Litigating Foreclosure Rescue Scams
~An Emerging Area of Consumer Law~
Imagine that a client comes to you, facing dire straits. He has little money,
owns a home, recently lost his job, has mounting unsecured debts and just received
an eviction notice from the District Court of your county. Why, your client
wants to know, is he being threatened with eviction if he owns his home?
Since the enactment of the Protection of Homeowners in Foreclosure Act of
2005, and subsequent heightened media exposure, more and more of these situations
are coming to the attention of public interest attorneys and the private bar.
Previously, practitioners meeting with a client presenting the kinds of facts
in this example might not have even considered looking into the underlying
facts concerning the eviction, perhaps concentrating instead on the client's
overall financial situation. However, a little further investigation of the
facts may yield new remedies for your client worthy of their consideration – as
well as a statutory attorney fee award.
Last year, the National Consumer Law Center (NCLC) released a new report
entitled Dreams Foreclosed: The Rampant Theft of Americans' Homes Through
‘Rescue' Scams. In this report, NCLC outlined three types of foreclosure
- Phantom Help: This is where the Foreclosure Rescue Consultant charges
outrageous fees either for phone calls and paperwork the consumer could have
done him/herself. Typically the homeowner is usually left without enough
assistance to actually save the home and with little or no time left to prevent
this grievous loss by the time s/he realizes it. The consultant essentially
abandons the homeowner to a fate that might well have been prevented with
- Bailout: This type of scheme is where the consumer conveys title
to the house, usually rich in equity, in the belief that he is entering a
deal to remain as a renter and then buy the house back over the next few
years. The terms of these deals are almost invariably so onerous that the
buyback becomes impossible, the homeowner permanently loses possession, and
the Foreclosure Rescue Consultant thereby strips all the equity for himself.
- Bait-and-Switch: Here the consumer does not realize she is surrendering
ownership of the house in exchange for a "rescue." Many consumers later insist
that they believed they were only signing documents for a new loan to make
the mortgage current.
In February 2006, Judge Steven I. Platt of the Circuit Court for Prince George's
County, Maryland, issued an opinion and order in the case of Tommie Mae
Smith v. Vincent Abell which is quickly becoming the benchmark in Maryland
and around the country for other foreclosure rescue cases. In finding
for the consumer, the Court awarded the homeowner $10,968 in actual damages – the
amount that she spent to pay the attorney for the mortgage company and her
own attorney. The court also awarded $500,000 in punitive damages, finding
that there was clear and convincing evidence that the foreclosure rescue consultant's
conduct was motivated by actual malice in that there was clearly ‘conscious
and deliberate wrongdoing' emanating from an ‘evil or wrongful motive.'
In determining the degree of reprehensibility of the conduct in connection
with setting the amount of the award, the court stated:
The Defendant [Foreclosure Rescue Consultant's] tortious conduct in
this case constitutes the most reprehensible actions this Court has ever
observed in his 28 years on the Orphans Court, the District Court and the
Circuit Court, save only the physical violence and death routinely visited
on the Court's conscious in criminal cases. On a scale of one to ten as
to reprehensibility ... the Court rates this an eleven. If the Defendant
sleeps at night, the Court can't help but wonder how.
In Tommie Mae Smith, the plaintiff was an 83-year-old woman in poor
physical health but good mental health who had a total income each month equal
to approximately $1,300. In 2004, when she had approximately $200,000 of equity
in the home, her mortgage was substantially in arrears and her mortgagor initiated
foreclosure proceedings. It was at this point that the foreclosure rescue consultant
began his scheme to purchase the home, bring it out of foreclosure and allow
the homeowners to continue to live in the home for one year at a rent of over
$1,900 per month – $600 a month more than her total monthly income. After
one year, the homeowner would have the option to repurchase the property. However,
in this scheme, the homeowner never signed the sales agreement, nor did she
ever sign a deed transferring the home – but the Foreclosure Rescue Consultant
filed such a document with the Recorder of Deeds.
It is exactly this kind of practice that is demonstrated by Tommie Mae
Smith that the General Assembly sought to stop in enacting the Protection
of Homeowners in Foreclosure Act of 2005. The Act criminalizes some activities
commonly found in these scams and also provides a treble damages award to
victims when the Foreclosure Rescue Consultant willfully or knowingly violates
the Act plus reasonable attorney's fees.
Cases applying the Protection of Homeowners in Foreclosure Act are just beginning
to emerge. The Act does exempt from its liability many settlement service providers
connected with the transaction. However, as more cases like Tommie Mae Smith evolve,
it is expected that realtors, title insurers, settlement firms and others facilitating
the transaction while not properly evaluating the underlying facts as alleged
by the Foreclosure Rescue Consultant may also face certain liabilities based
on their other legal obligations.
Phillip Robinson is Executive Director & Attorney
for Civil Justice, Inc.