Saturday, April 3, 2010

Self-Proclaimed "Soverign King" On The Loose In Memphis Hijacking Possession Of & Claiming Title To Vacant Homes In Foreclosure

In Memphis, Tennessee, WREG-TV Channel 3 reports on Michael Cobbs, a self-proclaimed soverign king who is running around town hijacking physical possession of vacant homes and claiming title to them:

  • When [Jonah Asher] arrived [at his newly-purchased home], he noticed 'No Trespassing' signs in the yard, the locks were changed, and deeds posted in the windows saying Michael Cobbs owned the property. "Oh it's my house, because I can claim an abandoned home!" Cobbs said. Cobbs didn't pay for the house, because he says, he doesn't have to. "These is abandoned homes, every foreclosure is. If people knew what we knew right now, it'd be the end of American society, because these banks, these realtor companies, they're very evil," Cobbs said.

  • Cobbs says man-made laws don't apply to him, because he's sovereign. He filed papers with the Shelby County Register of Deeds declaring that he is exempt from federal, state, and local laws. "This guy thinks he's a sovereign king and he can take what he wants when he wants, and nobody can do anything about it," Asher said.

  • "This guy is talking bout I think I'm a sovereign king, I am a sovereign king! And he gonna find out. Yahweh gonna put him out of his house in Mississippi," Cobbs said. Cobbs says he follows the teachings of Yahweh ben Yahweh, the leader of a black supremacist movement. "We study real deep. We learned all of this from Yahweh Ben Yahweh," Cobbs said.

***

  • Cobbs says he filed deeds on six properties across Shelby County - from a $500,000 home in Collierville to a $4.6 million motel on Mount Moriah. Cobbs says, he's not done yet. "This ain't the only home I'm gonna take, I'm bout to take over everything I can!" Cobbs said.

  • Asher's doing what he can to keep Cobbs out of this house, by changing the locks and boarding up the windows, trying to protect what he's paid for. Cobbs says nothing -- not even a court order -- will keep him away. "Soon as the police and cops leave, we'll be bound to come, and kick the place back in, and take control of it again," Cobbs said. Both sides will have their day in court next week.

  • Meanwhile, we're told the Shelby County Attorney's Office and the District Attorney's Office have launched a criminal investigation into Michael Cobbs.

Source: Man Takes Homes Without Paying For Them.

In a related story, see NC3 Investigates: House Stealing Scheme.

Ex-NFLer, Family Win $150K Jury Award In Premature Foreclosure Lockout Case; "Trashout" Firm Accused Of Dumping Trophies, Sports Momentos In Landfills

In Forsyth County, North Carolina, the Winston Salem Journal reports:

  • A Forsyth County jury awarded about $150,000 in compensatory damages to a former running back for the Cincinnati Bengals and his family, who filed a lawsuit after their family home in Davie County was foreclosed on and some of their possessions were dumped in landfills.

***

  • The case involved Chris Perry, who grew up in Davie County and was a standout running back at the University of Michigan, and his mother, Irene Perry. In 2008, they, along with two others, sued several businesses and people, including Jerry W. Blackwelder, GRP Financial Services and Triad Residential LLC. They alleged in the lawsuit that the defendants took items, including trophies and other sports paraphernalia that Chris Perry had gotten throughout his athletic career, and threw them into landfills in Davie and Davidson counties.

For more, see Forsyth jury awards damages to former Cincinnati Bengals player and his mother.

Mix-Up Over American Indian Artifacts At Home In Foreclosure Results In Alleged Civil Rights Violations, False Imprisonment Suit Against Cops, Others

In Merced, California, the Merced Sun Star reports:

  • A Burbank couple is suing the city of Merced, three police officers, an area real estate company and a real estate agent, alleging civil rights violations, false imprisonment and the infliction of emotional distress, among other claims. In the lawsuit filed Feb. 26, Fred Mosbey III and his wife, Tracy Hardy-Mosbey, claim the officers and a representative of real estate company London Properties prevented the couple from removing American Indian artifacts from a home previously owned by Tracy Hardy-Mosbey's mother.

***

  • The home was under the threat of foreclosure in 2008. Mosbey said he thought he was working with his mortgage company to stop the foreclosure when his brother-in-law, Antonio Rushing, passed by the house and saw eviction papers stuck on the door. "We had no intentions of losing the house and no intentions of stuff happening like it did happen," Mosbey said.

For more, see Couple files suit after scuffle at distressed home (Retrieval of American Indian artifacts at center of action).

Elderly Residents In Mobile Home Park In Foreclosure May Face The Boot With No Place To Go

In Minerva, Ohio, the Canton Repository reports on the Minerva Hillside Terraces, a somewhat dilapidated 20-unit mobile home park owned by a landlord facing foreclosure in which the residents, many of whom are reportedly elderly, live on fixed incomes, and face the boot:

  • On Jan. 28, Huntington National Bank, which holds the property’s mortgage, filed for foreclosure. [Landlord David] Audino owes the bank at least $385,000 for two promissory notes he signed in 2001 and 2003 and a note he signed as owner of Dylan Homes in 2003.(1) Residents didn’t know what to expect. “What are we supposed to do? Do we have so many weeks? Or so many days? It’s a constant worry on us,” [resident Martha] Tucker said.

  • While Tucker may live in a mobile home park, she isn’t exactly mobile. Tucker lives on a fixed income of $776 a month and says she has little money left over after bills. “Right now, I couldn’t come up with a penny if I had to,” she said.

  • Harry Hagan, who moved to Minerva Hillside in 1985, said his trailer would need expensive repairs before it could be moved. Otherwise, he said, “It would fall apart on the road.” And he doesn’t believe the repairs would be worth it. “It would cost me more to move than what the trailer is worth,” he said. “One trailer is worth $1,500, but to move it would be $5,000.”

  • The good news is that Huntington hasn’t indicated it plans to close the park, said Attorney Dawn Spriggs of Community Legal Aid in Canton,(2) who represents seven residents at Minerva Hillside. Instead, the bank has appointed a receiver to operate the park while the foreclosure is pending and to help improve the park’s financial condition. “His job is to write a report after a period of time to basically recommend what to do with the park,” Spriggs said. “He has to weigh the liabilities and assets.”

  • The bad news, Spriggs said, is that the bank could sell the property, and Minerva Hillside’s new owners could decide to use the land for something other than a mobile home park. And residents can do little to stop it, she said. None of them signed a lease with Audino when they moved in.

For the story, see Minerva trailer park residents fear they're losing their homes.

(1) Reportedly, Audino, who has owned the park since 2001, had also stopped paying the water and sewer bills for the park. He owed the village more than $7,000 in past-due charges and county health officials have deemed the park a public health nuisance, the story states.

(2) Community Legal Aid Services, Inc. is a non-profit Ohio law firm serving the legal needs of low income and senior Ohioans in Columbiana, Mahoning, Medina, Portage, Stark, Summit, Trumbull, and Wayne Counties.

Two Cop Pleas To Using Stolen Personal Information To Mortgage Home Out From Under Elderly Couple; Pocketed $65K, Left Unwitting Victims In F'closure

In Las Vegas, Nevada, the Las Vegas Sun reports:

  • Two men pleaded guilty to felony theft charges in connection with a scam in which an elderly couple’s home was mortgaged without their knowledge, Nevada Attorney General Catherine Cortez Masto’s office said []. The couple found out their home, which they owned outright, had been mortgaged when they received a foreclosure notice for not making payments, the attorney general’s office said.

  • Thomas Gentile, 56, of Las Vegas, and Justin Sabo, 30, of Huntington Beach, Calif., each pleaded guilty to one count of theft of an amount over $2,500. A third man, Julio C. Martinez, 61, of Las Vegas, pleaded guilty to a gross misdemeanor in connection with fraudulently notarizing documents that allowed Sabo and Gentile to complete the transaction, Cortez Masto’s office said.

  • The Attorney General’s Mortgage Fraud Task Force learned that between January and March last year, Sabo and Gentile fraudulently obtained personal information about the couple to obtain a $65,000 mortgage on property they owned. The man was Gentile’s former employer, the attorney general’s office said. The couple had paid cash for their home and didn’t have a mortgage, authorities said. The couple contacted the attorney general’s office when they received a notice of foreclosure for nonpayment.

For the story, see 2 plead guilty in mortgage scam with elderly victims.

For the Nevada AG press release, see Guilty Pleas In Mortgage Scam Against Senior Citizens.

Friday, April 2, 2010

L.I. DA Bags Mortgage Broker For Duping Mother-In-Law Into Signing Land Documents, Leaving Her Facing Foreclosure On Home She Unwittingly Purchased

From the Office of the Nassau County, New York District Attorney:

  • Nassau County District Attorney Kathleen Rice announced [] that a Woodbury man faces up to 15 years in prison after tricking his mother-in-law into signing various real estate documents that allowed him to steal more than $600K from several financial institutions and left her facing civil lawsuits in addition to foreclosure proceedings on a nearly-$1 million home she had no idea she owned.(1)

  • John Tuozzo, 44, was arrested [] by DA Investigators and charged with two counts of Grand Larceny in the Second Degree, three counts of Falsifying Business Records in the First Degree and Scheme to Defraud in the First Degree. He faces up to 15 years in prison if convicted.(2)

For the entire press release, see Woodbury Man Dupes Mother-in-Law, Steals $600K in Real Estate Scam (Tuozzo had mother-in-law sign documents for near-million dollar mortgage and multiple lines of credit).

(1) John Tuozzo and his wife divorced in 2009, and the property, which is owned solely by Tuozzo’s now-ex-mother-in-law, is being foreclosed on, the Nassau County DA press release states. Reportedly, she is also being sued civilly by several financial institutions for the balance of the money owed after a foreclosure sale.

(2) This case was investigated by the Nassau County District Attorney’s Crimes Against Real Estate Unit (CARE). Created in March 2009, CARE handles everything from mortgage fraud and foreclosure rescue scams to identity theft, senior fraud, and the investigation of unlicensed brokers and lenders, according to the DA's press release.

Florida Woman Dupes Senior Into Signing POA, Then Drains Victim's Home Equity With Reverse Mortgage, Loots Bank Accounts, Say Cops

In Palm Beach County, Florida, The Palm Beach Post reports:

  • Evelyn Dick, authorities say, persuaded a 71-year-old North Palm Beach woman to let her get a reverse mortgage on the woman's home, then pocketed more than $34,000. Dick, 50, of suburban West Palm Beach, is charged with grand theft of between $10,000 and $50,000 on a person older than 65.

***

  • The woman has told North Palm Beach police Dick befriended her about six months ago. She said Dick urged her to apply for food stamps and had her sign a document. The woman said Dick took her to the TD Bank at 316 Northlake Blvd. and had her stay outside. The woman said she later realized the document was a power of attorney and Dick had moved all the money out of her bank account.

  • She said Dick also had obtained a reverse-mortgage. She then withdrew $25,000 and $14,000, a police report said. The woman said she discovered the scam when the U.S. Department of Housing and Urban Development mailed mortgage papers to her and contacted a lawyer who told her to call police, the report said.

Source: Suburban West Palm Beach woman charged with defrauding 71-year-old.

See also, WPTV-TV Channel 5: Woman arrested in reverse mortgage scheme.

Grandson Gets 30 Months For Using Forged POA To Fraudulently Obtain Mortgage On Unwitting Senior's Home, Draining $93K In Equity In The Process

In St. Charles, Missouri, Suburban Journals reports:

  • Scott P. Richmond, 38, of O'Fallon, was sentenced [] to 30 months in prison for his participation in two fraud schemes, according to a new release from the U.S. Attorney's Office for Eastern Missouri. Between April 1 and May 31, 2007, Richmond falsified mortgage documents and used a forged power of attorney to mortgage his grandfather's home in St. Charles, according to the statement. Richmond told the lender his grandfather wanted the check representing the loan proceeds, $93,085, to be made payable to him.

For the story, see O'Fallon man sentenced for role in fraud schemes.

NJ AG Charges Two In Alleged POA Abuse In Ripoff Of 88-Year Old Relative, Resulting In Victim's Eviction From Assisted Living Facility For Unpaid Rent

In Trenton, New Jersey, MyCentralJersey.com reports:

  • A Franklin school board member and her husband, the township's Republican Party chairman, plan to defend against charges that they stole $100,000 from an elderly relative while overseeing her financial accounts, their attorney said. Nancy and Robert LaCorte were charged in a five-count state grand jury indictment handed up Wednesday, authorities said.(1)

***

  • State Attorney General Paula Dow said the relative, an 88-year-old woman, had granted a power of attorney over her financial accounts to Nancy LaCorte, 49, whose name was added to the victim's checking account. The relative's pension and Social Security checks were directly deposited into the account, and LaCorte was required to use the funds for the relative's benefit. Robert LaCorte, 57, a licensed insurance agent, is accused of using $162,552 from the victim's Individual Retirement Account without her knowledge to open two annuity accounts with a life insurance company, Dow said. He allegedly earned more than $11,000 in commissions for opening the accounts. The defendants stole a total of about $100,000 from the annuity accounts and two bank accounts by making withdrawals and transfers to their personal accounts, Dow said.

***

  • [State attorney general spokesman Peter] Aseltine said the victim, who lives in the Bronx, was evicted from an assisted living facility in Avalon because she was unable to pay her rent, raising suspicion of another relative. That relative discovered that money was missing from the victim's account and took over power of attorney after December 2007, Aseltine said.

For the story, see Franklin couple charged with stealing $100,000 from elderly relative.

For the New Jersey Attorney General press release, see Somerset County Couple Indicted on Charges They Stole $100,000 from an Elderly Relative.

(1) The couple faces charges of conspiracy, theft by unlawful taking, theft by failure to make required disposition of property, misapplication of entrusted property and money laundering, the story states.

