Homeowner Trips Over Procedural Rules, Sinking Proposed Class Action Alleging Servicer Overcharges Without Lawsuit's Merits Ever Being Addressed

The following facts come from a recent ruling from a U.S. Circuit Court of Appeals (3rd Circuit), applying the law of the State of New Jersey in a controversy centered on a foreclosure action (the take-away here, folks, is that regardless of the merits of a case, if a lawsuit is filed in the wrong court, the plaintiff could find itself dead in the water without the litigation ever really getting out of the starting gate. And, by the way, filing in the wrong court is no unusual occurrence; it happens quite frequently in the context of foreclosure actions when homeowners bring certain actions having some connection to the foreclosure in a Federal court long after a state court has already rendered judgment in the foreclosure action itself):

1. Homeowner goes into default on her home mortgage loan.


2. Chase filed a foreclosure action in the Chancery Division of the New Jersey Superior Court (ie. state court) and obtained a judgment of $90,401, plus fees.


3. Homeowner, however, did not pay the judgment, and a foreclosure sale was stalled for approximately three and a half years while she filed three bankruptcy proceedings.


4. After dismissal of the third bankruptcy proceeding, Chase sent Homeowner a quote for reinstating the mortgage in return for a payment of $18,658. Of that total, the letter stated that $900 was to be collected for foreclosure fees and $5,791 was to be collected for foreclosure costs.


5. Homeowner paid in full the amount quoted by Chase to reinstate her mortgage, and the Chancery Court entered a judgment of dismissal without prejudice in the foreclosure action.


6. Two years after paying the reinstatement balance, Homeowner commenced a class action suit in a U.S. (Federal) District Court against Chase alleging multiple claims, all stemming from the alleged overcharges of foreclosure costs and fees contained in the reinstatement quote.


7. Without considering the merits of the allegations, the District Court booted the lawsuit, saying Homeowner failed to state a claim upon which relief may be granted.


8. On appeal, the 3rd Circuit Court of Appeals affirmed the lower court ruling.

Agreeing with the lower court, the appeals court applied New Jersey's 'entire controversy doctrine' in finding, in a nutshell, that the homeowner brought her lawsuit in the wrong court.

It noted that her lawsuit should have been filed as a counterclaim in the original foreclosure action, which was filed in state court (ie. the Chancery Division of the New Jersey Superior Court) beacuse her suit was based on the same or similar underlying facts associated with the events related to the foreclosure action, said action being brought in the Chancery Court.(1) Accordingly, it was in the state court (as part of the original foreclosure action) where the Homeowner's lawsuit should have been brought.(2)(3)

For the ruling, see Coleman v. Chase Home Finance, LLC, No. 09-4727 (3rd Cir. July 12, 2011).

(1) The federal appeals court addresses the 'entire controversy doctrine' in the following excerpt (bold text is my emphasis):

• The entire controversy doctrine compels the parties, when possible, to bring all claims relevant to the underlying controversy in one legal action. When the court finds that a claim not joined under the original action falls within the scope of the doctrine, that claim is barred. N.J. Ct. R. 4:30A.
  
  The doctrine "seeks to further the judicial goals of fairness and efficiency by requiring, whenever possible, `that the adjudication of a legal controversy should occur in one litigation in only one court.'" Circle Chevrolet Co. v. Giordano, Halleran & Ciesla, 662 A.2d 509, 513 (N.J. 1995) (quoting Cogdell v. Hospital Ctr., 560 A.2d 1169, 1172 (N.J. 1989)). The doctrine is also applied to New Jersey claims in federal court. Bennun v. Rutgers State Univ., 941 F.2d 154, 163 (3d Cir. 1991).
  
  However, application of the entire controversy doctrine is "equitable in nature" and based substantially on "judicial fairness," meaning that the Court must balance considerations of judicial efficiency as well as fairness to the litigants. Cafferata v. Peyser, 597 A.2d 1101, 1103 (N.J. Super. Ct. App. Div. 1991)
  
  New Jersey courts have held that the primary consideration in determining if successive claims are part of the same controversy is whether the claims "arise from related facts or from the same transaction or series of transactions." DiTrolio v. Antiles, 662 A.2d 494, 502 (N.J. 1995). It is a "commonality of facts, rather than [a] commonality of issues, parties, or remedies that defines the scope of the controversy." Id. at 504.
  
  The limits of the entire controversy doctrine with regards to foreclosure actions are necessarily somewhat narrower, as N.J. Ct. R. 4:64-5 requires that only "germane" counterclaims may be joined in a foreclosure action. See N.J. Ct. R. 4:30A. Claims are considered to be germane to a foreclosure action if they arise out of the mortgage that is the basis of the foreclosure action. Leisure Technology-Northeast, Inc. v. Klingbeil Holding Co., 349 A.2d 96, 98 (N.J. Super. Ct. App. Div. 1975).
  
  Here, Coleman's claims arose directly out of a reinstatement quote that was provided to her as an alternative to a foreclosure sale, and the excessive fees allegedly charged by Chase would not have been charged but for the foreclosure action. Accordingly, Coleman's causes of action arose out of and were germane to the original foreclosure action.

(2) Homeowner's seemingly strong arguments against the application of the entire controversy doctrine in this case fell upon deaf judicial ears (bold text is my emphasis):

• However, Coleman makes three arguments why her federal claims should not fall within the doctrine despite the fact that they are otherwise "germane" to the foreclosure action.
  
  First, the doctrine is not a bar to successive claims where they have accrued after the pendency of the of the original action. McNally v. Providence Washington Ins. Co., 698 A.2d 543, 548 (N.J. Super. Ct. App. Div. 1997). Coleman argues that the foreclosure action was no longer pending once judgment was issued on August 1, 2002, and thus her claims are not barred by the entire controversy doctrine. We disagree.
  
  A court retains jurisdiction in a foreclosure action even after a final judgment, until delivery of the sheriff's deed under New Jersey Court Rule 4:65-5. Sovereign Bank, FSB v. Kuelzow, 687 A.2d 1039, 1043 (N.J. Super. Ct. App. Div. 1997). "The foreclosure action, although already the subject of a judgment, is not totally concluded until the defendants' equity of redemption is cut off by the delivery of the sheriff's deed." Id.
  
  Here, the fact that the foreclosure sale had been stalled due to the bankruptcy proceedings and the judgment had not been paid meant that the foreclosure action continued to be pending until Coleman paid the reinstatement quote and the judge vacated the judgment and dismissed the claims on January 20, 2006. Thus, the state court still had jurisdiction over the matter and Coleman could have brought her claims as a part of the original foreclosure action until January 20.
  
  Second, Coleman argues that the entire controversy doctrine does not apply to "related claims which were unknown, or had not arisen or accrued during the pendency of the original action." Riemer v. St. Clare's Riverside Med. Ctr., 691 A.2d 1384, 1388 (N.J. Super. Ct. App. Div. 1997). New Jersey's discovery rule states that a cause of action has not accrued unless the plaintiff knows or should have known that "(1) she has suffered damage and (2) that the damages were caused by the fault of another." Maertin v. Armstrong World Indus. Inc., 241 F.Supp.2d 434, 458 n.18 (D.N.J. 2002).
  
  Therefore, if Coleman was unaware of either of these facts at the time the foreclosure action became final on January 20, 2006, her successive causes of action would not yet have accrued and the doctrine would be inapplicable. Yet, when Coleman received the reinstatement quote from Chase on November 4, 2005, she should have been aware that the amount differed substantially from the fee determination in the original foreclosure action. Her counsel, who had represented her since the original foreclosure action, and whom we presume reviewed the reinstatement quote, also should have been aware of these facts. Thus, her cause of action accrued on November 4 while the original foreclosure action was still pending, and she is barred by the entire controversy doctrine.
  
