Being a victim of consumer fraud when purchasing a mortgage doesn’t necessarily protect you when the bank that issued the loan forecloses on it.
That’s the lesson of Millard Leff, a widower and World War II veteran from Readington, whose home was recently ordered foreclosed -- even after a federal court found the broker who sold Leff his mortgage guilty of fraud.
Leff won the notable legal victory seven years ago, three years after sales representatives of EquiHome Mortgage Corp. of Bernardsville convinced him to exchange his safe reverse-mortgage for a new 30-year “subprime” loan that he could not afford.
In the space of months, while he was in and out of the hospital, the deal sent Leff from financial security to the imminent threat of being out on the street.
At a June 2007 trial in Federal District Court in Trenton, Leff won the $220,000 value of the subprime mortgage from EquiHome, trebled to $660,000 because of the fraud. The case included an audiotaped admission by an EquiHome official that Leff had received “no benefit” from converting his reverse mortgage.
EquiHome promised to appeal but did not, an omission that spawned a continuing legal battle between the firm and its former attorneys. Instead, EquiHome as a corporation, and its principal officers as individuals, filed for bankruptcy in 2008. As a result, Leff collected only pennies on the dollar.
Following a brief hearing on Valentine's Day in Somerville, Superior Court Judge Edward Coleman has ruled that the findings in the federal case do not bar Flagstar Bank, which issued the subprime mortgage, from seizing the home.
Leff died in 2011, but Coleman gave great weight to the fact that he was the first defendant listed, the “named” defendant, when Flagstar brought the new foreclosure action in May 2013.
Coleman also ruled that despite being heir to half the estate, his son Kenneth Leff has no legal standing to contest the foreclosure.
“Kenneth Leff did not execute the note or the mortgage,” the judge wrote.
“Kenneth Leff fails to suffer harm as a result of Plaintiff’s foreclosure and is not a real party in interest.”
“Flagstar brought suit against me, they named me in the foreclosure, then argued that I don’t have standing -- and the judge agreed!” Kenneth Leff said.
Documents from that case can be.
Like many in his generation, Leff joined the armed forces during World War II. Afterward, the GI Bill helped him get an electrical engineering degree at the Newark College of Engineering, now part of the New Jersey Institute of Technology.
For 40 years, he owned and operated an electrical equipment firm, Kenbar Industries, in the Whitehouse Station section of Readington. For almost as long he had lived in a house nestled in a stand of trees on a 1.7-acre lot, sharing the bucolic property with his wife Barbara, who died in 1987, and their two children.
After paying off his original mortgage, Leff bought a reverse mortgage from a lending program geared to senior citizens. It ensured he would be able to remain in his house for the rest of his life, along with a renewable line of credit that held a balance of $76,123 in April 2004, when Leff was 79.
But at the end of that month, he received that fateful telemarketing call from Banctel, one he was ill-prepared to handle. For besides being ill and easily confused, Leff had made his previous mortgage decisions when banking was a sedate profession, known more for leisurely hours than for cut-throat sales practices.
By 2004, however, a mortgage loan was nothing more than a tidbit to be sliced, diced, and tossed with hundreds of others into mortgage-backed securities. It did not matter if the underlying loans were safe or risky -- and ratings agencies almost invariably certified them as safe -- just that they yielded more investment products.
According to Millard Leff’s subsequent suit, the Banctel telemarketer told him that he was “at risk” of being thrown out of his home because he had lived past the time calculated for his reverse mortgage. Not only would he lose the home, Leff’s “children would be liable” for his debts.
Not too long before that, someone with $940 in monthly income -- Millard Leff’s Social Security check -- would have had trouble qualifying for any sort of loan, much less a 30-year mortgage. But the mortgage application whipped up by Equihome put his annual income at $120,000.
“My Dad never made that much in his life, and it’s not what he reported,” Kenneth Leff said. “The only income he claimed was his Social Security.”
According to court records, Equihome never asked Millard Leff for his tax returns or other proofs of income. But in the high-flying mortgage market of the early ’oughts, such omissions had become commonplace.
Nevertheless, Leff agreed to a recommendation from Steve Nabors of Equihome to meet at a local law office on April 30, 2004. Leff signed the mortgage papers -- though his suit claimed his signature was forged on one disclosure page -- with the attorney representing both parties.
In exchange, Leff got a $52,000 cash payout. A neutral third party might have wondered, though, how long he would be able to meet his monthly mortgage payment, which had gone from zero to $1,319. But Equihome already had someone waiting to buy the note.
Flagstar Bank had a rapid rise. Established in 1987 in Troy, MI., and operating under the name Flagstar since 1994, as a new century dawned it had become the largest publicly traded savings bank based in the Midwest. Several factors contributed to its ascent, but one is germane to Millard Leff: even by the dismal standards of modern American banking, Flagstar wrote a lot of bad loans.