Bank's Failure To Inquire Into Rights Of Persons In Possession Prior To Giving Mortgage Loan In Connection With Sale Leaseback Ripoff Leaves It Holding The Bag

(This is a reprint of a post originally posted on July 24, 2012.)

In another court ruling that has come down in recent years applying the age-old legal doctrine of bona fide purchase to a situation involving some form of home equity ripoff, the Minnesota Court of Appeals concluded that a mortgage lender that provided financing in connection with a sale leaseback equity stripping racket was not entitled to protection as a bona fide purchaser and, accordingly, voided its mortgage, when:

1. it failed to prove that it received purported lienholder's interest without notice of a violation of the state's anti-foreclosure rescue ripoff statute (Minn. Stat. §325N) and
2. it failed to fulfill its duty of inquiry as to the rights or interests of persons in possession [ie. the screwed-over homeowner in this case] of the residential real property in foreclosure.

In this case, the lower court found that, because the screwed-over victim was still in possession of his recently-foreclosed home when the mortgage lender extended credit to the then-title holding sale leaseback peddler, and it (the lender) failed to inquire into what rights or equities in connection with the home the victim may have had, the lender was deemed to be on notice of the violations of law committed against the victim by the sale leaseback operator.

The bottom line here was the lender was found not to be entitled to its purported lienholder's interest in the home it thought it received when it loaned money to the sale leaseback operator and, accordingly, was left holding the bag.

For the court ruling, see Graves v. Wayman, 816 N.W.2d 655 (Minn. App. 2012) (for publication) - (includes court syllabus, but no embedded links). Go here for Google version (includes embedded links, but no court syllabus).

Representing the successful homeowner was Jeramie R. Steinert, Steinert P.A., Minneapolis, Minnesota.

See Minnesota Bona Fide Purchaser, Possession, Duty Of Inquiry for some Minnesota case law addressing the duty to inquire of persons in possession of real estate that subsequent purchasers and encumbrancers are burdened with prior to taking title to property or taking a lien as a security interest for a loan.

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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For other posts on the application of the bona fide purchaser doctrine by the courts in recent years in connection with some type of a home equity ripoff where the victim's title is scammed out from under, see:

• Indiana: Failure To Inspect Property & Inquire Into Rights Of Parties In Possession Prior To Making Loan Leaves Indiana Lender With Voided Mortgage,
  .
• Colorado: Lack Of Knowledge Or Partcipation In Fraud Not Enough To Sustain Bona Fide Purchaser Status In Equity Stripping, Foreclosure Rescue Deal,
  .
• Illinois: Lender's Failure To Inquire Into Possession Disqualifies It For Bona Fide Purchaser Protection In Suit To Undo Foreclosure Rescue Sale Leaseback Scam,
  .
• Pennsylvania: Pennsylvania B'kruptcy Court Voids Sale Leaseback Scam; Victimized Homeowners' Continued Possession Leads To Invalidation Of Subsequent Deed, Mortgage,
  .
• Minnesota: Minn. Sale Leaseback, Equity Stripping Victim Wins Back Free & Clear Home With Help From Non-Profit Law Firm As Judge Voids Sale & Subsequent Mortgage,
  .
• Texas: In re Hayes, Civil Action No.: SA-03-CA-1228-XR (W.D. Tx. 2004), (gives an extensive analysis on the Texas law involving the effect of the bona fide purchaser doctrine to subsequent purchasers and mortgage lenders where one is in possession of land under an unrecorded instrument and how it was applied to a case where a buyer who bought and took possession of a home under an oral contract (yeah, an oral contract!) for the purchase of real estate; subsequently, the former owner (and then-still ostensible owner of record) pledged the property as collateral for a loan; lender failed to inspect the property and otherwise made no diligent effort to discover if someone was in possession of the home and, if so, to inquire of the occupant as to any rights or equities in the home the occupant may have had); aff'd per curiam Bank of Am., N.A. v. Schwartz (In re Hayes), 194 Fed. Appx. 217; 2006 U.S. App. LEXIS 21139 (5th Cir. 2006) (unpublished).