Apartment Building Managers Face Theft Charges After Scoring POA From 94-Year Old Tenant, Then Ripping Him Off For $700K+, Say Cops

In Columbus, Ohio, The Columbus Dispatch reports:

  • A nurse and a part-time kindergarten teacher have been charged with the theft of more than $700,000 from a 94-year-old North Side man. Deborah Johnson, 53, of Columbus, the nurse, and Anita Esquibel, 68, of Columbus, the teacher, are accused by Columbus police of stealing more than $700,000 from Peter Svaldi. The two met him at an apartment building near Graceland Shopping Center, said Kevin Craine, attorney for Svaldi's newly appointed guardian. The women were the property managers, said the guardian, Lorelei Lanier.

  • The women gained Svaldi's trust, then bought real estate, a car and jewelry with money they took from his accounts after gaining power of attorney, Craine said. "I think this stuff happens a lot more than anybody knows, through power of attorney," Craine said. "I don't know the circumstances how he gave them power of attorney, but he definitely gave it to them. In the wrong hands, it can become a license to steal. "The bank deserves a lot of credit for its vigilance," he said.

For the story, see 2 women accused in rip-off of senior (94-year-old man lost $700,000, police say).

See also, WBNS-TV Channel 10: Women Charged With Stealing Hundreds Of Thousands From 94-Year-Old:

  • Police said the man met Johnson and Esquibel because they lived in the same apartment complex. [...] Since the man has no relatives who live nearby, investigators said the theft was almost undetected, until a bank officer noticed the large transactions and called police, Connelly reported.

  • Craine said his client is still confused as to exactly what happened to his money. "It took a while for him to understand that a significant portion of his assets had been taken from him, and in fact the psychologist in his evaluation likened it to a grieving process," Craine said.

Thursday, April 1, 2010

"Business Deals Gone Bad" Defense Lets Thief Off w/ Handslap; Some Screwed Over Scam Victims To Get 41 Cents On Dollar Restitution; Others Get Stiffed

In Kennewick, Washington, The News Tribune reports:

  • A Richland real estate developer pleaded guilty Thursday to first-degree theft after being accused of bilking Tri-City residents out of $380,000 they had given him for real estate investments.(1) Armen Lucius B. Weishaar, 49, could be sentenced next week in Benton County Superior Court to up to 90 days in jail and ordered to pay $80,000 in restitution.
  • That reflects only a portion of more than $500,000 he is accused of collecting in potentially fraudulent property dealings from people in the Tri-Cities, Western Washington and Arizona.(2) As part of a plea agreement, five Benton County theft charges against Weishaar will be dropped. He originally pleaded innocent to six counts involving two couples and four individuals.
  • It's not an ideal outcome, said Benton County Prosecutor Andy Miller. But it was acceptable to most of the Tri-City residents who accused Weishaar of taking their money to invest in real estate but never completing the transactions or returning the cash. [...] The guilty plea gives Weishaar a felony record, which victims wanted, Miller said. It could help protect those he might do business with in the future.
  • Miller believed Kennewick police did a good job of investigating allegations and that he had "a very defensible case." But the prosecution still had to prove Weishaar made the deals with criminal intent and that they were not just business deals gone bad [aka "business deals gone bad" defense], Miller said. Neither Miller nor Weishaar's attorney, Sal Mendoza, were sure a jury wouldn't find Weishaar guilty on all charges or innocent of all charges, they said.
For the story, see Richland developer pleads guilty to $380,000 real estate scam.

(1) Some of the alleged victims dipped into retirement money or used home equity to invest with Weishaar, prosecutor Miller said.
(2) According to the story, the $80,000 in restitution will be split only among the Tri-City victims, according to the prosecutor. In addition to the $380,000 Weishaar was accused of taking in Tri-City deals, he also has been accused of taking $124,000 from people in Western Washington and Arizona, the story states. The agreement to pay restitution apparently stiffs the remaining alleged victims.

Unpaid Water Bills Could Lead To Home Condemnation, Resulting In Big Hit For Foreclosing Lenders

Buried in a recent story from Grand Rapids, Michigan on rent-skimming landlords facing foreclosure who are stiffing the local utility on their water bills resulting in water shut-offs is the following excerpt reported by WOOD-TV Channel 8. Those water shut-offs should be of some concern to lenders, who face taking a big hit on account of possible action by local officials arising from the lack of water to the premises being foreclosed:

  • The city can condemn an occupied property with no water and undoing that action will take more than simply paying the bill. "We require that that property be brought up to, once it's condemned, brought completely 100% up to code before it can be occupied again," said Virginia Million with the Grand Rapids Housing Commission. That means everything up to code, from electricity to structure, often a tall task on an older property.(1)

Source: Landlord not paying bills? Move (Read the lease before you sign).

(1) Depending on how old the structure is, the cost of bringing a property up to the current building code could cost a small fortune. In real estate markets where that cost exceeds the value of the property, the foreclosing lender could find its loan collateral rendered worthless. Once the property is condemned, it is no longer a question of doing the necessary repairs or otherwise curing whatever the problem was that gave rise to the condemnation. A new certificate of occupancy is necessary which, as the story points out, requires that the home be completely brought up to meet the current building code - not the one in effect when the home was built (which could be 50+ years ago in many places). This means that, in addition to fixing things that need fixing, the property owner will now have to also fix things that, prior to the loss of the certificate of occupancy, didn't need fixing.

Seattle Jury Convicts Mortgage Scam Head Of 30 Felonies; Led Owner Financing Ripoff That Left Unwitting Home Sellers Holding Worthless Notes

From the Office of the U.S. Attorney (Seattle, Washington):

  • WILLIAM S. POFF, 37, of Marshall, Michigan, a former resident of Washington State, was convicted [] in U.S. District Court in Seattle of 30 felony counts of conspiracy, bank fraud, wire fraud, and money laundering offenses. POFF is one of five people(1) arrested in June 2009, in connection with a mortgage fraud scheme that cheated banks and property sellers out of more than several million dollars. [...] In all, between 2005 and 2008, the conspirators used straw buyers to purchase and resell properties, obtaining more than 80 loans totaling more than $18 million.

***

  • The conspirators did not just damage banks and financial institutions. Innocent sellers were harmed when they agreed to loan the buyer a portion of the purchase price [ie. owner financing], to be paid back over time.(2) The sellers did not know that the conspirators had already obtained 100 percent financing from commercial lenders. When payments were not made and properties fell into foreclosure, and then were sold for less than the total of all loans secured by the property, the sellers holding private notes were left with nothing.

For the U.S. Attorney press release, see Former Washington Resident Convicted Of Multiple Counts Of Conspiracy, Bank Fraud, Wire Fraud, And Money Laundering In Mortgage Fraud Scheme (Loan Originator Forged Documents, Defrauded Banks and Sellers in Scheme).

(1) The other four already entered guilty pleas in the case: Humberto A. Reyes-Rodriguez, a/k/a Tony Reyes, 43, of Federal Way, Washington, Alexis Ikilikyan, a/k/a Haikanush Ikilikyan, 30, of Auburn, Washington, Micki S. Thompson, 55, of Tacoma, Washington, and Mario A. Marroquin, 39, of Kent, Washington.

(2) This technique for draining the home equity out from under the unwitting home sellers comes right out of the pages of the old "no money down" real estate acquisition books that have been around for decades. As described in these books, you implement this technique by:

  • Finding a seller with a home that is free & clear of any mortgages,
  • Convincing the home seller to hold a 2nd mortgage for, say, 40% of the purchase price that will be subordinate to a contemporaneously-obtained 1st mortgage,
  • Obtaining the 1st mortgage for, say, 80% of the purchase price.

Since the amount of the 1st mortgage proceeds needed to pay off the home seller equals only 60% of the purchase price (remember, he/she has already agreed to hold a 2nd mortgage for the 40% balance), the excess proceeds from the 1st mortgage, equal to 20% of the purchase price, winds up in the buyer's pocket (less closing costs). The buyer walks out with this 20% in cash, along with the deed to a property that immediately finds itself underwater by 20% (80% 1st mortgage plus 40% seller-held 2nd mortgage = 120% loans-to-value).

Use Of Rubber Check To Pay Off Home Seller's Mortgage Leaves Buyer Facing Foreclosure On Prior Owner's Loan; Title Insurer Steps In To Defend

In Kingsland, Georgia, WTLV NBC-12 and WJXX ABC-25 report:

  • Tom Bloomer lives in a quiet, suburban community in Kingsland and said he purchased his house in May 2008. But now, Bloomer said he's found out some information about his home that has him upset. "I stumbled across the fact that my house was on a foreclosure list and is scheduled to be sold on April 6," Bloomer said.

  • Bloomer said he has paid his mortgage payments consistently to his lender, Bank of America, and he was surprised to see that Wells Fargo Bank has filed foreclosure against him. "I've talked to the attorneys for Wells Fargo and they say they have rights to the house," said Bloomer. Bloomer is asking 'how could this be?'

  • He was told the person who sold him the house almost two years ago gave Wells Fargo a worthless check(1) and now the bank is foreclosing to collect that debt. [...] Attorney Kevin Yackel said the foreclosure is temporarily on hold. "Bloomer was not provided proper notice as required by Georgia law," he said.

  • Yackel also said the [title insurance] underwriter is now pursuing a defense to keep Bloomer in his home. Yackel said Stewart Title has presented the documents from the sale/purchase to show that this is a wrongful foreclosure.(2)

For the story, see Kingsland Man Facing Wrongful Foreclosure; Seller Closed with Worthless Check.

(1) It was probably the agent who handled the title closing for the sale who sent Wells Fargo the hot check.

(2) When purchasing a title insurance policy when buying a home, not only does the insurance company agree to indemnify you in the event the title is defective (up to the face amount of the policy), it also agrees to defend you when your title is subjected to a challenge from another party claiming to hold a competing interest in the property (as in this story), and also agrees to pick up the tab for the legal fees and costs associated with such a defense.

(For those prospective real estate purchasers who choose to work with real estate agents in their search for a property, and you want to "test" the agents to see if they know what they are doing, ask them whether you need title insurance in the event you "pay cash" for the home. Every once in a while, you'll come across a "genius" who'll tell you that if you don't need financing to buy the home, you can get away without having to buy title insurance, thereby saving the cost of the premium, thereby reducing your closing costs. If you come across an agent who tells you this, do yourself a favor and get rid of him/her and find someone else. And keep this story in mind when doing so!)

Atlanta Man Cops Plea In Attempt To Use Stolen IDs To "Buy" His Own "Underwater" Investment Homes In Short Sale Scam

In Atlanta, Georgia, The Atlanta Journal Constitution reports:

  • An Atlanta man pleaded guilty Tuesday to bilking the FDIC of $2.2 million in a bogus real estate short-sale scheme. Brent Merriell, 37, admitted in federal court to lying to the FDIC and selling 14 homes he owned facing foreclosure to identities he’d stolen, court authorities said.

***

  • When he defaulted on all 14 home loans in October 2009, Merriell put the homes on the market as a short sale, asking the FDIC to forgive $2.2 million in loan payoffs so his “buyers” could purchase them at a greatly reduced price.

***

  • But Merriell tried to give forged and counterfeited sales contracts and loan commitment letters – generated from seven stolen identities – to the FDIC to complete the sales. He was arrested before the sales went through and before his actions could affect the credit of his seven victims, authorities said.

For the story, see Atlanta man guilty of "cheating FDIC" in short sale scam.

Short Sale "Flopping" Among Current Real Estate Scam Techniques Getting Attention From Feds

In Phoenix, Arizona, BusinessWeek reports:

  • [Financial Fraud Enforcement Task Force] members were in Phoenix to hear about emerging trends in mortgage fraud from professionals who work in the real estate and mortgage industry, and community organizers and lawyers who help homeowners struggling to keep their homes. Members include senior Justice Department prosecutors, FBI officials and officials with the Department of Housing and Urban Development.

***

  • Real estate professionals who briefed task force members outlined new and emerging fraud trends, including the "flopping" of short-sale properties. That's a technique where someone gets two price opinions from brokers, giving the low one to the bank arranging a short sale of a home nearing foreclosure and the high one to a potential buyer, said Holly Eslinger, president of the Arizona Association of Realtors.

  • Such techniques can net an unscrupulous buyer tens of thousands of dollars while shorting the bank and homeowner and taking advantage of the subsequent buyer, she said.

Source: US AG brings more money to fight AZ mortgage fraud.

Low-Ball Property Appraisals, "Double Escrow" Flipping/Flopping Arrangements Lead To Massive Ripoffs Of Underwater Lenders In Short Sale, REO Deals

In Stanislaus County, California, The Modesto Bee reports:

  • The hottest form of mortgage fraud in the Northern San Joaquin Valley involves bogus property valuations. [Interthinx vice president of industry relations Anne] Fulmer said a lot of the fraud involves the resale of foreclosed bank-owned homes and "short sales," in which homes facing foreclosure are sold for less than their outstanding mortgage. [...] Fulmer said there are "flopping" schemes going on involving short sales and bank-owned homes. These essentially trick banks and lenders into agreeing to sell homes for substantially less than what they're worth.

Here's one way that scheme works, according to Fulmer:

  1. A bank repossesses a home, then hires a real estate agent to resell the property.
  2. That agent secretly creates a limited liability corporation that offers to buy the property for a very low price.
  3. Meanwhile, other interested buyers also submit bids for the home, offering considerably more than the LLC's bid.
  4. But the dishonest agent tells the seller (which in this case is the bank) only about the low bid from the LLC. It illegally keeps the other bids secret.
  5. Figuring that the LLC's bid is the best deal available, the bank agrees to sell for the low price just to get the foreclosed home off its books.
  6. Then the agent immediately resells the house on behalf of the LLC to one of the other bidders for the house.
  7. Say the home's fair market value is $150,000. The agent and LLC persuade the bank to sell it for $100,000. Then the legitimate home buyer pays the agent and LLC $150,000, netting the agent and LLC a quick $50,000 at the bank's expense.

