.3-6):

  • First, rule 1.110(b) is amended to require verification of mortgage foreclosure complaints involving residential real property. The primary purposes of this amendment are (a) to provide incentive for the plaintiff to appropriately investigate and verify its ownership of the note or right to enforce the note and ensure that the allegations in the complaint are accurate; (b) to conserve judicial resources that are currently being wasted on inappropriately pleaded ―lost note counts and inconsistent allegations; (c) to prevent the wasting of judicial resources and harm to defendants resulting from suits brought by plaintiffs not entitled to enforce the note; and (d) to give trial courts greater authority to sanction plaintiffs who make false allegations.

  • Next, the Task Force proposed a new form Affidavit of Diligent Search and Inquiry. In its petition, the Task Force explained that many foreclosure cases are served by publication. The new form is meant to help standardize affidavits of diligent search and inquiry and provide information to the court regarding the methods used to attempt to locate and serve the defendant. We adopt this form as new form 1.924, with several modifications. [...]

(2) The December, 2009 court order adopted last August's recommendations by the court’s Task Force on Residential Mortgage Foreclosure Cases.

Sloppy "Sewer Service" Leads To Another Void Foreclosure Judgment

A recent court ruling by the Indiana Court of Appeals voiding a default judgment in a foreclosure action serves as a reminder to all attorneys and process servers (as well as homeowners who are fighting off foreclosure) that, when initial attempts to personally serve the defendants with the lawsuit fails, a diligent search for them must be made and properly documented before an alternative manner of serving the lawsuit can be used. Further, when the alternative manner is used, failure to comply with all the statutory technicalities associated therewith will provide additional grounds to render the judgment void.

In this case, representatives for a foreclosing first mortgage holder used minimal efforts (an online "People" search on Yahoo) in a failed attempt to locate the whereabouts of a second mortgage holder (an individual) to effect personal service before utilizing the alternative manner.- publishing the summons in the local newspaper. The court also found that compliance with the required statutory technicalities when opting for this manner of service was lacking. Consequently, the appeals court ruled that the lower court did not acquire personal jurisdiction over the second mortgage holder, thereby rendering the default judgment void.

For the specific facts in the case and the court ruling applying Indiana law, see Yoder v. Colonial National Mortgage, No. 32A01-0908-CV-393 (Ind. Ct. of App., February 3, 2010). sewer service

Video "Tutorial" Demonstrates Use Of Dubious Affidavits, Assignments, Notary Acknowledgements By Lender, Law Firm In Foreclosure Actions

In Central Florida, St. Petersburg foreclosure defense attorney Matthew Weidner writes in his blog on a five-part video that hit You Tube last week that provides a great tutorial for the average homeowner interested in learning how foreclosing lenders and the foreclosure mill law firms that represent them use fraudulent affidavits, assignments, and document notarizatons in the course of processing a typical foreclosure. He says:

  • A reader of my blog emailed me [five] short YouTube Videos that shows in black and white in papers filed in courts across the country how employees of law firms and lenders are creating false affidavits and assignments then submitting these in courts as part of the Bank's campaign to take borrower's homes even though they have not established the legal right to do so. I love his quote, which I have printed above and give him great credit for pulling together video and documents that demonstrate some of the notary\affidavit fraud that is rampant in foreclosure cases around the country.


  • What these clips demonstrate is how law firms file foreclosure cases on behalf of lenders but then don't bother to have the proper paperwork they need to file the case created until after the case if filed. I have previously posted information about a woman named “Erica A. Johnson-Seck”. According to a deposition transcript taken of Ms. Seck and posted on this blog elsewhere, one of Ms. Seck's primary job functions is to sign the Assignments of Mortgage that banks use to throw a borrower out of a home.(1) What these videos demonstrate is that there are a handful of people like Ms. Seck whose job it is to sit in offices across the country, signing documents allegedly on behalf of lenders and MERS, which documents then form the basis for the lender to throw the borrower out of the home.

For more, see Foreclosure Fraud - Video Examples of False Affidavits Filed in Courts Across The Country ("You Can’t Have An Omelet If The Chicken Hasn`t Laid The Egg Yet!").

For the links to the 5-part You Tube video Bank Foreclosure Fraud (made available online courtesy of DinSFLA's Channel - STOP Foreclosure Fraud, on You Tube), see:

(1) Go here for Erica Johnson Seck's deposition, go here for a Motion For Sanction Of Dismissal With Prejudice in connection with the same litigation, and go here for links to other posts on Erica Johnson-Seck (available online courtesy of 4closureFraud - Fighting Foreclosure Fraud by Sharing the Knowledge).

Go here for other posts on attorney Matthew Weidner's blog referencing Erica Johnson-Seck.

Go here for other documents on fighting foreclosure, available online courtesy of 4closureFraud.

Loan Transfer Screw-Up Leaves Couple Facing Foreclosure; RESPA Suit Claims Original Lender Failed To Pass Along House Payments To New Mortgage Holder

In Lancaster, Ohio, The Columbus Dispatch reports on local couple Kreg and Audre Smith and the problems they now face due to a screw-up that occurred when their home mortgage loan was transferred from one lender to another:

  • The Smiths aren't rich, but neither did they struggle to make the $876 monthly payment. They arranged for Fifth Third to deduct the money directly from their Chase bank account. In November 2008, Fifth Third notified them that their mortgage had been transferred to U.S. Bank. A month later, Audre noticed that Fifth Third had deducted a payment for December. She assumed that money was passed on to U.S. Bank. The same thing happened in January, and Audre assumed the same thing.

  • Those assumptions, though, proved in error: On Jan. 12, 2009, U.S. Bank alerted the Smiths that they were two months behind in their payments and advised them to contact the bank's default counseling department.


  • In July came the inevitable: U.S. Bank filed a notice of foreclosure in Fairfield County. Audre sought help from the Ohio Poverty Law Center, which has since done battle with U.S. Bank in court. Douglas Rogers, a former partner with Vorys, Sater, Seymour and Pease who now works at the law center, took the Smiths' case.

