Dozens of homeowners are expected to receive restitution from a recently settled case involving two Minnesota-based mortgage companies and its owner accused of equity stripping.
The Minnesota Attorney General's Office announced Tuesday the settlement of the foreclosure equity stripping case against James Hoffman, and his two companies Home Funding Corp. and Homeland Financial Corp.
The settlement, reached midway in the trial, concludes the lawsuit filed by the state's attorney general on April 28, 2003.
Hoffman and the two lenders allegedly engaged in a pervasive fraud scheme that focused on homeowners, who had significant equity in their homes, and faced foreclosure or were in financial distress. The homeowners were defrauded after they were promised help in refinancing their mortgages to avoid foreclosure. The scheme resulted in homeowners losing ownership of their homes. In some cases, the defrauded homeowners did not realize they no longer owned their homes until months later. The scheme also relied on forged documents and fraudulently obtained mortgage loans that enabled the home equity to be stripped for the benefit of the defendants, according to the announcement.
As a result of the settled lawsuit, Hoffman and the lenders were permanently barred from doing any business involving residential properties in foreclosure or subject to a delinquency in payments. The executive is permanently barred from acting as a real estate agent or mortgage broker, the state reported.
The defendants must also deed back homes they fraudulently obtained through the scheme, and pay restitution to more than 40 homeowners who were defrauded.
The settlement was described "as a strong message to lenders that the state will take tough action against predatory home mortgagors" in the announcement.
The amount of judgment each homeowner will be awarded has not been determined. The court ordered that a retired Hennepin County District Court judge be appointed as Special Master to determine those amounts. While both the state and the accused will each pay half of the Special Master costs, Hoffman and the companies were ordered to prepay $15,000 towards the related fees and costs within 10 days of the execution order dated Dec. 7. If prepayment of their share of fees is not made within 30 days of the Special Master's bills being presented, Hoffman and the companies agreed to a confession of judgment of $2 million, according to the order.
The Court will reportedly issue a civil penalty against Homeland, Home Funding and its owner in the same amount as the total of restitution to the homeowners, with a minimum penalty of $200,000. The exact amount of civil penalties will be calculated after restitution is completed.
The accused were also ordered to deed back a total of seven homes to former homeowners that were obtained through the scheme and still owned at the time of the settlement.
From the time the lawsuit was filed to the trial, the State was reportedly able to return ownership of over a dozen different homes to their homeowners.
The attorney general's office said that the lawsuit against Hoffman is part of a series of actions it has taken to stop foreclosure equity stripping -- a problem that is growing due to quickly rising home values, and stagnated or declined wages for many. Such circumstances make it hard for homeowners to keep up with payments, which causes them to enter into foreclosure with a substantial amount of home equity. This result is good for equity strippers, who target these people with the false promise that they can "save" their homes, but usually end up taking the home, and all the equity.
The controversy even touched the governor's office -- with campaign treasurer agreeing earlier this year to stop doing business when he faced a federal lawsuit accusing him of engaging in equity stripping.
Equity Stripping Robs Delinquent Borrowers of Title
Minnesota state lawmakers and law enforcement are cracking down on a scam involving the reconveyance of foreclosed property known as "equity stripping."