  We also disagree with Coleman's argument that she did not have a "fair and reasonable opportunity to have fully litigated that claim in the original action." Cafferata, 597 A.2d at 1104. While it might not have been clear to Coleman that the fees charged by Chase in the reinstatement quote were allegedly in violation of state law, as explained above, it is undeniable that she was on notice, or should have been on notice, that the fees charged were substantially larger than those issued by the state court. This is especially true given that the same counsel represented Coleman from the time of the original foreclosure action up through the time that she paid the reinstatement quote.
  
  Ultimately, the entire controversy doctrine requires equitable considerations and is determinable on a case-by-case basis. Paramount Aviation Corp. v. Agusta, 178 F.3d 132, 137 (3d Cir. 1999). The "polestar for the application of the rule is judicial fairness." Reno Auto Sales, Inc. v. Prospect Park Sav. & Loan Ass'n, 581 A.2d 109, 113 (N.J. Sup. Ct. App. Div. 1990) (citing Cogdell, 560 A.2d at 1179) (internal quotation marks omitted).
  
  We must balance the plaintiff's right to bring a separate action against the defendant's right to avoid excessive litigation. Here, we are not persuaded that Coleman was deprived of a fair opportunity to litigate her claims.

(3) A point that begs highlighting here is that the allegedly screwed over homeowner in this case appears to be under a double onus to bring her claims not only within the applicable statute of limitations, but also within the boundaries set by the entire controversy doctrine. Said point was made in Circle Chevrolet Co. v. Giordano, Halleran & Ciesla, 142 N.J. 280, 662 A.2d 509 (N.J. 1995), in the context of a malpractice claim arising out of an attorney-client relationship where the errant attorney is continuing to represent a client on the underlying matter.

In this case, Chase sent Homeowner the quote for reinstating the mortgage on November 4, 2005. On January 17, 2006, Homeowner paid in full the amount quoted by Chase to reinstate her mortgage. Three days later, the Chancery Court entered a judgment of dismissal without prejudice in the foreclosure action. Unless the Chancery Court is requested to retain jurisdiction over the matter for possible claims arising from the foreclosure (or if, for whatever reason, the court is simply not asked to formally dismiss the case), it appears that Homeowner's window for bringing her claims for the alleged overcharges ran from November 4, 2005 (or possibly January 17, 2006, the date of actual payment of the alleged overcharges) through January 20, 2006 (the date of dismissal), notwithstanding what the applicable stautute of limitations might otherwise have been.

Because, according to the court, "the entire controversy doctrine requires equitable considerations and is determinable on a case-by-case basis," and Homeowner (who was operating under a foreclosure "Sword of Damocles" hanging over her head), only had, at best, 2 1/2 months to assess and bring her claims against Chase, it sure looks like she took a serious screwing over in this matter.

Oregon Bona Fide Purchaser, Possession, Duty To Inquire

The following compilation of cases is intended as an addendum to the Sunday, July 3, 2011 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 July 3, 2011 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.
.
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. One must first check the Oregon recording statute.
.
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 Oregon state legislature has passed laws subsequent to these court rulings that either modifies or renders them obsolete in Oregon, the persuasiveness of the logic that underlies them may still be of value to those involved in litigation outside of Oregon (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 Oregon, but as generally applied in Oregon's sister states as well).

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

Oregon Supreme Court

Webb v. Stewart, 469 P. 2d 609 (Ore. 1970):

• We think that the ambiguity created by the conflicting statements in our cases as noted above should now be resolved, and in resolving it we adopt the rule that grantor's continued possession after the execution of a deed by him puts third persons upon inquiry as to the grantor's interest.[6]
  .
  It is well established that the possession of persons other than the grantor will put a purchaser upon inquiry as to the possessor's interest.[7]
  .
  As the court in Groff v. State Bank of Minneapolis, 50 Minn. 234, 238, 52 N.W. 651, 652 (1892) observed: "there is no good reason for making a distinction between possession by a stranger to the record title and possession by a grantor after delivery of his deed. In either case the possession is a fact inconsistent with the record title, and, if possession by the stranger is sufficient to make it obligatory upon a purchaser to ascertain his right, possession by the grantor is a circumstance entitled to equal consideration."
  .
  Although there is more likelihood that the grantor's possession would be consistent with the unencumbered title in the grantee, there is still a sufficient possibility of the grantor retaining an interest in the property to warrant the imposition of a duty upon the purchaser to make inquiry. The fact that there are a substantial number of litigated cases in which the grantor in possession has a claim, indicates that inquiry will frequently disclose to the purchaser an adverse claim.[8]
  .
  Some courts have reasoned that the grantor has by his deed, in effect, declared to the world that he has divested himself of all interest in the property and that subsequent purchasers may, therefore, assume that grantor retains possession for some reason consistent with an unqualified title in the grantee. The answer to this reasoning is well stated in 5 Tiffany, Real Property § 1292, pp. 76-77 (3d ed 1939):
  .
  "* * * One difficulty, however, with this view is that it imputes to a conveyance an effect as a declaration by the grantor, for the purpose of raising an estoppel against him, which is not necessarily in accord with the understanding of the parties or with the legal effect of the conveyance. One executing, for instance, a conveyance of a fee simple title, may perfectly well acquire, by the same or a subsequent transaction, an equity against the grantee or a lease for a limited period, and it is difficult to see why his conveyance should be regarded as a declaration that he has not acquired, or will not acquire, such an interest, or why a subsequent purchaser should be justified in assuming, for the purpose of being relieved from any duty of inquiry, that the grantor's continuance in possession is wrongful rather than rightful."
  .
  After a careful review of the competing rules we believe that the conclusion reached by 1 Merrill on Notice, § 131, p. 160 (1952) is the most satisfactory and we adopt it:
  .
  "Upon the whole, I believe the most desirable solution of the problem is to regard the grantor's continued possession as a fact provoking inquiry from those subsequently dealing with the land, regardless of its duration. This seems more in harmony with the general policy of the law that possession arouses inquiry. It seems hardly sufficient investigation to content one's self with learning from the records or from some other source that the possessor has purported to part with his title. Non constat that he may have gained another in some way. Inquiry from him will involve little effort or expense, and should be required ere one can attain to the ancient and honorable position of a bona fide purchaser."
  .
  Having concluded that defendant Wilson was put on inquiry, it is necessary to determine whether adequate inquiry was made. There is no evidence that Wilson herself attempted to ascertain whether anyone was in possession of the property. Rowley visited the premises and observed that plaintiff was in possession.
  .
  Rowley testified that he "kind of jokingly said" to plaintiff, "`Well, it looks like you've sold your house,'" and that plaintiff "confirmed that he had sold it." Rowley also asked plaintiff if he intended to sell any of his furniture or appliances when he moved and plaintiff responded that he would probably dispose of some of the items and would move "`about the first of the month.'" Rowley then said, "`Here's my card, and when you move, be sure and call me because there is some furniture or appliances that I would be interested in.'"
  .
  The conversation Rowley had with plaintiff does not constitute a reasonable inquiry within the meaning of the rule. The questions put to plaintiff indicated only that Rowley was interested in purchasing plaintiff's household goods. Such questioning would not invite a grantor to explain the character of the "sale" transaction he had entered into thus revealing the conditions which the grantee was to meet before title would pass.
  .
  If, in that conversation, Rowley had revealed his primary interest in viewing the property, plaintiff would then have had reason to warn Rowley of the tentative character of the "sale." We hold that the inquiry was inadequate.
  .
  The cause is remanded to the trial court with directions to modify the decree consistent with this opinion.

