Two Massachusetts-based lenders that lent money to developers accused of running a sham land scheme have reached settlements with the federal government that could save borrowers as much as $38 million.
The Department of Housing and Urban Development, or HUD, reached the settlements with Litchfield Financial Corp. of Williamstown, Mass., and Developer Finance Corp. of North Adams, Mass. In a written statement HUD said the lenders “financed a group of developers accused of perpetrating a fraudulent land sales scheme … (that) preyed on more than a thousand people nationwide, primarily senior citizens.”
In the settlements, Litchfield, a unit of Textron Inc., and Developer Finance Corp. “agreed to various options to save a thousand borrowers as much as $38 million,” HUD said.
“The agreements we announce today will go a long way toward making some of these good people whole again,” HUD Assistant Secretary for Housing/Federal Housing Commissioner John C. Weicher said in the statement. “Whether you create the fraudulent scheme, or provide the financing, HUD will work vigorously to protect consumers from being deprived of their fair share of the American dream.”
According to HUD, Litchfield and Developer Finance provided financing to developers accused of using high-pressure sales tactic to defraud consumers. HUD and the U.S. Justice Department sued the developers — who operated under the names “Buyers Source” and “Belmont Properties” — earlier this year for violating the Interstate Land Sales Full Disclosure Act. That case is still open and the developers could not be reached to comment.
In the settlement agreement HUD said Litchfield agreed to offer three options to more than 600 “defrauded consumers” who are still making payments to the lender.
The borrowers can satisfy their debt by transferring their lots to Litchfield; continue making payments with a reduction in their loan balances; or continue payments with a smaller reduction in their balance along with a cash payment.
In addition, Litchfield will offer $3,000 to nearly 200 families who refinanced or otherwise paid off their loan balances.
In a letter to borrowers provided by HUD Litchfield said it acquired the loans from Buyers Source from 1999 to 2001.
“Litchfield does not believe it was involved in any wrongdoing in connection with the Buyers Source account,” the company said in the letter. “Indeed, Litchfield believes that it is also a victim of Buyers Source’s wrongdoing, and Litchfield will suffer a significant financial loss because of its relationship.
“However, to avoid expensive and time-consuming litigation, Litchfield and HUD have agreed on a settlement,” Litchfield said. “The settlement does not include Buyers Source and you are free to pursue any claims you may have against them.”
Litchfield also agreed to ensure that the developers it does business with are properly registered with HUD and will now require its development customers to provide proof that they given required disclosures called “property reports” to all of their land-buying customers.
HUD said Developer Finance has agreed to offer nearly 250 purchasers the option of transferring their lots back to the company to satisfy their debt.
In the settlement agreement Developer Finance said it is not admitting “wrongdoing, liability or legal fault” but agree to settle to “avoid litigation and further expense.”
“These settlements will allow more than 1,000 families that financed their land purchases through (the lenders) the opportunity to transfer their overpriced lots to the lenders to satisfy their outstanding debt,” HUD said. “Depending upon which options borrowers select, (HUD) estimates that the two settlements will save consumers $38 million in principal and interest payments over the next 14 years.”
