Our Stories

Elderly Woman Saves Her Family Home

Home equity fraud, one of the oldest "professions," became particularly rampant in the early 2000s, when con artists took advantage of relaxed lending practices to trick low-income, unsophisticated homeowners seeking a refinance into signing documents that enabled the scammers to steal the title to their homes and "borrow" hundreds of thousands of dollars against the property.  The homeowners continued to live in the homes and, in some instances, paid what they thought was their new (refinanced) monthly mortgage payment to the scammers, only to learn of the fraud months later when they received notice that their home was about to be sold in foreclosure. 

The Smith (pseudonym) case is a typical example of this type of foreclosure rescue scam.  Jane Smith and her husband, an African American couple with 5 children and 5 foster children, purchased their home in the 1960s.  After her husband's death, Mrs. Smith began experiencing financial difficulty, and she received a notice of default from her lender after falling behind on her mortgage payments by about $2,000.    

The following is a summary of the allegations in the complaint that Mrs. Smith filed in April 2009.  Within days after the notice of default was recorded, Mrs. Smith received a visit from Timothy Barnett, a self-proclaimed altruistic, African-American, devout Christian with years of professional real estate experience  (In fact, Barnett served years of incarceration in the late 1990s in connection with other real estate scams).  Barnett told her that he could help her avoid foreclosure. 

Mrs. Smith trusted Barnett and signed a stack of papers at his instruction.  Barnett never explained the true content of the documents, one of which was a grant deed transferring her home to Barnett.  Barnett proceeded to borrow more than $250,000 (from a lender who appears to have made more than 23 such loans to Barnett and his cohorts) to purchase the home -- and manipulated the escrow instructions so that he received almost all of the proceeds that remained after the pay-off of Mrs. Smith's original mortgage. 

Barnett and several cohorts continued this equity-stripping scheme by transferring the property to another straw buyer, who repeated the same modus operandi (i.e., he "borrowed" against the property, paid off Barnett's loan and shared the remaining funds with Barnett).   Mrs. Smith discovered the fraud when a notice of default on these loans was delivered to Mrs. Smith's home.  Public Counsel helped Mrs. Smith file suit against Barnett and his cohorts, among others.  

Mrs. Smith recently settled her litigation with all of the defendants except for Barnett.  As part of the settlement, title to the home will be restored to Mrs. Smith and the deed of trust that encumbers the home will be reconveyed in exchange for a payment funded in large part by other defendants.   

Public Counsel and pro bono attorneys have litigated five other cases alleging that Barnett perpetrated similar schemes.  Of the other five cases, three have settled favorably for the victims, and two remain pending. 

In April 2010, Barnett was arrested and charged with numerous felony counts of real estate fraud and elder abuse.  His trial is currently scheduled to begin in September, 2010.