********************

Editor's Note: It should be noted that, in footnote 8 of the Oregon Supreme Court ruling, the court observed that there are a number of situations in which this rule may be applicable, including the case where the transaction is deemed an equitable mortgage (ie. where the deed/conveyance is treated as a mortgage; typically arising in the context of an equity stripping, sale leaseback foreclosure rescue scam):

• In addition to the cases already mentioned involving fraudulent inducement or the transfer of the instrument before the conditions are fulfilled are the frequently recurring situations where the deed is in fact a mortgage, or where there is a lien for the unpaid purchase price, or where grantor is a lessee, or where the grantee holds the legal title upon a resulting or constructive trust, etc.

________________________

Stevens v. American Sav. Institution, Inc., 289 Or. 349, 613 P. 2d 1057 (Or. 1980):

• Possession of real property by a prior grantor or by someone other than his seller is a fact that provokes the duty on the part of a purchaser to inquire. See Webb v. Stewart, supra 255 Or. at 536-38, 469 P.2d 609; Merrill, supra at 122 § 97. Merrill explains:
  .
  "* * * [T]he dictates of ordinary prudence are regarded as impelling one buying real estate to inspect it. Accordingly, possession is held to be effective notice of its own existence, whether it is known or not. * * *. This notification charges the prospective purchaser or incumbrancer with notice that the possession exists. The effect of this as notice of the possessor's claim to the land depends upon whether, if it were actually known to him, it would be sufficient to challenge his inquiry. In other words, the unknown possession serves as notification of its existence and also, in law, as a stimulus to investigation concerning the possessor's title. It has no greater effect than known possession. The function of the holding in either case in not to affect one contemplating acquisition of an interest with conclusive notice of the possessor's claim but merely to furnish an occasion for inquiry. * * *" Id. (Emphasis added.)

***

• In the present case, had Publishers made a reasonable inquiry and informed Stevens that the inquiry was in preparation for its purchase of the timberland from Fernandez, then Stevens would have informed Publishers that plaintiffs held a mortgage on the timberland and had a "standard timber restriction" clause covering the land.
  .
  The discovery of these facts would have immediately informed both parties that Fernandez was defrauding plaintiffs. Publishers is therefore charged with knowledge of the fraud because it would have learned of the fraud had it made a reasonable inquiry. Murray v. Wiley, supra 169 Or. at 407, 127 P.2d 112.
  .
  We therefore, conclude that Publishers failed to sustain its burden of proving its affirmative defense. Publishers was not entitled to the status of a bona fide purchaser without notice.
  .
  Affirmed.

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Minnesota Supreme Court

Groff v. State Bank of Minneapolis, 50 Minn. 234; 52 N.W. 651; 1892 Minn. LEXIS 287 (Mn. 1892): Inasmuch as the Oregon Supreme Court, in Webb v. Stewart, 469 P. 2d 609 (Ore. 1970), supra, cites this case with approval when establishing the rule on the effect of possession by one other than the grantor or someone other than the seller, the Minnesota high court ruling in the Groff case arguably merits attention here when construing Oregon law on this issue:

• Creditors may be postponed or defeated by notice of claims of third parties to property the record and title of which is in their debtor; and possession may be notice to them, as well as to a purchaser, so as to preclude them from obtaining a lien on the estate or interest of the occupant. Lamberton v. Merchants' Nat. Bank of Winona, 24 Minn. 281. The general rule is that possession of land is notice to a purchaser of the possessor's title.
  .
  The only question in this case is whether this rule applies where the grantor remains, after the delivery of his deed, in possession of the granted premises. This is a question upon which the authorities are not agreed.
  .
  Some cases hold that the deed is conclusive that the vendor has reserved no interest in the land; that having, in effect, so declared by his conveyance, he is estopped from setting up any secret arrangement by which his grant is impaired; that, although he remains in possession, a person seeking to obtain an interest in the premises has a right to assume, without inquiry, that he is in possession merely for a temporary purpose, as tenant at sufferance of his grantee. But it seems to us that, inasmuch as the law allows possession to have the effect of notice, there is no good reason for making a distinction between possession by a stranger to the record title and possession by the grantor after delivery of his deed.
  .
  In either case the possession is a fact inconsistent with the record title, and, if possession by the stranger is sufficient to make it obligatory upon a purchaser to ascertain his right, possession by the grantor is a circumstance entitled to equal consideration.
  .
  An absolute deed divests the grantor of the right of possession as well as of the legal title, and when he is found in possession after delivery of his deed it is a fact inconsistent with the legal effect of the deed, and is suggestive that he still retains some interest in the premises. Under such circumstances, a purchaser has no right "to give controlling prominence to the legal effect of the deed," in disregard of the other "notorious antagonistic fact," that the grantor remains in possession just as if he had not conveyed. To say that the grantor is estopped by his deed is begging the question; for, if his possession is notice to third parties of his rights, there is no principle of estoppel that would prevent him from asserting against purchasers or creditors any claim to the premises which he might assert against his grantee. This view is abundantly sustained by authority. See Devl. Deeds, §§ 761-765; note to Le Neve v. Le Neve, 2 Lead. Cas. Eq. pt. 1, p. 180, et seq.; Pell v. McElroy, 36 Cal. 268.

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Oregon Court of Appeals

Neff v. Sandtrax, Inc., 08CV0610, A142518 (Or. App. 2011):

• In the analogous context of boundary by agreement, we have held that an agreement is "binding on the parties' successors in interest, as long as they have actual or constructive notice of it." Eidman v. Goldsmith, 149 Or App 7, 14, 941 P2d 1045, rev den, 326 Or 62 (1997) (citations omitted); see also Clark, 46 Or at 76 (estoppel applies to the person who made the representation and to those in privity with him).
  .
  A purchaser has constructive notice of a claim to property if, with reasonable observation and intelligence, he should have had notice of the claim at the time he purchased; whether or not the inquiry actually is made, the purchaser is charged with notice of every fact that a reasonable inquiry would have disclosed. Vandehey Development Co. v. Suarez, 108 Or App 154, 157, 814 P2d 1094, rev den, 312 Or 235 (1991).
  .
  Furthermore, "the possession of persons other than the grantor will put a purchaser upon inquiry as to the possessor's interest." Webb v. Stewart, 255 Or 523, 536, 469 P2d 609 (1970) (footnote omitted).

_____________________________

U.S. Bankruptcy Court (District of Oregon)

In re Roman Catholic Archbishop of Portland, 335 BR 868 (Bankr. D. Or. 2005):

• Inquiry notice has been the law of Oregon for many years; it was referred to as "well settled" law in 1927. Belt v. Matson, 120 Or. 313, 320, 252 P. 80 (1927). There is no language in ORS 93.643(1) that indicates a legislative intent to change well-settled Oregon law on inquiry notice. I conclude, therefore, that the enactment of ORS 93.643(1) did not abolish inquiry notice in Oregon.
  .
  This conclusion is supported by the fact that, despite the enactment of ORS 93.643 in 1987, Oregon courts have continued to consider and apply the rules of inquiry notice. E.g., Akins v. Vermast, 150 Or.App. 236, 945 P.2d 640, adhered to on reconsideration, 151 Or.App. 422, 950 P.2d 325 (1997); Vandehey Dev. Co. v. Suarez, 108 Or.App. 154, 814 P.2d 1094 (1991). See also Spady v. Graves, 307 Or. 483, 488 n. 3, 770 P.2d 53 (1989) (explaining that constructive notice can be either record notice under the statutes or inquiry notice).
  .
  "Inquiry notice . . . arises when the existence of a claimed interest in real property may be determined through investigation based on facts available to the claimant that would cause a reasonable person to make such inquiry." Gorzeman v. Thompson, 162 Or.App. 84, 93, 986 P.2d 29 (1999). The purchaser is "charged with notice of every fact that a reasonable inquiry would have disclosed." Vandehey Dev. Co., 108 Or.App. at 157, 814 P.2d 1094.
  .
  In order to be charged with notice of facts a reasonable inquiry would have disclosed, there first must be facts that would cause a reasonable person to make such inquiry. In other words, there must be a duty to inquire before the purchaser is charged with notice of what she would have learned had she made the inquiry.

