Source: http://homeequitytheft-cases-articles.blogspot.com/2007/
Timestamp: 2017-07-22 02:44:02
Document Index: 166501739

Matched Legal Cases: ['§ 157', '§ 1961', '§ 1601', '§ 24', '§ 24', '§ 24']

The Home Equity Theft Reporter Cases & Articles: 2007
Title Transfer To Bona Fide Purchaser Devolving From Forged Instrument Held Void; Mortgage Also Voided
In Toronto, Canada, The Toronto Star reports:For Paul Reviczky, a 90-year-old victim of mortgage fraud, it's the best possible ending to a two-year nightmare. In a precedent-setting decision, Ontario superior court has taken another step toward protecting victims like Reviczky from being on the hook for hundreds of thousands of dollars. The court ruled this week that the Hungarian immigrant isn't responsible for the $300,000 mortgage taken out on his home, after it was sold in 2005 without his knowledge.***The decision is the first of its kind in the province since a landmark Court of Appeal ruling in February. That decision found that even a bona fide purchaser can't legally buy property from a fraudster.This decision expands on the previous one by finding that a $300,000 mortgage, obtained by the people who purchased Reviczky's home, was invalid because the basis for the transaction was a fake power of attorney document forged by the fraudsters who sold the elderly man's home.***Justice John Macdonald's ruling hands the weighty bill back to the mortgage dispenser, which is HSBC and its insurer (presumably the title insurance underwriter). For more, see Man, 90, off hook for loan: Court (Landmark ruling lifts $300,000 burden).To view the decision of the Ontario Superior Court, see Reviczky v. Meleknia, et al. (pdf format; go here for html format - contains embedded links to the relevant Canadian statutes; cases available online courtesy of the Canadian Legal Information Institute).For follow-up stories, see:Law Times: Bank didn’t take proper steps (Mortgage fraud decision will impact real estate industry),The Toronto Star: House fraud decision rocks industry (Bank `did not take steps to scrutinize the power of attorney,' judge rules).For those looking to get some idea of what the concept of "bona fide purchaser" is all about, see The Bona Fide Purchaser for Value of a Legal Estate Without Notice, and then check the case law of your home state to see how your state's judiciary has applied the legal principles that underlie "bona fide purchaser" status.
Ohio Feds Indict Landlord On Equity Skimming, Other Charges; Allegedly Pocketed Tenant Rent & Allowed HUD-Insured Mortgages To Go Into Default
In a recent press release, Gregory A. White, United States Attorney for the Northern District of Ohio, announced that a federal Grand Jury in Cleveland returned a nine-count indictment charging three individuals and one property management company with various offenses involving fraud against the United States Department of Housing and Urban Development (HUD).Among the charges was a charge of equity skimming, in which, according to the press release:The indictment [...] alleges that the defendants defrauded HUD by failing to make timely payments on the HUD-insured mortgages for [two housing projects], resulting in additional multi-million dollar losses to HUD. Moreover, the defendants used project funds to pay personal expenses and other unauthorized expenditures in violation of regulatory agreements between the projects and HUD. The total loss to HUD was more than $5 million.Charged in the indictment were Martin L. Shulman, 54, his wife, Gail R. Shulman, 53, Keyetta L. Williams, 35, and S.B.G. Management, Inc., the management company that the Shulmans operated.For more, see the U.S. Attorney News Release.-----------------For those looking for some Federal case law applying the federal equity skimming statute in cases where Federal authorities have prosecuted landlords / property owners who collected rent from houses and stiffed FHA-insured or VA-guaranteed mortgage lenders, see:U.S. v. Weaver (9th Cir. 2002) (foreclosure rescue operator found guilty),U.S. v. Travers (11th Cir. 2000),U.S. v. Beckley (11th Cir. 1996).For a California state appellate court case convicting a property owner for pocketing rent while stiffing mortgage lenders and allowing houses to go into foreclosure, in violation of the state's rent skimming statute, Section 890 through Section 894 of the California Civil Code, see People v. Lapcheske (Cal. App. Ct. 1999) (may require free registration).Go here for Sample Indictment -- Equity Skimming, 18 U.S.C. § 157 (Source: U.S. Attorney Criminal Resource Manual - Title 9 - #882).