  • He is arguing that the banks violated the Real Estate Settlement Procedures Act, commonly known as RESPA, which prohibits a transferred loan from being treated as delinquent if the original lender doesn't pass on the payment. Rogers wants the court to compel U.S. Bank or Fifth Third to resume the loan after bringing it up to date.

For more, see Bank glitch traps Lancaster pair in web of foreclosure.

Ohio Appeals Court Rejects "Rubber Stamp Method" In Adjudicating Foreclosure; "Servicer Switch" Caused Payment Posting Screw-Up, Says Homeowner

The following facts have been extracted from a recent ruling of an Ohio appeals court involving a residential foreclosure action:

  • Flagstar Bank files a complaint commencing a foreclosure action against homeowners Moore and Braxton, alleging a default in the loan payments.

  • Homeowners file an answer to the complaint, asserting the following affirmative defenses: (1) failure to state a claim; (2) plaintiff was not the real party in interest; and (3) payment.

  • In connection with the "payment" defense, Moore averred in court papers to have made his monthly payments to Flagstar Bank and continued to do so through December 2006.

  • Moore averred in court papers that after he sent his December 2006 payment to Flagstar Bank, he received a letter dated December 26, 2006, advising that the note had been assigned to Countrywide Mortgage and was no longer serviced by Flagstar Bank; Moore's December payment was returned.

  • According to Moore, at no time prior to the December 26 letter was he advised that the note had been assigned and/or that he was to direct payment other than to Flagstar Bank.

  • Moore further averred in court papers that after receiving the December 26 letter, he called Flagstar Bank and Countrywide Mortgage and both claimed the note was in default and that no payment on it would be accepted.

  • According to Moore, none of the payments made on the note from August 2006 through November 2006 were returned to him. Moore submitted copies of the checks (and postage receipts) sent to Flagstar Bank from June 2006 through November 2006.

  • Moore also averred in court papers that he never received notice of being in default on the note.

  • Flagstar Bank did not file a reply brief in the trial court addressing any of Moore's contentions.

Despite the bank's failure to reply to any the homeowners' contentions, the magistrate found that no genuine issues of material fact existed and the bank was entitled to judgment as a matter of law. Moore and Braxton filed objections to the magistrate's decision. The trial court overruled the objections and rubber-stamped the bank's motion for summary judgment.

On appeal, Moore and Braxton contended that the trial court erred in granting the bank's summary judgment motion. The bank did not filed a brief on appeal and, as noted above, did not file a reply brief in the trial court.

The Ohio appeals court reversed the summary judgment granted in favor of the bank. In reaching its decision, the court stated:

  • The party moving for summary judgment [ie. the bank] bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Dresher v. Burt (1996), 75 Ohio St.3d 280, 292-293, 662 N.E.2d 264. Once the moving party satisfies its burden, the nonmoving party [ie. the homeowner] "may not rest upon the mere allegations or denials of the party's pleadings, but the party's response, by affidavit or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." Mootispaw v. Eckstein (1996), 76 Ohio St.3d 383, 385, 667 N.E.2d 1197; Civ.R. 56(E). Doubts must be resolved in favor of the nonmoving party. Murphy v. Reynoldsburg (1992), 65 Ohio St.3d 356, 358-59, 604 N.E.2d 138.

Because of the bank's failure to respond to any of the homeowners' claims set forth in his filed affidavit, the Ohio appeals court found that the bank failed to meet its burden of showing that there was no genuine issue of material fact as to who is the real party in interest, the claimed default, and as to whether the bank provided Moore a notice of being in default. Accordingly, summary judgment was deemed inappropriate.(1)

For the court ruling, see Flagstar Bank, FSB v. Moore, 2010-Ohio-375 (February 5, 2010).

(1) Fortunately for Moore, he was in a position to pursue an appeal of the trial court's ruling, an option few homeowners facing foreclosure are in a financial position to avail themselves of. It wouldn't surprise me if the trial judge (and the magistrate) felt, in the back of their minds, that the homeowner was not in a position to appeal their dubious ruling, thereby allowing them to simply "rubber-stamp" the judgment and "keep the foreclosure 'rocket docket' conveyor belt moving forward."

This type of rubber-stamping conduct on the part of some in the judiciary is, I suspect, what New York judge Timothy J. Walker had in mind when, in his recent ruling in Deutsche Bank Natl. Trust Co. v McRae, 2010 NY Slip Op 20020 [Allegany County, January 25, 2010], made this observation expressing his concern for unrepresented homeowners in foreclosure actions:

  • For the unrepresented homeowner, the issues of standing and real party in interest status of the foreclosing party are never considered. Without such scrutiny, there is a risk that the courts will give the judicial "seal of approval" to foreclosures against unrepresented homeowners who have little, if any, understanding of these issues, much less the legal significance thereof. To quote my colleague in Kings County, "[a]llowing this case to proceed on behalf of a plaintiff without standing at the commencement of the action would [also] open the door to potential fraud and place in jeopardy the integrity of title to the property to be foreclosed." [Citigroup Global Markets Realty Corp. v. Bowling, 25 Misc 3d 1244; 2009 NY Slip OP 52567U (Kings County, December 18, 2009)].

Even homeowners who have legal representation may be facing impediments in defending themselves as a result of some judges adopting questionable practices when hearing foreclosures. One Central Florida attorney writes in his blog that, overwhelmed by their caseloads, two judges in Pinellas County, Florida have been said to have adopted practices that, in my view, are consistent with use of the "rubber stamp method" of adjudicating foreclosures (see Matt Weidner Blog: An Anarchist’s Strategy To Dismiss Every Foreclosure In Florida):

  • Things have gotten so bad for the judges that I’m told at least two Circuit Court Judges in Pinellas County (Linda Allan and Douglas Baird) have announced they were no longer going to hear Motions to Dismiss filed by Defendants in foreclosure cases, but were going to start just denying them across the board without even having a hearing on the matter. Now that’s one way to deal with the crisis. It’s an unconstitutional, unfair and totally biased approach that completely ignores the law and the rights of the citizens these judges took an oath to serve, but it is one way to deal with the crisis. (Look for Appeals To Come If This Practice Really Begins to Take Hold.)

