| DOCKET |
CIVIL ACTION NO. 97-1387-BLS2 |
| Dates: |
October 20, 2011 |
| Present |
Janet L. Sanders |
| County |
SUFFOLK, ss. |
| KEYWORDS |
FINDINGS OF FACT, RULINGS OF LAW, AND ORDER OF JUDGMENT |
This case arises from a so-called foreclosure rescue scheme whereby a number
of individuals exploited distressed homeowners on the verge of losing their
homes. With the partial complicity of the homeowners, these individuals
arranged bogus sales so as to fraudulently obtain mortgages from lending
institutions. The homeowners ended up losing their houses to foreclosure, while
those who put together and assisted in the deals lined their pockets. The
Commonwealth instituted this action seeking damages and civil penalties against
the wrongdoers. In the meantime, the country is still paying the price for
schemes like this one.
Initially, this case involved nineteen defendants who participated in
various aspects of the scheme. They included mortgage brokers, real estate
brokers, straw buyers, and closing attorneys. By the time this case came before
the Court for a jury waived trial, eleven defendants had settled with the
Commonwealth.(2) Seven defendants had been defaulted.(3) The sole remaining
defendant was James Alberino, a Boston real estate lawyer who has since been
suspended from the Bar and now works at a Marblehead gym.
The case against Alberino focused on his involvement with one defendant in
particular, Leo Desire, Sr. Both Desire and Alberino asserted the Fifth
Amendment to key questions at trial. But other witnesses described how the
scheme worked. Based on that testimony together with the adverse inferences I
draw from Alberinos invocation of his Fifth Amendment right not to incriminate
himself, see Wansong v. Wansong, 395 Mass. 154, 157 (1985), this Court makes
the following findings and rulings in support of its order of judgment against
Alberino.
· FINDINGS OF FACT
The schemes mastermind was Desire, a mortgage broker who operated through
several different entities. At the time of events in this case, those entities
included defendants Home Pride Management (Home Pride), Primary Mortgage
Resources, Inc. (PMR) and Universal Plus Realty & Financial Services, Inc.
(Universal Plus). Alberino first met Desire when Desire was working as broker
for an Everett company in the 1990s. First admitted to the bar in 1977,
Alberino was a solo practitioner with a concentration in real estate work.
Desire began to refer closings to Alberino.
In the late 1990s, Alberino began assisting Desire in other matters. For
example, he helped him form a corporation called Kekoka Tahari, Inc., its sole
director being Desires then wife. In 2003, the year before the transactions at
issue in this case, Alberino issued checks totaling over $126,000 to Kekoka
Tahari from his IOLTA account checks which Desire caused to be deposited in
Universal Pluss bank account. By 2004, 25 percent of Alberino's real estate
closings were referred to him by PMR, Desires mortgage brokerage firm. During
this same period, money in the form of checks continued to flow between
Alberino and Desire. Although there was no specific evidence that this activity
was illegal, it did show that the relationship between the two was a close one
and of some mutual financial benefit.
The instant case involves transactions relating to two pieces of property.
One was a home located at 26 Charles Street in Natick (the Charles Street
Property). It was owned by Maureen Stretch, herself a lawyer. The second was a
home located at 11 Wellington Street in Methuen (the Wellington Property). It
was owned by Lisa and James Turgeon. Stretch and Lisa Turgeon both testified at
trial. Their testimony, which I find to be largely credible, described how they
became involved with Desire and Alberino.
Stretch bought the Charles Street Property in 1979 for about $50,000. She
refinanced it twice to pay off debts. By 2000, she was again in financial
trouble, and started missing her mortgage payments. This time, she was unable
to refinance. By 2003, Stretch had already staved off foreclosure twice. She
owed more than $50,000 in back taxes, and was facing foreclosure for a third
time. Stretch consulted an attorney about filing for bankruptcy but was told
she did not qualify. The attorney referred her to Desire, whom she met with in
late 2003 or early 2004.
Desire described for Stretch a Trust Program whereby she would convey her
house into a trust for a year. She was told that some portion of the sales
proceeds would be placed into an escrow fund, to be used to make the monthly
payments on the mortgage obtained by a straw buyer to fund the sales price. In
addition to having her mortgage on her home paid off, Stretch would receive
approximately $50,000 in cash from the sale, which she could use to pay off her
debts. After a year and with her credit improved, Stretch would be in a
position to buy back the house, Desire promising to assist her in obtaining a
new mortgage. Throughout this period, Stretch would continue to live in the
Charles Street Property.
