Thursday, October 9, 2014

Massachusetts AG Concludes Civil Action Against Equity Stripping Attorney, Five Confederates For Using Sale Leaseback Racket To Rip Off Homeowners

(This post was originally published on August 9, 2010.)

From the Office of the Massachusetts Attorney General:

  • [Last week], Attorney General Martha Coakley’s Office concluded its case against former Brockton attorney Alec G. Sohmer and five other defendants over their roles in a 2006 foreclosure rescue scheme. The judgments entered [] by Judge Thomas Connolly against Sohmer in the amount of $620,000 and against the four remaining defendants collectively in the amount of $364,000, together with the judgment obtained last May in the amount of $41,204, resolve allegations that Sohmer, with the assistance of the other defendants, orchestrated an unlawful foreclosure rescue scheme against 26 homeowners.(1)
  • According to the complaint, Sohmer preyed on homeowners facing foreclosure by promising them that they could avoid foreclosure with refinancing through Timeless Funding. Instead, Sohmer allegedly deceived the homeowners into conveying their properties to himself or to his wife. The complaint alleges that Sohmer concealed his fraud by deceiving homeowners into signing documents purporting to allow them to stay in their homes by making monthly payments to Sohmer, and then to "repurchase" their homes from Sohmer by obtaining new financing.
  • The lawsuit alleges Sohmer knew the homeowners would not be able to afford the monthly payments, or obtain the required financing to repurchase their homes because of the homeowners' financial distress and the onerous "repurchase" terms, After homeowners were unable to make the monthly payments, Sohmer then sought to evict them from their homes, and to sell their homes to new buyers. Sohmer also stripped the homeowners’ equity by charging fees, commissions and other payments.(2)
  • In a related action, on July 20, 2010, the Attorney General’s Office obtained a favorable decision against Sohmer, resulting in the denial of Sohmer’s bankruptcy discharge. In October 2007, the Attorney General objected to Sohmer receiving a discharge from the Bankruptcy Court of all of his debts alleging, among other acts, that Sohmer filed false Schedules and a false Statement of Financial Affairs with the Bankruptcy Court, thereby concealing assets, and also failed to maintain adequate financial records to evaluate his financial condition. In her decision, Judge Joan Feeney found Sohmer knowingly and fraudulently made false oaths on his bankruptcy Schedules and Statement of Financial Affairs, intending to mislead the Bankruptcy Court Trustee and creditors.
  • None of the attorneys involved in this scheme are currently practicing law in Massachusetts. The Supreme Judicial Court accepted Sohmer’s affidavit of resignation from the practice of law as a disciplinary sanction on September 28, 2009, suspended [Andrew] Palmer from the practice of law for 21 months on June 29, 2009, and accepted [Shaun M.] Ellis’ affidavit of resignation from the practice of law as a disciplinary sanction on other grounds, on April 28, 2009.(3)
  • Two years ago, the Bankruptcy Court approved a settlement between the Attorney General’s Office and 10 mortgage lenders and servicers who funded or serviced the loans thereby facilitating Sohmer’s fraudulent foreclosure rescue transactions. With respect to the 26 properties, the agreement was designed to provide approximately $1.8 million in reduced mortgage obligations, and to return each homeowner to his or her financial position before the foreclosure rescue transaction occurred. The agreement also provided an opportunity for Sohmer’s victims to reacquire legal title to their homes.(4)
For the Massachusetts AG press release, see Attorney General Martha Coakley Obtains Judgments Against Alec Sohmer and Other Defendants in Alleged Mortgage Foreclosure Rescue Scheme (Obtains Favorable Decision In Bankruptcy Court Case Denying Discharge To Sohmer).

(1) For some of the relevant court documents and other information, see:
See also: Foreclosure Rescue Sale Leaseback Deals Are Usurious Equitable Mortgages, Says Massachusetts AG's Civil Lawsuit.

(2) With respect to the Sohmer's confederates in this racket, the AG states that the court also entered a consent judgment for $90,000 against Sohmer’s wife, Jennifer Sohmer, who served as the purchaser and mortgage loan borrower for six properties in the foreclosure rescue scheme. Also entered were a consent judgment for $200,000 against former Norwell attorney Andrew Palmer, who served as the closing attorney for the foreclosure rescue transactions and default judgments against Timeless Funding, the corporation through which Sohmer marketed his scheme, in the amount of $130,000 in civil penalties, and against former Sandwich attorney Shaun M. Ellis, who referred distressed homeowners to Sohmer in exchange for a fee, in the amount of $34,000, to be used toward restitution and civil penalties, according to the AG's press release. A consent judgment against Edward de la Flor, a mortgage broker involved in many of the transactions, for $41,204 was entered on May 5th of this year.

(3) The victims of this scam who are owed restitution from Sohmer and the other attorneys involved in this racket might consider filing a claim with the Massachusetts Clients' Security Board of the Supreme Judicial Court, which manages and distributes the monies in the court's Clients' Security Fund to members of the public who have sustained a financial loss caused by the dishonest conduct of a member of the Massachusetts bar acting as an attorney or a fiduciary.

