Tuesday, January 21, 2014

Opportunity makes the thief.

On January 14, 2014, the California Attorney General filed criminal charges against two California lawyers and their clients for the alleged theft of 23 homes by use of forged documents and perjured court filings. The 144 page indictment outlines an elaborate scheme that relied on bogus adverse possession claims to induce the court system to award legal title to the defendants.

Can this happen in Maryland? It does.

Does it happen on the same scale? Perhaps. This office has only brushed the tip of the iceberg

In California, attorneys Craig Mortensen and Sheldon Feigel are alleged to have recruited members of the Barton family to pursue adverse possession claim in court in order to obtain court orders vesting members of the Barton family with legal title.

Adverse possession is a concept that is intended to keep land in productive use.  In a country built on the right to possess property, and to profit from that possession and the production of that property, the courts will make an involuntary transfer of ownership where a title owner is not acting like an appropriate steward.

Use it or lose it.

In California, the elements of adverse possession of a vacant home requires that the plaintiff actually use or rent out the property and pay property taxes for a minimum of five years. The criminal complaint alleges that these two basic requirements were not met, and that the lawyers and their clients submitted documents containing false affidavits and statements of fact to support these requirements.  The Attorney General alleges that the Barton family did not actually use or rent the properties for five years.

The scheme unraveled in 2010 when the true owner of a property contacted her lender and was told that title to the property had been recently changed to one of the defendants. A two year investigation by the Attorney General revealed a scheme that stripped lawful ownership of at least 23 properties.

Adverse possession in Maryland is much more difficult to demonstrate. For one, the use or occupation that is adverse to the true owner must be for 21 years. That alone is a huge impediment to fraudulent claims. Not many fraudsters are patient enough for such a long con.  Property fraudsters more often go for the quick flip.

We have seen title stripping fraud in a slightly different form than what is described in the Barton complaint. I call it "title squatting," and it requires a defunct limited liability company, the State of Maryland, and an unwitting title company.

In our case, the bad guy filed papers with the State of Maryland to reinvigorate a defunct limited liability company whose sole asset was Baltimore City house. The State of Maryland does not peer closely at the bona fides of a reinstatement application, as long as it recovers it's back taxes.

Once the defunct entity was reinvigorated, the bad guy found a title company that was duped into passing title from the entity to another entity that was legitimately owned by him. With title now rinsed through this transaction, the bad guy was empowered to sell the property to our client. And to keep the transaction as far as possible off anyone's radar, he took back owner financing.

All the while, the true owner of the defunct entity had no clue that his property had been taken from him.

It was the bad guy's threat of foreclosure that brought our client in out of the cold.  A careful examination of the title chain allowed us to quickly unravel the scam and obtain curative documents that properly restored title in the true owner's name. Fortunately, our client had title insurance to pay her losses-- she spent significant monies to fix up the property.

The title insurance company then sued the bad guy to recoup it's payment to our client. The complaint filed in court details the entire scam.

The lesson of both our Maryland case and the California indictments is simple:  Ownership has both privileges and responsibilities.  In exchange for the right to profit from ownership, you must remain engaged in the regular management of your property. Ignore your property at your peril-- a court might just take it away.