  • "We call that double escrow," said Craig Lewis, president of Prudential California Realty in Modesto. "It is happening. ... These listing agents are not disclosing all the offers to the seller." Or at least that's the widespread suspicion.(1)

For more, see Stanislaus County tops for cheaters targeting lenders.

(1) According to the story, real estate agents who suspect their clients' home purchase offers never were presented to sellers rarely investigate or report their suspicions to the state Department of Real Estate or their board of Realtors. They can't call the seller because it's a violation of the Realtor's Code of Ethics to call the seller directly, the story states.

Agents can file complaints about suspected fraudulent activity by their colleagues, the story states, but they almost never do, according to Chuck Bukhari, president of the Central Valley Association of Realtors. "All the agents are complaining verbally (about other agents involved in short sales and bank-owned properties). Unfortunately, nobody is willing to report it in writing," Bukhari said. "I'm shocked as much as you are. Nobody is coming forward. As president, it bothers the heck out of me." Bukhari said "there are a few names everybody's mentioning" when real estate agents discuss fraud among themselves. But rather than filing formal complaints, he said, honest agents simply "avoid these people."

Wednesday, March 31, 2010

Lender VP Blows Whistle On Employer On Loan Mods; Says Bank Not Interested In Working Out House Payments; Homeowners Get Runaround On Toll-Free Number

ABC World News reports:

  • A vice president for one of the nation's biggest banks claims customers looking for help in lowering their mortgage payments are often told to call an 800 number -- where he says representatives then give homeowners the runaround. David Muir gets answers from a vice president of one of the biggest banks. The bank executive spoke to ABC News on the condition that ABC News not show his face or name him, because he feared coming forward would cost him his job.

For more, see Whistle-Blower: Banks Give Homeowners the Runaround (800-Numbers Lead to Runaround as Banks Refuse to Modify Mortgages).

FTC, California & Missouri AGs Slam "Lawyer Renting" Loan Modification Racket; Score $980K In Seized Assets, Put Outfit Out Of Business

The Federal Trade Commission announced:

  • The operators of a mortgage foreclosure “rescue” company will be banned from selling mortgage relief services under a settlement with the Federal Trade Commission and the states of California and Missouri, which sued them in 2009 as part of a federal-state crackdown on mortgage loan modification and foreclosure relief scams.

  • Boasting a “proven track record” and the “highest standards of business ethics,” U.S. Foreclosure Relief Corp., George Escalante, Cesar Lopez, and Adrian Pomery falsely claimed they helped 85 percent of their clients get their loans modified, and that they would get loan modifications to make consumers’ homes much more affordable, according to the FTC complaint. They also allegedly violated state laws against charging advance fees for foreclosure consulting services. The court immediately barred the practices and froze the defendants’ assets.(1)

  • The FTC has added as defendants H.E. Servicing, Inc., Brandon L. Moreno, and his law firm, Cresidis Legal, and charged all of the defendants with two more law violations: falsely claiming a lawyer would negotiate the terms of consumers’ home loans, and falsely promising refunds if they failed. The settlement order resolves the case against the original defendants and H.E. Servicing. The case continues against Brandon L. Moreno and Cresidis Legal, a professional corporation.

For the FTC press release, see Defendants Banned from Mortgage Foreclosure 'Rescue' Business (Surrendered Cash, Jewelry, and Vehicles for Consumer Refunds).

For earlier post on this story, see Report: Loan Modification Firm Used Craigslist To Round Up "Lawyer Renting" Prospects; "Rents" Ranged Between $125-$300 Per File.

For links to available court documents, see FTC, et al. v. U.S. Foreclsoure Relief Corp., et al.

Go here for other posts on "lawyer renting" loan modification rackets (ie. a loan modification outfit that uses an attorney or law firm as a "front" for its activities where the attorney does little or no work, and has little or no contact with the financially distressed client desiring a loan modification, typically used to avoid prohibitions under law against clipping homeowners for upfront fees).

(1) According to the press release, the order imposes a $8.6 million judgment against George Escalante and his two companies, U.S. Foreclosure Relief and H.E. Servicing. The judgment will be suspended except for $980,000 in cash, jewelry, and vehicles that Escalante and his companies have surrendered to lenders or the court-appointed receiver. The order also imposes $3.3 million and $3.4 million judgments against Cesar Lopez and Adrian Pomery, respectively, which will be suspended due to their inability to pay. The full amount will become due immediately if they are found to have misrepresented their financial condition.

For information about refunds to victims, please visit the court-appointed receiver’s Web site, http://www.heservicingreceiver.com.

Minnesota AG Tags Two Out-Of-State Outfits With Civil Suits Alleging Upfront Fee Loan Modification Ripoffs

From the Office of the Minnesota Attorney General:

  • Minnesota Attorney General Lori Swanson today filed two lawsuits against separate out-of-state mortgage modification companies for violating a 2009 state law that prohibits companies that offer to negotiate or modify the terms or conditions of an existing home mortgage from requesting advance payments from homeowners. These are the first lawsuits filed under the new law.

  • Homeowners who contact their lenders to modify their mortgages often face unreturned phone calls, lost paperwork, and other red tape. This and the bad economy have created an opening for mortgage modification companies to swoop in and take advantage of people,” said Attorney General Swanson.

  • The lawsuits were filed against: American Modification Consultants, LLC of Philadelphia, Pennsylvania, d/b/a American Mitigation Consultants; and INQB8 LLC of Scottsdale, Arizona, d/b/a Discount Mortgage Relief.(1)

For the Minnesota AG press release, see Attorney General Swanson Files Two Lawsuits Against Mortgage Modification Companies For Violating New State Law (Lawsuits Are First Ones Filed Under 2009 Law Designed To Protect Consumers From Abuses By Mortgage Modification Companies).

(1) The lawsuits allege that the companies violated Minnesota law by charging advance fees to homeowners and then failed to deliver the promised services. American Mitigation Consultants charged homeowners advance fees of up to $1,250; and Discount Mortgage Relief charged homeowners advance fees of up to $3,000, according to the Minnesota AG's press release.

Minnesota Regulator Initiates Action Against Unlicensed Loan Modification Operator; Says Outfit Failed To Pay Promised Refunds On Failed Workouts

In St. Paul, Minnesota, Finance & Commerce reports:

  • The Minnesota Department of Commerce has initiated civil disciplinary action proceedings against a St. Louis Park firm for allegedly offering loan modification services without a license. Last week, the department sent a “notice of and order for hearing” to Todd Jacobson of LMS and Associates, listed to an office on Wayzata Boulevard in St. Louis Park. A prehearing conference is scheduled for May 5 before an administrative law judge.

***

  • Over a six-month period last year, the Department of Commerce charges, the firm sent out invoices for roughly $251,000 on 105 files and collected nearly $139,000. The Department of Commerce contends that the firm was not doing what it said it could do: “The Department’s investigation revealed that Respondent was not successful in performing the services as represented and failed to issue refunds as represented in the contracts that the customer signed.”

For the story, see Allegations aimed at local loan-mod firm (Commerce department says company had no license).

Jailed Connecticut Man Awaiting Trial On Related Larceny Charges In Upfront Fee Ripoff Ordered To Pay $230K In State AG Civil Suit

From the Office of the Connecticut Attorney General:

  • Attorney General Richard Blumenthal has won a judgment compelling a Hartford loan company owner to pay $230,150 in restitution and penalties for allegedly taking money and failing to provide promised loans and services. The settlement bans Michael Petriccione from the commercial loan business in Connecticut and obligates him to pay $165,150 in restitution to 13 consumers and $65,000 in penalties to the state.

***

  • Blumenthal sued Petriccione and his two companies, Mediations, Inc. and Innovations NE, LLC, in April 2008 for allegedly collecting more than $165,000 in deposits and upfront fees, but never delivering promised loans or services. The judgment empowers Blumenthal’s office to seek seizure of property and other assets that Petriccione has or may acquire in the future.

***

  • Petriccione is currently in jail awaiting trial on separate larceny charges stemming from the case. [...] Through his companies, Petriccione claimed to provide investment loans of $100,000 to $700 million and “mediation services.” His companies also claimed to have legal and “placement” skills, and Petriccione represented that he was a Connecticut attorney. He is not licensed to practice law in Connecticut.

For the Connecticut AG press release, see Attorney General Wins $230,000 Judgment Against Hartford Loan Company Owner.

Florida Regulator Moves To Shut Down Unlicensed Loan Mod Outfits Throughout State; Hammers Seven Firms & Their Principals With C&D Orders

In Tampa, Florida, The Tampa Tribune reports:

  • State regulators cracked down on loan modification businesses [], serving one Tampa company with a cease and desist order. The company, Clear Image Financial Group, Inc., is located [...] in Tampa. Its principals, Jeff S. Stampfli, Christopher Jones, and Tasha Armstrong Merkling, were served by Florida's Office of Financial Regulation with orders to stop work immediately.(1)

***

  • The orders charge that the company is acting in violation of Florida laws that prohibit unlicensed businesses or individuals from providing loan modification services. The state also accuses the company of charging money upfront for services, which is against Florida law.(2) [...] Regulators say they planned to issue another cease and desist order to another Tampa company.(3)

For the story, see State cracks down on loan modification companies in Tampa.

For the Florida Office of Financial Regulation press release, see Tampa Loan Modification Company & Their Principals Served With Immediate Final Order To Cease & Desist.

(1) In other recent actions by the Florida Office of Financial Regulation, see:

  • Fort Myers Loan Modification Companies and Their Principals Served with Immediate Final Order to Cease and Desist (The Florida Office of Financial Regulation (OFR) issued and served an Immediate Final Order to Cease and Desist all loan modification services to:

    The Elite Financial Management Group, Inc., HPA AKA Home Protection Agency, Capital Group and Associates, Inc. of 9200 Bonita Beach Road, Suite 210, Bonita Springs, FL 34135 and its principals Michael Poka and Steven K. Itwaru.
    Modification Consulting Services, L.L.C., SWFL Consulting & Marketing, L.L.C. of 4760 Tamiami Trail North, Suite 27, Naples, FL 34103 and its principals Lake M. Walton, III, Juan Jimenez and Abby L. Jelley.),

  • Orlando Loan Modification Companies and their Principals Service with Immediate Final Order to Cease & Desist (The Florida Office of Financial Regulation (OFR) issued and served Orders to Cease and Desist all loan modification services to:

    Loan Modification Rescue Team, 132 East Colonial Drive, Orlando, Florida 32801, and its principals Marijo Bilobrk, Alicia Sanchez, and Kasey Creighton.
    Homeownership Preservation Group, at 1801 Sandy Creek Lane, Orlando, Florida 32826, and its principals Barney W. May, Donald A. Morris, and Gabrielle Hatfield.
    LendAmerica, at 111 E. Monument Avenue, Suite 316, Kissimmee, Florida 34741, and its principals Marino Pena, and Yesenia Rosario.)
    .

The orders charge that the companies are acting in violation of Florida laws (F.S. Chapter 494) prohibiting unlicensed businesses or individuals from providing loan modification services.

(2) According to the story, Stampfli, co-founder and CEO, said his company has reached out to state regulators to make sure the company is in compliance and that the state has not communicated well. Stampfli and others at the company have the proper license, but other employees do not, the state agency said. As for the upfront fees, Stampfli said his attorneys have assured him the company is in compliance with that part of the law, too. The law states that fees can't be charged until "material benefits" have been delivered. Stampfli said that's a legal interpretation and that he feels his clients receive that benefit before they pay, the story states.

(3) The other Tampa company is Home Loan Crisis Center, LLC, of 6207 North 40th Street, Tampa, FL 33610 and its principals Guy Travis Wilson, II and Sunnie E. Finkle, according to a Florida Office of Financial Regulation press release.

Tuesday, March 30, 2010

Judge Offers Upfront Fee Loan Modification Scammers Reduced Jail Sentence In Exchange For $38K+ "Upfront" Payment Of Victim Restitution

In Santa Ana, California, City News Service reports:

  • Two women pleaded guilty Wednesday to loan-modification fraud and are expected to be sentenced to a year in jail next month if they make $38,340 in restitution, one of their attorneys said. Mary Alice Yraceburu, 46, of Riverdale and Marianne Curtis, 68, of Costa Mesa pleaded guilty to 71 counts each of grand theft, illegally accepting upfront fees, attempted grand theft and conspiracy to commit a crime, according to Orange County court records.

  • Orange County Superior Court Judge Robert Fitzgerald offered the pair, who operated a company called Foreclosure Freedom, a year in jail in exchange for the guilty pleas and paying back their victims, Yraceburu’s attorney, Diane Bass said. They must make restitution when they are scheduled to be sentenced April 9, Bass said.

  • State Attorney General’s Office prosecutor Angela Rosenau initially offered the two six years in prison and then lowered it to three years in prison, Bass said.

For the story, see Loan-mod scammers face year in jail if victims are paid back.

Massachusetts AG Scores $3B In Loan Modifications For Homeowners Nationwide In Settlement Of Countrywide Lawsuit

From the Office of the Massachusetts Attorney General:

  • As part of her office’s ongoing initiative to combat predatory lending practices that contributed to our nation’s economic crisis, Attorney General Martha Coakley [] reached a significant settlement with Countrywide Financial Corporation (Countrywide) that will provide an estimated $18 million in loan modifications for Massachusetts homeowners, $3 billion in loan modifications for homeowners across the country, and a $4.1 million payment to the Commonwealth. Countrywide is now owned by Bank of America.