For similar "attorney ripoff reimbursement funds" established to reimburse clients who have suffered a loss due to the dishonest conduct of attorneys in other states and Canada, see:
A similar fund in Minnesota that reimburses the public for ripoffs involving licensed real estate brokers, salespeople, and closing agents made a distribution to a victim of the same type of foreclosure rescue scam. See State Recovery Fund To Cough Up $116K+ To Compensate Elderly Victim Of Bogus Sale Leaseback Equity Stripping Scam Involving Licensed Real Estate Agent.

(4) See Court Approves Foreclosure Rescue Scam Settlement Between Massachusetts, Ten Lenders; Case Involved State AG Claims Of Equitable Mortgage, Usury, Etc..

Wednesday, October 8, 2014

Sale Leaseback Equity Stripping Foreclosure Rescue Ripoff Deemed A Constructively Fraudulent Transfer, Violated State Consumer Protection Act, Says Judge In Granting $244K+ Triple Damage Award

(This post was originally published on April 18, 2010).

In a recent ruling from a U.S. Bankruptcy Court in Boston, Massachusetts, 3 individuals and one company were found liable for the return of over $81,000 in home equity that was pocketed from a couple facing foreclosure in a sale leaseback, foreclosure rescue arrangement which was found to constitute a constructively fraudulent transfer under sections 548 and 550 of the U.S. BankruptcyCode.(1)

In addition, as a result of a default in the case by the company involved and one of the individuals who failed to show up to the trial to defend himself, the court found them liable for violating the Massachusetts Consumer Protection Act [Mass. Gen. Laws ch. 93A]. Accordingly, it assessed an award in favor of the Bankruptcy Trustee (who brought the lawsuit on behalf of the bankruptcy estate) in the amount of $244,513.11, which represents triple damages allowed under state law, and is based on the amount of the home equity ripoff ($81,504.37 x 3).

For the ruling, see Lassman v. Reilly (In re Feeley), 429 B.R. 56 (Bankr. D. Mass. 2010).

(1) In this regard, the court observed:

  • Under section 548(a)(1)(B), the trustee must prove the following elements: "(1) a transfer of the debtor's property or interest therein; (2) made within one year of the filing of the bankruptcy petition; (3) for which the debtor received less than a reasonably equivalent value in exchange for the transfer; and (4) either (a) the debtor was insolvent when the transfer was made or was rendered insolvent thereby. . . ." In re Cahillane, 408 B.R. at 188-89 (citations omitted). Additionally, the trustee must prove each element by a preponderance of the evidence. Id. at 189 (citing, inter alia, Frierdich v. Mottaz, 294 F.3d at 867). See also Tomsic v. Pitocchelli (In re Tri-Star Techs. Co., Inc.), 260 B.R. 319 (Bankr. D. Mass. 2001).
  • Having found that the Trustee is entitled to avoid the transaction, section 550 permits the trustee to recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from "the initial transferee of such transfer [Reilly] or the entity for whose benefit such transfer was made [the remaining defendants]." 11 U.S.C. § 550(a)(1). In his Amended Complaint, the Trustee did not specify which alternative he sought, but in his Memorandum, the Trustee clarified that he is seeking the value of the property transferred, namely the Debtors' equity which equaled $81,504.37 on March 29, 2006.
(Note that the sale leaseback deal was consummated between the homeowners and the foreclosure rescue operators on March 29, 2006, which was at or near the height of the recent real estate boom/bubble. Between that time and now, the value of the home has presumably suffered a significant loss in value. Given that, when filing a lawsuit to unwind or undo this type of home equity scam, a decision must be made (typically by the screwed over homeowner, or in this case, the bankruptcy trustee) whether to seek to restore the property title in the name of the homeowner, or allow the foreclosure rescue operator (or whoever the current homeowner is) to keep the house and, instead, seek financial damages for the amount of the home equity ripoff, it may be in the homeowner's best interest to opt for the financial damages (assuming, of course, that the foreclosure rescue operators have deep enough pockets to cough up the cash to cover the court's damage award). This may be especially true if the homeowner is in a state/jurisdiction that has a consumer protection statute that provides for a recovery of triple damages. In this case, the amount of the $81,000+ in recoverable damages (increased to $244,000+ with respect to two of the defendants for violating the Massachusetts Consumer Protection Act) was calculated based on the home's value on March 29, 2006 (the day the ripoff was consummated). Had the Bankruptcy Trustee sought recovery of the home itself, the bankruptcy estate would be getting back the home at today's (presumably significantly lower) worth, encumbered by a mortgage debt that may exceed the home's now-lesser value.

It appears that, when seeking to unwind or undo one of these sale leaseback, foreclosure rescue scams that was consummated at or near the height of the recent real estate boom/bubble, the victim - and the victim's attorney - must "be careful what they ask for" and exercise great care with respect to the specific remedy they seek, the way (I suspect) the Bankruptcy Trustee did in this case (or maybe he just got really lucky).)