Lender's 40 Cent Posting Error When Deducting Automatic Payment From Bank Account Leaves Homeowner In Fear Of Foreclosure

In Lee County, Florida, WINK News reports:

  • In the middle of the multi-billion dollar foreclosure crisis, there's a southwest Florida family that could lose their house over a 40 cent mistake. According to the homeowner, that mistake was his lender's fault. "I'm fearful to send them more money," said the homeowner, who is also afraid of losing his job for talking about the situation publicly. "Mark" said he modified his mortgage to match his lower income after a layoff and thought everything would be alright, until his lender took an automatic payment incorrectly. "They posted it 40 cents short ... three weeks later we get a letter saying you've missed your payment so you're out," said "Mark".


  • [Local foreclosure defense attorney Carmen] Dellutri said his phones are ringing off the hook with homeowners just like "Mark" who think they've resolved their mortgage issues.

For more, see Foreclosed Over 40 Cents? (Homeowner says mistake was lender's fault).

Sunday, February 14, 2010

Minnesota Bona Fide Purchaser, Possession, Duty Of Inquiry

The following compilation of cases is an extended version of the list of Minnesota cases contained in the February 1, 2009 post, Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire, that address the issue of the effect of possession by an occupant of real property by one other than the seller/vendor on a prospective purchaser's status as a bona fide purchaser.

As stated in my February 1 post, these cases are presented here to remind the reader of the importance of giving this issue the serious consideration it deserves when attempting to undo/unwind/void an abusive real estate transaction (ie. foreclosure rescue sale leasebacks, fraudulent inducement in the execution of a deed, forgeries, other real estate swindles) where, after scamming or otherwise abusively relieving an unwitting homeowner of his/her title, the scammer either sells the property to an unwitting third party, or encumbers the property with a loan from an unwitting mortgage lender, neither of whom participated in the abusive transaction with the homeowner, nor having any actual knowledge thereof. Voiding the deeds and mortgages in these cases (in situations where the instruments are voidable, as opposed to being absolutely void - "void ab initio") will turn on whether the subsequent third party purchaser or encumbrancer, despite lacking in actual knowledge of the fraud or other abusive transaction, can otherwise be charged with notice of the fraud, thereby making bona fide purchaser/encumbrancer status unavailable to them and, consequently, subjecting the deeds or mortgages to being voided/rescinded/set aside.

(In a related post that addresses the distinction between deeds that are absolutely void (void ab initio), and deeds that are merely voidable, see Unwinding An Abusive Or Fraudulent Real Estate Transaction? Determining If The Deed Is Void, Or Merely Voidable?)

While certainly not purporting to be an exhaustive list of cases dealing with the issue of possession and the duty to inquire when attempting to establish (or attack) one's status as a bona fide purchaser, the following compilation of case law citations specifically address this issue.

One caveat: Any serious consideration of the bona fide purchaser doctrine should, first and foremost, begin with a reading of the state recording statutes, as they are currently constituted. Since there are over 50 jurisdictions in the U.S., each with their own recording statute, I certainly can't address them here (for the Minnesota recording statute, see Chapter 507 - Recording And Filing Conveyances, and Section 507.34, Minnesota Statutes - the so-called Recording Act). But after reading your state's recording statutes, you may want to consider how these cases, if at all, fit into making the legal analysis necessary when attempting to undo/unwind/void an abusive real estate transaction by attacking the bona fide purchaser status of a subsequent purchaser or encumbrancer/mortgage lender. Keep in mind that, even in the event that the Minnesota state legislature has passed laws subsequent to these court rulings that either modifies or renders them obsolete in Minnesota, the persuasiveness of the logic that underlies them may still be of value to those involved in litigation outside of Minnesota (don't lose sight of the fact that the doctrine of bona fide purchase is not a creature of state statute, but one of English common law, which is the starting point for this doctrine, not only as generally applied in Minnesota, but as generally applied in Minnesota's sister states as well).


Minnesota Supreme Court Cases

West Concord Conservation Club, Inc. v. Chilson, 306 N.W.2d 893; 1981 Minn. LEXIS 1342 (Mn. 1981):

  • A prospective purchaser of real estate has a duty not only to examine defects in the record chain of title but, also, to discover anyone who is in open possession of land. Flowers v. Germann, 211 Minn. 412, 1 N.W.2d 424 (1941). Constructive notice may arise from the presence of structures on the property which indicate the interest of another in the property. Southwest Pipe Line Co. v. Empire Natural Gas Co., 33 F.2d 248 (8th Cir. 1929).

  • Accordingly, a purchaser is bound to inquire into the nature and extent of an occupant's interest. Konantz v. Stein, 283 Minn. 33, 167 N.W.2d 1 (1969). Possession will serve as notice to a purchaser of whatever rights the possessor has that would be discoverable upon reasonable inquiry. Id.

  • Every person who undertakes to deal with an agent is put on inquiry and must discover whether the agent has the authority to complete the proposed act. Mooney v. Jones, 238 Minn. 1, 54 N.W.2d 763 (1952).