For the entire Massachusetts AG press release, see AG Coakley Secures $3 Billion in Loan Modifications for Homeowners Nationwide in Agreement with Mortgage Lending Giant Countrywide ($18 million in relief for Massachusetts homeowners; $4.1 million payment to Commonwealth).

For copies of the Massachusetts AG's lawsuit against Countrywide and the settlement filed by the Attorney General's Office, see:

BofA To Begin Cutting Loan Balances On Underwater Homes? Massachusetts AG "Arm-Twists" Lender Into Agreeing To Offer Debt-Reduction Workout Plan

The Wall Street Journal reports:

  • Under pressure by Massachusetts prosecutors, Bank of America Corp. said Wednesday it would reduce mortgage-loan balances as much as 30% for thousands of troubled borrowers, in what could presage a wider government effort to encourage banks to offer debt reduction to ease the mortgage crisis.

***

  • The bank's move is part of an agreement to settle claims over certain high-risk loans made by Countrywide Financial, which the bank acquired in mid-2008. The Massachusetts Attorney General's office, which was negotiating with the bank, said it was prepared to file suit had the agreement not included principal reductions.(1)

For more, see BofA Bows to Pressure to Cut Loan Balances.

See also:

(1) For the Massachusetts Attorney General press release, see AG Coakley Secures $3 Billion in Loan Modifications for Homeowners Nationwide in Agreement with Mortgage Lending Giant Countrywide ($18 million in relief for Massachusetts homeowners; $4.1 million payment to Commonwealth).

For copies of the Massachusetts AG's lawsuit against Countrywide (now owned by Bank of America) and the settlement filed by the Attorney General's Office: see

Struggling Washington Homeowners Sue BofA; Accuse Lender Of Leaving Them In Limbo On Loan Modifications; Seek Class Action Status

In Seattle, Washington, KING-TV Channel 5 reports:

  • As many Americans struggle to avoid foreclosure, a Seattle attorney claims the big banks who took big bailouts are refusing to help bail out their customers. Steve Berman of the firm [Hagens Berman Sobol Shapiro] has filed a lawsuit in federal court against Bank of America. "I wouldn't have filed this suit if this is the first time I heard this story. But we have been hearing about this for a year," Berman said.

  • The issue is the program aimed at helping struggling homeowners to avoid foreclosure, but allowing banks to modify loans and reduce monthly payments. But Berman says while the banks were quick to take taxpayer money, they are slow to return the favor, leaving homeowners who are following the rules of the program hanging in limbo.

***

  • [B]erman says the problem goes beyond B of A and is "systemic" across the industry. Part of the suit asks a judge to assign an independent overseer of the program. "You don't need a bureaucracy," he said. "You just need someone to go in, figure out the problem, and order the banks to do it the right way." Berman says there is no one in the government that is doing that. "So this is where our clients have to go - the courts," he said.(1)

For the story, see Homeowners sue Bank of America over failed loan modifications.

See also,

For the lawsuit, see Kahlo v. Bank of America, N.A. and BAC Home Loans Servicing, LP.

In a related story, see ABC World News: Whistle-Blower: Banks Give Homeowners the Runaround (800-Numbers Lead to Runaround as Banks Refuse to Modify Mortgages).

(1) Washington State homeowners who have been left in limbo when seeking loan modifications from Bank of America can go here to join the lawsuit.

Coalition Of Advocates, Gov't Agencies, Law Enforcement Launch Website Targeting Scams Involving Loan Mods, Sale Leasebacks, Phony Re-Fi Rackets, Etc.

The Sarasota Herald Tribune reports:

  • This month, a coalition of government agencies, law enforcement offices and advocates known as the Loan Modification Scam Prevention Network(1) is attempting to push back against the fraudsters by launching a Web site called preventloanscams.org.

  • "Homeowners at risk of foreclosure can be easy prey for home loan-modification scammers," said John Trasvina, assistant secretary for fair housing and equal opportunity at the U.S. Department of Housing and Urban Development, in a statement. "Often, dishonest individuals lure vulnerable homeowners into foreclosure rescue scams by making false promises. Scammers frequently claim they can lower mortgage payments or stop the foreclosure process."(2)

For more, see New Web site aims to track fraud in loan modifications.

(1) According to its website, the lead organizations of the effort include Fannie Mae, Freddie Mac, the Lawyers' Committee for Civil Rights Under Law (Lawyers' Committee) and NeighborWorks America, among others, with representatives from key governmental agencies, such as the Federal Trade Commission, the U.S. Department of Housing and Urban Development (HUD), U.S. Department of Justice, the U.S. Treasury Department, the Federal Bureau of Investigation, and state Attorneys General offices, as well as leading non-profit organizations from across the country.

This new, broad coalition includes a two-part response. First, NeighborWorks is leading a national media and outreach campaign to educate homeowners and the public on potential scams. (Please visit the NeighborWorks' website on this effort http://www.loanscamalert.org/.)

Second, the Lawyers' Committee is leading an effort to increase reporting and prosecution of alleged scammers to support ongoing enforcement efforts at the federal, state and local levels.

(2) According to its website, the mission of the Loan Modification Scam Prevention Network is to target the unscrupulous and sometimes criminal third-party scammers, con-artists, and thieves who target financially distressed homeowners. Some of these operators, individuals and companies posing as "loan modification specialists," are the very people who previously peddled subprime loans. While waiting for the promised relief, homeowners not only lose their money but often fall deeper into default and lose valuable time. Among the various scams employed by the alleged "rescuers" are:

  • phantom foreclosure counseling,
  • lease-back or repurchase scams,
  • fraudulent refinance,
  • fraudulent loan modification,
  • bankruptcy foreclosure, and
  • reverse mortgage fraud.

Monday, March 29, 2010

NY AG Tags Two Loan Modification Outfits In Civil Suits For Failing To Provide Promised Services

From the Office of the New York Attorney General:

  • Attorney General Andrew M. Cuomo [] filed lawsuits against two loan modification companies for engaging in nationwide foreclosure rescue scams. The lawsuits were filed against National Modification Service (“National Modification”) and its founder Joseph Romano, and Infinity Mitigation Corporation, Infinity Funding Group (“Infinity”), and their owner and principal Neil Singer. The companies and their owners prey on homeowners facing foreclosure by claiming that they can save their homes, but often fail to provide the services promised. National Modification is based in Farmingdale, New York and Infinity is based in Bohemia, New York.(1)

For the New York AG press release, see Attorney General Cuomo Sues Two New York Companies For Defrauding Homeowners In Nationwide Foreclosure Rescue Scam (Cuomo Sues National Modification Service and Infinity Mitigation Services for Illegally Charging Homeowners for Loan Modification Services That Were Not Performed; Cuomo Also Shuts Down Two Other Companies in New York in the Latest Stage of his Ongoing Investigation into Foreclosure Rescue Companies).

(1) The lawsuits against National Modification and Infinity allege that the companies charged homeowners up-front fees of several thousand dollars, a violation of New York law. In addition, the companies used misleading advertising and made false representations to customers, including unsubstantiated claims of over a 90% success rate and guarantees that they would be able to convert an adjustable-rate mortgage to a lower, fixed-rate mortgage. The lawsuits also allege that the companies promised a 100% money-back guarantee but then failed to provide refunds to customers that they scammed, often even refusing to answer the customers’ calls.

Pennsylvania B'kruptcy Court Voids Sale Leaseback Scam; Victimized Homeowners' Continued Possession Leads To Invalidation Of Subsequent Deed, Mortgage

A recent ruling of a Federal bankruptcy court in Philadelphia, Pennsylvania provides a roadmap for one way in which a sale leaseback, equity stripping foreclosure rescue scam can be undone or unwound, invalidating both the initial title transfer (that was coupled with a contemporaneous leaseback of the premises with a repurchase option) by the victimized homeowner to the foreclosure rescue operator, as well as subsequent conveyances to others.

In a nutshell, the facts are as follows:

  • Homeowners (husband & wife) transfer property to a trust formed and controlled by a local foreclosure rescue operator ("Operator"),
  • Homeowners remain in possession of the property pursuant to a leaseback agreement which includes a right to repurchase the home at some future time,
  • Operator then sells property to 3rd party buyer,
  • 3rd party buyer gets a mortgage loan from bank to finance purchase.
  • Throughout the relevant time period, Homeowners maintained clear, open and exclusive possession of their home.
In ruling that Homeowners were entitled to undo this scam, U.S. Bankruptcy Judge Eric L. Frank found, among other things:
  • Operator violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("UTPCPL)",(1)
  • Homeowners were entitled to the remedy they requested - the invalidation of the deed to Operator and have their title restored, returning them to the position they were in immediately before they were scammed,
  • The transfer of title by Homeowners to Operator, while not void ab initio, was nevertheless voidable by reason of the violations of the UTPCPL,
  • The subsequent title transfer by Operator to 3rd party buyer was subject to invalidation because the buyer, by reason of the fact that Homeowners maintained clear, open and exclusive possession of their home, had constructive notice of the scam and, consequently, was not a bona fide purchaser entitled to the protection of the state recording statutes,(2)
  • The subsequent mortgage involving the 3rd party buyer and the mortgage lender used in financing the subsequent purchaser was subject to invalidation because the lender, by reason of the fact that Homeowners maintained clear, open and exclusive possession of their home, also had constructive notice of the scam and, consequently, was not a bona fide purchaser entitled to the protection of the state recording statutes.
However, Judge Frank did go further to find that, to the extent that the proceeds of the loan from the mortgage lender were applied to paying off Homeowners' existing mortgage in default, delinquent real estate taxes, and similar type expenses that in some way directly benefitted Homeowners, the mortgage lender was entitled to an equitable lien on the home for the amounts paid thereon. By granting the equitable lien on the home to the lender, Judge Frank refused to allow Homeowners the enjoyment of the significant windfall resulting from the payoff of the existing liens encumbering the property immediately before the scam was executed.

The mortgage lender, however, was not entitled to the protection of an equitable lien on the home for the amount of the excess proceeds, including any amounts pocketed by Operator, paid for closing costs, etc.

For the ruling, see In re Fowler, 425 B.R. 157 (Bankr. E.D. 2010) (go here for court ruling on Google Scholar).(3)

(For those looking for a quick, easy read, don't bother clicking the link to this case. The ruling is 90+ pages and frankly, there's no way to fully address, in one blog post, all the facts and circumstances, and the related points of law, that Judge Frank exhaustively - and exhaustingly - covers.)

Representing Homeowners in the litigation in this case was The Regional Bankruptcy Center of Southeastern PA, Havertown, PA. (In detailing the events that transpired during the relevant times leading up to the lawsuit, Judge Frank noted in his ruling that Homeowners obtained pre-litigation legal assistance from Community Legal Services of Philadelphia).

(1) The complaint in this case included violations of the state Unfair Trade Practices and Consumer Protection Law, Pennsylvania's version of the state law that prohibits unfair and deceptive acts and practices in trade and commerce (generically referred to as state UDAP statutes).

For more on UDAP statutes across the U.S., see Consumer Protection In The States: A 50-State Report on Unfair and Deceptive Acts and Practices Statutes.

(2) For more Pennsylvania case law on this point, see:
For other states, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.

(3) For other court documents, see:

Paralegal Gets Three Years For Role In Sale Leaseback Foreclosure Rescue Ripoff Targeting Financially Distressed Homeoners In Brooklyn, The Bronx

From the Office of the U.S. Attorney (New York City):

  • PREET BHARARA, the United States Attorney for the Southern District of New York, announced that MARINA DUBIN, a real estate paralegal, was sentenced yesterday to two concurrent three-year prison sentences in connection with her involvement in a multimillion-dollar, sub-prime mortgage fraud scheme and another foreclosure rescue scheme.(1)

For the press release, see Paralegal Sentenced In Manhattan Federal Court To three Years In Prison For Role In Multi-Million Dollar Mortgage Fraud And Foreclosure Rescue Scheme.

(1) The foreclosure rescue scheme targeted homeowners whose homes, primarily in Brooklyn and Bronx, New York, were in foreclosure or facing foreclosure, by offering them a plan to "save" their homes. The proposed plan included the refinancing of the homeowners' debt with new, larger mortgages. Because the distressed homeowners typically had poor credit and were not eligible to refinance their debt at favorable terms, the defendants induced them to "sell" their homes to straw buyers, who would apply for loans to be used to "save" the home. The defendants promised that once the straw buyer obtained the mortgage, the proceeds would be used to pay off the homeowners' old debt and make one year's worth of payments on the new loans. The homeowners were told that, during that year, they could continue to live in their homes and work on improving their finances and credit. Finally, the defendants explained to the homeowners that, at the end of the year, the title to their homes would be returned to them by the straw buyers, with their credit repaired and their homes saved. There were also cases in which the defendants did not explain to homeowners that the plan to "save" their home required them to deed their house to a third party and did not obtain permission to deed the homes to others. In such cases, the defendants effectively stole the property of the homeowners by forging the homeowners' signatures on various documents that transferred the homes to straw buyers without the homeowners' knowledge.

Brooklyn Judge Bags Foreclosure Mill Law Firm Representing Both 1st & 2nd Mortgage Holders In Legal Action In Violation Of Conflict Of Interest Rule?

In Brooklyn, New York, Kings County Supreme Court Justice Arthur M. Schack is at it again, denying another foreclosing lender seeking foreclosure because of screwed up paperwork. In addition, Justice Schack makes this observation regarding the attorneys of record representing the foreclosing 1st mortgagee and the 2nd mortgagee:

  • Finally, for reasons unknown to this court, Ms. Bechakas, the attorney of record for subordinate mortgage defendant MERS, as nominee for FIRST FRANKLIN FINANCIAL CORP., failed to disclose to the Court that she is employed by plaintiff's counsel, Steven J. Baum, P.C.

