Wednesday, August 31, 2011

Sale Leaseback Peddler Throws In Towel, Cops Guilty Plea For Running Foreclosure Rescue, Equity Stripping Racket That Left Victims Without Homes

From the Office of the U.S. Attorney (Norfolk, Virginia):

  • Kathleen Harps, 51, of Chesapeake, VA, pleaded guilty [...] in Norfolk federal court to conspiring to commit mail and wire fraud in connection with a scheme to fraudulently obtain mortgage loans.


  • According to court documents, during 2006 Harps operated the New Beginnings Group in Hampton Roads and engaged in the business of “foreclosure rescue.” Harps and another conspirator solicited homeowners in financial distress and facing foreclosure, to sell their homes to Harps or other buyers that she located.

  • To induce participation in the program, Harps promised homeowners that:

    (a) they could remain in their homes and live “mortgage free” for one year;
    (b) during the one year period, they would receive credit repair assistance to put their financial house in order; and
    (c) at the end of the year they could buy back their homes.

  • In furtherance of the conspiracy, then Harps and other straw buyers made assorted false statements to fraudulently obtain mortgage loans. At the real estate closings on these loans, all or most of the homeowners’ equity in their homes was paid out to Harps’ business, the New Beginnings Groups.

  • Harps used these sales proceeds to, among other things, pay kickbacks to straw buyers and a loan officer, to make payments to and for the benefit of her and her companies, and to make mortgage payments for a period of time upon the fraudulently obtained mortgage loans.

  • After one year, when homeowners could not afford to buy back their homes or to pay the rents charged by Harps’ businesses, Harps and the straw buyers defaulted on the loans and they fell into foreclosure, causing the lenders to suffer losses and the homeowners to lose their homes.(1)

For the U.S. Attorney press release, see Chesapeake Woman Pleads Guilty to Committing Foreclosure Rescue Loan Fraud.

(1) Undoing cases like these in an attempt to recover the homeowner's ripped-off equity, particularly if a related criminal prosecution fails to yield any restitution from the scammer (many of these scammers are lowlifes who live from scam to scam, and who commonly wind up broke by the time they're frog-marched off to prison) would require the filing of a civil lawsuit alleging that the lender that financed the equity stripping deal had either actual or constructive knowledge of the underlying fraud.

Virginia case law, like the case law in many other states, appears to have enunciated the rule that a purchase or lender dealing in real property could possibly have a duty to physically inspect the premises prior to purchasing or taking a mortgage to secure a loan and, failing that, it takes its interest subject to any of the rights and equities of the occupants in possession.

See, for example, Brooks v. Lum, Case No. (Chancery) 00-13, 52 Va. Cir. 390; 2000 Va. Cir. LEXIS 301; Circuit Court of the City Of Winchester, Virginia (2000):

  • When the purchaser has actual knowledge that there are persons in possession of the property being purchased who dispute the seller's title, he has a duty to inquire about the circumstances of that possession. Ely v. Johnson, 114 Va. 31, 75 S.E. 748 (1912) (purchaser on notice as to possession and use of land by another).

    As stated in 58 Am. Jur. 2d, Notice, § 21: Possession of land is notice to the world of every legal or equitable right that the possessor has therein. It is a fact putting all persons on inquiry as to the nature of the occupant's claims, as well as the claims under whom he occupies.

    "Under the [recording] statute, only purchasers without notice can take advantage of a failure to record."
    National Mutual Building & Loan Association v. Blair, 98 Va. 490, 498, 36 S.E. 513. "Such a failure cannot affect a purchaser who has actual notice." Chavis v. Gibbs, 198 Va. 379, 383, 94 S.E.2d 195 (1956).

    Chavis v. Gibbs, 198 Va. 379, 385, 94 S.E.2d 195 (1956), the Supreme Court stated "whatever fairly puts a person on inquiry is sufficient notice where the means of knowledge are at hand; and if he omits to inquire, he is then chargeable with all the facts which, by a proper inquiry, he might have ascertained."

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

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