When they knocked on the door of L & S Mortgage, Delroy Reid and Debra Willoughby just wanted to buy a home. After getting lured into buying a broken-down house through an alleged mortgage fraud scam, they found themselves knee-deep in sewage — and debt.
The unwitting first-time homebuyers have gone to court to try to recover. Their story is replete with echoes of thousands of similar shaky mortgage deals that have bedeviled families across the country, and helped spark both a national foreclosure crisis and a recession.
Their story also reflects a question facing officials seeking to deal with alleged scams: how much responsibility should be placed on unsophisticated home-buyers who sign on to shaky deals?
Reid and Willoughby claim they were lured into a conspiracy between a mortgage company that falsified their loan applications, sellers with family ties to that company, and an attorney who didn’t look out for best interests.
The company that brokered the deal, L & S Mortgage, LLC, surrendered its mortgage broker license as of March after the state threatened to shut the company down for charges including taking false loan applications.
Reid and Willoughby say the company preyed on them, too: The mortgage company allegedly switched houses on them, falsified papers and duped them into taking out more loans than they could afford on their current home at 192-194 Winthrop Ave.
With the help of the Jerome N. Frank Legal Services Organization at the Yale Law School, Reid file suit in New Haven Superior Court against six alleged co-conspirators in the scam: L&S mortgage; CA-based lenders Fremont Investment; two sellers; an attorney who oversaw the sale; and Dolan & Luzzi, a New Haven law firm that has a $20,000 contract with the City of New Haven to do foreclosure work.
Click here to read the suit.
“We got suckered,” said Willoughby, a heavyset mother of nine struggling with cancer and unemployment. She was brought to the point of tears as she recounted how she and her partner, two low-income, unsophisticated first-time homebuyers, got swindled into buying a home they would never have wanted for a price they could never afford.
The House Hunt
The couple shared their story one recent afternoon after a hard rain. Above where they sat, a wall remained damp with rainwater, and a squirrel poked around the attic beside a big hole in the roof.
Willoughby (pictured) and Reid started shopping for houses in January 2006. She and her kids were about to lose a federal Section 8 housing voucher because Reid was moving in and they would no longer qualify. They thought a home would be a good investment.
So the couple started looking around New Haven, where Willoughby grew up, for a home. Reid called L & S Mortgage. He said he was interested in buying a home.
L & S directed the couple to a three-family home at 109-111 Hobart St. They took a tour with a man named Kwame Nkrumah (brother of the homeowner, Carolyn Woodson) and an employee of L & S. They liked what they saw.
That same day, Jan. 18, 2006, the couple signed a Purchase and Sale Agreement to buy the Hobart Street home for $395,000.
“We were really happy,” recalled Willoughby. “I was like, oh my God, I really got a house!”
Willoughby didn’t know she would never move into that home. A series of alleged manipulations steered her far off that course.
L & S called the next day demanding $1,000, according to the suit. Changing its story from a day ago, the company claimed that Reid’s credit was defective, and that “these funds would ‘fix’ the defects,” according to the suit.
A Switcheroo
The soon-to-be homeowners forked over the money and worked to set up a mortgage with the company over the next few months. Then, the suit alleges, the company pulled a switcheroo: On April 17, 2006, just before the closing, L & S told Reid the home was not available, but he could have 192-194 Winthrop Ave. instead. The Winthrop Avenue home was co-owned by the owner of the Hobart home, Carolyn Woodson.
In an admittedly unwise move, the couple agreed to close on the home the next morning — without ever taking a look inside or seeing an appraisal. An employee of L & S named Alice Woodson told Reid the Hobart home had defects and the Winthrop place was better, the suit charges.
When Reid signed his name on the line, he said he had no idea what he was getting into: Instead of signing up for one mortgage, he was getting roped into three mortgages, based on a falsified loan application, according to the suit.
In violation of state law, L & S falsely reported Reid’s income on the loan application by which it secured mortgages from Fremont Investment and Loan, a California-based mortgage lending company, according to the suit.
The state has since sought to get the company out of the mortgage business. The state banking commissioner found L & S guilty of five state violations, including accepting false loan applications in two separate cases. Those charges prompted a March settlement by which L & S agreed to pay a $10,000 civil penalty, surrender its broker license and not reapply for two years.
A company phone number has been disconnected. Company principals could not be reached for comment for this story.
As a result of the alleged false application, Reid got hooked onto a loan he would have no way of supporting. As has happened with unsophisticated, low-income buyers across the nation, Reid got lured into a subprime loan that stayed at $2,100 per month for the first two years, then ballooned — by over 50 percent — after the two-year mark.
“At no time did any defendant or agent for any defendant explain the meaning or even the key terms of the documents presented and signed at closing,” alleges the suit.
The attorney overseeing the sale was representing all parties at once. Stuart Hawkins, then an attorney at Dolan & Luzzi, represented Fremont, Reid, and the sellers. Representing the three parties is legal, as long as the parties are advised of the conflict of interest.
