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Woman settles mortgage fraud suit

BY ED PALATTELLA
ed.palattella@timesnews.com [more details]

BY KEVIN FLOWERS
kevin.flowers@timesnews.com
Published: August 24. 2008 12:01AM

Home of Eloise Woodsbey, 618 East 9th St. Erie resident Eloise Woodsbey will be allowed to keep her house, with a much lower mortgage and interest rate, as part of the settlements that ended her fraud cases against banks and others connected with the puchase of her house. Local groups working on possible class-action suit to help other homeowners. Eloise Woodsbey was photographed Aug. 22 at her home. (Erie Times-News)


Predatory lenders once victimized her, and she nearly lost her house in foreclosure.

But now Erie resident Eloise Woodsbey has a smaller mortgage, a lower interest rate and a better chance to stay in her home at 618 E. Ninth St.

Woodsbey received the favorable terms by settling a lawsuit against a huge bank and other defendants in U.S. Bankruptcy Court in Erie on Friday.

In the main provision of the settlement, the principal on Woodsbey's mortgage was cut from $44,900 to $25,000, and the interest rate was set at 5 percent, over 30 years. That rate had been as high as 11.75 percent.



Using the Woodsbey case as a guide, the statewide legal-aid organization that represented her is working with local groups to try to help hundreds of other Erie homeowners caught up in the same Erie subprime mortgage scam, which was at the center of a federal criminal probe. Among those indicted in the case were the mortgage broker and developer involved in selling Woodsbey her house.

A class-action lawsuit is one possibility to help the other aggrieved homeowners. Woodsbey was the only plaintiff in her case.

"It is a good result for her," said one of Woodsbey's lawyers, Kevin Quisenberry, of the Pittsburgh-based Community Justice Project. "I wish there was a way to get relief for the other 100 people who bought these homes."

He said the nonprofit Community Justice Project has been receiving information from St. Martin Center Inc. and other Erie-based groups on other homeowners who might need assistance. The local efforts have coincided with the collapse of the subprime mortgage industry nationwide.

Dave Pesch, the housing counseling manager at St. Martin Center Inc., 1701 Parade St., said that he and lawyers from the Community Justice Project are reviewing the mortgages of about 50 Erie residents who purchased houses from the defendants in the criminal case. The criminal investigation, which included the FBI reviewing records for Woodsbey's house and 196 other properties, led to the indictments of five people, including the broker and developer in Woodsbey's case.


"We're looking at similarities, to see what can be done," Pesch said.

When asked if the review could result in a class-action suit involving some of those homebuyers, Pesch said, "I certainly think that is a possibility."

Quisenberry said he hopes that local lawyers and other officials can provide the resources to review the cases of other homeowners to see if they merit legal action.

"What would be really great is if we can get a dedicated pool of attorneys who would be available for cases that would be referred to them," Quisenberry said.


'I'm all right'
TERMS OF THE SETTLEMENT
Erie resident Eloise Woodsbey last week settled a lawsuit in which she claimed developers and others used fraud to get her a mortgage and sell her a house for $49,900 at 618 E. Ninth St. in 2004. Sued were the developer who sold her the house, Gregory M. Finney, of Erie; the mortgage broker, Francis R. Conti, of Waterford; the appraiser, Hurlburt Appraisal Service, of Meadville; the mortgage company, the now-defunct Meritage Mortgage of Jacksonville, Fla.; and the Frankfurt, Germany-based Deutsche Bank, which eventually bought Woodsbey's mortgage in a bundle of mortgage-backed securities.

Woodsbey argued that Finney and Conti used fraud to sell her a house whose value was artificially inflated through Hurlburt's appraisal, and that Meritage and Deutsche Bank should have been aware of the problems.

The suit was settled in U.S. Bankruptcy Court in Erie. None of the defendants who filed unsealed agreements admitted wrongdoing; one agreement was sealed. According to court records, the terms of the settlement are as follows.

  • Deutsche Bank, the holder of the mortgage, reduced the principal of the mortgage from $44,900 to $25,000. An independent appraiser Woodsbey's lawyers hired as part of the lawsuit set the value of the house at $25,000. Woodsbey claimed Hurlburt Appraisal Service, as part of the sale of the house to her, wrongly set the value of the house at $53,000.

  • Deutsche Bank reduced the interest rate of the mortgage to 5 percent over 30 years. The rate had been as high as 11.75 percent. The bank reduced the monthly mortgage payments from $564 to $252.74 -- $134.21 for principal and interest and $118.53 for an escrow payment.

  • Meritage agreed to pay Woodsbey $1,000, which will be used to repair the house, based on prior court filings. A lawyer for the Federal Deposit Insurance Corp. is representing Meritage. The FDIC in September shut down Meritage's parent company, the Georgia-based NetBank, and the FDIC took over as receiver for NetBank.

  • Conti, the mortgage broker, agreed to pay $1,200, also to be used for repairs.

  • Hurlburt Appraisal Service also settled with Woodsbey. But U.S. Bankruptcy Judge Warren W. Bentz allowed the parties to seal the settlement.