Anderson v. Graham Inv. Co., 263 N.W.2d 382; 1978 Minn. LEXIS 1393 (Mn. 1978): In the following excerpt, the state Supreme Court makes a general observation on the bona fide purchaser doctrine:

  • As successor in interest to the Houdes, Top King's rights in the premises depend upon the Houdes' rights as against Anderson as of the date she recorded her contract. It is beyond dispute that as to the Houdes conveyance the Anderson conveyance was first duly recorded.3 Section 507.34 declares the Houde interest void as against the subsequent purchaser, Anderson, if she was, as of the time of her purchase on September 9, 1972, a bona fide purchaser or, in the words of the Recording Act, a "subsequent purchaser in good faith and for a valuable consideration." Such a purchaser is defined as one who gives consideration in good faith without actual, implied, or constructive notice of inconsistent outstanding rights of others. Bergstrom v. Johnson, 111 Minn. 247, 250, 126 N.W. 899, 900 (1910). A purchaser who has either actual, implied, or constructive notice of such outstanding rights is not a bona fide purchaser entitled to the protection of the Recording Act. Ritchie v. Jennings, 181 Minn. 458, 461, 233 N.W. 20, 21 (1930) (actual notice); Henschke v. Christian, 228 Minn. 142, 36 N.W.2d 547 (1949) (implied or inquiry notice); Latourell v. Hobart, 135 Minn. 109, 113, 160 N.W. 259, 260 (1916) (constructive or record notice).

(Footnote 3 of the opinion states: The word "conveyance" as used in the so-called Recording Act, Minn.St. 507.34, has been held to include contracts for deed. Watts v. Lundeen, 165 Minn. 300, 206 N.W. 444 (1925); 16 Dunnell, Dig. (3 ed.) § 8272.)

In footnote 4 of the opinion, the court makes the following passing reference to the effect of possession of property by an occupant on the status of a subsquent purchaser as a bona fide purchaser:

  • It has been held that knowledge of a tenant's open possession and use of property would put a subsequent purchaser on inquiry, charging the purchaser with notice of the tenant's claimed interest in the property. See, e.g., Konantz v. Stein, 283 Minn. 33, 42, 167 N.W.2d 1, 8 (1969); Johnson v. Mugg, 261 Minn. 451, 454, 113 N.W.2d 1, 3 (1962).

Further into the court's ruling, it quotes from its decision in Niles v. Cooper, 98 Minn. 39, 107 N.W. 744 (1906), where it offered this statement on the distinction between constructive notice and the type of notice involved when actual possession of property is involved:

  • " * * * The authorities are uniform that actual possession of real property is notice to all the world of the title and rights of the person so in possession, and also of all facts connected therewith which reasonable inquiry would have developed. The rule in this respect differs from the rule of constructive notice, arising from the record of instruments affecting the title to land; for there the record is notice only of what appears upon its face, and such additional facts as its language directs attention to. In such cases the purchaser may rely upon the state of the title as shown by the record, without further search or inquiry. Bailey v. Galpin, 40 Minn. 319, 41 N.W. 1054."

Konantz v. Stein, 283 Minn. 33; 167 N.W.2d 1; 1969 Minn. LEXIS 1108 (Mn. 1969):

  • A prospective purchaser dealing with realty in possession of one other than the vendor is bound to make inquiry of the occupant and to ascertain the nature and extent of the occupant's interest. Possession of realty by one other than the vendor is not only "prima facie evidence" of title in the possessor, but is also notice to a purchaser of whatever rights the possessor has which would be discoverable upon reasonable inquiry. Flowers v. Germann, 211 Minn. 412, 1 N.W. (2d) 424; Farmers State Bank v. Cunningham, 182 Minn. 244, 234 N.W. 320.

Thompson v. First Nat'l Bank, 180 Minn. 552; 231 N.W. 234; 1930 Minn. LEXIS 1283 (Mn. 1930):

  • The finding that defendant had full notice of plaintiff's right of possession is sustained by the evidence. It may also be said that such actual possession was notice to the world of plaintiff's right to possession and of all facts connected therewith which reasonable inquiry would disclose. Niles v. Cooper, 98 Minn. 39, 107 N.W. 744, 13 L.R.A.(N.S.) 49; Gaertner v. Western Elev. Co. 104 Minn. 467, 116 N.W. 945; Teal v. Scandinavian-Am. Bank, 114 Minn. 435, 131 N.W. 486; Butterwick v. Fuller & Johnson Mfg. Co. 140 Minn. 327, 168 N.W. 18; Oxborough v. St. Martin, 142 Minn. 34, 170 N.W. 707; Hauger v. J.P. Rogers Land Co. 156 Minn. 45, 194 N.W. 95; Watts v. Lundeen, 165 Minn. 300, 206 N.W. 444.

Hauger v. J. P. Rogers Land Co., 156 Minn. 45; 194 N.W. 95; 1923 Minn. LEXIS 477 (Mn. 1923):

  • Actual possession of real property is notice to all the world of the title and rights of the person in possession. Also of all facts connected therewith which reasonable inquiry would disclose, and a purchaser thereof, knowing the possession to be in a third person, is chargeable with notice of such facts. Niles v. Cooper, 98 Minn. 39, 107 N.W. 744, 13 L.R.A. (N.S.) 49; see also note 13 L.R.A. (N.S.) 49. The case comes within the rule announced in Teal v. Scandinavian-American Bank, 114 Minn. 435, 131 N.W. 486, where it is held that

  • "The court will not speculate in cases of this character upon what might happen or be discovered if inquiry were made, but will presume, in the absence of evidence conclusively showing the contrary, that upon inquiry the true situation and claims of the possessor would be made known. The only way of overcoming this presumption is to produce the conclusive evidence, or make the inquiry. The conclusive evidence does not appear, and as no inquiry was made, the presumption must be applied. The defendant was not, therefore, an innocent mortgagee. The rule applies with particular force to those dealing in lands with actual knowledge of the possession of some third person, as in the case at bar."

  • It was held in Ludowese v. Amidon, 124 Minn. 288, 144 N.W. 965, that a failure to make inquiry may be regarded as an intentional avoidance of the truth which it would have disclosed.