More Publicity For NYC "Home Savers" Rescue Operator
In New York City, WABC-TV Channel 7 ran a follow-up story on Monday on the now well-known area foreclosure rescue operator, Home Savers Consulting Corp. Two separate criminal investigations are reportedly (still) underway into the rescue firm. Channel 7 investigative reporter Sarah Wallace speaks with two more homeowners who fell victim to the alleged equity stripping scam orchestrated by Home Savers' principal, Phil Simon, by unwittingly signing over their homes to a straw buyer.Channel 7 was able to catch up with Phil Simon (I mean, they literally caught up with him - when Simon saw the Channel 7 camera, he started running away. Wallace, with microphone in hand and camera person in tow, chased Simon down a Brooklyn street before he relented and consented to speak to her). Simon had little to say, however, other than to refer questions to his attorney. Home Savers' co-principal, Garth Celestine, was conspicuous by his absence in this report.For the transcript of the story, and the link to the Channel 7 video, see Homes stolen by 'Home Savers'? (Heartbroken people lose homes, equity to "Home Savers").For the earlier Channel 7 report on Home Savers which aired in late November, see A Home Mortgage Mess (transcript) (video).Go here for other posts on Home Savers Consulting Corp, including links to a couple of the civil lawsuits it has been recently facing.For a related post, see Foreclosure Rescue - For Criminal Prosecutors Only.Editor's Note:According to, what at one time, was the law in the State of New York (see Marden v. Dorthy, 160 N. Y. 39 (NY 1899)):fraudulently procuring the signature of another to an instrument which he has no intention of signing constituted forgery on the part of the procurer. It was not necessary that the act of forgery be done by the hand of the person being charged. It was sufficient that the forgerer caused or procured it to be done; andif the scammed homeowner, during all the time covered by the fraudulent transactions, was in possession of the real property in question, the legal effect of the homeowner's possession constituted notice of the homeowner's rights to the property to all the world, including subsequent purchasers and encumbrancers.If this is still the law in New York, state and local law enforcement authorities may have grounds to charge these foreclosure rescue operators with forgery. Further, inasmuch as it is generally considered that a forged deed is void, it conveys no title. Accordingly, the scammed homeowners would still own their homes. The burden of the foreclosure rescue scam would be borne by the foreclosure rescue operator, the straw buyer, and the financial institution who financed the equity stripping transaction (and, possibly, the title underwriter who issued the owner and the mortgagee title insurance policies).If anyone knows for sure that Marden v. Dorthy no longer is reflective of New York law, please drop me a line at HomeEquityTheft@yahoo.com and enlighten me as to why not (while I understand that the case is over 100 years old, that in itself doesn't make the case obsolete. Unlike a loaf of bread, court decisions of the highest court of the state don't grow stale by the mere passage of time).One final note. Even if the deed is not considered a forgery, the foreclosure rescue transaction would still have to withstand scrutiny as an equitable mortgage (and, depending on how much profit the operator pocketed, the claim may be that of a usurious equitable mortgage). Possession by the homeowner throughout the transaction would appear to, as noted above, constitute "notice to the world" of the scammed homeowner's rights in the home, thereby denying "bona fide purchaser / bona fide encumbrancer" status to the straw buyer, the lending institution financing the deal, or anyone else who subsequently acquired an interest in the home.
Bear, EMC Accused Of Race Discrimination, Civil Rights Violations In Mortgage Servicing Suit; Class Action Status Sought
A lawsuit filed in a New Haven, Connecticut Federal Court last week alleges that Wall Street investment banking firm Bear Stearns and its EMC Mortgage servicing unit engaged in:"[r]acially discriminatory practices ... in servicing near-prime and sub-prime residential home loans" and claims that "EMC and Bear Stearns intentionally sought out non-prime loans, predominanly made to Hispanics and African Americans, in order to reap profits from their predatory servicing practices."The predatory servicing practices complained of in the suit include:"[t]he imposition of unwarranted fees and costs, the pyramiding of late fees, the unjustifiable force-placing of insurance, the failure to properly credit payments, the unwarranted reporting of derogatory information regarding borrowers to credit reporting agencies, and the failure to properly administer escrow accounts."Representing the homeowners are the firms Butler Norris & Gold, Hartford, Connecticut, and James, Hoyer, Newcomer & Smiljanich PA., Tampa, Florida.To view the lawsuit:go to this direct link for Rodriguez v. Bear Stearns on the PACER system (PACER registration required - 31 pages - $2.40); ordrop me a line at HomeEquityTheft@yahoo.com (put "Rodriguez v. Bear Stearns" in the subject line) and I'll e-mail it to you.See also, Bear Stearns Mortgage Unit Accused of Predatory Loan Servicing (Bloomberg News).Go here for:other posts on alleged discrimination in connection with subprime lending, andgo here and go here for posts on questionable mortgage servicing practices.