  • My March 17, 2010 examination of the Office of Court Administration's Attorney Registry reveals that Ms. Bechakas, admitted in the Fourth Department in 1991, lists her business address as "Steven J. Baum, P.C., 220 Northpointe Pkwy, Ste G., Amherst, NY 14228-1894." As noted above, Steven J. Baum, P.C. is the attorney for plaintiff LASALLE. The Court is concerned that the simultaneous representation by Steven J. Baum, P.C., of both plaintiff LASALLE and subordinate mortgage defendant MERS, as nominee for FIRST FRANKLIN FINANCIAL CORP., is a conflict of interest in violation of 22 NYCRR § 1200.24, the Disciplinary Rule of the Code of Professional Responsibility, entitled "Conflict of Interest; Simultaneous Representation," in effect when plaintff LASALLE moved in December 2008 for a judgment of foreclosure and sale.

For the ruling, and a discussion of the applicable New York law, see Lasalle Bank N.A. v Smith, 2010 NY Slip Op 50470(U) (March 22, 2010).

For links to over 30 of Justice Schack's court rulings in which he bounced unprepared foreclosing lenders and their lawyers out of his courtroom for sloppy an/or non-existent paperwork, see Brooklyn Trial Judge Nixes "Rubber Stamp Method" Of Adjudicating Foreclosures; Lenders, Lawyers Lacking Legal Standing To Bring Actions Get Bounced.

Go here for other posts on Justice Schack.

Foreclosure Rescue Scam Mastermind Found Guilty Of Dozens Of Felonies; Ran Upfront Fee Land Grant Scheme, Sale Leaseback Rent Skimming Racket

In San Diego, California, XETV-TV Channel 6 reports:

  • The mastermind of a scam in which about 400 homeowners in San Diego and Riverside counties were tricked into paying nearly $2 million in fees in hopes of beating foreclosure was convicted Tuesday of dozens of felonies. After an eight-week trial, 63-year-old William Hutchings was found guilty of 160 counts of conspiracy to commit grand theft, grand theft, rent skimming and deceitful practices by a foreclosure consultant. [...] Five of Hutchings' co-defendants -- including his wife and ex-wife -- have pleaded guilty, and four are set for trial on May 18, said Deputy District Attorney Stephen Robinson.

  • In the scam, which ran from January 2007 to May 2008, the defendants acquired grant deeds to homes in foreclosure, based on untrue or misleading statements that they would prevent homeowners from losing their homes through foreclosure, prosecutors said.(1)

For more, see Foreclosure Scheme Ringleader Convicted of 160 Charges.

(1) According to the story, two methods were used for inducing owners of residences in foreclosure to participate in a so-called land grant program, prosecutors said. One method required homeowners to pay a one-time fee of up to $10,000 to put their property in a land grant. The second method was a lease-back scheme in which homeowners paid the defendants $500 or more and then transferred their property via land grant deeds to the defendants for no consideration and then made monthly payments, purportedly to rent their homes back. In both scenarios, homeowners were eventually foreclosed upon and evicted and retained no legally recognized title to their property, prosecutors said.

Sunday, March 28, 2010

Pennsylvania Bona Fide Purchaser, Possession, Duty To Inquire

The following compilation of cases is an extended version of the list of Pennsylvania 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, 2009 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 Pennsylvania statute, see 21 Pa. Stat. Ann. §§ 351 and 444.

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 Pennsylvania state legislature has passed laws subsequent to these court rulings that either modifies or renders them obsolete in Pennsylvania, the persuasiveness of the logic that underlies them may still be of value to those involved in litigation outside of Pennsylvania (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 Pennsylvania, but as generally applied in Pennsylvania sister states as well).

-------------------------

Pennsylvania Supreme Court

Woods v. Farmere, 7 Watts 382, 1838 Pa. LEXIS 94 (1838):

  • The duty of inquiring into the foundation of a notorious possession is not a grievous one, and it is soon performed. Why, then, should a purchaser be suffered to act on probabilities as facts at the risk of any one but himself, when a moderate share of attention would prevent misconception or loss? The doctrine of constructive notice is undoubtedly a sharp one; but it is not more so in regard to a notorious possession than it is in regard to a registry. Nor is it less reasonable; for it certainly evinces as much carelessness to purchase without having viewed the premises, as it does to purchase without having searched the register.

Hole v. Rittenhouse, 19 Pa. 305 (1852):

  • Actual possession of land is notice to all the world, not merely of the fact itself, but of the title under which the possessor holds it, and notice of so high an order that it excuses him for non-compliance with the recording law, and for almost every other manner of laches.

Jamison v. Dimock, 95 Pa. 52 (1880):

  • The admitted possession of the defendants from October 1875 was notice of Mrs. Dimock's equitable title not only to Herdic's vendee, but to the assignees of the mortgage as well as the purchaser at sheriff's sale.

  • It does not appear that inquiry was made by either of them for the purpose of ascertaining by what right defendants were in possession. It was unquestionably their duty to make such inquiry, and having neglected to do so, they were affected with constructive notice of such facts as would have come to their knowledge in the proper discharge of that duty. This principle is applicable to the plaintiff as well as to Mr. Herdic's vendee: Woods v. Farmere, 7 Watts 382.

Hottenstein v. Lerch, 104 Pa. 454 (1882):

  • In order to consider the merits of the contention intelligently, it is necessary to determine with some care what the terms of the rule are. The language in which it is expressed has not varied from the earliest to the latest of the cases in which it has been announced. Thus in Jaques v. Weeks, 7 Watts 261, and in Maul v. Rider, 59 Pa. 167, it is stated in identical words: "Whatever puts a party upon inquiry amounts in judgment of law to notice, provided the inquiry becomes a duty, as in case of purchasers and creditors, and would lead to the knowledge of the requisite fact by the exercise of ordinary diligence and understanding."

  • The rule is a broad and general one, and includes other subjects than the unrecorded title to land. Even when that one subject is the occasion of a judicial controversy the rule has two well-defined and distinct branches.

  • One of them relates to notice of an unrecorded title by information of its existence, communicated verbally. In this class of cases it is well settled that a party is not affected by a mere general rumor, and notice of such a rumor is neither actual nor implied notice of the existence of such a title. It is also held that the information must come from some person interested in the property and must be directly communicated to the party sought to be affected. All the cases assert this distinction.

  • The other branch of the rule referred to, relates to the effect, as notice, of actual possession of the land in question by another than the grantor of the party to be affected.

  • Such possession is the equivalent of notice, and therefore is notice, because it is inconsistent with the title conveyed to the purchaser, and because it is the duty of a purchaser to regard such a possession and inquire into its character. If the inquiry would result in knowledge of the requisite fact, the purchaser is bound by the actual state of the title, whether he made the inquiry or not.

  • Thus in Jaques v. Weeks, 7 Watts 261 at 276, Kennedy, J., in stating the rule, says: "Every purchaser of land, I take it as a general rule, must be presumed in equity to know whether the possession be vacant or not; and if a third person be in the actual and visible occupation of the land at the time of his purchase, it is sufficient to put him on inquiry, in order that he may know by what tenure or right such person holds the possession; and whatever is sufficient to put the party on inquiry is equivalent to notice in equity" (citing several cases).

  • Accordingly it was held in Daniels v. Davison, 16 Ves. 249; 17 Ves. 433, that the possession of a tenant who had taken it under a lease for a term of years, and during the pendency of the lease made a contract with his lessor for the purchase of the reversion, was notice to a subsequent purchaser, the lease being still unexpired, not only of the tenant's interest under it, but likewise of his equitable title to the estate, under his contract for the purchase of it. . . . Sir Thomas Plumer, Master of the Rolls, likewise in Meux v. Maltby, 1 Swanst. 277, said that it had been repeatedly decided that the purchaser of an estate in possession of a tenant was bound to inquire by what right and under what agreement the tenant held it.

  • The doctrine of Daniels v. Davison, was recognized and enforced by this court in the case of Kerr v. Day, 14 Pa. 112. On p. 117, Bell, J., says, "Carnahan's possession as the tenant of Cuddy, is attended with the same effect in imposing the duty of inquiry upon Day, the second purchaser, as though Cuddy himself had been in possession."

  • In Hood v. Fahnestock, 1 Pa. 470, on p. 474, Rogers, J., said, "Hood, the purchaser from Magill, knew, or, which in law is the same thing, ought to have known, that there was a tenant in possession of the estate he was about to purchase. He was bound to inform himself, as we have seen, of the conditions of the lease; and in doing so, he must have discovered, if he was before ignorant of the fact, that the person in possession held it as the tenant of Jacob Herrington, the man who, in conjunction with his brother, concocted the fraud. The purchaser was bound to make inquiry; and if this duty which the law throws upon him had been exercised with due diligence and proper discretion, can a doubt remain, it would have led to a knowledge of the important fact that Jacob Herrington was the landlord of the tenant in possession?"

  • It is clear, therefore, that the possession of a tenant is notice of his own title as tenant, and also of the title of the landlord under whom he holds, and that a purchaser is bound by the fact of such possession to make inquiry as to the state of the title, and is chargeable with notice of the actual condition of the title which such inquiry would have developed.

  • In Sailor v. Hertzog, 4 Whart. 259, it was held that the law presumes that a purchaser of real estate will not trust merely to the title papers and records, but will inquire of the person in possession whether he claims title to the land. If the possession is distinct and unequivocal, it is sufficient to put the purchaser on inquiry, and amounts to constructive notice.

***

  • In the case of Green v. Drinker, 7 Watts & Serg. 440, it was held that the possession of land such as will dispense with the necessity of recording the deed for it, must be such an occupancy as will afford a stranger to the title an opportunity of making the necessary inquiry for it. In Meehan v. Williams, 48 Pa. 238 on p. 241, we said: "What makes inquiry a duty, is such a visible state of things as is inconsistent with a perfect right in him who proposes to sell."

Rowe v. Ream, 105 Pa. 543 (1884):

  • Equitable titles, resting in parol, are always more or less insecure, even when the beneficial owner is in actual and exclusive possession; and, the general principle undoubtedly is that such possession, when distinct and unequivocal, puts purchasers and mortgagees on inquiry, and thus visits them with notice of the occupant's title.

  • Since Le Neve v. Le Neve, 2 Lead. Cas. Eq. 35, this principle has been recognized in many cases among which are the following: Billington's Lessee v. Welsh, 5 Binn. 129, 132; Sailor v. Hertzog, 4 Whart. 259; Woods v. Farmere, 7 Watts 382, 384; M'Culloch v. Cowher, 5 Watts & Serg. 427 at 427-9; Patton v. Hollidaysburg, 40 Pa. 206; Meehan v. Williams, 48 Pa. 238; Jamison v. Dimock et ux., 95 Pa. 52 at 52-6; Hottenstein v. Lerch, 104 Pa. 454.

  • While the principle is differently stated in some of these cases it is substantially the same in all. In Woods v. Farmere, supra, Chief Justice Gibson, speaking of the unlimited effect given by the English Courts to possession as an index to title, says "the duty of inquiring into the foundation of a notorious possession is not a grievous one, and it is soon performed. Why then, should a purchaser be suffered to act on probabilities, as facts, at the risk of any one but himself when a moment's share of attention would prevent misconception or loss? The doctrine of constructive notice is undoubtedly a sharp one; but, it is not more so in regard to a notorious possession than it is in regard to a registry. Nor is it less reasonable; for it certainly evinces as much carelessness to purchase without having viewed the premises as it does to purchase without having searched the register."

  • In the language of Woodward P. J., adopted by this court in McCulloch v. Cowher, supra, "The possession of land is notice to the world of every title under which the occupant claims it, unless he has put a title on record inconsistent with his possession. When, as in this case, an individual is in possession under no recorded title, his possession is notice of every title which he can set up to protect himself, sufficient at least to put a purchaser on inquiry." A full discussion of the subject, by our brother Green, may also be found in Hottenstein v. Lerch, supra.

  • The constructive notice, spoken of in these cases, is in the nature of evidence of notice, the presumptions of which are so violent that they cannot be controverted. It is that notice which the law imputes to a person without regard to whether he has actual knowledge or not. In other words, when inquiry becomes a duty, the means of knowledge which it affords is regarded as the legal equivalent of actual notice.

Anderson v. Brinser, 129 Pa. 376; 18 A. 520 (1889):

  • The only remaining question for our consideration is whether or not Jonas Brinser is to be regarded as an innocent purchaser, and entitled to protection as such. Anderson died in 1883, and the conveyance by Hershey to Brinser was in 1884. Anderson's heirs were in the actual possession of the premises in dispute at the time of the conveyance, and it is contended that their possession put Brinser upon inquiry as to the title, in virtue of which that possession was maintained, and that, having failed in this respect, he is affected with notice of that which a proper inquiry would have developed. The rule of law which is thus invoked is settled in a long line of cases, including Jaques v. Weeks, 7 W. 261; Maul v. Rider, 59 Pa. 167; Hottenstein v. Lerch, 104 Pa. 454; Rowe v. Ream, 105 Pa. 543.

***

  • Knowledge of the existence of a lease will, of course, give constructive notice of all its provisions; but, the possession, apart from the lease, we think should be treated as notice of the possessor's claim of title, whatever that claim may be, for the lease may be but the first of two or more successive rights acquired by the tenant.

  • Whilst in the occupancy, under a lease for years, the tenant may have purchased under articles and entitled himself to an equity; or, indeed, he may have purchased the legal estate in fee and failed to record his deed. Would it be supposed that a knowledge of the precedent lease would dispense with the duty of inquiry, and entitle a subsequent grantee to the protection of an innocent purchaser? Or, the lease may have been the instrument of a base fraud; it may have been executed under the false and fraudulent pretence, to an illiterate person, that it was in fact a conveyance or a contract of sale. Would possession afford no protection in such a case? We think it would. In such cases the possession is the possessor's only reliance, for he may be powerless to put his claim of title upon the record.