Ludowese v. Amidon, 124 Minn. 288; 144 N.W. 965 (Mn. 1914):

(Editor's Note: This case could be extremely helpful towards undoing a sale leaseback, foreclosure rescue scam or a real estate swindle by deed forgery where title or home equity is ripped off. It provides direct support for the proposition that "clear, actual, exclusive possession of the granted premises by the grantor [ie. typically, the screwed-over homeowner], even after delivery and recording of the deed, is notice against purchasers [ie. typically, the foreclosure rescue operator or a straw buyer acting as the operator's alter ego] and mortgagees [ie. typically, the mortgage lender/financial institution that, albeit unwittingly, finances the scam and provides the funds that constitutes the equity strpping proceeds ending up in the scammer's pocket] of the grantor's possible interest in the property"):

  • There is no need of citing authorities in support of the prevailing doctrine in this country that possession is notice to purchasers of land of the possessor's rights therein and that this is applicable to a grantor who remains in possession after conveying. Teal v. Scandinavian Am. Bank, 114 Minn. 435, 131 N.W. 486. It is also well settled in this state ever since Morrison v. March, 4 Minn. 325 (422) that "the actual possession of a tenant not only protects him in the enjoyment of his term but is notice of his landlord's title." Groff v. Ramsey, 19 Minn. 24 (44); Wilkins v. Bevier, 43 Minn. 213, 45 N.W. 157, 19 Am. St. 238; Wolf v. Zabel, 44 Minn. 90, 46 N.W. 81; Groff v. State Bank, 50 Minn. 234, 52 N.W. 651, 36 Am. St. 640; see also note to Miles v. Cooper, 13 L.R.A. (N.S.) title, "American Rule," p. 100.


  • It may be urged, however, that even if she had taken notice of the tenant's possession and inquired of him she would have learned nothing of the facts which went to establish plaintiff's rights to a rescission. A purchaser is only chargeable with such knowledge as a proper inquiry would furnish. He must act reasonably, however, and cannot stop on the threshold of what would most likely lead to full information. This requires not only an inquiry from the tenant but from his landlord. Deetjen v. Richter, 33 Kan. 410, 6 Pac. 595. "The possession of land by a party, through his tenants, is notice to all the world of his rights in the premises, and without inquiry of him no one can claim to be an innocent purchaser as against him." Whitaker v. Miller, 83 Ill. 381; Mallett v. Kaehler, 141 Ill. 70, 130 N.E. 549; Dickey v. Lyon, 19 Iowa, 544.

  • A failure to make inquiry may be "regarded as an intentional avoidance of the truth which it would have disclosed." Betts v. Letcher, 1 S.D. 182, 194, 46 N.W. 193.

Teal v. Scandinavian-American Bank, 114 Minn. 435, 131 N.W. 486 (Minn. 1911):

(See Editor's Note for Ludowese v. Amidon, above. Further, the case the application of the bona fide purchaser doctrine in the context involving an equitable mortgage):

  • Plaintiff, a farmer, was heavily in debt. A bank at Crookston held mortgages upon his land, aggregating several thousand dollars, which plaintiff was unable to pay. He had known Johnson for many years, and had had numerous business transactions with him. Plaintiff testified, in substance and effect, that Johnson was somewhat familiar with his situation, and was aware of the incumbrances against the land. At a meeting or conference between the two, it was agreed that plaintiff would convey the property to Johnson in consideration that he (Johnson) would pay off the mortgages, and, upon being reimbursed by plaintiff, reconvey the property. Johnson paid no consideration for the property. The sole purpose of the transaction was to give to him security for whatever money he might advance in payment and discharge of the existing incumbrances. Plaintiff's testimony upon the subject is clear, and, if true, fully justified the court in reaching the conclusion that the deed was in equity a mortgage, conveying no absolute estate or title to Johnson.

  • It is not important, and is not decisive in such cases, that the relation of debtor and creditor did not exist at the time of the conveyance. Stitt v. Rat Portage Lumber Co., 96 Minn. 27, 104 N.W. 561. It is sufficient if it appear that the purpose was to secure the payment of future advances. Madigan v. Mead, 31 Minn. 94, 16 N.W. 539. Nor is it conclusive against plaintiff that he may have also intended by the transaction the defeat of efforts of other creditors to enforce their claims against him. Livingston v. Ives, 35 Minn. 55, 27 N.W. 74; Over v. Carolus, 171 Ill. 552, 49 N.E. 514; Halloran v. Halloran, 137 Ill. 100, 27 N.E. 82.


  • At the time the mortgages were given to defendant by Johnson, plaintiff was in the actual possession and occupancy of the property. This was notice to all the world of his rights. Niles v. Cooper, 98 Minn. 39, 107 N.W. 744, 13 L.R.A.(N.S.) 49; Groff v. Bank, 50 Minn. 234, 52 N.W. 651, 36 Am. St. 640. Defendant was expressly informed before the mortgages were executed that plaintiff was so in possession, yet made no inquiry concerning his rights, relying wholly upon statements made by Johnson. Having made no inquiry, defendant is chargeable with notice of the actual condition of the title to the land. Randall v. Lingwall, 43 Ore. 383, 73 Pac. 1; Canfield v. Hard, 58 Vt. 217, 2 Atl. 136. Nor does the evidence sustain the claim that inquiry of plaintiff would not have brought to light the truth, or the rights now asserted by him.

  • The trial court found that, had defendant informed plaintiff that Johnson was about to mortgage the land, plaintiff would have disclosed the fact that Johnson had no interest in the land and no right to incumber it by mortgage or otherwise. The further finding that, had defendant made inquiry without disclosing its purpose, or the fact that Johnson was about to mortgage the land, plaintiff would not have disclosed his interest in the property, in no essential way changes the situation or the rights of the parties. The court will not speculate in cases of this character upon what might happen or be discovered if inquiry were made, but will presume, in the absence of evidence conclusively showing the contrary, that upon inquiry the true situation and claims of the possessor would be made known.