***

• Under Oregon law, possession of real property by a third party other than the grantor puts "a purchaser upon inquiry as to the possessor's interest." Webb v. Stewart, 255 Or. 523, 536, 469 P.2d 609 (1970). This is because the possession by someone other than the grantor "is a fact inconsistent with the record title[.]" Id. (quoting Groff v. State Bank of Minneapolis, 50 Minn. 234, 238, 52 N.W. 651 (1892)).

_______________________

In Re: Michael A. Grassmueck, Inc., Trustee v. Wurst, No. 09-6130-fra (Bankr. Or. 2009):

• "Under Oregon law, possession of real property by a third party other than the grantor puts a `purchaser upon inquiry as to the possessor's interest.'" In re Roman Catholic Archbishop of Portland, 335 B.R. at 885 (citing Webb v. Stewart, 255 Or. 523, 536, 469 P.2d 609 (1970)). "This is because the possession by someone other than the grantor `is a fact inconsistent with the record title[.]'" Id. (internal citation omitted).

_______________________

In re Kennedy, Bankruptcy Case No. 09-64432-fra7, Adversary Proceeding No. 10-6029-fra (Bankr. D. Or. 2011):

• A bona fide purchaser for value without notice (BFP) is an affirmative defense which must be pleaded, thereby placing the burden of proof in such cases upon the party relying thereon. Stevens v. American Savings Institution, Inc., 43 Or.App. 191, 195, 602 P.2d 669, 671 (1979).
  .
  The BFP rule applies to lenders as well as purchasers. Akins v. Vermast, 150 Or.App. 236, 242, 945 P.2d 640 (1997).
  .
  "Generally, a [BFP] is not affected by the transferor's fraud against a third party and has a superior right to the transferred property as against the transferor's creditor to the extent of the consideration the purchaser has paid." Black's Law Dictionary 1271 (8th ed. 2004). In other words, if Defendant CitiMortgage has BFP status, its interest in the Property has priority over Plaintiff's pre-existing unrecorded leasehold interest.
  
  The court in Stevens held that the consequence of the failure of a purchaser from grantor's grantee to make a reasonably diligent inquiry as to who had actual possession of the premises combined with the fact that the grantor of the deed retained possession of such premises was to charge the purchaser with constructive notice of grantor's interest in the property purchased. Failure to make a reasonably diligent inquiry vitiated purchaser's claim to be a BFP.
  .
  In Webb v. Stewart, 255 Or. 523, 536, 469 F.2d 609, 615 (1970), the Oregon Supreme Court adopted the rule that "grantor's continued possession after the execution of a deed by him puts third persons upon inquiry as to the grantor's interest." The court also held that "[i]t is established that the possession of persons other than the grantor will put a purchaser upon inquiry as to the possessor's interest." Id. The court felt there was no justification for distinguishing between possession by a stranger and by the grantor after delivery of his deed.
  .
  In Hooker v. Dunster, 74 Or.App. 636, 704 P.2d 515 (1985), the plaintiff deeded her residential property to the defendant Dunster. Dunster falsely told plaintiff that he had destroyed the deed. Instead, he approached defendant Transamerica with the deed and a title report showing him as sole owner and obtained a loan against the property. The court held that Transamerica was under inquiry notice of grantor/plaintiff's continued possession of the property. Grantor/plaintiff's continued possession of the property warranted the imposition on Transamerica of a duty to inquire as to the nature of the interest claimed. Failure to do so meant that Transamerica could not claim the status of a BFP and its right in the property was inferior to that of the grantor.
  .
  In the present case, CitiMortgage's predecessor in interest, Northwest Mortgage Group, knew at the time it granted the loan to Mr. Kennedy that he was not in possession of the property himself and that the property was in the possession of a tenant who had negotiated an arrangement with Mr. Kennedy. Pursuant to the caselaw cited above, Northwest Mortgage Group was put on inquiry notice of Ms. Schoor's continued possession of the property and had a duty to inquire as to the nature of the interest claimed by Ms. Schoor. Had it done so, it would have learned of the lifetime lease. Having failed to do so, Defendant is charged with constructive notice of Ms. Schoor's prior interest and cannot now claim the status of a BFP with respect to Ms. Schoor's interest in the property.

_________________________

Go here and Go here for other Oregon cases involving bona fide purchasers and the duty to inquire in the context of real estate transactions.

Minnesota Appeals Court Slams Hammer On Foreclosure Redemption Scheme Involving Use Of Sham Note & Mortgage By Property Owner To Squeeze Co-Owner

The Minnesota Court of Appeals recently refused to allow a 'foreclosure redemption' scheme whereby one co-owner of real estate attempted to screw his co-owner out of the equity in the subject property that had gone through foreclosure proceedings through the use of:

• a sham mortgage, and
• an "improper side agreement" with the 'creditor' holding the sham mortgage to redeem the subject foreclosed real estate

with the intended effect of extinguishing his unwitting co-owner's interest in the property.

The point here is that, had the cunning co-owner redeemed the property directly, he would have (under the law) also been treated as having redeemed on behalf of his unwitting co-owner as his co-tenant. The adroit-thinking co-owner thought he could avoid his obligation to his co-owner by instead surreptiously redeeming through a third/straw party (the 'creditor' holding the sham mortgage).

The 'creditor's attempt to assert that there was no improper side agreement with the bad actor, claiming she was an innocent unwitting party, an "unwilling accomplice," fell on deaf ears as the Minnesota appeals court pointed out that "even if a creditor is an "innocent" third party, relief may be available as long as that creditor is participating in a sham scheme with a devious cotenant and an improper result is obtained."(1)

The case makes for interesting reading, but probably only if you are in the business of undoing real estate equity ripoffs in Minnesota, and possibly in other states where the owner of a partial interest in real estate tries to screw his/her co-owners out of their interests through the use of a redemption scam used after a foreclosure sale due to an unpaid mortgage loan, municipal real estate taxes, or mechanics' and judgment liens.(2)

For the ruling, see Blat v. Takita, No. A10-2217 (Minn. App. July 5, 2011) (unpublished).

(1) In support of this proposition, the appeals court cites Hall v. Hall, 173 Minn. 128, 131, 216 N.W. 798, 799 (1927), a case where the Minnesota Supreme Court concluded that a foreclosure redemption scheme among remaindermen was improper because it eliminated the ownership interest of the life tenant, not because of the state of mind of the redemptioner who was given the sham note and mortgage in order to redeem the property. (Editor's Note: The fact that the Hall case dates back to 1927 is a clear indicator that this particular type of racket is nothing new - it's been around a pretty long time. It just doesn't seem to get litgated all that much - maybe because the victims of this scam don't know what hit them, or how to undo them.)

(2) See generally, Nelson, Grant S., The Foreclosure Purchase by the Equity of Redemption Holder or Other Junior Interests: When Should Principles of Fairness and Morality Trump Normal Priority Rules?, 72 Mo. L. Rev. 1259 (2007) (contains heavily-cited discussion on foreclosure redemption schemes involving junior lien 'squeeze-outs' by the owner of the property in foreclosure).

Robosigning Allegations Begin Hounding Prominent Michigan Foreclosure Mill Sweatshop

The Michigan Messenger reports:

• A Massachusetts county clerk says a forensic examination of documents filed by Troy-based Orlans Associates, one of the largest foreclosure firms in Michigan, shows that the company has engaged in illegal robo-signing.