White v. Patterson, 139 Pa. 429 (1891):

  • The appellee's possession of the land described in the bill, was notice to the appellant and the parties under whom she claims, that he was the equitable owner of it, and that his vendor held the legal title to it in trust for him: Hottenstein v. Lerch, 104 Pa. 455; Rowe v. Ream, 105 Pa. 543.

***

  • The objection that the equitable owner is precluded by laches from obtaining the relief he seeks is not well taken. "Laches will not be imputed to one in peaceable possession of land, for delay in resorting to a court of equity to establish his right to the legal title. The possession is notice to all, of the possessor's equitable rights, and he need only assert them when he may find occasion to do so:" 12 Am. & E. Encyc, of Law, 606, and cases cited; Du Bois v. Baum, 46 Pa. 537; Richards v. Elwell, 48 Pa. 361; Harris v. Harris, 70 Pa. 170.

Ohio R. Junc. R.R. Co. v. Pa. Co., 222 Pa. 573; 72 A. 271 (1909):

  • "Whatever puts a party upon inquiry amounts in law to notice, provided the inquiry becomes a duty, as in case of purchasers and creditors, and would lead to the knowledge of the requisite fact by the exercise of ordinary diligence and understanding:" Jaques v. Weeks, 7 Watts, 261.

  • It is always the duty of a purchaser of real estate to investigate the title of his vendor. He cannot be said to exercise due diligence in this regard if he accepts the statement of his vendor as to binding effect of an outstanding agreement of sale with another, and makes no attempt to ascertain for himself what the agreement contains. Had the defendant or its agent inquired through the agreement itself, of the existence of which it admittedly had notice, or of the party holding it, the fact that there was an outstanding equitable title in the plaintiff must have appeared. Failing to do this the defendant was chargeable, as matter of law, with notice of the facts which the inquiry would have disclosed.

Lazarus v. Lehigh & W.-B. Coal Co., 246 Pa. 178 (1914):

  • Three quarters of a century ago, in Woods v. Farmers, 7 Watts 383, we said, adopting the English doctrine, that the possession of a tenant is notice of his actual interest, whether as lessee or purchaser. In the more recent case of Jamison v. Dimock, 95 Pa. 52, we reiterated the rule, holding that it is the duty of purchasers of real estate to make inquiry respecting the rights of parties in possession, and failing to do so, they are affected with constructive notice of such facts as would have come to their knowledge in the proper discharge of that duty.

Stonecipher v. Keane, 268 Pa. 540 (1920):

  • The actual visible possession of a tenant is constructive notice both of his interest and that of his landlord (see Sheaffer v. Eakman, 56 Pa. 144); therefore, if Lawler had such possession, as Keane's tenant, at the time of McGrew's purchase, in 1907, and so continued until after the latter's conveyance to Miss Kelly in 1913, it was a potent fact in favor of defendant.

  • A prospective purchaser of land is required to make inquiry of those in possession thereof and, failing to do so, is affected with constructive notice of all that such inquiry would have disclosed: Lazarus v. Lehigh & W.B. Coal Co., 246 Pa. 178; Ohio R. Junc. R.R. Co. v. Penna. Co., 222 Pa. 573; Jamison v. Dimock et ux., 95 Pa. 52.

  • In other words, actual possession is constructive notice of the interest of the possessor in the premises (Rowe v. Ream, 105 Pa. 543) and of his relation thereto. Such possession is evidence of title and in a certain sense a substitute for recording (White v. Patterson, 139 Pa. 429), and is sufficient to put an intending purchaser upon inquiry: Hottenstein v. Lerch, 104 Pa. 454; Lord's App., 105 Pa. 451; Jacques v. Weeks, 7 Watts 261.

Salvation Army Incorporated Trustees v. Lawson, 293 Pa. 459, 143 A. 113 (1928):

  • Plaintiffs' title could be affected only with what they actually or constructively knew at the time of the purchase, necessarily, as to the latter, by what they could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect the title, and also by what appeared in the appropriate indexes in the office of the recorder of deeds, and in the various courts of record whose territorial jurisdiction embraced the land in dispute (Jaques v. Weeks, 7 Watts 261; Hill v. Epley, 31 Pa. 331, 336; Maul v. Rider, 59 Pa. 167, 171); but not of that which they could not have learned by inquiry of those only who, they had reason to believe, knew of the facts: Lower's App., 1 Walker 404.

  • The burden of proof upon these points was upon defendant, and, to be of any effect, the evidence was required to be clear and unequivocal: Meehan v. Williams, 48 Pa. 238, 241, 242; Townsend v. Little, 109 U.S. 504, 511. It is not claimed that plaintiffs had actual knowledge of the alleged wrong, or that they knew of others who were acquainted with facts which might affect the title to the property.

  • Their grantor was in possession, her grant was an affirmance that she had a good title, and hence, as we have held, plaintiffs were not required to make any inquiry of her: Stiffler v. Retzlaff, 20 W.N.C. 303. "Indeed there can be no doubt whatever of the proposition that where the land is occupied by two persons, as, for instance, by husband and wife, and there is a recorded title in one of them, such joint occupation is not notice of an unrecorded title in the other . . . . The rule is universal that if the possession be consistent with the recorded title, it is no notice of an unrecorded title": Kirby v. Tallmadge, 160 U.S. 379, 388.

Kinch v. Fluke, 311 Pa. 405, 166 A. 905 (1933):

  • A vendee who purchases land, by entering into open, notorious and continued possession of it, gives notice not only of his interest in the land, but that of his vendor.

  • This is true notwithstanding the fact that the agreement of purchase was not entered of record. Such possession is evidence of title, and, in a certain sense, is a substitute for recording the agreement of purchase, and is sufficient to put a subsequent purchaser or mortgagee on inquiry: Hottenstein v. Lerch, 104 Pa. 454; Lord's App., 105 Pa. 451; Rowe v. Ream, 105 Pa. 543; White v. Patterson, 139 Pa. 429.

  • A prospective purchaser is required to make inquiry of those in possession, and failing to do so, is affected with constructive notice of all that such inquiry would have disclosed: Stonecipher v. Keane, 268 Pa. 540; Lazarus v. Lehigh & W.-B. Coal Co., 246 Pa. 178; Ohio R. Junc. R.R. Co. v. Pa. Co., 222 Pa. 573; Jamison v. Dimock, 95 Pa. 52.

  • The notice of possession which the law imposes on a subsequent vendee or mortgagee without regard to whether he has actual knowledge or not, is of such character that it cannot be controverted. The means of knowledge which possession affords is regarded as the legal equivalent of actual notice: Rowe v. Ream, supra, at 546.

  • It is conceded that neither of the mortgagees, the Seaboard or Finance Company, made any inquiry of appellants, who were in possession, as to the nature of their title. The mortgagees, therefore, took subject to the interests under the agreement of sale.

  • What then was the effect of the recording of mortgages on future payments by the vendees, appellants in this case? It has been stated that where a vendor sells lands by articles of agreement, a subsequent judgment against the vendor binds the legal estate in the vendor but only to the value of the unpaid purchase money: Brooke v. Bordner, 125 Pa. 470; Catlin v. Robinson, 2 Watts 373; Fasholt v. Reed, 16 S. & R. 265.

  • As it has been otherwise stated: a judgment against the vendor of land retaining legal title is not so much a lien on the legal title as it is on the unpaid purchase money. These statements of the law are broader than the cases there mentioned will sustain for they omit any mention of notice to the vendee. The question here involved is whether the recording of a mortgage against the vendor's interest is constructive notice of the lien of that mortgage to vendees in possession under an agreement of sale.

  • The purpose of recording mortgages or of entering judgment is to give notice of its existence to those who subsequently acquire an interest in or lien upon the property. It is sometimes said "that the record of a deed [or mortgage] is constructive notice to all the world." That, it is evident, is too broad and unqualified an enunciation of the doctrine. Recording is constructive notice only to those who are bound to search for it: subsequent purchasers and mortgagees, and, perhaps, all others who deal with or on the credit of the title, in the line of which the recorded deed [or mortgage] belongs: Maul v. Rider, 59 Pa. 167, 171; Bank v. Carr, 15 Pa. Superior Ct. 346, 349.

  • The assignment of a mortgage by an instrument duly executed, or the assignment of such mortgage on the margin of the mortgage record is not such legal notice to the mortgagor as will preclude him from setting up payments made by him to the mortgagee before he has actual notice of the assignment: Foster v. Carson, 159 Pa. 477; O'Maley v. Pugliese, 272 Pa. 356, 359; Brindle v. McIlvaine, 9 S. & R. 74, 75; Bury v. Hartman, 4 S. & R. 175; Lee v. Sallada, 7 Pa. Superior Ct. 98. In order to complete the assignee's right with respect to such an assignment, the law requires actual notice be given to the mortgagor of the assignment. The recording act imposes no duty on the mortgagor to search the record for the purpose of ascertaining whether the mortgagee has assigned the mortgage. To do so would impose too great a burden on the mortgagor. Actual notice must be given to the mortgagor of the assignment.

  • It has also been held that the docketing of a judgment is not notice of the lien to a purchaser in possession, since, after he has made his contract for the purchase and entered into possession, he is not bound to keep the run of the dockets, and payments subsequently made by him to the vendor pursuant to the contract without actual notice of the judgment, are valid as against such liens. See Black on Judgments, section 438, and Freeman on Judgments, 4th edition, section 364, and the numerous authorities from other states there cited.

  • We held in Riddle v. Berg Co., 3 Sad. 566, 7 Atl. 232, where land was held pursuant to an article of agreement, and before the date of final payment a promissory note was given for the final payment, that it was not the duty of the purchaser, who has given such note in payment of the balance due on the purchase price, to watch the record and, when a judgment is entered, inform the judgment plaintiff of the existence of the note and the possibility of its being negotiated.

  • If the recording of an assignment of a mortgage, or the docketing of a judgment, is not effective as constructive notice to the vendee of land when payments are to be made by the vendee to the mortgagor or judgment debtor, but actual notice is essential, how then can the rule of law be that the mere recording of a mortgage is effective as constructive notice to the vendee who purchased and was in actual possession of the land before the existence of such mortgage.

  • The mortgagee has ample opportunity to ascertain the state of the possessor's title, the amount of purchase money due the mortgagor; and is given ample opportunity to effectuate his lien by notifying the vendee under articles of his mortgage or judgment. We can readily see where land is sold by articles of agreement and the purchaser does not go into possession, that his subsequent payment of purchase money to the vendor must be at his peril if judgments or mortgages have been entered in the interim. Such lien holders have no means of information (apart from actual notice) that the mortgagor or judgment debtor has parted with his title.

  • The rule must be otherwise as to the sale of land under articles of agreement where possession is taken thereunder and held openly, continuously and notoriously. The opportunity is then afforded to the mortgagee of completing his lien by actual notice to the vendee in possession. We, therefore, conclude that the recording of a mortgage or docketing of a judgment is not constructive notice of a lien on land to a vendee then in possession under an agreement of sale. The mortgage operates as an assignment of the balance of the purchase money due but actual notice is required to make it effective. In other words, the lien of a mortgage or judgment, whether or not recorded or docketed, on the unpaid purchase money due from a vendee of land in possession under an agreement of sale, is not effective so as to require payment of the unpaid purchase money to the mortgagee or holder of the judgment unless actual notice of such mortgage or judgment has been given to the vendee in possession.

  • If the rule were otherwise in the instant case, before each monthly payment was made it would be necessary for the purchasers to inquire from the mortgage record whether the vendor had assigned the balance of the purchase money due. This is an unwarranted burden.

Miners Savings Bk. of Pittston v. Tracy et ux., 326 Pa. 367, 192 A. 246 (1937):

  • We said in Salvation Army, Inc., Trustees, v. Lawson, 293 Pa. 459, 463:

    'There can be no doubt whatever of the proposition that where the land is occupied by two persons, as, for instance, by husband and wife, and there is a recorded title in one of them, such joint occupation is not notice of an unrecorded title in the other. . . . The rule is universal that if the possession be consistent with the recorded title, it is no notice of an unrecorded title.'

  • Many cases so held, but it is sufficient to refer to Stewart v. Freeman, 22 Pa. 120, 123; Townsend v. Little, 109 U.S. 504; Kirby v. Tallmadge, 160 U.S. 379, 388; Rankin v. Coar, 46 N.J. Eq. 566, 22 A. 177. Indeed, this conclusion is but an application of the general principle that, in the absence of proof to the contrary, actual possession is presumed to be in him who has the record title. It would be intolerable to require an intending purchaser or encumbrancer to ask every person living in a property, be they many or few, whether or not he has a better title than the record owner, who is also in possession.

  • This would be to shift the burden of clear proof of notice from him whose neglect to record his deed has caused the trouble, to him who has been guilty of no neglect; and would reverse the rule that the possesion of one holding under an unrecorded deed, in order to be effective as against a subsequent purchaser, must be open, notorious, distinct and unequivocal: Rankin v. Coar, supra." See also Buck's Appeal, 100 Pa. 109; Harris v. McIntyre, 118 Ill. 275, 8 N.E. 182; Atwood v. Bearss, 47 Mich. 72, 10 N.W. 112.

  • The presumption is of course rebuttable but in this case there is nothing to rebut it; appellant's evidence supports the facts bringing the case directly within the statute.

Sidle v. Kaufman, 345 Pa. 549, 29 A.2d 77 (1942):

  • It is well settled that purchasers and mortgagees of real estate are affected not only by matters of which they had actual knowledge and by what appeared in the office of the recorder of deeds and in the various courts of record whose territorial jurisdiction embraced the land in dispute, but as well "by what they could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect the title": Salvation Army Inc. Tr. v. Lawson, 295 Pa. 459, 463. See also Kinch v. Fluke, 311 Pa. 405, 408; Driebe v. Fort Penn Realty Co., supra, 318; Koubek v. Tenos, 343 Pa. 409, 412.