Lisa Turgeon described a similar series of events. She had bought the
Wellington Property in 1999 with a mortgage that financed 100 percent of the
$50,000 sales price. Her husband was only sporadically employed, however, and
the couple almost immediately fell behind on their mortgage payments. Like
Stretch, the Turgeons explored the possibility of bankruptcy, but their
successive petitions were dismissed. Their bankruptcy attorney said Desire
might be able to assist them; he introduced them to someone who represented
Desire in late 2003. This representative told the Turgeons about the same Trust
Program that had been described to Stretch: not only would their old mortgage
get paid off but they would get cash in hand. After a year, the couple could
buy their house back with Desires assistance, all while they remained in their
home.
The closing on the Charles Street Property took place on March 19, 2004.
Stretch went to the law office of Alberino, who she understood was going to
handle the closing. Desire was not present. Instead, she was introduced to two
men whom she had never met, Louis Joseph and his son Robens Joseph. Robens
Joseph had been recruited by his father and Desire to participate in the deal
in return for $5,000. He had no intention of actually taking possession of the
property or becoming obligated to pay the mortgage on it.
Although Stretch had never met the Josephs before the closing, a few months
before, she had signed what she regarded as a trust document but what was in
fact a purchase and sales agreement (the P&S). That P&S, dated January
23, 2004, named Robens Joseph as the buyer of the Charles Street Property and
stated a sales price of $329,000, with a $65,000 deposit. In fact, no deposit
had been paid, and there was no evidence presented to this Court to
substantiate the sales price. There were other statements in the P&S that
Stretch knew to be false. For example, it said that the Charles Street Property
was to be delivered to the Buyer (Joseph) free of tenants even though Stretch
was to remain in the home. It listed a three percent brokerage fee payable to
Universal Plus, but Stretch had not placed her house on the market or hired any
broker.
At the closing, Alberino presented Stretch with two documents. One was a
Settlement Statement prepared by Alberino. The Settlement Statement listed the
same $329,000 sale price, together with the $65,000 deposit that had never been
made. The Settlement Statement also stated that the Buyer (Robens Joseph) was
paying $10,441.24 to Stretch at the closing when in fact Joseph brought no cash
to the closing. The Settlement Statement said that Stretch was receiving
$81,527.71 in cash; that too was a false statement. Instead, Alberino gave
Stretch a check for $48,507.84.
Some portion of the sales proceeds was used to pay Stretchs $155,00 mortgage
with Wells Fargo. Other payments went to various lawyers, including Eric
Rothenberg, who had obtained a mortgage on Stretchs house that February,
apparently in return for legal advice. Alberino's legal fee was also deducted.
Universal Plus received an $8,897 brokerage fee even though no work had been
done. PMR received a three percent loan origination fee. Alberino wrote checks
for both these amounts, which were ultimately deposited in a PMR account. In
other words, everyone got a piece of the purchase price for the property -- and
that price was to be paid by the lending institution based in part on the
Settlement Statement.
Stretch signed the Settlement Statement certifying that it was true and
accurate. She knew it was not. Alberino as Settling Agent also signed,
certifying that I have prepared a true and accurate account of this transaction
[and] I have caused or will cause the funds to be disbursed in accordance with
this statement. In fact, Alberino knew that the Settlement Statement contained
multiple false statements and that the funds were not being disbursed as it
described. That is, he knew the buyer made no cash payment at closing, knew or
should have known that no deposit was made on the Property, and knew that
Stretch did not receive that amount of the sales proceeds set forth in the
Settlement Statement. Alberino prepared the Settlement Statement knowing that
the lending institution that was funding the transaction would rely on it.
The second document that Alberino presented to Stretch was a short
typewritten statement that Alberino prepared. Unlike the Settlement Statement,
Alberino had no intention of presenting this document to the lender. This
second document authorized Alberino to deduct from the sales proceeds Josephs
closing costs of $10,441.24 (that amount the Settlement Statement said Robens
Joseph had paid in cash to Stretch) as well as $22,579.20. The latter amount
was what Stretch believed was going into an escrow account and which would be
used to pay the mortgage that was being taken out to finance the bogus sale.