• Robo-signing is when a bank, mortgage company or foreclosure company has multiple people sign documents with the name of the person who is supposed to sign those documents and then has them notarized as having been signed by that person. In the case of Orlans, the signer was supposed to be attorney Marshall Isaacs, but he has now been implicated in two states for having had others sign his name and notarize that he did so.

***

• Michigan Messenger has been carefully following the allegations against Isaacs since early May, following revelations [Ingham County Register of Deeds Curtis Hertel Jr.] had found robo-signed documents involving DocX, a Georgia company profiled on 60 Minutes. Hertel’s discovery led to investigations by both the Michigan Attorney General’s office and the FBI.

For more, see Michigan foreclosure firm implicated in robo-signing (Thousands of foreclosures may be invalidated).

For a follow-up story, see Orlans robo-signing allegations drawn concerns from lawmakers, activists (Most say independent investigation is required):

• Allegations that an attorney working for Troy-based Orlans Associates foreclosure giant is allegedly involved in robo-signing drew immediate concerns from lawmakers and activists.

Phony Land Document Epidemic Infects Charlotte-Area Courthouses; Recording Official: "My Records Are Literally Full Of This Stuff!"

In Weddington, North Carolina, The Associated Press reports:

• Officials at Charlotte-area courthouses say they are seeing epidemic of frivolous paperwork filed by people claiming the right to seize foreclosed property.



• The bogus deeds are being filed by people who claim to belong to the Moorish Science Temple of America, an obscure religious sect founded in the 1920s with beliefs loosely connected to Islam.



• In one incident, a real estate agent and a couple viewing a foreclosed $700,000 home in the Union County town of Weddington were confronted on June 1 by two men who produced a deed claiming the home in the name of the Moorish Science Temple, The Mecklenburg Times reported.(1)

***

• J. David Granberry, Mecklenburg County's register of deeds, said at least 200 deeds and other documents filed in his office in the name of the Moorish Science Temple are "outright fraud."



• Granberry said he's seen forgeries and notary fraud in the deeds claiming ownership of vacant, foreclosed properties. Many times, the documents appear official and legitimate, he said. "My records are literally full of this stuff," he said. "It's like an epidemic, as far as I can tell."



• In Union County, about 25 deeds have been filed this year in the name of the Moorish Science Temple, Register of Deeds Crystal Crump said.



• Granberry and other officials said as more homes have fallen into foreclosure and been vacated, the more opportunity there's been for others to move in. Real estate agents in Virginia and police in California warn of similar incidents there.



• "Today, all you have to do is go on to the Internet to find sites that purport to tell you how to beat your mortgage," said Tom Miller, legal counsel for the North Carolina Real Estate Commission.



• Registers of deeds say they are powerless in the face of fake deeds. As long as the deeds meet certain requirements, their offices must accept them, Crump said. "We don't check to make sure the title is good," Crump said. "That's why people have an attorney. Anybody can do this, and there is nothing we can do to stop it."

For more, see NC officials say fake property claims flooding in on real estate caught in foreclosure crisis.

(1) According to the story, the grand sheik of the Moorish Science Temple in Charlotte said his group is not affiliated with any effort to seize vacant properties. Christopher Bennett-Bey said he has heard of similar real estate scams around the country, which misrepresent a faith he has followed for more than two decades. He said he does not believe people using the group's name are members.

Judge 'Splits' Decision In HAMP Suit; Homeowners To Continue Pursuing Claims, BofA To Continue Foreclosures; Combines 26 Actions Filed In 19 States

The Huffington Post reports:

• Bank of America Corp lost its bid to dismiss a lawsuit accusing it of reneging on promises to help borrowers modify their mortgage loans under a much-criticized federal program. The bank, however, claimed a partial victory, citing District Judge Rya Zobel's decision to dismiss claims by borrowers who sought to participate in the two-year-old Home Affordable Modification Program, or HAMP.



• Zobel nonetheless ruled that homeowners who contend they did not get modifications for which they qualified under HAMP, to avoid foreclosures, could pursue claims against Bank of America.



• The complaint "meticulously" detailed each of these plaintiffs' compliance with loan modification conditions, but said the bank "willfully failed" to modify the loans, either in bad faith or for its own economic benefit, Zobel wrote. Such allegations are "sufficient" to let the lawsuit go forward, she added.



• Zobel rejected claims by borrowers who claimed they were "intended beneficiaries" of HAMP but never entered the program, saying they had no contractual right to relief. She also rejected a request to block Bank of America while the lawsuit is pending from foreclosing on 37 borrowers said to be in "imminent danger" of losing their homes.

***

• The lawsuit combines 26 cases that had been brought in 19 states, and sought class-action status for various plaintiffs.



• "The Court's conclusions will likely help hundreds of thousands of families to convert temporary mortgage modification plans into permanently lower monthly payments. Tens of thousands of foreclosures are likely to be prevented," said Gary Klein, a lawyer for the plaintiffs, adding that he expects the case to get class certification quickly.

For more, see Bank Of America Loses Bid To Dimiss Mortgage Modification Lawsuit.

Judge 'Green-Lights' Trial For Ex-Cop, Wife Accused Of Trashing Their Now-Foreclosed Home

In French Valley, California, The Press Enterprise reports:

• A judge ruled Friday that there is enough evidence for a former San Diego police officer and his wife to stand trial on felony charges in connection with the trashing of their foreclosed French Valley home.



• Robert Conrad Acosta, 39, and Monique Evette Acosta, 35 -- who has worked as a real estate agent -- are each charged with one count of carrying away or disposing of items from a mortgaged or foreclosed property. They have pleaded not guilty.



• The property suffered more than $100,000 in damage, including missing doors, light fixtures and air-conditioning units, stones smashed off the facade, dye poured on carpets, spray-painted graffiti, wiring pulled out of walls and cut, a gutted kitchen and chopped-down landscaping tossed in the backyard swimming pool, court records show.



• If convicted, the Acostas face up to four years in prison. "There is a public interest in seeing that this conduct is not encouraged," Judge Mark Mandio said at the conclusion of a preliminary hearing Friday at the Southwest Justice Center in French Valley.

For more, see Ex-officer, wife to stand trial in foreclosure trashing.

Judge Appoints Receiver To Take Control Over Mobile Home Park After Stiffed Lender Levels Rent Skimming Charges Against Landlord In Foreclosure

In Bloomington, Illinois, The Pantagraph reports:

• A court has appointed a Michigan company to oversee Southgate Estates while a foreclosure case is pending against the south Bloomington mobile home park.



• The foreclosure, filed last month in McLean County court, alleges that the property’s owner, Southgate Estates LLC, has failed to make payments on a $6.9 million loan since June 2010.



• The foreclosure alleges Southgate “misappropriated rents, security deposits and other income from the property” after it defaulted. Judge Paul G. Lawrence on June 10 granted the plaintiff, Wells Fargo Bank, its request that a receiver be appointed to oversee the property, [...] which has about 364 pads for mobile homes. Newbury Management Services LLC, based in Farmington Hills, Mich., was given control while the case is pending.



• “The property is in jeopardy and plaintiff will suffer severe and irreparable injury unless immediate steps are taken to secure the property,” Wells Fargo’s attorney wrote in the foreclosure filing.



• Lawrence’s ruling says residents who own or lease mobile homes on Southgate’s property should continue to make regular monthly lot rent payments to Newbury.

For the story, see Judge names receiver for B-N mobile home park.