Mortgage Servicer Improperly Clips Consumer For $50K+ Violating Class Action Settlement, Says Lawsuit
According to a lawsuit recently filed in a West Virginia state court, Select Portfolio Servicing, Inc. (the firm formerly known as Fairbanks Capital Corp.) is being accused of collecting over $50,000 more than what was due from a West Virginia homeowner, whose mortgage balance had been previously reduced pursuant to a legal settlement in a previously litigated class action lawsuit. The current lawsuit, filed on November 14, 2007, alleges among other things:"The Defendant [Select] failed to follow the ordered new payoff schedule consistent with the reduced loan. Despite the Court Order, the Defendant continued to treat the entirety of the loan as due, and have month-by-month demanded the full payment. Since January 2001, the Defendant has sent over eighty-two demands for payment that misrepresent the total amount due."In a procedural maneuver, counsel for Select filed a request last week to move the case from the state court to a West Virginia Federal Court.Representing the consumer is attorney Daniel F. Hedges, Charleston, West Virginia.To view the lawsuit, see Helen B. Moss v. Select Portfolio Servicing, Inc. f/k/a Fairbanks Capital Corp.To view the request to move the case, see Notice of Removal.For posts on questionable mortgage servicing practices, go here and go here.
CNN On Foreclosure Rescue
Some time ago, the CNN business program Open House with Gerri Willis featured a Florida couple facing foreclosure and their experience when they unwittingly signed over their home to a title-holding land trust in a deal arranged by foreclosure rescue operator Jack Moussa and his Florida Housing Council ("FHC"). Interviewed for the piece was Florida attorney David Silverstone, who represents the homeowners in a lawsuit against Moussa and FHC in which Silverstone seeks to void the deed transfer, alleging that the foreclosure rescue transaction was a disguised loan that violates the Federal Truth In Lending Act, the Florida Deceptive and Unfair Trade Practices Act, and the Florida usury statute. Based on the transaction the homeowners entered into with Moussa, Silverstone claims that the return on investment on the disguised loan was 300%, more than the maximum amount allowed by Florida law.To watch the video, see Rescue or Ripoff? (Open House with Gerri Willis; CNN).Go here for other posts on Florida foreclosure rescue operator Jack Moussa and the Florida Housing Council.--------------------Editor's Note:There is plenty of case law in Florida (and other places as well) that can be used to support a court's decision to recharacterize sale-leaseback foreclosure rescue deals as (possibly usurious?) secured loans / equitable mortgages. Go here for more on the Florida case law on equitable mortgage (some of which also addresses usury) to consider how the case law may be applied to foreclosure rescue transactions structured as a sale leaseback, or variations thereof, with a right to buy back the property in the future.It may only be a matter of time before the Florida Attorney General's Office "steps up to the plate" and begins to prosecute foreclosure rescue operators who offer sale leaseback programs for violating Florida's usury statutes:Civil usury - Section 687.03, which currently sets a maximum 18% per annum interest, and applies to advances up to $500,000;Criminal misdemeanor usury - Section 687.071(2), generally applies on interest willfully and knowingly charged in excess of 25% per annum but not exceeding 45% per annum;Criminal felony usury - Section 687.071(3), generally applies to interest willfully and knowingly charged in excess of 45% per annum.Debt unenforceable - Section 687.071(7) states that a loan made in violation of the Florida criminal usury statute is unenforceable.For more on foreclosure rescue and equity stripping arrangements, generally, see DREAMS FORECLOSED: The Rampant Theft of Americans' Homes Through Equity-stripping Foreclosure 'Rescue' Scams (4.61 MB approx.). florida equitable mortgage alpha
Release Won't Shield Lender From Usury Claim Of Borrower
In Massachusetts, Massachusetts Lawyers Weekly reports:A defaulting borrower should be allowed to proceed with its usury claim against a lender, even where language in a forbearance agreement purported to release the lender from any prior obligation or default, a Superior Court judge has ruled. The borrower argued that the release did not cover its underlying claim because statutory causes of action enacted out of public-policy concerns, like the state's criminal usury statute, cannot be waived by contract. Judge Allan van Gestel agreed, granting partial summary judgment to the borrower. "Where a statute 'rests on grounds of public policy, it is not the power of one who may be directly affected by it to contract in advance that it may be disregarded,'" wrote van Gestel. "[The usury law] is sufficiently infected with public policy such that it cannot be the subject of any ordinary release or waiver." [...] Van Gestel looked to the Supreme Judicial Court's 1980 decision in Begelfer v. Najarian, which held that the usury statute was a clear statement of Massachusetts policy that was a "matter of grave legislative concern." Because the usury statute was effectively entrenched in public policy, it could not be subject to an ordinary release or waiver, van Gestel ruled.For more, see Release won't shield lender from usury claim of borrower (Public policy can't be waived by agreement).
