Sale Leaseback Arrangement Designed To Pilfer Home Equity Out From Under Elderly Homeowner Facing Foreclosure Goes Haywire For Scam Artist

The underlying facts in a 2019 California state appeals court case may serve as a cautionary tale for foreclosure rescue operators who effectively swindle the wrong financially distressed, elderly homeowner out of the title and equity in her home under the guise of a sale leaseback deal.
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In this case, the victimized homeowner ended up suing the scam artist and a slew of other defendants(1) who had some part in the ripoff transaction. After extensive litigation, the homeowner ended up relinquishing any ownership claim she had in her home in exchange for financial settlements from various of the defendants for amounts totaling $1,050,000, and left the defendants to fight amongst themselves in their efforts to salvage something out of a deal that blew up in their face and went haywire for them.
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For the court case, see EGB Group, Inc. v. Family Mortgage Options LLC (2019) No. B272467 (2d Dist., Div. 1) (unpublished).
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For case access to information from the trial court proceedings, go here, then enter Case # YC069066.
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(1) The victimized homeowner sued the slew of defendants variously for (1) violation of Home Equity Sales Contract Act (Civ. Code, § 1695, et seq.), (2) wrongful foreclosure, (3) violation of Mortgage Foreclosure Consultants Act (id., § 2945, et seq.), (4) declaratory relief, (5) cancellation of deeds, (6) quiet title, (7) intentional fraud, (8) negligent misrepresentation, (9) breach of contract, (10) rescission of contract, (11) financial abuse of an elder, (12) recovery of usurious interest, (13) equitable redemption of plaintiff's interest in property, (14) violation of Business and Professions Code section 17200, (15) intentional interference with contract, and (16) slander of title.

Institutional Sale Leaseback Peddlers Facing Equitable Mortgage Re-Characterization Threats?

There has recently been an apparent influx of companies entering the real estate market that seek to "institutionalize" the business of "peddling" sale leaseback arrangements that, at least in part, target financially-strapped homeowners, homeowners that are " cash poor" but "equity rich."(1)

The looming question with these arrangements is: Will courts recognize these deals as "true sale-leasebacks," or are they nothing more than disguised equitable mortgages (ie. secured loans), and in some cases, disguised usurious equitable mortgages(2) that are made in violation of the Federal Truth-in-Lending Act, state usury laws, and other consumer protection laws.

Well, there is at least one law firm (I imagine that there may be others), located in Houston, that is apparently going after these types of companies with lawsuits on behalf of Texas homeowners asserting that the arrangements are nothing more than equitable mortgages.(3)

For more, including a summary of the firm's basis for bringing these lawsuits, see Real Estate Fraud Lawsuit Against EasyKnock, Inc. and EK Real Estate Services of NY, LLC.

Editor's Note:

One company that has been targeted by this law firm has apparently taken umbrage at the firm's effort to recharacterize these sale leaseback deals as equitable mortgages, has responded by filing a lawsuit against them for defamation, and has requested a temporary restraining order in connection therewith. This request has subsequently been denied by the court,(4) and a Motion to Dismiss this case is currently pending.(5)

Footnotes:

(1) See, for example:

• Sale-leasebacks increasingly target struggling homowners (Companies like EasyKnock and Invitation Homes look to tap that investment option) (may be behind paywall),
• Real-estate power players and startups are getting ready to buy thousands of homes and lease them back amid a wave of foreclosures (may be behind paywall).

(2) See:

• Sale Leasebacks Or Disguised Usurious Loans; Substance vs. Form,
• Usurious Loans Masquerading As Sale Leasebacks?

(3) Recharacterizing Sale Leasebacks As Equitable Mortgages In Texas.

(4) Memorandum Opinion And Order (Denying Application for Temporary Restraining Order).

See also, Judge Blocks TRO Bid Against Law Firm In Defamation Suit (may be behind paywall).

(5) Defendants' Motion To Dismiss For Failure To State A Claim, Or Alternatively, To Stay Or Abate This Proceeding.