FDNY: Candle Triggered Deadly Bronx Blaze In Illegally-Subdivided Firetrap In Foreclosure; Power To Premises Previously Shut Off

In New York City, The Wall Street Journal reports:

• Fire marshals have determined a candle started a fast-moving fire that killed a 12-year-old boy and his parents in an apartment building city officials say was illegally subdivided.



• The troubled three-story Bronx building was in foreclosure, and the utility Consolidated Edison had shut off the electricity because it had no record of tenants at that address. But the victims and others were living there in illegally subdivided apartments where access to fire escapes was blocked, city officials said after the April 25 blaze.



• The death of Christian Garcia and his parents, Christina Garcia, 43, and Juan Manuel Lopez, 36, prompted a city crackdown on illegal subdivisions, which are common in many neighborhoods where tenants struggle to make ends meet.

***

• The building's ownership status and who should have been responsible for it were the subjects of debate. The owner listed on city records said he lost it during a foreclosure proceeding, and it changed hands through several financial institutions. City officials have said the foreclosure had not been finalized.



• A state law that took effect last year makes lenders responsible for properties in foreclosure, but the dispute over the Bronx building is likely to end up in the courts. Because of the uncertainty, the Department of Buildings issued several violations on the day of the fire to the listed owner, Domingo Cedano, and the Bank of New York/Mellon, Buildings spokesman Tony Sclafani said.(1)

For more, see FDNY: Candle caused deadly Bronx fire.

In a related story, see New York Daily News: Bronx firetrap owner fined $25K for violations after devastating blaze killed 12-year-old, parents (Four violations against the bank were thrown out by Administrative Law Judge Malcolm Spector because it was not the titleholder at the time of the fire).

(1) For earlier posts on this story, see:

• Foot-Dragging Lender Says Bronx Firetrap Tragedy Not Its Problem; Foreclosure Sale Never Took Place Despite Obtaining Court Judgment,



• Tragedy Involving Deadly Bronx Firetrap That Lingered For Years In Foreclosure Spurs Crackdown On Illegally Converted Rooming Houses Throughout City,



• Early Morning Bronx Fire In Illegally Converted Rooming House Leaves 3 Dead, 8 Injured; Firetrap Lingered In Foreclosure Since 2008.

Recently-Pinched Burglary Suspect Invokes Foreclosure 'Defense'

In Nevada City, California, The Union reports:

• A Nevada City man allegedly caught in the act of burglarizing a home [] had an explanation for Nevada County Sheriff's deputies. He believed the house was a vacant foreclosure, said Sheriff Keith Royal.

***

• The man, identified as Van Cade Marsh, 69, was ordered out of the residence at gunpoint, Royal said. He complied and was arrested without incident. [...] Marsh was booked into county jail on suspicion of burglary of an inhabited dwelling and was being held in lieu of $25,000 bail.

For the story, see NC man arrested after allegedly breaking into home.

Woman Who Witnessed Phony Docs Cops Plea, Gets Probation In Exchange For Deal To 'Sing' Against Co-Defendants In Alleged Home Hijacking Operation

In DeKalb County, Georgia, WSB-TV Channel 2 reports:

• A woman pleaded guilty Wednesday morning to participating in a housing scheme involving 11 other people. Channel 2’s Carol Sbarge attended an arraignment for a dozen racketeering suspects at the DeKalb County Courthouse on Wednesday morning. It was the latest stage in the case against a group of people accused of using fraudulent deeds to take over metro Atlanta homes in foreclosure.



• The suspects, or self-proclaimed sovereign citizens, were the subject of a Channel 2 investigation last year. Sovereign citizens claim they are immune from Georgia law and prosecution. Prosecutors said their beliefs don’t supersede the law. “They can believe in the spaghetti monster if they want to,” prosecutor John Melvin said in court.



• The suspects face a maximum 20-year sentence for each count against them, but Wylissa Lawrence was sentenced to five years of probation and community service because of her guilty plea. The prosecution said she witnessed documents used to falsely get homes.



• As part of her deal, she must testify against the others.(1) Melvin said the indictment against the group involves 18 properties.

Source: Woman Pleads Guilty In Housing Scheme.

(1) Another defendant in a multi-defendant prosecution wins the "race to the prosecutor's office," as she is the first to "belly up" to investigators and spill her guts to cut the best deal for herself.

Minnesota Prosecutors Invoke Seldom-Used Law To Charge Office Building Owner In Foreclosure With Removing/Damaging Property Subject To Mortgage

In Anoka County, Minnesota, the Star Tribune reports:

• With his building under foreclosure, Donald Mordal decided to take some items that he says belonged to him.



• Now, he's facing criminal prosecution, only the second person charged in Anoka County in the past 25 years under a 1963 state law. The law makes it a felony to remove or damage property subject to a mortgage with intent to hurt the property's value. It is so rarely used that officials in the Hennepin and Ramsey county attorney's offices couldn't recall prosecuting anybody under it.

***

• Mordal, 44, was charged in March with "defeating security on realty." Prosecutors said he wasn't charged with a more common felony theft crime, which requires intent to take someone else's property and deprive them of it. Technically, he owned the property he is alleged to have taken illegally.



• Mordal, who has nothing more than a speeding ticket on his record, was stunned when he learned of the charge. Potential jail time is now piled atop the foreclosures of his business and house, along with unemployment and a divorce.

***

• According to the charges against Mordal, the bank contacted law enforcement in May 2010 when it learned he had removed items and allegedly damaged property just before the sheriff's foreclosure sale.(1) He says he had removed the items months earlier.



• Aleesha Kveton-Webb, vice president of special assets for Village Bank in Blaine, said the bank's four branches in Anoka County work hard to improve local communities and that they have to protect customer's assets. The bank could have "just left this at foreclosure" and not pursued criminal charges, but "we want to make a point that this shouldn't happen to other banks."

For the story, see Nowthen businessman faces rare charge in foreclosure (Under a seldom-used law, he is accused of illegally removing items from his office building).

(1) See State v. Zacher, 490 NW 2d 149 (Minn. App. 1992) for an example of one property owner who successfully scored a reversal of a conviction of this charge where the property was taken after the sheriff's foreclosure sale had taken place (owner removed the fixtures one day before the end of the statutory six-month redemption period).

Trio Get Multi-Year Sentences In MD-Based $78M "Dream Homes" Ponzi Scam; Home Refinancing Pitch Used To Generate Funds To Invest In Worthless Racket

From the Office of the U.S. Attorney (Greenbelt, Maryland):

• U.S. District Judge Roger W. Titus sentenced Isaac Jerome Smith, age 48, of Spotsylvania, Virginia; and Alvita Karen Gunn, age 33, of Hanover, Maryland today to 70 months and 60 months in prison, each followed by three years of supervised release, respectively, for a fraud conspiracy, wire fraud and conspiracy to commit money laundering in connection with their participation in a massive mortgage fraud scheme which promised to pay off homeowners’ mortgages on their “Dream Homes,” but left them to fend for themselves. Judge Titus also ordered that the defendants pay restitution in the full amount of the loss, with the exact amount to be determined at a later hearing.



• On February 18, 2011, a federal jury convicted Smith and Gunn, along with co-defendant Michael Anthony Hickson, age 48, of Commack, New York, after a six week trial. Hickson, chief financial officer of Metro Dream Homes (MDH), was also convicted of making a false statement in a federal court proceeding [...].(1)

***

• According to evidence presented at the trial, beginning in 2005, the defendants targeted homeowners and home purchasers to participate in a purported mortgage payment program called the “Dream Homes Program.” In exchange for a minimum $50,000 initial investment and an “administrative fee” of up to $5,000, the conspirators promised to make the homeowners’ future monthly mortgage payments, and pay off the homeowners’ mortgages within five to seven years.