Both Alberino and Stretch signed this document. On the same day as the closing,
Alberino wrote a check to Home Pride in the amount of $22,579.20. That check
was deposited into the account of Universal Plus.
The Turgeons closing proceeded in similar fashion. Like Stretch, Lisa and
James Turgeon entered into a Purchase and Sale Agreement with a straw buyer,
this one by the name of Paul Joseph. For the closing on March 1, 2004, the
Turgeons went to Alberinos office. Desire was in attendance. Alberino gave them
a HUD Settlement Statement and described it in general terms. The Settlement
Statement listed a sales price for the Wellington Property in the amount of
$292,000. Turgeon said she had no idea how that amount was determined; indeed,
she had not attempted to sell the Wellington Property because she was afraid it
was not worth more than the $155,000 mortgage she already had on it. The
Settlement Statement also listed a deposit of $43,800 from the buyer, even
though no deposit was ever made. It stated that the Buyer made cash payment of
$10,102.98 to the Turgeons; that too was false. Finally, the Settlement
Statement said that the Turgeons received $42,311.19 from the sale, when in
fact they received a check from Alberino in the amount of $33,848.54. The
Turgeons nevertheless signed the Settlement Statement certifying that it
accurately set forth all charges. So did Alberino as the Settlement Agent. He
did so knowing that it contained several false statements and that the lender
would rely on it in issuing a mortgage to the supposed buyer Paul Joseph.
Like Stretch, the Turgeons had their outstanding mortgage paid off as a
result of the transaction. There were other deductions they did not entirely
understand, however. For example, Universal Plus charged them a brokerage fee
of $8,760, even though they had never had the house on the market. The check
that Alberino wrote to Universal Plus for this amount was deposited in an
account of PMR, Desires mortgage firm. The Settlement Statement listed a loan
origination fee totaling $4,964 for PMR; in fact, Alberino wrote a check to PMR
for $6,515, deducting that amount from the sales proceeds. The Settlement
Statement also reflected that $36,417.98 of the sales proceeds was set aside as
escrow to Home Pride. Although Lisa Turgeon had never heard of Home Pride, she
believed this money was going to pay for Josephs mortgage until such time as
the Turgeons were able to buy their house back. In fact, Alberino disbursed
these funds by depositing $10,017.98 into his own account, with the rest made
payable to Home Pride and ultimately deposited into a PMR account. No escrow
fund was ever set up.
After signing the Settlement Statement, the Turgeons were presented with a
second typewritten document. It authorized Alberino to pay Home Pride a total
of $36,417.98 (the amount listed as going in escrow on the Settlement
Statement). This second document included Albarinos handwritten note that the
Turgeons authorized him to pay Universal Plus $8,760 (the so-called brokerage
fee). The Turgeons signed, but driving home afterwards, Lisa Turgeon became
concerned that the numbers on the two documents they had signed did not add up;
she was also confused as to where the money was going. She called Alberino, who
reassured her and promised to see to it that Desire used the so-called escrow
money to pay the straw buyers mortgage for the first year. That did not happen.
Contrary to representations made to these two sets of homeowners, neither of
the two properties was ever placed into trust. No escrow accounts were ever
created to pay the straw buyers monthly mortgage obligations. Instead, with
Alberinos assistance, the funds flowed to PMR or Desire. Moreover, Alberino
assisted PMR and Desire in committing a fraud on the lending institution that
granted mortgages to each of the straw buyers. He prepared or assisting in
preparing a Settlement Statement for each transaction that he knew contained
several false statements of material fact; without these certified Settlement
Statements, the lenders would not have disbursed any funds. Knowing that
Stretch and the Turgeons would remain in their homes, Alberino had the buyer at
each closing sign an Occupancy Agreement certifying to the lender that the
buyer would live in the property as his primary year round residence. As an
experienced real estate lawyer, Alberino knew that the lender relied on this
information in advancing the money for each transaction. Indeed, in each case,
he signed off on a set of closing instructions whereby he represented to the
lender that the Settlement Statement was accurate, that he had received
sufficient cash or other funds from the borrower to cover closing costs, that
he had verified that a deposit had been made by the buyer, and that no fees or
other charges had been omitted from the Settlement Statement. In fact, all of
these representations were false, Alberino knew that at the time he made them,
and the lender relied on those representations to its detriment.
