A bankruptcy judge ruled against a Wyckoff , N.J., real estate attorney and found him liable for almost $700,000, and punitive damages and legal costs, for his part in a mortgage foreclosure scam.

In this case, the main defendant, Fredrick Cleveland,  orchestrated the scam failed to disclose to the victims that he was using their house as collateral to borrow almost $650,000 when only $510,000 was needed to satisfy the victim’s mortgages and stop the sheriff’s sale. This enabled the scam artist to strip off over $100,000 of equity in the victims home for himself. The scammer failed to disclose that the monthly payments on this new loan were $6,300, and later increased to $6,800 per month; substantially more than the $5,000 per month the victims agreed to pay. Thus, the monthly payments were insufficient to fund the debt service on the new loan. Lastly, the victims were never informed that the new lender could foreclose even if the O’Briens were current on their monthly payments to the scam artist, Fredrick Cleveland. This could lead to the loss of their home and the equity therein, just the outcome they desperately sought to avoid.

The court found that the mortgage foreclosure rescue transaction as structured by Cleveland was fraudulent under the common law, an unconscionable commercial practice under the Consumer Fraud Act and violated the Federal Truth in Lending Act and the New Jersey Home Ownership Security Act of 2002. The Wyckoff attorney should have withdrawn from representing Mr. Cleveland as soon as the nature of the transaction became known to him. Without legal services, Cleveland’s scam would have failed because the New Lender required an attorney to act as settlement agent.

In addition, the attorney prepared the HUD closing statement that misrepresented the purchase price at $808,000 and the investment by Cleveland of $187,978.91. He testified at his deposition that he forwarded the closing statement to the New Lender and realized that the New Lender relied on its accuracy in funding the new loan to Cleveland. As an attorney, he had an ethical obligation to prepare an accurate closing statement and should have withdrawn from representing Cleveland rather than create an inaccurate closing statement. Once again, had the attorney fulfilled his ethical responsibilities, Cleveland could not have carried out his plot. His failure to perform his ethical obligations proximately caused damages to the plaintiffs in the amount of the increased debt encumbering this house.

The victims also asked that the attorney be held liable in civil conspiracy. Under New Jersey law an attorney may be liable for damages if he assists a client in violating a law or committing a wrongful act. Civil conspirators are jointly liable for the underlying wrong and the resulting damages. Id. Here, Cleveland could not have violated the state and federal statutes meant to protect consumers without the lawyer’s complicity. The attorney from Wyckoff knew or should have known that Cleveland’s scheme was wrong.

Guides to avoid foreclosure scams are available by following the links below:

http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre42.shtm

http://www.federalreserve.gov/pubs/foreclosurescamtips/default.htm