  • The only way of overcoming this presumption is to produce the conclusive evidence, or make the inquiry. The conclusive evidence does not appear, and as no inquiry was made, the presumption must be applied. The defendant was not, therefore, an innocent mortgagee. The rule applies with particular force to those dealing in lands with actual knowledge of the possession of some third person, as in the case at bar. The authorities are all collected in a note to Niles v. Cooper, supra, 13 L.R.A.(N.S.) 49.

Niles v. Cooper, 98 Minn. 39; 107 N.W. 744; 1906 Minn. LEXIS 507 (Mn. 1906):

  • The authorities are uniform that actual possession of real property is notice to all the world of the title and rights of the person so in possession, and also of all facts connected therewith which reasonable inquiry would have developed.

  • The rule in this respect differs from the rule of constructive notice, arising from the record of instruments affecting the title to land; for there the record is notice only of what appears upon its face, and such additional facts as its language directs attention to. In such cases the purchaser may rely upon the state of the title as shown by the record, without further search or inquiry. Bailey v. Galpin, 40 Minn. 319, 41 N.W. 1054.

  • But possession is not only prima facie evidence of title, but also notice of whatever rights the possessor may have in the land, and imposes upon the purchaser, with notice of such possession, the duty of making all reasonable inquiry concerning the state of the title. Essex v. Harrison, 57 N.J. Eq. 91, 40 Atl. 209; Joiner v. Duncan, 174 Ill. 252, 51 N.E. 323; Ambrose v. Huntington, 34 Ore. 484, 56 Pac. 513. If proper inquiry be made, and information concerning the rights of the possessor be withheld or concealed possession will be notice only of the fact. 21 Am. & Eng. Enc. (2d Ed.) 588; Wade, Notice, § 286. Or, if a specific title be disclosed, further investigation is unnecessary. Thompson v. Lapsley, 90 Minn. 318, 96 N.W. 788.

Groff v. State Bank of Minneapolis, 50 Minn. 234; 52 N.W. 651; 1892 Minn. LEXIS 287 (Mn. 1892):

(See Editor's Note for Ludowese v. Amidon, above):

  • Creditors may be postponed or defeated by notice of claims of third parties to property the record and title of which is in their debtor; and possession may be notice to them, as well as to a purchaser, so as to preclude them from obtaining a lien on the estate or interest of the occupant. Lamberton v. Merchants' Nat. Bank of Winona, 24 Minn. 281. The general rule is that possession of land is notice to a purchaser of the possessor's title.

  • The only question in this case is whether this rule applies where the grantor remains, after the delivery of his deed, in possession of the granted premises. This is a question upon which the authorities are not agreed.

  • Some cases hold that the deed is conclusive that the vendor has reserved no interest in the land; that having, in effect, so declared by his conveyance, he is estopped from setting up any secret arrangement by which his grant is impaired; that, although he remains in possession, a person seeking to obtain an interest in the premises has a right to assume, without inquiry, that he is in possession merely for a temporary purpose, as tenant at sufferance of his grantee. But it seems to us that, inasmuch as the law allows possession to have the effect of notice, there is no good reason for making a distinction between possession by a stranger to the record title and possession by the grantor after delivery of his deed.

  • In either case the possession is a fact inconsistent with the record title, and, if possession by the stranger is sufficient to make it obligatory upon a purchaser to ascertain his right, possession by the grantor is a circumstance entitled to equal consideration.

  • An absolute deed divests the grantor of the right of possession as well as of the legal title, and when he is found in possession after delivery of his deed it is a fact inconsistent with the legal effect of the deed, and is suggestive that he still retains some interest in the premises. Under such circumstances, a purchaser has no right "to give controlling prominence to the legal effect of the deed," in disregard of the other "notorious antagonistic fact," that the grantor remains in possession just as if he had not conveyed. To say that the grantor is estopped by his deed is begging the question; for, if his possession is notice to third parties of his rights, there is no principle of estoppel that would prevent him from asserting against purchasers or creditors any claim to the premises which he might assert against his grantee. This view is abundantly sustained by authority. See Devl. Deeds, §§ 761-765; note to Le Neve v. Le Neve, 2 Lead. Cas. Eq. pt. 1, p. 180, et seq.; Pell v. McElroy, 36 Cal. 268.

Groff v. Ramsey, 19 Minn. 44; 1872 Minn. LEXIS 3 (Mn. 1872):

  • It has been distinctly held by this court that "when a purchaser buys land or takes an incumbrance on it when it is in the actual possession of one other than the vendor, he is required to communicate with such tenant or occupant, and find out the particulars of his claim and interest, and also from whom he holds;" and that "the actual possession of a tenant not only protects him in the enjoyment of his term, but is notice of his landlord's title." Morrison v. March, 4 Minn. 422, (Gil. 325.) The question was directly presented in the case cited, and the authorities upon the point underwent a considerable examination, the conflict of decisions thereon being clearly recognized, and the conclusion arrived at was determined by the court to be the better rule.

  • In addition to the authorities cited in the case in support of the rule laid down by the court, we may refer also to the following cases which hold the same doctrine: Sailor v. Hertzog, 4 Whart. 259; Hood v. Fahnestock, 1 Pa. 470, in which the point is elaborately discussed by Rogers, J., delivering the opinion of the court; Met. Bank v. Godfrey, 23 Ill. 579; Morrison v. Kelly, 22 Ill. 610; Dickey v. Lyon, (1865,) 19 Iowa 544, in which Morrison v. March is favorably commented on.

  • Principles of law affecting the title to real estate, when once settled, should not be changed except for very weighty reasons. The decision in Morrison v. March may properly be regarded as a rule of real property. It was rendered soon after the formation of our state government, and has remained unreversed, and doubtless acted upon, ever since. Under such circumstances we do not feel at liberty to regard the question as an open one. Bidwell v. Coleman, 11 Minn. 78, 89, (Gil. 45;) Propeller Genesee Chief v. Fitzhugh, 12 How. 443, 13 L. Ed. 1058.

