Attorney General Sues Foreclosure Rescue Operations for Fraud and Racketeering

TRENTON, NJ – October 20, 2008 – (RealEstateRama) — Attorney General Anne Milgram today announced the filing of lawsuits charging a total of 37 mortgage loan providers, mortgage industry employees, lawyers and other defendants with consumer fraud and civil racketeering for using predatory “foreclosure rescue” schemes to persuade desperate homeowners to sign over their homes.

The state alleges that the defendants obtained at least $13.5 million worth of fraudulent loans to further their foreclosure rescue schemes. In addition, the state alleges that defendants stole at least $3 million in homeowner equity.

In two separate but related state complaints, the defendants are charged with exploiting the financial hardship and fear of homeowners by convincing them to surrender their homes to third-party or “straw” buyers as part of complex “sale/lease-back” transactions. Homeowners were told that, by signing over their property titles to third-party buyers, they would be able to still live in their homes as renters while repairing damaged credit, and then, in the future, buy back their dwellings.

In reality, the state lawsuits charge, the solvency and renewed home ownership promised by such deals did not materialize. Instead, defendants collected most of the sale/lease-back proceeds for themselves, thereby stripping the homes of their equity value. Struggling homeowners were left with few or no means to pay rent or re-establish their credit. Some of the homeowners have been evicted from their homes, while others remain and continue to pay rent. In some instances, defendants continue to collect the rent but do not apply the rent payments to the mortgage, leaving the homes once again in foreclosure.

“The conduct charged in these lawsuits is unconscionable. These defendants preyed on people who were facing foreclosure and searching for a lifeline that would enable them to get back on their feet and remain in their homes,” said Attorney General Milgram. “Having placed their hope and trust in these defendants, victims ended up far worse off than they were before. It is critical that we root out this kind of fraud and protect consumers who go seeking help from finding complete financial ruin instead.”

Filed on October 15 in New Jersey Superior Court in Bergen County, the state’s lawsuits are against Vest Financial LLC, formerly of Paramus, along with 16 other defendants, and JP Global Property Management, Inc., of Bloomfield, along with 19 other defendants. Five defendants are common to both complaints.

Together, the two complaints allege violations of both the New Jersey Consumer Fraud Act and the New Jersey Racketeer Influenced and Corrupt Organizations Act involving a total of 48 properties. The properties are located in 14 counties including Atlantic, Bergen, Burlington, Cape May, Essex, Gloucester, Hudson, Mercer, Middlesex, Monmouth, Ocean, Passaic, Somerset and Union.

The state alleges that defendants in the Vest complaint stole at least $1.25 million in homeowner equity, while defendants in the JP Global case stole at least $1.75 million in homeowner equity.

As a result of the defendants’ conduct, at least $4 million in fraudulently obtained rescue loans are in default.

The Vest Financial lawsuit names as defendants five corporations and 12 individuals. The JP Global Property Management complaint names as defendants three corporations and 17 individuals.

Among other things, the lawsuits seek court-imposed penalties, restitution for consumers and permanent injunctions banning companies named as defendants from offering foreclosure rescue or credit repair services to consumers. The lawsuits also seek to have the records of the defendants impounded, and the assets of each defendant frozen, with no ability to dispose of any assets.

The two lawsuits are:

Milgram v. Vest Financial, L.L.C: The State’s four-count complaint charges Vest and the other defendants with soliciting consumers facing foreclosure or otherwise experiencing money troubles that could lead to losing their homes.

According to the lawsuit, the defendants advertised “foreclosure rescue” services over the Internet and radio, and by word-of-mouth within the real estate and mortgage broker communities.

The defendants are accused of falsely leading homeowners to believe that surrendering the titles to their homes would save them from foreclosure when, in fact, entering into such a straw-buyer arrangement would only imperil them further while enriching the defendants.