  • Here it is admitted Sidle entered into open, exclusive and notorious possession of the premises in 1938, residing there with his family down to the date of the fire. After the fire the Sidles were compelled to take up temporary quarters elsewhere, owing to the damaged condition of the dwelling, but furniture and other personal property of Sidle remained (and so far as appears still remains) on the premises, and he thus did in fact continue to assert and retain possession under the lease and option agreement. At the hearing Shure admitted he had not read the answer sworn to by him and filed in his behalf, denying notice; admitted he had heard about the option from "a lot of people" and that Sidle had told him he "had some kind of understanding with Mr. Kaufman"; and he testified he made no inquiry of Sidle, because he "relied upon and trusted Mr. Kaufman implicitly."

  • Shure thus deliberately omitted to make inquiry of Sidle, the party in possession, or others known to him to have knowledge of facts affecting the title, and failing to do so, is chargeable, as a matter of law, with constructive notice of all that such inquiry would have disclosed.

  • As appellant states: "The testimony regarding Reuben Shure indicates clearly that he willingly bought his way into litigation regardless of the consequences and relying solely upon the ability of Nathan Kaufman to make him safe."

Atlantic Refining Co. v. Wyoming Nat. Bank, 356 Pa. 226, 51 A. 2d 719 (1947):

  • Not only had the auction sale to Jacobs been expressly made "subject to the rights of the tenants in possession" but, as a matter of law, he was bound with knowledge of the possessing tenant's (Atlantic's) right under its lease to the first refusal to purchase "the demised premises": see Kerr v. Day, supra [14 Pa. 112], at pp. 116-117, where the rule as stated by Lord Eldon in Taylor v. Stibbert, 2 Ves. 437, is approvingly quoted, in part, as follows: "'Where there is a tenant in possession under a lease, or an agreement, a person purchasing part of the estate must be bound to inquire on what terms that person is in possession.... [A] tenant being in possession under a lease, with an agreement in his pocket to become the purchaser, those circumstances altogether give him an equity, repelling the claim of a subsequent purchaser, who made no inquiry as to the nature of his possession'".

  • Knowledge of an option to purchase is within the range of what such an inquiry bindingly reveals. In the annotation appearing in 74 A.L.R. p. 355 et seq., Kerr v. Day, supra, is cited (p. 356) as holding "that the possession of a lessee charges a purchaser with knowledge of a provision of the lease granting an option to purchase". (Emphasis supplied).

Schell v. Kneedler, 359 Pa. 424, 59 A. 2d 91 (1948):

  • The deed to the Bradys was recorded and they were in possession; that fact makes it immaterial for present purposes that plaintiff and her husband also lived in the same house with the Bradys. Neither Kneedler nor Grammes, when they bought from the Bradys, had any knowledge, actual or constructive, of the secret trust; they wre bound by the recorded title and could rely on possession by the Bradys.

  • Finding title and possession in one person relieved them from further inquiry on the premises.

  • In Miners Savings Bank etc. v. Tracy , 326 Pa. 367, 192 A. 246, at p. 373 we referred to the rule as follows:

    "'We said in Salvation Army, Inc., Trustees, v. Lawson , 293 Pa. 459, 463; "There can be no doubt whatever of the proposition that where the land is occupied by two persons, as, for instance, by husband and wife, and there is a recorded title in one of them, such joint occupation is not notice of an unrecorded title in the other.... The rule is universal that if the possession be consistent with the recorded title, it is no notice of an unrecorded title." Many cases so held, but it is sufficient to refer to Stewart v. Freeman , 22 Pa. 120, 123; Townsend v. Little , 109 U.S. 504; Kirby v. Tallmadge , 160 U.S. 379, 388; Rankin v. Coar , 46 N.J. Eq. 566, 22 A. 177. Indeed, this conclusion is but an application of the general principle that, in the absence of proof to the contrary, actual possession is presumed to be in him who has the record title. It would be intolerable to require an intending purchaser or encumbrancer to ask every person living in a property, by they many or few, whether or not he has a better title than the record owner, who is also in possession. This would be to shift the burden of clear proof of notice from him whose neglect to record his deed has caused the trouble, to him who has been guilty of no neglect; and would reverse the rule that the possession of one holding under an unrecorded deed, in order to be effective as against a subsequent purchaser, must be open, notorious, distinct and unequivocal: Rankin v. Coar , supra.' See also Buck's Appeal , 100 Pa. 109; Harris v. McIntyre , 118 Ill. 275, 8 N.E. 182; Atwood v. Bearss , 47 Mich. 72, 10 N.W. 112."

  • Kinch et ux. v. Fluke et al ., 311 Pa. 405, 166 A. 905, was referred to during the oral argument. But in that case a different principle applied. Fluke who held the record title was not in possession when he made the mortgages; his mortgagees therefore were bound to inquire of Kinch, who was in possession by articles, or risk the lien of their mortgages. The cases cited by Justice KEPHART on page 408 of the opinion in that case in referring to the duty of inquiry on a purchaser or mortgagee were cases in which possession and record title were not in same person.

Malamed v. Sedelsky, 80 A.2d 853, 367 Pa. 353 (Pa. 1951):

  • There is nothing to show that plaintiff had actual notice, but there is an averment in the New Matter part of the Answer that the defendants were in exclusive possession of the premises from February 24, 1947, when Pastner took title to the present time.

  • Such possession by the Sedelskys was sufficient constructive notice, for it has long been settled that it is the duty of a purchaser of real property to make inquiry respecting the rights of the party in possession and failing to do so they are affected with constructive notice of such facts as would have come to his knowledge in the proper discharge of that duty: Lazarus v. Lehigh and Wilkes-Barre Coal Co., 246 Pa. 178, 184, 92 A. 121 (1914); Atlantic Refining Co. v. Wyoming Nat. Bank, 356 Pa. 226, 236, 51 A. 2d 719 (1947); Sidle v. Kaufman, 345 Pa. 549 557, 29 A. 2d 77 (1942); Kinch v. Fluke, 311 Pa. 405, 166 A. 905 (1933) 2.

  • This has been the law as far back at least as Woods v. Farmere, 7 Watts 382, 387 (1838), where it was said by Chief Justice GIBSON, at p. 387, "... it certainly evinces as much carelessness to purchase without having viewed the premises, as it does to purchase without having searched the register." In that case the rule was invoked against a purchaser at a sheriff's sale which under the pleadings is the real status of the plaintiff here. But even if the plaintiff were viewed as a judgment creditor he would nevertheless in that capacity be still subject to the same duties as subsequent purchasers and mortgagees. The Act of 1931, supra, puts him in the same class with them and accords him no greater rights. If then plaintiff had inquired of the defendants who were in exclusive possession by what authority they occupied the premises, he would have learned of their claim of ownership and that his judgment debtor had no title. Being bound by constructive notice therefore of the prior conveyance, his action must fail and the judgment must be reversed.

Lund v. Heinrich, 410 Pa. 341; 189 A.2d 581 (1963):

  • An innocent purchaser for value, having neither actual nor constructive knowledge of claims of a third party, holds the title acquired free of any such secret equities. Where one of two innocent persons must suffer, he whose neglect makes the injury possible must bear the responsibility. See, Haggerty v. Moyerman, 321 Pa. 555, 184 A. 654 (1936); Puharic v. Novy, 317 Pa. 199, 176 A. 233 (1934); and Kepler v. Kepler, 330 Pa. 441, 199 A. 198 (1938). The purpose of the foregoing rule is to discourage secret liens or equities against property, particularly real property, where the owner of the lien, encumbrance or equity may record it or institute proceedings immediately, and make it a matter of permanent record from which those who deal with the property thereafter may learn that the owner does not have a perfect title to the land involved: Puharic v. Movy, supra.

  • As stated in Salvation Army Inc., Tr., v. Lawson, 293 Pa. 459, 143 A. 113 (1928), at page 463:

    "Plaintiffs' title could be affected only with what they actually or constructively knew at the time of the purchase, necessarily, as to the latter, by what they could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect the title, and also by what appeared in the appropriate indexes in the office of the recorder of deeds, and in the various courts of record whose territorial jurisdiction embraced the land in dispute ( Jaques v. Weeks, 7 Watts 261; Hill v. Epley, 31 Pa. 331, 336; Maul v. Rider, 59 Pa. 167, 171); but not of that which they could not have learned by inquiry of those only who, they had reason to believe, knew of the facts; Lower's App., I Walker 404. The burden of proof upon these points was upon defendant, and, to be of any effect, the evidence was required to be clear and unequivocal: Meehan v. Williams, 48 Pa. 238, 241, 242; Townsend v. Little, 109 U.S. 504, 511. It is not claimed that plaintiffs had actual knowledge of the alleged wrong, or that they knew of others who were acquainted with facts which might affect the title to the property. Their grantor was in possession, her grant was an affirmance that she had a good title, and hence, as we have held, plaintiffs were not required to make any inquiry of her: 3 Stiffler v. Retzlaff, 20 W.N.C. 303 ... "The rule is universal that if the possession be consistent with the recorded title, it is no notice of an unrecorded title'" Kirby v. Tallmadge, 160 U.S. 379, 388."

  • Further, as stated in the above case, the burden of proving that a purchaser for value had constructive notice of facts not appearing in the record is upon him who asserts it. This burden was not met and the lower court correctly so concluded.

Mid-State Bank & Trust Co. v. Globalnet Int'l, Inc., 557 Pa. 555; 735 A.2d 79 (1999):

  • A party is on constructive notice of another's interest in real property where the party "could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect title, and also by what appeared in the appropriate indexes in the office of the recorder of deeds." Lund v. Heinrich, 410 Pa. 341, 346, 189 A.2d 581, 584 (1963).

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Superior Court of Pennsylvania

Roberts v. Estate of Pursley, 718 A.2d 837 (Pa. Super. 1998):

  • The facts of this case involve Appellees predecessors in title, who purchased parcel of land for value and without notice of Appellants' adverse interest in such parcel. Because sections 351 and 444 are both intended to provide the same protections to bona fide purchasers, and in light of the fact that the sections must be read together, we hold that the trial court was correct in applying the Pennsylvania recording statute to the facts of this case. Miners National Bank of Wilkes-Barre, supra; Mancine, supra.

  • Next, Appellants contend, citing Kaiser Energy Inc. v. Commonwealth of Pennsylvania, Department of Environmental Resources, 113 Pa. Commw. 6, 535 A.2d 1255 (Pa. Commw. 1998), that the bona fide purchaser concept does not apply to the facts of the present case because Appellees' grantor did not possess legal title. In Kaiser, supra, the Commonwealth Court held that "the bona fide purchaser concept applies only to purchasers of legal title." 535 A.2d at 1258 (citing 32 P.L.E. Sales of Realty § 156 (1960)). The Commonwealth Court's decision in Kaiser, supra, is not binding on this court. Moreover, we do not find the Commonwealth Court's decision instructive; in fact, we find the Commonwealth Court's argument inconsistent with the bona fide purchaser concept contained within the recording statute of this Commonwealth.

  • The recording statute was intended to protect bona fide purchasers who give value for land. Long John Silver's Inc. v. Fiore, 255 Pa. Super. 183, 190, 386 A.2d 569, 573 (1978) (citing Lund v. Heinrich, 410 Pa. 341, 189 A.2d 581 (1963)). In order to qualify as a bona fide purchaser, the subsequent buyer must be without notice of a prior equitable interest. Id.

  • If "legal title," within the Appellant's definition, were required for a subsequent purchaser to qualify as a bona fide purchaser, the recording statute would not further its intended goals. For instance, in the typical recording statute situation, a grantor sells land to a grantee who does not record the deed; then, a subsequent buyer purchases the same land from the same grantor as the original grantee and this subsequent grantee records his deed before the first grantee. The subsequent grantee does not have "legal title" within the Appellant's definition because at the time the land was sold to him, the grantor did not have legal title to give such right. Yet, notwithstanding the fact that he does not have "legal title," he is a bona fide purchaser if at the time of the sale he was without notice of an adverse interest and value was given for the purchase of the land. See Long John Silver's, supra. As evidenced here, imposing a requirement of "legal title" to the definition of a bona fide purchaser would nearly render the recording statute useless. We, therefore, find no merit in Appellants' argument.

  • Appellants' next contention is that Appellees cannot be protected under the recording statute because they inherited the disputed land parcel from their predecessors-in-interest. In support of this contention, Appellants cite U.S. v. 137.02 Acres of Land, 334 F. Supp. 1021 (M.D. Pa. 1971). There, the United States District Court for the Middle District of Pennsylvania held that "heirs, who have given nothing of value in return for title, are not in the position of bona fide purchasers, mortgagees, and judgment creditors." Id. at 1024. Even though this is a correct rule of law, the trial court did not err by failing to apply it in the present case.

  • In Thompson v. Christie, 138 Pa. 230, 20 A. 934 (1890), our supreme court pointed out that "it is well settled that a bona fide purchaser, without notice of a secret agreement or trust, takes title discharged from such agreement or trust, and that he can convey good title even though his vendee has had actual notice." Thompson, 138 Pa. at 249, 20 A. at 934 (citations omitted); see also 77 Am.Jur. 2D Vendor and Purchaser § 509 (stating that "generally, a remote purchaser of real estate whose purchase does not fulfill all the requisites for protection due a bona fide purchaser may nevertheless be accorded protection because of a purchaser who is entitled thereto") (citations omitted). Essentially, our supreme court's holding in Thompson, supra, extended bona fide purchaser protection to vendees who purchase land from a bona fide purchaser vendor, even where the vendee has notice of adverse interests in the property. The purpose of this rule is to "prevent a stagnation of property and to protect the first purchaser, who, being entitled to hold and enjoy, must be equally entitled to sell." 77 Am.Jur. 2D Vendor and Purchaser § 509 (citations omitted).