The ending to this story is not a happy one. At some point, Stretch got a
call from one of the Josephs: he said that Desire was not paying the mortgage
on the Charles Street Property and that Stretch needed to pay him rent.
Stretchs attempts to contact Desire were unsuccessful. Ultimately, the Charles
Street Property was sold at foreclosure and Stretch now lives in a rented
apartment. After the closing on the Wellington Property, the Turgeons did not
hear from Desire again. The straw buyer Paul Joseph did assist Lisa Turgeon in
locating a lender so she could buy the property back (and relieve Joseph of the
mortgage obligations). A few months later, however, she and her husband
permanently separated and the house was lost in a foreclosure sale in November
2005.
In 2007, the Board of Bar Overseers began disciplinary proceedings against
Alberino. In October 2010, he reached a settlement with the BBO agreeing to an
eighteen-month suspension. As part of that settlement, he agreed that all
material facts in the Amended Petition for Discipline would be proved by a
preponderance of the evidence if there were a hearing. Two of the three counts
in that Amended Petition related to his involvement in the Stretch and Turgeon
transactions and alleged that he had violated the rules of professional conduct
by knowingly making false statements of material fact to his client, the lender
in the two transactions.
That lender was Americas Wholesale Lender, an arm of Countrywide Mortgage.
Countrywide, a subprime mortgage lender, and its founder Angelo Mozilo figured
prominently in the economic crisis of 2008. See Bethany McLean & Joe
Nocera, All the Devils are Here, (2010). The loans to the straw buyers were
stamped at some point as Paid in Full. Countrywide no longer exists.
· CONCLUSIONS OF LAW
The Commonwealth alleges that Alberinos actions violate G.L.c. 93A. Section
2 of that chapter prohibits unfair and deceptive business acts or practices.
That has been defined as conduct that falls within the penumbra of some common
law, statutory or other established concept of unfairnessthat is, conduct which
is immoral, unethical, oppressive or unscrupulous. PMP Assoc. Inc. v. Globe
Newspaper Co., 366 Mass. 593, 596 (1975). In a civil action like this one, the
plaintiff bears the burden of proving its case by a preponderance of the
evidence. This Court has no difficulty in concluding that the Commonwealth has
sustained its burden of proving that the defendant Alberino violated Chapter
93A.
Those violations consist of the multiple acts of dishonesty and deceit that
Alberino committed at the closings on the two properties here at issue. That
conduct can be broken down into (at least) seven separate acts for each of the
two transactions:
a. He knowingly failed to disburse funds in accordance with the Settlement
Statement he submitted to his lender client even though he affirmatively
represented to his client that he would do so.
b. He certified that the Settlement Statement in each transaction was
entirely accurate even though he knew that it contained multiple
misrepresentations of material fact upon which his lender client would rely to
make the loan.
c. He diverted some portion of the sellers proceeds to Desire and certain
Desire-controlled entities (including PMR and Universal Plus) when he knew or
had reason to know that they had not performed any services in connection with
the transactions.
d. He failed to verify that the supposed buyer in each transaction had
actually made a deposit toward the purchase price even though he represented to
his lender client that he had done so and reduced the proceeds due the seller
by the same amount.
e. He failed to obtain any closing costs from the buyer, even though the
Settlement Statement listed an amount paid to the seller in cash for such
costs.
f. He obtained a signed occupancy affidavit from each of the buyers, and
assisted them in obtaining mortgages, knowing that they never intended to
occupy to the properties and would not be making monthly mortgage payments.
g. He obtained authorizations from each seller to distribute proceeds other
than as reflected on the Settlement Statement and kept this information from
his lender client.
All of these violations were knowing and willful.