Among other things, the defendants are charged with civil racketeering. Predicate offenses listed in the racketeering count of the lawsuit include theft by deception, forgery, bank fraud and money laundering. The suit also charges violations of the Consumer Fraud Act including unconscionable business practices and making false promises; misrepresentations and knowing omissions of fact; and violation of state advertising regulations. The alleged conduct took place between 2005 and early 2008.

Defendants other than Vest Financial named in the lawsuit, all but one of them from New Jersey, include:

Metropolitan Mortgage Services, Inc., of Cliffside Park; Alex Armani of Cliffside Park; Sohrab Moussavian of Englewood; Anthony Scordo III of West Orange; Felix Nihamin, an attorney who resides in Franklin Lakes and practices in New York City; Francis A. Ciambrone, an attorney with law offices in Paramus; Rhys A. Herrmann, of Belleville; JP Global Property Management LLC of Bloomfield; Peter H. Eckhardt, Jr. of Livingston; Philip Altieri of Flemington; Kristopher Pilone of Manalapan; DBK Realty Investments LLC of Edison; Tom A. Andriopoulos of Washington Township (Bergen County); Settlement Source, LLC of Edison; Vivian M. Ruiz of Hillsdale and Glen B. Thompson, New York City.

Milgram v. JP Global Property Management, Inc.: The four-count JP Global Property Management lawsuit, while encompassing more property transactions than the Vest complaint, charges essentially the same fraudulent and collusive conduct in duping distressed homeowners with “foreclosure rescue” schemes. Again, homeowners facing foreclosure were presented with a way to continue living in their homes by signing over their titles to a third-party buyer. Ostensibly, homeowners would pay “rent” to the new owner while repairing their credit, then would be in a position to buy back their home in the future.

The schemes were typically facilitated, the lawsuit charges, through loan applications and other documents containing false information.

Homeowners often never met the purchaser of their homes and, once having committed to the sale/leaseback transaction, were presented with monthly “rent” terms more costly than their original mortgages. Also, victims typically received no money at closing despite prior assurances the equity in their homes would be theirs to keep.

The defendants are charged with civil racketeering including predicate offenses such as theft by deception, forgery, issuing false financial statements, deceptive business practices and money laundering. The suit also charges violations of the Consumer Fraud Act , including failing to properly conduct settlement proceedings, forging consumer’s names on documents, refusing to provide consumers with copies of sales contracts and other loan papers, making false promises misrepresentations and , knowing omissions of fact, and violation of state advertising regulations. The alleged conduct took place between 2004 and early 2008.

Defendants other than JP Global Property Management named in the lawsuit, all but one of them from New Jersey, include:

Jeremy P. Sorvino of Waldwick; Jeffrey M. Malen of Ringwood; Peter H. Eckhardt, Jr. of Livingston; Christopher William Eckhardt of Washington Township, (Bergen County); Anthony Scordo III of West Orange; Felix Nihamin, an attorney who resides in Franklin Lakes and practices in New York City; Michael J. Andalaft, an attorney with law offices in Cedar Grove; Capital Hill Mortgage, Inc.; Stanley Capital Mortgage Company, Inc. of Englewood Cliffs; Rhys A. Herrmann of Belleville; Brendan Joseph Flynn of Fort Lee; Maryann E. Sorvino of Ridgewood; Frances B. Benna of Elmwood Park; Vincent F. Latorre of Kenilworth; Jennifer R. Kortman of Livingston; Rebecca A. Kortman of Chatham; William McVeigh of Wharton; Mauricio V. Almeida of Colonia and Glenn B. Thompson of New York City.

Attorney General Milgram thanked Deputy Attorney General Megan Lewis, Chief of the Affirmative Litigation Section; Deputy Attorney General Wendy Leggett Faulk of the Affirmative Litigation Section; Assistant Attorney General James J. Savage; and Supervising Investigator Jennifer Micco of the Division of Consumer Affairs, for their hard work on the foreclosure rescue fraud investigation and lawsuits.