Minnesota Court of Appeals

Stone v. Jetmar Props., LLC, A06-851, 733 N.W.2d 480; 2007 Minn. App. LEXIS 80 (Minn. App. 2007):

  • Public policy generally favors allowing a degree of reliance on the title shown in public records. See Nussbaumer v. Fetrow, 556 N.W.2d 595, 599 (Minn. App. 1996), review denied (Minn. Feb. 26, 1997) (stating policy of allowing judgment creditors to rely on record). But the reliance allowed is not absolute. A "party attempting to invoke the doctrine [of equitable estoppel] cannot be negligent and cannot have knowledge of the defect in the title." W. Concord Conservation Club, Inc. v. Chilson, 306 N.W.2d 893, 896 (Minn. 1981).

  • A prospective purchaser is obligated to discover anyone in possession of the land at issue and to "inquire into the nature and extent of the occupant's interest." Id. As a result of this obligation, the purchaser is held to have knowledge of all the "rights of the [possessor] and also of all facts connected therewith which reasonable inquiry would have developed." Claflin v. Commercial State Bank, 487 N.W.2d 242, 248 (Minn. App. 1992), review denied (Minn. Aug. 4, 1992). "In order to have status as a bona fide purchaser the mortgagee's inquiry must be directed to the person in possession; inquiry of the mortgagor, who may have reason to conceal the truth, is not sufficient." Id.

Deming v. Scherma, (unpublished) 2001 Minn. App. LEXIS 988 (Mn. Ct. of App. 2001):

  • A bona fide purchaser is one who does not have "actual, implied, or constructive notice of inconsistent outstanding rights of others." Anderson v. Graham Inv. Co., 263 N.W.2d 382, 384 (Minn. 1978) (citation omitted).


  • A purchaser has implied notice if one has "actual knowledge of facts which would put one on further inquiry." Id. For example, a subsequent purchaser is put on inquiry if another person exhibits actual, open possession and use of the property. Miller v. Hennen, 438 N.W.2d 366, 370 (Minn. 1989).

Nussbaumer v. Fetrow, 556 N.W.2d 595; 1996 Minn. App. LEXIS 1406, (Mn. Ct. of App. 1996):

  • The recording act serves to shield a record owner's judgment creditors against claims to the real estate of which the creditors have no notice. Lowe, 201 Minn. at 285, 276 N.W. at 226; see also 6A Richard R. Powell, Powell on Real Property § 82.01(1), at 82-3 (Patrick J. Rohan, ed. 1996) (recognizing one object of recording statutes is to establish priority system to resolve conflicting claims to real estate).

  • Therefore, the protection of the act is lost to creditors with actual, constructive, or inquiry notice of a third party's rights in the property inconsistent with the judgment debtor's. See Oxborough v. St. Martin, 142 Minn. 34, 35, 170 N.W. 707, 708 (1919) (holding unrecorded prior deed takes precedence if judgment creditor chargeable with notice before judgment attaches); Northwestern Land v. Dewey, 58 Minn. 359, 363-64, 59 N.W. 1085, 1085-86 (1894) (disallowing judgment creditor protection of recording act where creditor was on inquiry notice of tenant's rights in property); Hentges v. P.H. Feely & Son, 436 N.W.2d 488, 492 (Minn. App. 1989) (assigning priority to unrecorded prior interest holders where judgment creditors had inquiry notice of unrecorded conveyance), review denied (Minn. Apr. 26, 1989).

  • Third-party possession of property constitutes inquiry notice to a judgment creditor if it is an "actual, open, visible, and exclusive possession," inconsistent with the title of the record owner. Farmers State Bank, 182 Minn. at 246, 234 N.W. at 321; accord Powell, supra, §82.02(1), at 82-57 (requiring that actual possession be "clearly hostile" to record title owner); see Henschke v. Christian, 228 Minn. 142, 146-47, 36 N.W.2d 547, 550 (1949) (imputing notice when creditor has knowledge of facts that "ought to have put him on an inquiry" and would have led to knowledge of prior conveyance); see also Northwestern Land, 58 Minn. at 364, 59 N.W. at 1086 (attributing to judgment creditor inquiry notice equivalent to that of bona fide purchaser); cf. Wilkins v. Bevier, 43 Minn. 213, 218, 45 N.W. 157, 158 (1890) (declining to impute notice of facts to which pertinent inquiries might possibly, but would not naturally, lead). The objective circumstances must indicate that someone other than the record owner has rights in the property; equivocal or temporary possession does not put a creditor on notice of an unrecorded conveyance. Farmers State Bank, 182 Minn. at 246, 234 N.W. at 321 (finding no inquiry notice where outsider would not have seen change in possession).

Claflin v. Commercial State Bank, 487 N.W.2d 242; 1992 Minn. App. LEXIS 532 (Mn. Ct. of App. 1992)

Editor's Note: This case could be extremely helpful towards undoing a sale leaseback, foreclosure rescue scam or a real estate swindle by deed forgery where title or home equity is ripped off. It involves a son who fraudulently induced his mother into signing over title to her home, afterwhich he pocketed the proceeds from bank loans that he took out, secured by two mortgages on his mother's home. The mother maintained possession of the home thoughout, and was in possession when the loan was made by the bank to her son.