With regard to the remedy that should be imposed, the Commonwealth asks that
the Court assess the maximum penalty of $5,000 for each act that I find to be
an unfair and deceptive practice. See G.L.c. 93A §4. With at least seven
such acts committed with respect to each of the two closings, that amounts to a
total penalty of $70,000. This Court agrees that the maximum penalty is
warranted here, given the egregiousness of the conduct at issue. That the
defendant is a lawyer makes his conduct even more reprehensible. I also
conclude that the Commonwealths request for injunctive relief is appropriate:
not only should Alberino be prohibited from future 93A violations of the same
type as here but he should also be enjoined from acting as a closing attorney
or title agent in any real estate transactions in the Commonwealth.
This Court does not agree with the Commonwealth that the sellers are
entitled to compensatory damages, however, whether under a theory of
restitution or of disgorgement of profits. Although the Commonwealth has
characterized the foreclosure rescue scheme as a way to strip homeowners of
their equity, it would be more aptly described as a fraud on the lender. This
fraud was committed with the knowing participation of the two homeowners here.
Like Alberino, Stretch and the Turgeons knew that the supposed sales of their
homes were shams. They knew that the buyers never intended to occupy the
property. They knew that the documents they executed for submission to the
lender financing the transactions contained multiple false statements of fact.
Like Alberino (who received his legal fees), the homeowners received their own
share of the proceeds from this fraud: the mortgages that were in default were
paid off and they received cash in hand. Certainly, their own complicity in the
fraud does not in any way excuse Alberino. It is nevertheless a factor this
Court must consider in deciding whether to exercise the broad equitable powers
afforded to me by Section 4 of 93A in a way that benefits these homeowners
beyond the restitution they have already received from the Attorney General.(4)
There is an additional reason why court-ordered restitution is not
appropriate. The Commonwealth calculates restitution based on the assumption
that the sales price set for these two pieces of property accurately reflects
their value. There was no evidence to support that assumption, however.
Certainly, the price was not the result of arms length transactions, since the
buyers were straws with no intent of paying on the mortgages obtained to
finance the sham deals. It is far more likely that the sales prices were
determined by Desire, who had every motive to place a high value on the
properties so as to maximize his own return. Although it is certainly possible
that the homeowners here did lose some equity, they could have realized that
equity if they had decided to sell their homes. Instead they threw their lots
in with Desire and company.
· CONCLUSION AND ORDER
For all the foregoing reasons, it is hereby ORDERED that judgment
enter in favor of the Commonwealth and that the defendant be required to pay a
totally of $70,000 in civil penalties pursuant to G.L.c. 93A §4 and that a
permanent injunction enter against him in the form proposed by the Commonwealth
in paragraph 36 of its Proposed Rulings of Law. The Commonwealth is also
entitled to its reasonable attorneys fees and costs. Within fourteen days of
receiving a copy of this order, the Commonwealth shall file a motion for such
fees with supporting affidavits pursuant to Rule 9A. It shall also submit a
proposed Order of Judgment in line with this decision.
Janet L. Sanders
Justice of the Superior Court
Dated: October 20, 2011
Footnotes
(1) Louis Joseph, Pierre Joseph, Robens Joseph, Jean N. Joseph, Daphne
Mompoint, Joel N. Charles, Advie Charles, Marie batey Mereus, Leo Desire, Jr.,
Robin Hayes, Neville Francis, Primary Mortgage Resource, Inc., Universal Plus
Realty & Financial Services, Inc. Home Pride Management Inc. James
Alberino, Robert P. Marks, Valerie F. Hanserd.
(2) The following defendants entered into consent judgments: Leo Desire, Sr.
(July 26, 2010); Robin Hayes (October 27, 2010); Neville Francis (October 9,
2009); Valerie Hanserd (June 8, 2009); Jean Roll Joseph (April 23, 2010);
Pierre Joseph (July 26, 2010); Robens Joseph (March 30, 2010); Robert Marks
(July 28, 2010); Marie Betey Mereus (September 2, 2009); Daphne Mompoint (July
26, 2010); Primary Mortgage Resources, Inc. (July 16, 2010).
(3) The defaulted defendants are: Advie Charles, Joel Charles d/b/a Sourie
Corp., Leo Desire, Jr., Louis Joseph, Paul Joseph, Home Pride Management, Inc.,
and Universal Plus Realty & Financial Services, Inc.
(4) The Commonwealth has already paid $23,871.50 to the Turgeons and $29,307
to Stretch from proceeds that it received from those defendants who settled the
claims against them.
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