Posts Tagged ‘fraudulent misrepresentation’

Home Mortgage Lender Pays Damages in Repair Scheme

JUNE 21, 2010 VOLUME 17, NUMBER 20

[This week’s Elder Law Issues article, about a home repair / home loan scheme, was contributed by our friend and colleague Prof. Rebecca Morgan. Prof. Morgan holds the Boston Asset Management Chair in Elder Law (and is the Director of the Elder Law LL.M. program) at Stetson University College of Law. She often provides us with interesting and useful cases and developments, and we appreciate her contributions.]

Clarissa Wade, 89, in somewhat poor health, with bad credit and a limited income had a house that was in need of repairs. A marketing call answered by her daughter and caregiver Shirley resulted in a house call by “Big Mike” Phelps, who, after being shown around the house, quoted a price for the repairs.

Although Shirley told Big Mike that Clarissa didn’t have the money, Big Mike brought in a contract, loan application and credit application – which was in Clarissa’s prior married name, even though Clarissa hadn’t used that name for almost sixty years. Since the title to the home was still in Clarissa’s former name, it appeared that someone had run a title search on Clarissa’s home even before Big Mike made the house call.

As Shirley showed Big Mike out, he told her he would be in touch and that “he got elderly people loans.” Despite Big Mike’s assurance, Shirley remained skeptical that Clarissa’s loan application would be approved since, after all, her mother was 89, with poor credit and little income.

Despite Shirley’s misgivings, about five weeks later Big Mike called to tell Shirley the “good news” that the loan had been approved through Clarion Mortgage Capital, and two representatives from Clarion Mortgage would bring the loan papers to the home for Clarissa to sign. In fact, within ten minutes of Big Mike’s call a Clarion Mortgage loan officer made an appointment and the next day came to the house. Since Clarissa wasn’t feeling well, she asked to have her daughter sign the documents.

Shirley, concerned about a story she’d seen regarding Big Mike and unfinished projects, was assured that the builder wouldn’t get paid until the work was done. Three weeks later, the Clarion Mortgage loan officers returned with what evidently were final loan documents to sign, which Shirley did, even though her mother was present. Work started the next day, the loan closed two days later, and the builder was paid on the same day – interestingly, the payment was more than the original contract price. The job was not finished until late October and Shirley immediately observed problems with the work. In addition, the loan company failed to pay some of Clarissa’s creditors from the loan proceeds.

About six months later Shirley filed suit on her mom’s behalf, claiming fraudulent misrepresentation by Clarion Mortgage regarding the loan proceeds being released to the builder before the work was done. Almost four years after that, the case was tried before a jury and a judgment was returned for Clarissa in the amount of $8,600 on the fraudulent misrepresentation claim. Clarion Mortgage appealed, claiming that the plaintiff had not presented “any evidence” that the loan officers had made any representations to Clarissa or that Clarissa had any knowledge of the loan officers’ alleged representations made to Shirley.

After reviewing the record, the appellate court drew the conclusion that the jury was reasonable in deciding that Clarissa was there and heard the loan officers’ statements. One ironic side-issue: at the trial, Clarion Mortgage filed a motion to keep Clarissa out of the courtroom on the basis that her presence would unduly sway the jury and that the court had already determined she was incapable of taking care of her own interests in the case. On appeal Clarion Mortgage argued that because Clarissa didn’t testify at trial, her case should fail. After disposing of Clarion Mortgage’s other arguments the appellate court affirmed the judgment. Wade v. Clarion Mortgage Capital, Inc. (May 11, 2010)

[Our commentary: The actual legal holding in Clarissa Wade’s case is not terribly expansive. The decision does, though, describe a practice that our clients, their family members and advocates should watch out for. The fact that so many seniors have home equity – even in these times of falling home values – opens the door for manipulative and greedy predators. In the right circumstances someone in Clarissa Wade’s situation might have been helped by a reverse mortgage, a line of credit or a home mortgage that allowed her to pay off bills to reduce her monthly payments and/or fix her home so that she could continue to live there. There were a number of warning signs that suggested this transaction was not entirely on the level – like the fact that a stranger called her without any prior contact, that the entire transaction was so rushed, and that “Big Mike” or someone else had obviously looked up her home ownership even before calling her. Tragically, “Big Mike” and Clarion Mortgage were obviously willing to deal with her despite her failing health and condition, then tried to use those very limitations against her at the later trial.]

Telemarketers Convicted For Fraudulent Sales Techniques

JULY 12, 1999 VOLUME 7, NUMBER 2

Thomas Mullen and 28 other defendants were charged with telemarketing fraud in New York federal court. At trial, the jury convicted Mullen on two of four counts, but the trial judge decided that there had been insufficient evidence of Mullen’s intentions and set aside the conviction. The government appealed, arguing that there was sufficient evidence to support the jury’s decision and Mullen should be found guilty.

The Second Circuit Court of Appeals decided this week that Mullen’s conviction on one of the two counts should be upheld, but that the second count should be dismissed. His case was returned to the federal district court judge for sentencing on the one count.

Although the details of Mullen’s conviction and appeal are interesting, what is really revealing is the court’s description of the work of a telemarketer. Since the central legal question was whether Mullen realized he was involved in actually defrauding the (often elderly) customers he contacted by telephone, the appellate court described the practices of Mullen and his coworkers in detail.

Mullen worked for RFG Group, which sold water and air filters, vitamins, fire retardant sprays, cosmetics, cleaning supplies and promotional items such as pens and key chains. RFG salespersons would call a prospective customer and explain that he or she had been selected for a special promotion by the product’s “sponsor.”

Although callers were carefully coached not to ever say that purchase of the firm’s products was necessary to qualify for the promotional prize, the pitch was (as the Court of Appeals described it) “intentionally worded to imply that such a connection existed.” The customer would be assured that he or she would win one of several valuable prizes, to be chosen at random; the prizes supposedly included Hawaiian vacations, valuable art, new automobiles, cash and jewelry.

“Such extensive effort,” wrote the Court of Appeals, “might not normally be necessary to sell cosmetics or cleaning products…. However, RFG Group was at a competitive disadvantage, as its products were sold at an enormous mark-up from their wholesale cost. For example, RFG sold a six-month supply of vitamins for between $259 and $399, even though the vitamins cost RFG less than $12.” Similar mark-ups were made on water filters (from a cost of $56 to a sales price of $799) and cosmetics (a one-year supply cost RFG Group $81, but was sold for up to $899).

The prizes, of course, were not as described by the callers. The Hawaiian vacation, for example, was actually a certificate for lodging at a motel in Hawaii, and was worth about $45, and the “valuable art” a $47 lithograph or a ceramic dolphin statue. “Only once was a new car awarded, and it was purposely given to an elderly man who made a small purchase so as to negate criticism that RFG targeted the elderly or gave substantial awards only in return for even more substantial purchases.”

RFG’s outrageous practices hardly stopped there, however. Once a buyer had been induced to purchase vitamins or cleaning supplies the first time, his or her name was moved into a different category. Thereafter, he or she would hear regularly from a special corps of RFG salespeople, known as “reloaders.” This elite group of telemarketers, chosen for their ability to close sales, made repeat calls to former clients, since the company found that subsequent purchases tended to be for larger amounts than the first sales. U.S. v. Guadagna, July 6, 1999.

Mullen, along with 24 of his 27 codefendants, was ultimately convicted of wire fraud in the federal court. Unfortunately, the practices described in the Court of Appeals opinion are far too common, in spite of the efforts of law enforcement.

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