This case provides direct support for the proposition that "clear, actual, exclusive possession of the granted premises by the grantor [ie. typically, the screwed-over homeowner; in this case, the mother; ], even after delivery and recording of the deed, is notice against purchasers [ie. typically, the foreclosure rescue operator or a straw buyer acting as the operator's alter ego, in this case, the son] and mortgagees [ie. typically, the mortgage lender/financial institution that, albeit unwittingly, finances the scam and provides the funds that constitutes the equity strpping proceeds ending up in the scammer's pocket] of the grantor's possible interest in the property"):

  • Minnesota law requires every conveyance of real estate to be recorded; unrecorded conveyances shall be void against any subsequent purchaser in good faith for valuable consideration. Minn. Stat. §507.34 (1990). Under the recording act, a purchaser in good faith is one who gives consideration without actual, implied or constructive notice of the inconsistent outstanding rights of others. Miller v. Hennen, 438 N.W.2d 366, 369 (Minn. 1989). The purpose of the recording act is to protect those who purchase real estate in reliance upon the record. Id. "Implied notice has been found where one has 'actual knowledge of facts which would put one on further inquiry.'" Id. at 370 (quoting Anderson v. Graham Inv. Co., 263 N.W.2d 382, 384-85 (Minn. 1978)).

  • If one is aware that someone other than the vendor is living on the land, one has a duty to inquire concerning the rights of the inhabitant of the property and is chargeable with notice of all facts which such inquiry would disclose. Id. One is not a bona fide purchaser if one had knowledge of facts which ought to have put one on an inquiry that would have led to knowledge of a conveyance. Id.

  • A purchaser who has actual, implied or constructive notice of the outstanding rights of another is not a bona fide purchaser entitled to the protection of the recording act. Miller, 438 N.W.2d at 370. Actual, open possession and use of property puts a subsequent purchaser on inquiry notice of the possessor's rights in the property. Id. at n.4; Konantz v. Stein, 283 Minn. 33, 42, 167 N.W.2d 1, 8 (1969); Farmers State Bank of Eyota v. Cunningham, 182 Minn. 244, 246, 234 N.W. 320, 321 (1931). Actual possession of real property is notice to all the world of the title and rights of the person so in possession and also of all facts connected therewith which reasonable inquiry would have developed. Anderson, 263 N.W.2d at 385. Implied notice differs from constructive notice arising from the record of instruments because the record is notice only of what appears upon its face. Id.

  • In Minnesota, clear, actual, exclusive possession of the granted premises by the grantor, even after delivery and recording of the deed, is notice against purchasers and mortgagees of the grantor's possible interest in the property. See Teal v. Scandinavian-American Bank, 114 Minn. 435, 441, 131 N.W. 486, 488 (1911).

  • In that case, Teal deeded property to Johnson, but retained a repurchase right which was not recorded. Teal remained in possession of the property. Johnson executed a mortgage to borrow money from the bank. Johnson told the bank that he had bought the land but that Teal, the grantor, would remain in possession for the summer. Johnson later reconveyed the property to Teal and the bank began foreclosure proceedings. Teal sought injunctive relief and cancellation of the mortgages.

  • In deciding the case, the Minnesota Supreme Court noted that when the mortgages were given to the bank by Johnson, Teal was a grantor still in actual possession of the property and that this was notice to all the world of his rights. Id. at 441, 131 N.W. at 408 (citing, inter alia, Groff v. State Bank, 50 Minn. 234, 52 N.W. 651 (1892)). The court stated that the bank was expressly informed before the mortgage was executed that Teal was in possession and yet it made no inquiry concerning his rights, relying wholly upon statements made by Johnson. Teal, at 441, 131 N.W. at 488.

  • In order to have status as a bona fide purchaser the mortgagee's inquiry must be directed to the person in possession; inquiry of the mortgagor, who may have reason to conceal the truth, is not sufficient. The supreme court stated, "Having made no inquiry, [the bank] is chargeable with notice of the actual condition of the title to the land." Id. (citations omitted).


  • The instant case is distinguishable from Olson v. Olson, 203 Minn. 199, 281 N.W. 367 (1938). That case involved a similar fraud with one important distinction: the father and son lived together in the property both before and after the deed from father to son. Because possession by the grantor was not exclusive, the supreme court held that the living arrangements were not such to put a third party on inquiry notice. Id. at 204, 281 N.W. at 368. In reaching its decision, the supreme court distinguished the holding of Groff upon which the court had relied in Teal. In Groff, the grantor remained in possession, with a reserved but unrecorded interest, after giving a deed to another. The supreme court held that possession of the granted premises by the grantor after delivery of his deed is as much notice of the interest of the occupant as possession by a stranger to the record title. Id. at 238, 52 N.W. at 652. In the present case, Greg lived in his own home both before and after obtaining his mother's deed. Her continued possession was as effectual as notice of her rights as possession by a stranger would have been. Olson is distinguishable on its facts; the rule of Groff and Teal governs this case.


The following excerpts from Claflin v. Commercial State Bank provides a brief summary of the key events that led the court to rule in favor of the screwed-over homeowner (the mother) against the bank who provided the mortgage loans to the son. The court held that bank was not entitled to the protections of bona fide purchaser status and, accordingly, the mother's rights to the home that was swindled from her had priority over the bank's mortgage (alterations added; not in the originals):

  • Schwanke [the vice president for the bank providing the mortgae loan] testified that he never contacted Margaret [the mother], although he knew she was living on the Property. Schwanke also acted to ensure that only Greg [the son who defrauded his mother] would be contacted by the others involved. Schwanke knew the title opinion contained an exception for the rights of occupants but he ignored it as "boilerplate." The Bank argues that it satisfied its duty of inquiry by asking Greg what interest his mother had in the Property. We disagree. Greg told the Bank that his mother was simply living there with his permission. The Bank knowingly prevented and avoided inquiry directed to Margaret. The evidence demonstrates that, had the Bank inquired of Margaret, it could have learned that she asserted a superior interest. The Bank is therefore chargeable with notice of Margaret's unrecorded interests.


  • The fact that Margaret was a grantor-in-possession gave rise to a duty that the Bank inquire of her as to her rights. The trial court in this case considered Groff, Olson and Teal, but erred in deciding that the Bank had no duty to investigate beyond the state of the record title. The Bank had a duty to inquire of Margaret and is charged with notice of all facts which such inquiry would have disclosed; thus, it is not a bona fide purchaser in good faith for value without notice. Miller, 438 N.W.2d at 370.