• Dream Homes Program representatives told investors that the homeowners’ initial investments would be used to fund investments in automated teller machines (ATMs), flat screen televisions that would show paid business advertisements and electronic kiosks that sold goods and services. To give investors the impression that the Dream Homes Program was very successful, Metro Dream Homes spent hundreds of thousands of dollars making presentations at luxury hotels in Washington, D.C., New York, New York and Beverly Hills, California.(2)

***

• MDH encouraged homeowners to refinance existing mortgages on their homes in order to withdraw equity and generate the funds necessary to enroll their homes in the Dream Homes Program.

***

• Trial testimony established that at a hearing on Sept. 12, 2007, Hickson testified that the financial success of the Dream Homes Program did not rely upon new investor funds, when in fact Hickson knew that the sole source of meaningful revenue for MDH was new investor funds [ie. 'Ponzi' scheme].



• As a result of the scheme, more than 1,000 investors in the Dream Homes Program invested approximately $78 million. When the defendants stopped making the mortgage payments, the homeowners were left to attempt to make the mortgage payments MDH had promised to make in full.

For the U.S. Attorney press release, see Two Conspirators Sentenced To Prison In $78 Million "Dream Home" Mortgage Fraud Scheme (Defendants Spent Investor Funds to Employ Chauffeurs and Maintain a Fleet of Luxury Cars; on Luxury Travel; to Pay Off Prior Investors as Part of a Ponzi Scheme; and Fund a Failed Investment Venture and Undisclosed Third Party Businesses).

(1) In addition, Carole Nelson, age 52, of Washington, D.C., the chief financial officer of POS Dream Homes, previously pleaded guilty to money laundering, and Charlotte Melissa Josephine Hardmon, age 39, of Bowie, Maryland, pleaded guilty to conspiracy to commit wire fraud in connection with their participation in this scheme, and are awaiting sentencing, according to the press release.

Hickson has since received a ten-year prison sentence. See Leader In $78 Million "Dream Home" Mortgage Fraud Scheme Sentenced To 10 Years In Prison.

(2) The evidence also showed that in February 2007, the Dream Homes Program added a second program called “POS Dream Homes” offering similar promises of paying off investor mortgages in five to seven years in exchange for an up-front investment of $50,000 or more, the press release states. Collectively, these programs had offices in Maryland, the District of Columbia, Virginia, North Carolina, New York, Delaware, Florida, Georgia and California.

High-Risk, Illiquid Securities Peddler Targets Seniors, Others With Home Refinance Pitch To Fuel Sales Of Dubious Investments

In Victoria, British Columbia, the Times Colonist reports:

• Last week, I reported that David Michaels, principal of Michaels Wealth Management in Victoria, has been selling highrisk, illiquid securities to his clients, many of whom are quite elderly. He has been promoting these investments through hour-long infomercials on CFAX Radio, and through "lunch and-learn" seminars at his office.

***

• In some cases, Michaels arranged for investors - some of them seniors - to borrow against their homes to finance these investments. "My mother, a retired widow, went to see David Michaels after hearing his radio show on CFAX where he claims that he loves making seniors money," Heidi Dubas told me in an email.



• "She made it clear that she was on a fixed income and was not interested in any high-risk investments. Michaels convinced her that borrowing $100,000 against her mortgage would net her 12 per cent monthly interest on her investment, which would be low risk, as well as getting her involved with Focus Money Solutions Inc. To date, she is out over $150,000 as well as having to pay interest monthly on her loan."



• I spoke to several other investors who told me that, at Michaels' prompting, they also borrowed against their home. One was 70-year-old Robert Davey of Ladysmith, who borrowed $150,000 to invest in Focused Money Solutions, plus two other deals that Michaels was recommending.



• Another elderly woman - who wouldn't tell me her age, but I would guess to be in her 70s or 80s - told me that, on Michaels' recommendation, she borrowed $200,000 against her house and invested $75,000 in Focused Money Solutions and $100,000 in Bethel.



• That money is gone. The loan is not.



• To my surprise, most of these people didn't blame Michaels for these losses. In the case of Focused Money Solutions, they blamed promoter Victor DeLaet, or they blamed the Alberta Securities Commission for issuing the cease-trade order, or they blamed themselves for making such a risky investment.

***

• Last Saturday, Michaels was on CFAX Radio's Talk to the Experts infomercial program, promoting foreclosure properties in Arizona. CFAX general manager Jim Blundell has since advised that Michaels will no longer appear on the program, but that won't necessarily stop him.



• Meanwhile, more of Michaels' investment deals are turning sour. One client told me that in March 2010, she invested RRSP money - how much, she didn't say - in Treadwell Energy Inc., through Michaels.

For the story, see Investment deals devastate seniors (B.C. Securities Act exemption allows Victoria agent to sell high-risk, illiquid securities without a licence).

In related stories, see:

• Victoria woman, 90, is now out $550,000,
• B.C. Securities Commission says it will review rules for sale of exempt securities.

Arizona Feds Bag Suspected Vacant Foreclosed Home Hijacker On Unrelated Charges Of Filing False Bankruptcy Claims While Promising Foreclosure Rescue

In Tucson, Arizona, KVOA-TV Channel 4 reports:

• A former mayoral candidate and self-proclaimed "sovereign citizen" has been arrested for false claims in bankruptcy stemming from a website he operated claiming he could make the foreclosure process stop.



• According to a release from Dennis Burke, U.S. Attorney for the District of Arizona, Marshall E. Home, 81, is facing a criminal complaint charging him with two counts of false claims in bankruptcy.



• According to the complaint, Home operated the "Individual Rights Party; Mortgage Rescue Service," and would charge individuals in foreclosure proceedings $500 to make the process stop.(1) The complaint alleges that Home believes Congress does not have the authority to make laws binding to anyone outside the District of Columbia and federal territories, under the U.S. Constitution. The complaint also alleges that in March, Home falsely told the Bankruptcy Court that he had a $3 billion financial claim against the United States, then went on to file 173 more false claims relating to individuals participating in his "Mortgage Rescue Service."



• The complaint says these claims totaled over $2.5 trillion dollars - the two counts in the criminal complaint involve claims of $2.5 billion and $50 million. "The anti-government paranoia of so-called ‘sovereign citizens' becomes a self-fulfilling prophecy when they use their false claims and fraudulent practices to rip-off others," said U.S. Attorney Dennis K. Burke. "We will continue to work with our law enforcement partners to pursue and prosecute those who make false claims against the government to cover for their wrongdoing."

For the story, see Former mayoral candidate arrested for false bankruptcy claims.

(1) In addition to his alleged antics filing dubious documents in bankruptcy court, the 81-year old Home also appears to have a career as a self-employed vacant foreclosed home hijacker. See Fringe Tucson Mayoral Candidate Goes On 'Home' Hijacking Spree, Staking Claims To Vacant Fannie-Owned REOs Throughout Metro Phoenix.

Miami Feds Pinch Four In Alleged Refinance Ripoff; Reverse Mtg Proceeds Illegally Diverted, Existing Liens Remain Unpaid; Some Seniors Face F'closure

In Miami, Florida, The Miami Herald reports:

• Three South Florida mortgage professionals conspired with a Pittsburgh title agent to defraud senior citizens through a reverse mortgage scam, according to allegations unveiled Wednesday by U.S. Attorney Wifredo Ferrer.



• Through 1st Continental Mortgage Company, which has offices in Fort Lauderdale and Boca Raton, the group processed 14 reverse mortgages across the country and did not use the mortgage money to pay off the existing loans, the U.S. attorney charges.



• Louis Gendason, John Incadela, Marcos Echevarria of 1st Continental, and Kimberly Mackey, a title agent in Pittsburgh, obtained $2.5 million in reverse mortgage loans from Genworth Financial between 2009 and 2010.