Hawkins allegedly got consent from the buyers as to the conflict of interest, but failed to inform the buyers of the conflict of interest he had in representing all three parties. He also rushed the buyers into buying the home, didn’t explain to the couple what they were signing up for, and should have been aware of the fraudulent mortgage papers, the suit alleges.
Hawkins no longer works at Dolan & Luzzi. Reached at his current employer, Shepro and Blake, LLC, Hawkins declined comment.
“Our firm represented all parties in an appropriate manner,” said Mike Luzzi on behalf of his firm, Dolan & Luzzi. “There are facts outlined in the complaint that are false,” he said, declining to go into further detail.
Family Ties
Reid later found out that the people involved in the sale were family members.
His two primary contacts at L&S were a sister and a cousin of the sellers. Tthe proprietor of L & S, Lamont Wright, was also a cousin of the sellers.
The familial relations were not made known to him, according to the suit.
A Broken-Down Home
The biggest surprise of all came when the couple entered the house. They walked down the hallway of their new home, taking a tour with the seller.
“As soon as you hit the kitchen, you had the biggest hole, and water leaking,” Willoughby recalled. There was trash all over the house.
“I was pissed,” said Willoughby. “Look at this shit.” The third-floor apartment had 25 violations disqualifying it from Section 8 funding.
“I don’t know how people lived up in there,” said Willoughby, smoking a cigarette out her living room window. The backyard was filled with trucks and cars. There were holes in the roof and interior walls.
Down in the basement, more discoveries were yet to be revealed: Sewage would back up, flooding the basement. The hot water furnaces weren’t hooked up right. There was asbestos wrapped around heating pipes. There were holes in the interior walls and the roof. One day, the porch rotted out and fell.
“It’s just a raggedy-ass mess,” Willoughby said.
Reid, who worked in construction, has made a lot of the improvements to the building. He addressed the 25 Section 8 violations so they could keep renting the place out. He reconstructed the porch.
But the battle has been a losing one. The couple, both of whom are now unemployed, have failed to make mortgage payments since December. Christmas, Willoughby recalled, was tough. Winter was long and cold, with no money for the furnace and wind blowing in through drafty windows. With renters fleeing the poor conditions, they had trouble making mortgage payments.
“The bank account went down, down, down, until there was nothing,” Willoughby recalled. Now she’s struggling to support her kids. Two of her daughters got jobs at Home Depot to help out.
“We livin’ up in this house with stress,” she said. “Stress, stress, stress, stress, stress.”
The couple reckoned it would take $100,000 to make necessary improvements to the home. Now facing the threat of foreclosure from Fremont, the couple sought help from Neighborhood Housing Services and the law clinic, which are teaming up to help those facing foreclosure.
Willoughby shared her story at a recent foreclosure forum. She’s spreading the word about her story.
“We would have been better sitting back in an apartment, not owning a home,” she said. “They really took advantage of us, they really did.”
“I just want people to know — be aware of people like them. If you got a dream [to buy a house], go through a class, because your dream could be destroyed.”
Previous Independent coverage of New Haven’s foreclosure crisis:
• More Foreclosures, More Signs
‚Ä¢ Foreclosure Sale Benefits Archie Moore’s
• Rescue Squad Swings Into Action
• A Bidder Shows Up
‚Ä¢ Bank Beats Tanya’s Bid
• Westville Auction Draws A Crowd
• DeStefano: Foreclosure Plan Ready
• Can They Help?
‚Ä¢ “We Should Over-Regulate These Bastards”
• Rosa Hears of Rescues
• WPCA Grilled on Foreclosures
‚Ä¢ WPCA’s Targets Struggle To Dig Out
• Sue The Subprimers?
• WPCA Hearing Delayed
‚Ä¢ Megna’s “Blood Boils” at WPCA Tactics
• Goldfield Wants WPCA Answers
• 2 Days, 8 Foreclosure Suits
• WPCA Goes On Foreclosure Binge
• A Guru Weighs In
• WPCA Targets Church
• Subprime Mess Targeted
‚Ä¢ Renters Caught In Foreclosure King’s Fall
‚Ä¢ She’s One Of 1,150 In The Foreclosure Mill
‚Ä¢ Foreclosures Threaten Perrotti’s Empire
‚Ä¢“I’m Not Going To Lay Down And Let Them Take My House”
The following links are to various materials and brochures designed to help homeowners avoid foreclosure.
How to prepare a complaint to the Department of Banking; Department of Banking Online Assistance Form; Connecticut Department of Banking, Avoiding Foreclosure; FDIC Consumer News; Statewide Legal Services of Connecticut, Inc; Connecticut Bar Association Lawyer Referral Service.
For lawyer referral services in New Haven, call 562-5750 or visit this website. For the Department of Social Services (DSS) Eviction Foreclosure Prevention Program (EFPP), call 211 to see which community-based organization in the state serves your town.
Click here for information on foreclosure prevention efforts from Empower New Haven.