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| Federal Case Takes Step Against Lenders Who Trick Debtors
Kansas City Daily Record (Kansas City, MO)
October 28, 2006 Saturday
Federal Case Takes Step Against Lenders Who Trick Debtors
By Caryn Tamber
It's a short opinion, but some observers see it as a big step toward cracking down on predatory lenders. The case involved a lender accused of tricking a woman who was behind on her mortgage payments into selling her home when she thought she was merely refinancing. In a four-page opinion, U.S. District Judge J. Frederick Motz held that the lender could not recover more than $20,000 in payments it made on her mortgage. "This is huge," said Andrew Gregg Wilson II, who represented the debtor, Denise Boone.
"There are just a host of these predatory lenders out there that are taking advantage of poor people like Denise, and this is the first decision that I'm aware of that's going to put the kibosh on that. " "If you engage in this kind of activity and you're taking advantage of unsophisticated debtors," he added, "you could stand to lose your money. " According to the opinion, in 2004, First Horizon threatened to foreclose the mortgage on Boone's house. She entered into a deal with Vincent Abell and Modern Management Co., which she claims they told her was a refinancing agreement. In fact, Boone had agreed to transfer the home to Abell, who would pay about $73,500 for the outstanding mortgage balance and anticipated costs of foreclosure on the home. The home was worth about $140,000. Abell then leased the house back to Boone. He did not record a deed to reflect the change in ownership but immediately starting making payments to First Horizon, ultimately paying $20,106.16. Unbeknownst to Abell, Boone was already engaged in a Chapter 13 bankruptcy proceeding, which was eventually converted to Chapter 7. The Chapter 7 trustee, Deborah H. Devan, sold Boone's house for $186,000.
Indicia of fraud Abell asked the U.S. Bankruptcy Court to recover the money he had paid to First Horizon, but the court refused, holding that creditors may recover only if a property transfer is made in good faith. The transfer of Boone's home was not made in good faith, the bankruptcy judge held. The judge also undid Boone's transfer of the property and granted a motion to recover money she had paid to the lenders in rental and late fees, but the lenders did not appeal those rulings. Motz affirmed the bankruptcy court's denial of the lenders' motion to recover. He held that, although there is some dispute about whether Boone knew she was selling her home and told the lenders about the Chapter 13 proceeding, the deal was fishy enough that it was not made in good faith. "It is undisputed that appellants never recorded the deed given to them by the debtor or that the amount of consideration they agreed to pay for her home (approximately $73,500) was only a fraction of the fair market value of the property ($140,000) at the time of the transactions," Motz wrote. "Both of these facts are well-recognized 'badges or indicia of fraud' that in and of themselves negate appellants' claim of good faith as a matter of law. " Devan, the trustee, said she thought Motz's decision was the first published opinion dealing with Abell, whom she characterized as a notorious fraudulent lender. The decision hits him where it hurts, she said: the pocketbook. "This really harms Mr. Abell where I think the message is most important: He's out money," Devan said. "It would be one thing if the judge said, 'Your deed is no good'; well, then he'd just be out the money he was hoping to make on the house. He found that Mr. Abell's whole method of operation keeps him from being in any type of good faith or entitled to any of the money. " Debtor's attorney Wilson said Motz's Oct. 16 opinion was generating a lot of buzz among bankruptcy lawyers. Baltimore bankruptcy attorney Mark F. Scurti, who is uninvolved in the case, said he saw a lot of people who had been taken in by lending scams. This opinion, which he said he had heard about but not read, will help, Scurti said. "The fact that Judge Motz's ruling came down, that he invalidated that sale or that transfer, is monumental because it shows that we're not going to tolerate taking advantage of individual homeowners in very stressful, desperate times," he said. "I think he's finding a way to make a bad situation correct or right a wrong situation. "
Other troubles This is not the first time Abell's business practices have been criticized by a court. Last year, a Prince George's County Circuit Court judge awarded $500,000 in damages to a woman who filed a declaratory judgment action against Abell alleging that he had scammed her. The judge opined, 'If the defendant sleeps at night, the court can't help but wonder how. " According to media reports, several years ago Abell pleaded guilty to charges related to real estate fraud. Abell's attorney, Steven H. Greenfeld, did not return a call for comment. Maryland has taken steps to address foreclosure "rescue" scams. Last year the General Assembly passed anti-predatory lending legislation, which regulates foreclosure consulting contracts, provides homeowners with the right to rescind and establishes criminal penalties.
This article was originally published in The Daily Record, Baltimore, another Dolan Media publication.
October 28, 2006
<I will try to find this case so it can be put in the caselaw section.>
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