• They are charged with pocketing nearly $1 million in illegal loan proceeds, and each faces one count of conspiracy to commit wire fraud. The reverse mortgage loans are insured by the Federal Housing Administration.



• “There are multiple levels of fraud in this one case,” said Ferrer. “Because of this fraud, some of these [victims] are having to fight off foreclosure.”

***

• “These are seniors who are on Medicare, limited incomes, desperate for help,” said Tony West, U.S. assistant attorney general for the Civil Division. “Money that should’ve gone to help seniors with modest incomes instead went to line the pockets of fraudsters.”

For more, see Reverse mortgage scam targeted seniors (A South Florida company engaged in a $2.5 million reverse mortgage fraud scheme, according to charges revealed Wednesday by the U.S. Attorney’s Office).

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

The South Florida Sun Sentinel adds:

• In a separate action, the Federal Trade Commission filed a lawsuit in March that named Incandela and Lower My Debts.com, a loan modification operation based at 1st Continental's Boca address, in a crackdown on foreclosure rescue and mortgage modification businesses. The FTC said the company falsely promised consumers they would get their mortgage payments reduced or their money would be refunded.(1)

For more, see South Florida seniors targeted in mortgage fraud, officials say.

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

From the Office of the U.S. Attorney (Miami, Florida):

• Press Release:Three Loan Officers And A Title Agent Charged In A $2.5 Million Reverse Mortgage And Loan Modification Scheme,


• Criminal Information: U.S. v. Gendason, et al.

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

(1) See FTC Charges Mortgage Relief Operation with Deceiving Distressed Homeowners.

Escrow Agency Operator Gets 24 Months For Ripping Off $5.3M+ In Title Insurance Premiums, Closing Costs From Thousands Of Real Estate Closings

From the Office of the U.S. Attorney (Minneapolis, Minnesota):

• [A] 42-year-old Golden Valley man was sentenced for stealing money in a mortgage fraud scheme. United States District Court Judge Ann D. Montgomery sentenced Trent Christopher Jonas to 24 months in prison on one count of wire fraud and one count of money laundering. In addition, Jonas was ordered to pay more than $5.3 million in restitution. Jonas was charged on November 22, 2010, and pleaded guilty on December 30, 2010.



• In his plea agreement, Jonas admitted that from June of 2005 through August of 2007, he misappropriated more than $5.3 million that was intended to pay for title insurance premiums, title search costs and recording fees in connection with thousands of residential real estate mortgage financing transactions.

***

• Jonas owned and operated Title Source, Ltd. and Zen Title, two title insurance agencies. Both agencies acted as an insurance agent for Ticor Title Insurance Co., a title insurance underwriting company located in Florida, which is a subsidiary of Fidelity National Financial and United General Title Insurance Co.

***

• Ticor Title has now issued title insurance policies for all homeowners whose premiums went unpaid because of defendant's fraud. Ticor Title has also paid all of the recording fees that went unpaid because of defendant's fraud, which total more approximately $2.3 million. In addition, Ticor has paid more than $1.8 million in expenses and losses on claims related to Title Source’s and Zen Title’s failure to issue policies and record documents.

For the U.S. Attorney press release, see Golden Valley man sentenced for stealing mortgage title insurance proceeds.

(1) Those who have been screwed out of money due to the fraudulent, deceptive or dishonest practices, or conversion of trust funds by a Minnesota closing agent, or licensed real estate broker or salesperson can apply to the Minnesota Department of Commerce's Real Estate Education, Research and Recovery Fund to try and recover some or all of their losses.

According to their website:

• The improper action that was committed must be an activity that required a license,


• Applicants may be awarded any amount from $0 to $150,000, depending on a number of factors. According to the Fund's website, there is no guarantee that a claim will be paid. Whether an applicant will receive payment from the fund depends on the specific facts of the case.

See also, State Recovery Fund To Cough Up $116K+ To Compensate Elderly Victim Of Bogus Sale Leaseback Equity Stripping Scam Involving Licensed Real Estate Agent for a story on how this fund ponied up what was reported as the largest compensation payout from the Minnesota real estate recovery fund in 13 years to an 87-year old woman who was victimized by a licensed real estate agent in a real estate equity ripoff that stripped an elderly womans's title to her home of fifty years.

Closing Attorney Cops Plea To $900K Escrow Funds Ripoff; Pocketed Loot Intended To Pay Off Sellers', Refinancing Homeowners' Existing Mortgage Loans

From the Office of the U.S. Attorney (Pella, Iowa):

• [F]ormer attorney, Franklin R.York, of Pella, Iowa pled guilty in federal court in Des Moines to one count of wire fraud, announced United States Attorney Nicholas A. Klinefeldt.



• According to the written plea agreement, York owned and operated Escrow and Closing Services of Marion County, LLC since 2005 and provided real estate closing and refinancing services. Funds from real estate purchases and refinancing were wired to the escrow account belonging to Escrow and Closing Services and were intended to be used to pay mortgage balances of real estate sellers or persons refinancing.



• Beginning in at least 2009, York took money from the escrow account for his own use. To hide this, York would delay paying a mortgage balance and would use funds from a later transaction to then pay for the mortgage.



• As of February 1, 2010, there were ten mortgages that York received funds to pay but did not pay. These unpaid mortgages involved nine individuals and totaled $907,600.00.(1)

For the U.S. Attorney press release, see Pella Attorney Pleads Guilty To Wire Fraud.

(1) The Iowa Judicial Branch's Client Security Commission manages a fund, generated from contributions from lawyers and judges, that reimburses clients of lawyers who have misappropriated or lost a client's money. The purpose of the fund is to prevent defalcations by members of the lowa bar and to provide for the indemnification by the profession for losses caused to the public by the dishonest conduct of members of the bar of this state.

For similar "attorney ripoff reimbursement funds" that sometimes help cover the financial mess created by the dishonest conduct of lawyers licensed in other states and Canada, see:

• Directory Of Lawyers' Funds For Client Protection (now includes Canadian recovery funds, courtesy of the American Bar Association);


• Check the USA Client Protection Funds Map;


• Check the Canada Client Protection Funds Map.

Maps available courtesy of The National Client Protection Organization, Inc.

Law Firm's Real Estate Closing Paralegal Gets 3 Years For Pilfering $260K From Company Escrow Account

From the Office of the U.S. Attorney (Atlanta, Georgia):

• OLA SUZANNE STOWERS, 34, of Dawsonville, Georgia, was sentenced to prison yesterday by United States District Judge Richard W. Story on charges of bank fraud and aggravated identity theft. STOWERS was sentenced to 3 years in prison, and ordered to pay $260,171.94 in restitution. STOWERS pleaded guilty to the charges on April 4, 2011.



• According to United States Attorney Yates, the charges and other information presented in court: From July 1999 through May 2010, STOWERS was a closing paralegal and database manager at a real estate law firm located in Atlanta, Georgia.



• In June 2008, STOWERS transferred $176,946.79 from a law firm escrow account into a Bank of America account that she had been directed to close, but instead kept open and changed the statement mailing address on the account to her residence. [...] In July 2008, STOWERS began writing checks from that Bank of America account for her own personal use, forging the signature of one of the firm’s partners.



• By March 2009, the Bank of America account had a balance of $959.93. In April 2010, STOWERS deposited $82,727.42 of checks made payable to the law firm into the Bank of America account, and again wrote checks from the account for her own personal use, again forging the signature of one of the firm’s partners.

For the U.S. Attorney press release, see Law Firm Paralegal Sentenced to Federal Prison for Stealing from Escrow Account (Defendant Wrote Over $260,000 in Checks From Firm’s Account for Her Own Personal Use).