  • Under the aforesaid rationale, we extend protection to devisees and heirs who take from a bona fide purchaser. The purpose here is not to protect the heir or devisee, but to permit the bona fide purchaser to convey his land. Moreover, the application of this principle to heirs and devisees will further the policy of preventing the stagnation of property as well as the policies surrounding the bona fide purchaser concept. Long John Silver's, supra. We are not, however, extending protection to heirs and devisees who take from one who has not acquired status as a bona fide purchaser. Extending such protection would not further the underlying purpose of the recording statute and the bona fide purchaser doctrine. See Mancine, supra; Long John Silver's, supra.

***

  • The Pennsylvania Supreme Court has held:

    it is well settled that purchasers . . . of real estate are affected not only by matters of which they had actual knowledge and by what appeared in the office of the recorder of deeds and in the various courts of record whose territorial jurisdiction embraced the land in dispute, but as well 'by what they could have learned by inquiry of the person in possession and of others, who they had reason to believe, knew of facts which might affect title.'

    Sidle v. Kaufman, 345 Pa. 549, 557, 29 A.2d 77, 81 (1942) (quoting Salvation Army Inc. Trustees v. Lawson, 293 Pa. 459, 463, 143 A. 113, 114 (1928)). However, a purchaser will not be prejudiced by facts, which he could not have learned by inquiry. Salvation Army Inc. Trustees, 293 Pa. at 462, 143 A. at 114 (citing Lower's Appeal, 1 Walk 404, 5 Leg.Daz. 45 (1873)).

Volunteer Fire Co. v. Hilltop Oil Co., 412 Pa. Super. 140; 602 A.2d 1348 (Pa. Super. 1992):

  • In order to qualify as a bona fide purchaser for value, an innocent purchaser must take with "neither actual nor constructive knowledge of claims of a third party . . . ." Lund v. Heinrich, 410 Pa. 341, 346, 189 A.2d 581, 584 (1963). Constructive knowledge means "what they could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect the title, and also by what appeared in the appropriate indexes in the office of the recorder of deeds . . . ." Id., 410 Pa. at 348, 189 A.2d at 585.

Long John Silver's, Inc. v. Fiore, 255 Pa. Super. 183; 386 A.2d 569 (Pa. Super. 1978):

  • Under Pennsylvania law, at the time of signing an unconditional agreement for the sale of land, the buyer acquires an equitable interest in the land. Byrne v. Kanig, 231 Pa.Super. 531, 332 A.2d 472 (1975). This rule is consistent with the common law rule regarding unrecorded deeds and agreements of sale whereby a buyer acquires an equitable interest in the land. At common law, the first buyer's deed was superior to subsequent deeds to the property conveyed by the same grantor, regardless of whether the first deed was without consideration and the subsequent deed was to a bona fide purchaser without notice.

  • The Pennsylvania recording statute, 5 however, protects subsequent purchasers by giving a subsequent bona fide purchaser for value without notice of a prior transaction priority over the equitable estate of the first owner. Lund v. Heinrich, 410 Pa. 341, 189 A.2d 581 (1963). However, in order to qualify as a bona fide purchaser, the subsequent buyer must be without notice of the prior equitable interests of others. Overly v. Hixson, 169 Pa.Super. 187, 82 A.2d 573 (1951).

  • If the subsequent purchaser has notice of the first agreement of sale or deed, he has no protection as a bona fide purchaser and his title is subject to the interest vested in the first purchaser.

  • Either actual or constructive notice is sufficient to prevent the subsequent purchaser from acquiring the status of a bona fide purchaser. Overly v. Hixson, supra. Because constructive notice is not limited to instruments of record, a subsequent purchaser may be bound by constructive notice of a prior unrecorded agreement. Overly v. Hixson, supra; Smith v. Miller, 296 Pa. 340, 145 A. 901 (1929). This is true because the subsequent purchaser could have learned of facts that may affect his title by inquiry of persons in possession or others who the purchaser reasonably believes know such facts. Lund v. Heinrich, supra; Sidle v. Kaufman, 345 Pa. 549, 29 A.2d 77 (1943).

Overly v. Hixson, 169 Pa. Super. 187, 82 A.2d 573 (1951):

  • The applicable recording Act (Act of 1775, March 18, 1 Sm. L. 422, § 1; Act of 1893, May 19, P. L. 108, § 1, 21 PS § 444) required deeds to be recorded within ninety days of their execution dates and provided that if not so recorded they would be adjudged fraudulent and void against subsequent purchasers for a valid consideration.

  • But it was also the law under this statute, as it has been under all our recording Acts, that subsequent purchasers who had actual or constructive notice of unrecorded deeds were not protected. Smith v. Miller, 296 Pa. 340, 145 A. 901; Detwiler v. Coldren, 101 Pa. Superior Ct. 189.

  • Actual and exclusive possession by a grantee who neglects to record his deed has been consistently held to constitute constructive notice of his title.

  • That situation, however, must be distinguished from cases like the one before us, where the owner of the unrecorded interest was not in exclusive possession of the property, but was, rather, in joint possession with one having record title, and where it appeared that between the joint possessors there existed a family relationship.

  • Smith v. Miller, supra, a case involving similar facts, properly states the law as follows (pp. 344, 345):

    "We said in Salvation Army Inc. Trustees v. Lawson, 293 Pa. 459, 463, 143 A. 113: [HN3] 'There can be no doubt whatever of the proposition that where the land is occupied by two persons, as, for instance, by husband and wife, and there is a recorded title in one of them, such joint occupation is not notice of an unrecorded title in the other . . . . The rule is universal that if the possession be consistent with the recorded title, it is no notice of an unrecorded title.' Many cases so hold, but it is sufficient to refer to Stewart v. Freeman, 22 Pa. 120, 123; Townsend v. Little, 109 U.S. 504, 27 L. Ed. 1012, 3 S. Ct. 357; Kirby v. Tallmadge, 160 U.S. 379, 388, 40 L. Ed. 463, 16 S. Ct. 349; Rankin v. Coar, 46 N. J. Eq. 566, 22 A. 177. Indeed, this conclusion is but an application of the general principle that, in the absence of proof to the contrary, actual possession is presumed to be in him who has the record title. It would be intolerable to require an intending purchaser or encumbrancer to ask every person living in a property, be they many or few, whether or not he has a better title than the record owner, who is also in possession. This would be to shift the burden of clear proof of notice from him whose neglect to record his deed has caused the trouble, to him who has been guilty of no neglect; and would reverse the rule that the possession of one holding under an unrecorded deed, in order to be effective as against a subsequent purchaser, must be open, notorious, distinct and unequivocal: Rankin v. Coar, supra."

  • See Miners Savings Bank of Pittston v. Tracy, 326 Pa. 367, 192 A. 246; Schell v. Kneedler, 359 Pa. 424, 59 A. 2d 91; 2 A. L. R. 2d 857 et seq. The rule may also be put as follows: "When the occupation by one is not exclusive but in connection with another, who has the record title and with whom there exists a relationship sufficient to account for the situation, and the circumstances do not suggest an inconsistent claim, such possession will not give notice of a right not appearing of record." 66 C. J., Vendor and Purchaser, § 1028.

Pennsylvania Lower State Courts

United States Bank Nat'l Ass'n v. Flemming, NO. 3487, Control No. 042044, Common Pleas Court of Philadelphia County, Pennsylvania Civil Trial Division, 2009 Phila. Ct. Com. Pl. LEXIS 212, May 29, 2009:

  • In order for an innocent purchaser for value to hold a title free of all "secret equities" the innocent purchaser must have neither actual nor constructive knowledge of the claims of a third party. Lund v. Heinrich, 410 Pa. 341, 189 A.2d 581, 584 (Pa. 1963). Purchasers and mortgagees are considered to have knowledge of all recorded matters and all matters about which "they could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect the title." Sidle v. Kaufman, 345 Pa. 549, 29 A.2d 77, 82 (Pa. 1942).

***

  • The party averring that the purchaser had constructive knowledge of a defect in the title has the burden of proof by "clear and unequivocal" facts. Puharic v. Novy, 317 Pa. 199, 176 A. 233, 234 (Pa. 1934).

Muller v. McNamee, No. 751, Common Pleas Court of Philadelphia County, Pennsylvania, 20 Phila. 644; 1990 Phila. Cty. Rptr. LEXIS 36, May 9, 1990 , Affirmed without opinion by Muller v. McNamee, 408 Pa. Super. 639, 585 A.2d 542 (Pa. Super. 1990):

  • The Pennsylvania Recording Statute 21 P.S. Section 351 provides:

    All deeds, conveyances, contracts and other instruments of writing wherein it shall be the intention of the parties executing the same to grant, bargain, sell, and convey any lands, tenements, or hereditaments situate in this Commonwealth, upon being acknowledged by the parties executing the same or proved in the manner provided by the laws of this Commonwealth, shall be recorded in the office for the recording of deed in the county situate. Every such deed, conveyance, contract, or other instrument of writing which shall not be acknowledged or proved and recorded, as aforesaid, shall be adjudged fraudulent and void as to any subsequent bond [sic] fide purchaser or mortgagee or holder of any judgment, duly entered in the prothonotary's office of the county in which the land, tenements or hereditaments are situate, without actual or constructive notice unless such deed, conveyance, contract, or instrument of writing shall be recorded, as aforesaid, before the recording of the deed or conveyance or the entry of the judgment under which such subsequent purchaser, mortgagee, or judgment creditor shall claim. Nothing contained in this act shall be construed to repeal or modify any law providing for the lien of purchase money mortgages.

  • The effect of this statute is to protect subsequent purchasers by giving a subsequent bona fide purchaser for value without notice of a prior transaction priority over the equitable estate of the first owner. Land v. Commonwealth of Pennsylvania, Pennsylvania Housing Finance Agency, 101 Pa. Commw. 179, 515 A.2d 1024, (1986); Long John Silver's Inc. v. Fiore, 255 Pa.Super. 183, 386 A.2d 569 (1978).

  • However, in order to qualify as a bona fide purchaser, the buyer must be without notice of the prior equitable interests of others. Long John Silver's, Inc. v. Fiore, supra. If the subsequent purchaser has notice of the first agreement of sale or deed, he has no protection as a bona fide purchaser and his title is subject to the interest vested in the first purchaser. Long John Silver's Inc. v. Fiore, supra. "[T]itle could be affected only with what they actually or constructively knew at the time of the purchase, necessarily, as to the latter, by what they could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect the title, and also by what appeared in the appropriate indexes in the office of the recorder of deeds, and in the various courts of record whose territorial jurisdiction embraced the land in dispute, . . ." Lund v. Heinrich, 410 Pa. 341, 348, 189 A.2d 581 (1963); Salvation Army Inc., Trustees v. Lawson, 293 Pa. 459, 143 A. 113 (1928).

Pa. Dep't of Transp. v. Mendelsohn, No. 3658, Common Pleas Court of Philadelphia County, Pennsylvania, 11 Phila. 390, 1984 Pa. Dist. & Cnty. Dec. LEXIS 192 (1984):

  • It is the duty of a prospective purchaser of land to make a proper inquiry as to the status of the title of his vendor and one who neglects to make an inquiry where it is a duty, is not a bona fide purchaser. Lund v. Heinrich, 410 Pa. 341, 189 A.2d 581 (1963). However, a purchaser of land is not deemed to have notice of matters which lie beyond the range of an inquiry and which reasonableness might not disclose. Where a purchaser could not have learned the facts by an inquiry, he is not prejudiced because he did not inquire. Hetherington v. Clark, 30 Pa. 393 (1858); Appeal of Lower, 1 Walk. 404, 5 Leg. GAZ 45 (1873).

Am. Bank & Trust Co. ex rel. Commercial Banking Corp. v. McKibbins, No. 889, Common Pleas Court of Philadelphia County, Pennsylvania, 2 Phila. 8, 1978 Phila. Cty. Rptr. LEXIS 2 (1978):

  • We turn now to the plight of the Butlers, the purchasers at the sheriff sale. They claim to be bona fide purchasers for value without notice of any irregularity or adverse claim of others and thus entitled to their title. Indeed, a bona fide purchaser of real estate is protected against all adverse claim to title. Gilberton Contracting Co. v. Hook, 255 F. Supp. 687 (E.D. Pa. 1966); Lund v. Heinrich, 410 Pa. 341, 189 A.2d 581 (1963).

  • However, this case does not present the ordinary situation where the seller has recorded title and all indicias of ownership upon which the law allows a prospective purchaser to rely with impunity. The property in this case was and is in custodia legis, subject to be sold only by leave of Court. The argument of the purchasers that because the conservator did not index his appointment in the judgment index or in the office for recordings of interest in real estate, they had to rely on owner's index that showed the judgment debtor to be the owners of the subject real estate, has no basis in fact or law.

  • In fact, the purchasers made no inquiry at all, but proceeded to the sale with the abandon of a gambler to expect munificence from a little investment. Professing that they purchased the property to make it their home, they did not inspect it or see it before the sheriff sale. They were unaware of the physical condition or the layout. They have never seen the inside, and only after the sheriff sale did Mr. Butler see the outside. Learning from that visit that it was apparently occupied, they made no inquiry as to the nature and extent of the occupancy. Without knowledge of when it would become available for possession, they sold their own home in anticipation of moving to it.

  • A purchaser of realty who neglects to make a proper inquiry is not a bona fide purchaser for value. It is the duty of the purchaser to make reasonable inquiry as to the status of his seller. Malamed v. Sedelsky, 367 Pa. 353, 80 A.2d 853 (1951); Kinch v. Fluke, 311 Pa. 405, 166 A. 861 (1933); Woods v. Farmere, 7 Watts 382 (1838).