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Scott v. DeMarco REI, Inc.

2011 WL 1253843 (U.S. Dist. Ct. D. N.J. 2011) (Unpublished)

TRUTH IN LENDING ACT — Where there is no mortgage between a property owner and a foreclosure rescue scammer’s lender and where the property owner never had any transaction with, or made payments to, the lender, the property owner cannot sustain any Truth in Lending Act or Home Ownership and Equity Protection Act claims against the lender.

The victim of a foreclosure rescue scam, commonly known as a sale-leaseback arrangement, was tricked into deeding her house to a straw purchaser and then entering into a lease with an option to repurchase based on a promise that this was how she could save her home from foreclosure. The homeowner, suffering from financial difficulty, responded to a mailed advertisement she received from a company purporting to help homeowners save their homes from foreclosure. She completed what she believed was a mortgage application and was informed days later that the company could help save her home.

At the purported closing, the homeowner was instructed to sign a stack of documents. She noticed an unfamiliar name on some, and was reassured that he was simply someone to put his name on her mortgage and that after a period of time she would have everything back in her name. In actuality, the homeowner unknowingly executed a contract for the sale of her home as well as a rental agreement to remain in the residence. She paid rent in a timely manner and subsequently received a renewal lease that directed payments to a new company. Around that time, the victim noticed a man taking pictures around her house. He informed her that a bank had sent him, and that the bank would be commencing a foreclosure action against the property. The victim stopped paying rent and instead made deposits in escrow. The new owner of the property commenced an eviction action, at which time the victim filed a defense. The new owner voluntarily agreed, in open court, to dismiss the action and deed the property back to the victim. Nonetheless, the lending bank filed a foreclosure complaint seeking possession and sale of the property. The bank removed the action to federal court on the basis of federal question jurisdiction.

The victim’s complaint alleged claims against the bank and the scam company under the Truth in Lending Act (TILA) and under the Home Ownership and Equity Protection Act (HOEPA). The Court noted that for the victim to have rights under the TILA and the HOEPA, she had to be a consumer of credit. For this requirement, an equitable mortgage must have existed in the sale-leaseback transaction. The Court found that no mortgage existed between the supplier of the scamming company’s funds and the victim because the scammer’s lender and the woman had not engaged in any legal transaction and the victim never made any payments to the scammer’s lender. Because there was no evidence that the victim was engaged in a consumer credit transaction with the bank supplying the scamming company’s funds, the Court dismissed the TILA and HOEPA claims against that bank.

Once the federal claims were dismissed, the Court remanded the matter to the state court for consideration of the remaining state claims.

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