State Busts Sale-Leaseback Home Scheme

     PHOENIX (CN) – Two men defrauded 140 homebuyers by acquiring title to their homes through so-called “sale-leaseback,” then selling the homes elsewhere for hefty profits, the Arizona attorney general says. The state says Lee Brent Shaw and Mark P. Tallman and their companies, Better Choice Investments and Better Solutions, stripped their victims of their equity and their homes.

     “This case involves an equity stripping scheme that defrauded over 140 Arizona homeowners, ultimately causing them to lost both their home and their home’s equity,” the complaint states. “Defendants obtained the homes through a foreclosure rescue scheme aimed at vulnerable, often low-income homeowners facing imminent foreclosure. In what is known as a seal-leaseback, defendants took title to the homes after the payment of the arrears on the homeowner’s mortgages, in exchange for allowing the homeowner to stay in the property as a tenant. This transaction, also known as an equitable mortgage, violates Arizona law,” the state attorney general says in Maricopa County Court.
     Attorney General Terry Goddard says that in 2003 the defendants began paying commissions to Richard Winer, of Taken Care of Investments, for finding them homeowners facing foreclosure and getting their homes through sale-leaseback. Shaw and Tallman got ahold of 140 homes that way from 2003 to 2007.
     The property vultures “found information on upcoming trustee’s sale through public records and services that compiled lists of names and addresses of homeowners facing foreclosure,” the state says, and “made an initial determination of whether, based upon the equity in the home, obtaining the home for the price of the outstanding mortgage and liens would cost far less than the true market value of the home.”
     Most homeowners who agreed to the sale-leaseback “were facing trustee’s sale of their home within a matter of days,” the complaint states.
     To stop the trustee’s sale, the defendants paid the remaining amount of the original homeowner’s loan, but did not pay the mortgage loan in full “even though the original homeowners no longer owned the property,” Goddard says. The transactions took place in the home or at a nearby restaurant or coffee shop, and a mobile notary was used although a title company was not.
     The monthly rent payments were usually the same as the amount of the former homeowner’s mortgage payment, and in return for a commission, the companies’ solicitors “signed a quit claim deed leaving the name of the grantee blank and turned over the deed and property to defendants, who became the landlords and new owners.”
     The attorney general says the defendants and their agents misled some homeowners by claiming that they were refinancing the mortgage, that the deed “would not be recorded unless they defaulted in the terms of their lease,” and that they could refinance and sell their property at any time during the option period.
     The state claims that no homeowners were told that their home would be immediately sold to an investor, nor that that if a trustee’s sale took place “they would be entitled to excess proceeds,” nor were they given the required information by the Homeowners Equity Protection Act or the Truth in Lending Act.
     Almost all of the properties were transferred within 2 weeks of purchase to Better Choice, Better Solutions, and a group of investors they developed, Goddard says. The two companies “assumed ownership of the home subject to the purchase and sale agreement, the lease, and the option to purchase,” and often sold the property for “tens or thousands of dollars in profit” after the homeowner was evicted.
     Often the investor “financed the property for market value during the former homeowner’s option period for far more then the option price,” causing the original homeowner to be unable to repurchase the property “by refinancing or resuming payments on their original mortgage loan,” the state says.
     Goddard says that due to the homeowners’ “low credit scores, it was virtually impossible for the original homeowners to obtain a new mortgage loan and exercise the option.”
     Goddard seeks restitution, an injunction and $10,000 for each violation of the Arizona Consumer Fraud Act.

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