Due Process Being Trampled By Maryland’s Home Foreclosure System, Argues Appeal
From Public Citizen Litigation Group, the litigating arm of the consumer advocacy group Public Citizen:Maryland resident Joyce Griffin lost her house in a foreclosure sale because she never received notice until it was too late for her to save her home. Her case is a stunning example of how predatory subprime lenders, high-volume foreclosure mills, and a hands-off legal system can combine to wreak havoc on people's lives.Griffin's mortgage company, the now-defunct Ameriquest, tricked her into refinancing the home she owned, when, after her fiancé died, she'd simply wanted to have his name taken off the mortgage. When the single mother could no longer make the increased mortgage payments, a "foreclosure mill" law firm representing Ameriquest quickly began foreclosure proceedings. After they made a bare-bones and unsuccessful effort to notify her of any pending action, Griffin lost her home when it was literally auctioned off on the courthouse steps. She never learned that her home had been sold until the new owner tacked a note on her door.Griffin immediately hired a lawyer to block the sale, arguing that the notice procedures violated her constitutional right to due process, but the court upheld the lender's actions. Public Citizen and Baltimore-based Civil Justice Inc. are appealing that decision. We argue that the 2006 decision in Jones v. Flowers — a case that Public Citizen argued in the U.S. Supreme Court — means that additional reasonable steps must be taken to notify a property owner if a foreclosure notice is returned as unclaimed by the post office. But the lawyers who conducted the foreclosure of Ms. Griffin's house say they can ignore undelivered letters and do not have to make any effort to follow-up before selling someone's house.If Griffin had been a defendant in a small-claims case, a property tax foreclosure, a federal tax foreclosure, or even a tenant in an eviction proceeding, the law would have required that the documents be served in person, sent via restricted certified mail (complete only upon delivery) or be posted by mail-and-nail notification in which the mailed documents are also posted directly on a dwelling's door. Even in a routine debt collection action, Ameriquest's mishandling of Griffin's case would have violated her constitutional rights. The Constitution demands more when someone's home is at stake.Source: Description Of Pending Case in Griffin v. Bierman, et al. in the Maryland Court of Special Appeals (Public Citizen Litigation Group).In a separate press release, Public Citizen attorney Deepak Gupta noted:"People are waking up to the reality of predatory subprime mortgages, but what they may not yet realize is the one-two punch of shifty loans and shiftier foreclosure firms that can knock them right out of their homes.”For the entire press release, see Homeowners Facing Mortgage Foreclosures Denied Constitutional Right to Proper Notification.To view the appellate brief in this case filed last week on behalf of the homeowner, see Brief - Griffin v. Bierman, et al.Representing the homeowner in this case are: Deepak Gupta, Micahel T. Kirkpatrick, and Brian Wolfman, with Public Citizen Litigation Group (Washington, DC); Phillip Robinson, with Civil Justice Inc. (Baltimore, MD); and Scott Borison, with Legg Law Firm, LLC (Frederick, MD).
