Tuesday, November 16, 2010

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Attorney General Abbott Takes Enforcement Action Against Lubbock Mortgage Firms

UPDATE: This case has concluded with the filing of an Agreed Final Judgment.

LUBBOCK – Texas Attorney General Greg Abbott is charging two Lubbock mortgage companies and their owners with orchestrating a complex scheme to defraud Texas property owners. The State’s enforcement action names Enhance Mortgage Corp. and Templeton Mortgage Co. Inc. as defendants and charges both with violating the Texas Deceptive Trade Practices Act.

According to court documents filed by the State, Enhance and Templeton primarily targeted former property owners who had previously self-financed the sale of their property to independent purchasers. Under such an arrangement, which is known as an owner-financed mortgage, the seller agrees to receive mortgage payments from the buyer over time—rather than requiring the buyer to get a bank loan and pay the entire purchase price up front. Once the owner-financed mortgage transaction is complete, the buyer takes possession of the property. As the financer of the transaction, the seller retains an ownership interest in the property, which includes the right to receive monthly mortgage payments from the buyer.

Media links
Attorney General's lawsuit against Enhance Mortgage Corp.

According to state investigators, the defendants contacted former property owners who lacked knowledge about real estate transactions and offered to buy their owner-financed mortgages. Court documents indicate the defendants would offer to pay landowners up-front cash in exchange for their owner-financed mortgages—and therefore the right to receive monthly mortgage payments. Some of the former property owners were retirement-aged. State investigators believe they were targeted because they were likely to be enticed by the promise of up-front cash rather than a 20 to 30-year payment stream.

Under Texas law, it is generally legal to purchase and sell interests in real property, including the rights of owner-financed mortgages. However, the defendants are charged with perpetrating a complex scheme that relied upon obscure contractual provisions to defraud former property owners with little or no financial or legal expertise.

For example, one former property owner had previously sold his property to a buyer, who still owed $76,500 under the terms of the owner-financed mortgage. The defendants offered to pay the former property owner $30,000 cash in exchange for the right to receive the full $76,500 in future mortgage payments. Once the former property owner agreed to the $30,000 offer, the defendants drew up a contract and had the underlying property appraised. Unbeknownst to the former property owner, the contract provided that the defendant’s cash purchase price would be reduced if the property’s appraisal amount was less than the purchase amount—despite the fact that the mortgage would still yield the same amount of money regardless of the property value.

After learning that he would be paid the lower appraised amount—rather than the original $30,000 agreed-upon price—the former property owner attempted to reject the deal. In response, the defendants filed a lawsuit against the former property owner in an attempt to force him to accept the lower amount of money. At one point, defendants Enhance and Templeton had as many as 75 lawsuits on file in the Lubbock County District Court. According to state investigators, the scheme orchestrated by Enhance and Templeton was specifically designed to defraud individuals who lacked knowledge or experience about complex real estate transactions. The State’s enforcement action alleges that the defendants’ dealings with the former property owners were not only deceptive—but that they violated Texas property laws.

In addition to restitution for affected property owners, the State is seeking civil penalties of up to $20,000 for each violation of the Texas Deceptive Trade Practices Act.

Property owners who believe they have been deceived by similar fraudulent business practices should call the Office of the Attorney General’s toll-free complaint line at (800) 252-8011 or file a complaint online at www.texasattorneygeneral.gov.

Texans may learn more about buying a home and avoiding pitfalls and scams by reading the Office of the Attorney General’s online bulletin, “Avoiding Home-Buying Pitfalls and Scams” at http://www.texasattorneygeneral.gov/AG_Publications/pdfs/home_buying.pdf.