  • Woodsbey sued Finney, but he never responded in Bankruptcy Court, prompting Bentz to file a default judgment against him.
  • For Woodsbey, 51, a disabled single mother, she eventually got relief through the suit the Community Justice Project filed on her behalf in Bankruptcy Court in 2006. St. Martin Center, which assists low- and moderate-income homebuyers, referred Woodsbey to the Community Justice Project. Woodsbey sued in Bankruptcy Court in January 2006 to stop foreclosure proceedings on her house, which she bought for $49,900 in February 2004. At the time of the bankruptcy filing, Woodsbey received $1,608 a month in Supplemental Security Income, or SSI, for a back injury.

    Woodsbey risked losing her single-family residence because of what she claimed was a fraudulent $44,900 variable-rate mortgage with terms she could not afford, including an initial interest rate of 11.75 percent.

    "I'm glad they got the mortgage down," Woodsbey said after the settlement hearing Friday.


    "I'm all right."
    Those Woodsbey sued were the developer who sold her the house, Gregory M. Finney, of Erie, and the mortgage broker, Francis R. Conti, of Summit Township, both of whom were indicted on fraud charges in U.S. District Court in Erie. Woodsbey also sued the appraiser, Hurlburt Appraisal Service, of Meadville; the mortgage company, the now-defunct Meritage Mortgage of Jacksonville, Fla.; and the Frankfurt, Germany-based Deutsche Bank, which eventually bought her mortgage in a bundle of mortgage-backed securities.

    Woodsbey argued that Finney and Conti used fraud to sell her a house whose value was artificially inflated through Hurlburt's appraisal, and that Meritage and Deutsche Bank should have been aware of the problems. As part of the fraud, she said those who helped her get her mortgage wrongly reported her income.

    Finney's company, A & M Homes of Erie Inc., bought the house at 618 E. Ninth St. for $20,200 from the U.S. Department of Housing and Urban Development in June 2003, and sold the house to Woodsbey for $49,900 eight months later. Woodsbey said problems such as a leaky roof, dead electrical outlets and sewage in the basement plagued the house when she moved in.

    In the settlement agreements filed last week in Bankruptcy Court, none of the defendants admitted wrongdoing. One agreement was sealed. But the defendants agreed to alter the terms of Woodsbey's mortgage and to provide her $2,200 to help her repair the house.


    Local case, national issues
    Quisenberry, of the Community Justice Project, worked on the Woodsbey case with lawyer Margaret Schuetz, also of the Community Justice Project. He said after the settlement hearing on Friday that confidentiality agreements prohibited him from commenting on the specific terms of the settlement.

    The claims against Deutsche Bank were the most complex. Though the bank was not involved in the original mortgage, Woodsbey argued that Deutsche Bank should have been held responsible for Meritage's conduct because Deutsche Bank purchased Woodsbey's mortgage from Meritage as part of a bundle of mortgage-backed securities.


    Judge Warren W. Bentz rejected those arguments in September, and Woodsbey appealed to U.S. District Judge Sean J. McLaughlin. The settlement ends the appeal.

    Many of the issues that came up in Woodsbey's bankruptcy case, including the lack of federal regulation of bundled mortgages, echoed concerns that Congress has debated as lawmakers address the nationwide mortgage crisis. The FBI's criminal investigation of the Erie houses also showed how the local scam, like other scams nationwide, was based on the technique of buying inexpensive houses and quickly "flipping" them at much higher prices without making the repairs and other improvements that justified the increase in price.

    Conti, 41, the mortgage broker, and Finney, 35, president of the now-defunct A.M. Homes, were indicted on fraud and conspiracy charges, as were the other three defendants in the criminal probe.

    Two of the five defendants -- Erie developers Robert L. Dodsworth, 60, and his partner, Frank Kartesz II, 39 -- have pleaded guilty to fraud-related charges. Dodsworth, who worked with Finney in the development business, was sentenced in March to six years and four months in federal prison, and Kartesz is awaiting sentencing.

    Conti and another defendant, Keith A. Rice, 49, of Harborcreek Township, are awaiting trial. Finney is expected to enter a guilty plea on Monday in U.S. District Court in Erie.


    Pesch, of St. Martin Center, said none of the homeowners caught up in the criminal case has yet to see restitution from the defendants. Pesch said he wants to make sure affected homeowners can avoid foreclosure.

    Pesch said St. Martin Center continues to deal with the criminal case's fallout, 27 months after the Erie Times-News first reported on the mortgage-fraud investigation in May 2006.

    "With all the publicity generated by this, we're still coming across at least one new person a week who bought (a home) from the core group of individuals charged in that case," Pesch said. "It's amazing."

    ED PALATTELLA can be reached at 870-1813 or by e-mail.

    KEVIN FLOWERS can be reached at 870-1693 or by e-mail.


    Need Help?
    St. Martin Center, 1701 Parade St., assists low- and moderate-income homebuyers and has been critical in helping local residents who believe they were victims of mortgage fraud. The center's housing counselor manager is Dave Pesch, who said the center is reviewing cases for possible future legal action. If you have a concern over your mortgage, Pesch said to call the center at 452-6113.

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