Central Florida Homeowners File Suit Against Foreclosure Rescue Operator; Others
A group of eleven Central Florida homeowners filed suit earlier this month against foreclosure rescue operator Peter Porcelli and a group of at least 16 other individuals and companies in which they allege having been scammed out of their home equity. They allege that the operators targeted homeowners with significant equity in their home who were facing temporary financial distress.The typical equity stripping, foreclosure rescue transaction generally involves a home sale by a financially hard-up homeowner, coupled with a leaseback of the home, and an option to repurchase it at a future date. According to the lawsuit (paragraphs 46 through 54) filed in this case, however:the money advanced by the foreclosure rescue operator actually took the form of a loan, and not a home sale with leaseback and repurchase option,while most homeowners needed only a few thousand dollars to avoid foreclosure, loans were arranged that incorporated finance charges, origination fees, and underwriting fees that doubled or tripled the size of the loan,the charges and fees were received by the operators and the others involved in the alleged conspiracy,in some cases, the loans arranged had effective annual interest rates of 500% or greater. In all cases, they exceeded the 45% threshold set in Fla. Stat. Chapter 687 for criminal usury, in addition to the criminally usurious interest rates, the loans incorporated a purchase option for the benefit of the lender, effective upon the default of the borrower; the option purchase price was calculated by subtracting the current equity in the home from the estimated value of the home, thereby allowing the purported option purchaser to obtain all the equity in the home by simply paying off any liens senior to its own, with little or no money going to the homeowner. Because of the criminal usury, the homeowners found it difficult or impossible to avoid default, thereby triggering the lender’s option and effectively forfeiting all of the homeowner’s equity. One member of the alleged conspiracy was an attorney who aided the operators in enforcing these purchase options by filing lawsuits for specific performance in state court against the financially strapped homeowners.The suit also alleges that one of the entities used in the alleged scam was held out as a non-profit entity to enhance the lure to its prospective targets.The lawsuit sets forth the following six counts:Civil Rico, (18 USC § 1961 et seq.),Truth In Lending (15 USC § 1601 et seq.),Unlawful Mortgage Brokering & Mortgage Lending (Fla Stat. Chapter 494),Usury (Fla. Stat. Chapter 687),Declaratory Judgment,Civil Conspiracy.In addition to actual and punitive damages, the suit asks for declarations that (1) the loans are unenforceable, and (2) that the plaintiffs are the true owners of the homes involved in the alleged scam, thereby voiding any title transfers and mortgage loans against the homes that resulted as a result of the alleged scam.In addition to the "usual suspects" being named as defendants, the suit also names title insurance underwriter First American Title Insurance Company.Representing the homeowners is Michael Alex Wasylik Esq., with the law firm Ricardo & Wasylik PL, Dade City, Florida.To view a copy of the lawsuit, see Heise, et al. vs. Porcelli, et al. (U.S. District Court, M.D. Fla.).For media reports from the St. Petersburg Times related to this story, see:Victims strike back at shady lenders (The companies promised foreclosure protection only to wind up taking the homes themselves) (10-13-07),Facing new fields of fraud (Guilty in one scam, an Oldsmar man is scrutinized in a high-risk loan scheme that preyed on those facing foreclosure) (5-20-07).Peter Porcelli currently awaits an October 29 felony sentencing in Federal Court on an unrelated scam.---------------------Note: A financial arrangement similar to that described in this case (where a so-called "money lender" also acquires an option to buy the property in question at a price well below market value) was ruled to be a device used to circumvent the Virginia state usury law that the Virginia Supreme Court prohibited in Carter v. Hook, 116 Va. 812; 83 S.E. 386 (Va. 1914). Go here for more on the Use Of Devices To Circumvent Usury Statutes - Virginia.-----------------Allegations of racketeering (RICO) act violations, requests for punitive damages, and the naming of title insurance companies as defendants in these alleged equity stripping real estate scams seem to be occurring with more frequency. See, for example, the following recent lawsuits targeting the Maryland-based foreclosure rescue scammer, Metropolitan Money Store:Brown, et al. vs. Fordham, Jackson, Metropolitan Money Store, et al. (First American Title also named as a defendant in this case, as well as the local title insurance agents who issued the title policies),Winston vs. Daniels, Fordham & Fordham, Metropolitan Money Store et al. (both Southern Title Insurance Corportation, the title insurance underwriter and the policy-issuing title agent named as additional defendants),Proctor, et al. v. Metropolitan Money Store, et al. (names both Chicago Title Insurance Company and Southern Title Insurance Corportation (title company underwriters), as well as the policy-issuing title agents as defendants).
