Chen v. Bell-Smith
2011 U.S. Dist. LEXIS 22994
| D.D.C. | 2011Background
- Plaintiffs Lee and Chen allege a fraudulent mortgage 'foreclosure rescue' scheme involving Carline Charles, C & O Property Solutions, EK Settlements, the Smiths, Ocwen, and HSBC, centered on a December 28, 2005 deed of sale transferring title to the Smiths for $425,000.
- The HUD-1 and deed show $425,000 used to pay off the plaintiffs’ existing mortgage and a lien, plus substantial unexplained fees, with plaintiffs receiving about $32,119.76 in cash though believing the arrangement was refinancing.
- The Smiths were paid $10,000 as a 'credit buyer' and later purportedly held title for a year while plaintiffs purportedly rebuilt credit to repurchase; Ocwen serviced the notes, while HSBC held the beneficial interests.
- Charles and C & O allegedly induced the signing of documents not understood as a sale, while the Smiths allegedly assisted as credit buyers; plaintiffs continued to reside at the home after signing.
- In spring 2007, miscommunications led to plaintiffs learning the Smiths were the owners; plaintiffs began paying the Smiths’ loan obligations, and litigation ensued after discovery.
- HSBC, as holder of the notes and deeds of trust via assignments, seeks to defend its title; Ocwen argues it cannot grant declaratory relief since it holds no beneficial interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether HSBC is a bona fide purchaser for value | Plaintiffs contend the deed transfer was fraudulent and HSBC should be disallowed from asserting title. | HSBC argues it purchased without notice of the fraud and is entitled to protection as a bona fide purchaser. | HSBC is a bona fide purchaser; title stands in HSBC, dismissing declaratory relief against HSBC. |
| Fraud liability of the Smiths (Count 1) | Plaintiffs allege the Smiths aided and abetted fraud by participating in the sale and related misrepresentations. | Smiths argue plaintiffs fail to show Smiths made misrepresentations; materiality and reliance lack proof. | Disputed facts as to aiding and abetting preclude summary judgment; Smiths denied on Count 1. |
| DCCPPA claims against the Smiths (Count 2) | Plaintiffs allege misrepresentations and unconscionable terms by the Smiths under DCCPPA. | Smiths contend they were not misrepresenters and not merchants under the statute. | Summary judgment for Smiths on §28-3904(e)-(f); issue remains on unconscionability (§28-3904(r)) and merchant status. |
| RESPA claim (Count 6) and statute of limitations | Plaintiffs allege RESPA kickbacks and improper charges in the closing. | Defendants argue RESPA claim is time-barred and not timely filed within one year of closing. | RESPA claim dismissed as untimely; limitations period not tolled. |
| Conversion (Count 8) of funds and title | Plaintiffs claim defendants converted settlement funds and/or title. | Smiths argue real property conversion is not cognizable in DC; settlement funds conversion contested. | Conversion of real property barred; conversion of settlement funds remains fact-dependent and survives partial denial. |
Key Cases Cited
- Ali v. Mid-Atl. Settlement Servs., 636 F.3d 627 (D.C. Cir. 2011) (merchant status under DCCPPA depends on involvement in transaction)
- McKinley v. Crawford, 58 F.2d 528 (D.C. Cir. 1932) (possession can be notice to purchasers; exception when seller remains in possession after deed)
- Clay Props., Inc. v. Wash. Post Co., 604 A.2d 890 (D.C. 1992) (constructive notice and duties in real property transactions)
- Osin v. Johnson, 243 F.2d 653 (D.C. Cir. 1957) (trust and bona fide purchaser principles in title disputes)
- Holmes v. Jones, 343 F.2d 301 (D.C. Cir. 1965) (fraud in the factum; extreme cases necessary for void ab initio deeds)