Tuesday, October 7, 2014

Philly Feds Bag Six in Probe Alleging Group Peddled Bogus Sale Leaseback Arrangements To Homeowners Facing Foreclosure In Scam To Strip Their Home Equity Out From Under Them

From the Office of the U.S. Attorney (Philadelphia, Pennsylvania):

  • An indictment was filed yesterday charging six people, including a couple and their daughter, in a wide-reaching mortgage fraud conspiracy in which the defendants allegedly stripped the equity from the homes of desperate homeowners facing foreclosure, announced United States Attorney Zane David Memeger. The scheme caused losses to mortgage lenders of approximately $3.8 million.(1)

    Silver Buckman, 36, of Cherry Hill, NJ, her parents, Vincent Foxworth, 69, and Cynthia Foxworth, 63, of Turnersville, NJ, Danette Thomas, 52, of Pennsauken, NJ, Byron White, 44, of Pennsauken, NJ and Franklin Busi, 46 of Sicklerville, NJ, are charged with conspiracy to commit bank fraud and wire fraud. Some of the defendants are also charged with bank fraud and wire fraud.

    According to the indictment, the defendants engaged in a scheme in which they offered to help financially-vulnerable individuals save their homes from foreclosure or obtain money from the equity in their homes and, instead, defrauded the homeowners and mortgage lenders. Buckman owned and operated Fresh Start Financial Services (“FSFS”), in Mount Laurel, NJ and was an employee of American Home Lending as well as a mortgage broker for American One Mortgage (“AOM”). Her father is an experienced Realtor.

    Between October 2006 and November 2009, Buckman and her co-defendants allegedly targeted financially vulnerable homeowners and represented to them that they could improve their credit, save their homes from foreclosure, or provide them with money through Buckman’s lease buyback program.

    The homeowners were told that “investors” would be used to temporarily refinance their homes and that they could repurchase the homes in one year, or once they regained their financial footing. The defendants also allegedly induced the homeowners into signing documents related to the sale and lease of their homes by their representations that the homeowners would remain on the title to their homes, that the equity from their homes would be placed into an individual escrow account in their names, and that new mortgages would be paid from the escrow accounts to establish their timely payment histories.

    According to the indictment, in order to carry out the scheme, Buckman recruited Vincent Foxworth and Cynthia Foxworth and others to be straw borrowers. White also recruited a straw borrower. Ultimately, Buckman and Busi submitted false financial and employment information about the straw borrowers to mortgage lenders. Once lenders agreed to fund the mortgage loans, Buckman and some of the other defendants allegedly prevented the homeowners from receiving the settlement proceeds and did not put money into escrow accounts for the homeowners. Instead, the defendants distributed the proceeds amongst themselves.

    Buckman used the majority of the proceeds due the homeowners to pay the fees due the straw borrowers, the down payments on behalf of the straw borrowers in subsequent transactions to further the scheme, and her personal expenses. She used only a fraction of the homeowners’ monies toward the payment of the mortgages obtained by the straw borrowers for the homeowners’ homes and thereby caused the loans to go into default.

    If convicted, the defendants face an advisory sentencing guideline range of at least 87 to 108 months in prison plus restitution.

    The case was investigated by the Federal Bureau of Investigation and the United States Postal Inspection Service and is being prosecuted by Assistant United States Attorney Anita Eve.
For the press release, see Indictment Charges Six New Jersey Residents In Multimillion-Dollar Mortgage Fraud Scheme.


(1) A few years ago, the U.S. Attorney's Office in Philadelphia took a novel approach in prosecuting a similar type of sale leaseback, equity stripping racket. This press release (if link expires, go here) describes the approach taken in that case:
  • At the time of indictment, the U.S. Attorney's Office Civil Division filed a verified complaint and temporary restraining order to help the original homeowners save their homes. The complaint and temporary restraining order sought novel relief that would bring all the individuals and entities that have a stake in the homes before the Court in an orderly process by which the damage caused by the defendants' alleged fraud could be mitigated.

    In 2011, U.S. District Court Judge Michael Baylson approved conversion of the temporary restraining order into an injunction that stopped foreclosures and evictions that were related to the alleged fraud, and that set forth the details of the mediation process.
See Use Of Novel Dual Criminal/Civil Prosecution Targeting Sale Leaseback-Peddling Racket Yields Guilty Pleas, Keeps Victims From Getting Boot From Homes for the earlier blog post.


For those contemplating bringing civil lawsuits in these types of cases in Pennsylvania, see Pennsylvania B'kruptcy Court Voids Sale Leaseback Scam; Victimized Homeowners' Continued Possession Leads To Invalidation Of Subsequent Deed, Mortgage for a post on a recent U.S. Bankruptcy Court case in Philadelphia which could provide 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.

Other Resources:

See Foreclosure Rescue Scams (a chapter in a longer publication from the National Consumer Law Center) for a lawyer's guide to making a case on behalf of a victimized homeowner in attempting to void or set aside an abusive real estate transaction.

See the National Consumer Law Center's Dreams Foreclosed: The Rampant Theft of Americans' Homes Through Equity-stripping Foreclosure 'Rescue' Scams for an extensive report on this type of home equity ripoff.