Federal Court Says Foreclosure Rescue Sale Leaseback Is A Usurious Loan, North Carolina Equitable Mortgage Doctrine Invoked
In a 1985 case, the U.S. Court of Appeals for the 4th Circuit affirmed a lower court jury verdict finding that North Carolina's usury statute (N.C. Gen. Stat. § 24-2; for interest, generally, links to provisions of N.C. Gen. Stat. § 24, or for the text of the entire chapter, see N.C. Gen. Stat. § 24) was violated in a foreclosure rescue deal that involved a sale leaseback transaction with a homeowner facing foreclosure who was given a right to repurchase her home. The lower court determined that the arrangement, in substance, was a mortgage under North Carolina's equitable mortgage doctrine.On a cautionary note, however, to those making claims under the Federal Truth In Lending Act ("TILA"), the Federal appeals court reversed a lower court finding that the TILA applied to the transaction in question. Notwithstanding the fact that it was undisputed that the foreclosure operator had entered into twelve similar sale leaseback transactions with other financially strapped homeowners in the year in question, the appeals court ruled that the foreclosure rescue operator did not fall within the definition of a "creditor", as specifically defined by the TILA, and accordingly, the TILA was inapplicable. In essence, the court said that the evidence presented as to the other twelve sale leaseback transactions did not show that enough of those transactions could be found to be equitable mortgages. Therefore, the evidence was lacking to show that the foreclosure rescue operator engaged in the requiste number of equitable mortgage transactions that would cause the operator to fall within the definition of "creditor" as defined by the TILA.In this case, the homeowner presented affidavits from only four of the other 12 homeowners claiming that they thought their transactions were mortgage arrangements (one of whom recanted the assertion at trial); the operator, on the other hand, presented affidavits from eight of the 12 other homeowners in which they asserted that they knew the transactions were sale leasebacks. Several of these homeowners later testified at trial on behalf of the operators. In this regard, the court stated:We do not think a jury is free to recharacterize another transaction not the subject of the suit as a loan with a security interest, rather than a sale with an option to repurchase, when the transaction is evidenced by a general warranty deed absolute on its face and both parties to the transaction give unrefuted testimony that the transaction was a sale with an option to repurchase. To allow a jury to recharacterize such a transaction as a loan with a security interest would be contrary to the North Carolina Supreme Court's command that the true nature of a transaction depends upon the intention of the parties.-----------------With respect to the equitable mortgage doctrine, the court set forth the applicable North Carolina law as follows (text broken up for ease of reading, bold text is my emphasis):A) Under North Carolina law, the test for determining whether a conveyance with an option to repurchase represents a true sale or merely a loan with a security interest focuses on the intent of the parties and not the form of the transaction. O'Briant v. Lee, 214 N.C. 723, 200 S.E. 865 (1939); McKinley v. Hinnant, 242 N.C. 245, 87 S.E.2d 568 (1955). In ascertaining the real intention of the parties, however, the simple declaration of the plaintiff, who was grantor in the deed, will not suffice to show that the parties intended to create a mortgage. The North Carolina Supreme Court has stated:The intention [to create a mortgage] must be established, not by simple declaration of the parties, but by proof of the facts and circumstances dehors the deed, inconsistent with the idea of an absolute purchase; otherwise, solemnity of deeds would always be exposed to the slippery memory of witnesses.O'Briant v. Lee, 214 N.C. at 731, 200 S.E. at 870 (quoting Watkins v. Williams, 123 N.C. 170, 31 S.E. 388 (1898)). Thus, although a plaintiff may repeatedly testify that the transaction was intended to be a loan and that the land was conveyed for the sole purpose of securing the payment of that loan, the plaintiff must present more than his own simple declaration. Instead, the plaintiff must present proof of facts and circumstances dehors the deed inconsistent with the idea of an absolute purchase.B) The North Carolina Supreme Court has identified six factors as pertinent in determining whether a transaction is a sale or a loan:whether there was a debtor-creditor relationship created at the time of the transaction, Hardy v. Neville, 261 N.C. 454, 457, 135 S.E.2d 48, 51 (1964);whether the "grantor" remains in possession or whether the grantee takes immediate possession of the property, id. at 457, 135 S.E.2d at 51;whether the "grantor" was under distress and hard-pressed for money at the time of the transaction, O'Briant v. Lee, supra; Hardy v. Neville, 261 N.C. at 457, 135 S.E.2d at 51;whether the transaction originated out of an application for a loan, O'Briant v. Lee, 214 N.C. at 733, 200 S.E. at 871;whether the purported sale price is less than the net worth of the property, id. at 733, 200 S.E. at 871; andwhether the "grantor" was obligated to exercise the "option to repurchase." Hodges v. Hodges, 37 N.C. App. 459, 246 S.E.2d 812 (1978).The North Carolina Supreme Court has counseled that doubts about whether the transaction is a sale or a mortgage are to be construed in favor of a mortgage in order to prevent the possibility of oppression created by an outright sale. O'Briant v. Lee, 214 N.C. at 732, 200 S.E. at 869; McKinley v. Hinnant, 242 N.C. at 252, 87 S.E.2d at 573.---------------------In affirming the jury verdict with respect to the violation of the state usury statute, the only issue of law addressed was whether, in light of the reversal of the Federal claims under the TILA, the pendent state usury claim should be dismissed for lack of federal jurisdiction. In this regard, the court stated:A) In United Mine Workers v. Gibbs, 383 U.S. 715, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966), the Supreme Court held that if a federal claim against a party is dismissed before trial, the pendent state law claims should be dismissed as well.B) The Ninth Circuit has held, however, that once a trial is held a court of appeals should order dismissal of a pendent claim on remand only "when the federal cause of action was so insubstantial and devoid of merit that there was no federal jurisdiction to hear it." Traver v. Meshriy, 627 F.2d 934, 939 (9th Cir. 1980) (citing Hagans v. Lavine, 415 U.S. 528, 94 S. Ct. 1372, 39 L. Ed. 2d 577 (1973)). It also stated that if the federal claim was not frivolous, then the issue of whether the district court should have heard the pendent state claim is a matter committed to the sound discretion of the district court. Traver, 627 F.2d at 939.C) We conclude that Redic's Truth in Lending claim was not frivolous and that the district court did not abuse its discretion in hearing Redic's pendent North Carolina claim for usury. Therefore, we affirm that portion of the district court's decision awarding her $1,944 in damages against Schwartz for charging her usurious interest.-------------------Redic v. Gary H. Watts Realty Co., 762 F.2d 1181 (4th Cir. 1985) North Carolina equitable mortgage kappa
Last week, the Court of Appeals of Iowa ruled that a transaction taking the form of a sale of a home by a financially strapped homeowner coupled with a contemporaneously executed leaseback of the home with an option to buy was to be disregarded and, rather, was to be treated as an equitable mortgage.Tullis v. WeeksIowa App. Ct.October 12, 2007The facts of the case are as follows:A) Tullis's father died testate and left a house he owned at 2728 Sheridan Avenue in Des Moines to Tullis. It was the house Tullis had lived in her entire life. The house was valued for tax purposes at $90,000. Tullis found herself in need of money to pay real estate taxes and attorney fees, among other things. In early 2004 Tullis attempted to obtain a loan with the house as security from Iowa Mortgage. Tullis had not been employed for two years, and as a consequence was unable to obtain a loan from Iowa Mortgage. Christy Frank, an employee of Iowa Mortgage who was working with Tullis, said she would help Tullis make other arrangements. Frank contacted her fiance, Andrew Weeks, to help Tullis get the money she needed.B) Weeks was able to provide Tullis with $40,000. An agreement was reached which included:a deed from the estate conveying the property to Weeks for $40,000,an agreement signed April 9, 2004, whereby Weeks agreed to sell the real estate to Tullis on contract for $50,000 with a two-year balloon payment required, interest at 10.5%, (the interest rate is actually substantially higher than this because Tullis obtained only $40,000 but is paying interest on $50,000) and a further provision that the loan must be paid in full on the 1st day of May, 2006,a lease of the property entered into on May 24, 2004, from Weeks to Tullis to commence April 1, 2004, and run through April 2006 for $520 a month, which included an option for Tullis to repurchase the house. The rent Tullis was to pay was to be credited against the payment to repurchase the property if the option was exercised. The April 9th agreement was made an addendum to the lease.C) Tullis fell behind on rent payments. On July 31, 2005, Tullis advised Weeks in writing that she wished to exercise her option to purchase the home outlined in Section 18 of the lease. She offered to pay a balance of $49,749.75, which she said was pursuant to an amortization schedule. Weeks did not honor the option. His opinion was that because she was behind on her rent payments the option was null and void.D) On August 31, 2005, Tullis filed a petition to quiet title and enforce her option claiming (1) specific performance, (2) deed as security, and (3) fraudulent practice. The case went to trial and the district court, among other things, found the deed to the property given to Weeks by Tullis's father's estate did not create a deed of security and was not a mortgage. --------------------In reviewing (and ultimately reversing) the decision of the lower court, the Iowa Court of Appeals set forth the principles of the equitable mortgage doctrine as it exists in Iowa. It then applied those principles to the facts of this case (Text broken up for ease of reading)..EQUITABLE MORTGAGE1) A conveyance absolute on its face may, by proper evidence, be shown to be but a mortgage. Steckelberg v. Randolph, 404 N.W.2d 144, 148-149 (Iowa 1987); Trucks v. Lindsey, 18 Iowa 504, 504 (1865).2) It is a well-established rule that, where a conveyance absolute upon its face is accompanied by a contract or agreement, by which the grantee undertakes to reconvey the land to the grantor on specified conditions, and the terms of such agreement or the circumstances under which it was made render it doubtful whether a mortgage or conditional sale was intended, the courts will hold it to be a mortgage. Collins v. Isaacson, 261 Iowa 1236, 1243, 158 N.W.2d 14, 18 (1968); Greene v. Bride & Son Constr. Co., 252 Iowa 220, 224-25, 106 N.W.2d 603, 606-07 (1960); Brown v. Hermance, 233 Iowa 510, 514-15, 10 N.W.2d 66, 68 (1943); Fort v. Colby, 165 Iowa 95, 102, 144 N.W. 393, 395 (1913).3) It is proper to show by parole evidence a warranty deed was in fact intended as security only, and upon payment of the debt the debtor is decreed to be the legal, as well as the equitable, owner of the property. Collins, 261 Iowa at 1243, 158 N.W.2d at 18.4) If a deed is to be construed as a security instrument, the supportive evidence must be clear, satisfactory, and convincing. See Lovlie v. Plumb, 250 N.W.2d 56, 59 (Iowa 1977); North v. Manning Trust & Sav. Bank, 169 N.W.2d 780, 784 (Iowa 1969).5) In arriving at the intention of the parties courts look behind the form of the instruments to the real relationship between the parties. Collins, 261 Iowa at 1243, 158 N.W.2d at 18.6) The instruments will be read in the light of the surrounding circumstances and the practical construction the parties themselves placed thereon. Id.; Guttenfelder v. Iebsen, 230 Iowa 1080, 1084, 300 N.W. 299, 301-02 (1941).7) If it is unclear whether a mortgage or absolute deed was intended, we resolve the doubt in favor of an equitable mortgage. Greene, 252 Iowa at 226-27, 106 N.W.2d at 607; Fort, 165 Iowa at 102, 144 N.W. at 395.8) We are reluctant to recognize as an absolute conveyance an agreement between the parties that continues or creates an obligor-obligee relationship. Steckelberg, 404 N.W.2d at 148-49; see also Koch v. Wasson, 161 N.W.2d 173, 177 (Iowa 1968) (citing Guttenfelder, 230 Iowa at 1084, 300 N.W. at 301).9) With these principles in mind we look at the following factors:intent of the parties to the transaction,consideration for transfer, andretention of possession.INTENT OF THE PARTIES.In determining intent of the parties, courts look behind the form of an instrument to ascertain the actual relationship between participants. Furthermore, a document will be read in light of surrounding circumstances and given such practical construction as is placed thereon by the concerned parties. Lovlie, 250 N.W.2d at 59; see also Collins, 261 Iowa at 1243, 158 N.W.2d at 18; Fort, 165 Iowa at 102, 144 N.W. at 395.It is clear Tullis's intent was to convey title to her home to Weeks as a security arrangement rather than an absolute conveyance. Weeks was aware that she was seeking such an arrangement and not a sale of her property. Frank, who referred Tullis to Weeks, testified the agreement Tullis and Weeks made, "was more of a mortgage than a rental agreement."CONSIDERATION FOR TRANSFERWeeks advanced Tullis $40,000 for a property valued at $90,000. The inadequacy of consideration is a strong circumstance tending to show the transaction was intended to be a mortgage. Koch, 161 N.W.2d at 176-80; Greene, 252 Iowa at 226, 106 N.W.2d at 607.RETENTION OF POSSESSIONTullis retained possession of the property. Retention of possession by the grantor is considered a circumstance consistent with the claim of creditor-debtor relationship and inconsistent with the theory of absolute conveyance. Koch, 161 N.W.2d at 176-180; Guttenfelder, 230 Iowa at 1084, 300 N.W. at 301. Resolving all doubts in favor of finding a mortgage, the only conclusion we can reach is that the transaction between Weeks and Tullis created an equitable mortgage. See Brown, 233 Iowa at 514-15, 10 N.W.2d at 68.REDEMPTION RIGHTSAn equitable redemption right attaches necessarily and conclusively to any grant given as security. Also, equity forbids an irredeemable mortgage. Lovlie, 250 N.W.2d at 59; see also Koch, 161 N.W.2d at 176. The equity right of redemption is the right of the mortgagor to pay what is owed to the mortgagee and take the property. Koch, 161 N.W.2d at 178-80; Swartz v. State, 243 Iowa 128, 134, 49 N.W.2d 475, 478 (1951).-----------------------Based on the analysis of the foregoing factors, the Iowa Court of Appeals ruled that the transaction was an equitable mortgage, thereby reversing the decision of the lower court, and remanded to the lower court to determine the amount owed and, when such amount is determined, to establish a reasonable period for Tullis to redeem.Representing the homeowner in this case was Laura Lockard, of Iowa Legal Aid, Des Moines, Iowa.Tullis v. Weeks, Iowa App. Ct., 2007 October 12, 2007.--------------------For another recent case applying the Iowa law on the equitable mortgage doctrine, see in re Litwiller, Bankr. N.D. Ia. (2006), a Federal Bankruptcy case decided in Iowa.Go here for othar posts on the equitable mortgage doctrine in Iowa. Iowa equitable mortgage uranus
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