Texas couple taken advantage of in bankruptcy case, judge says

John O'Brien Mar. 26, 2008, 2:20pm


DALLAS - A bankruptcy case in which Texas Attorney General Greg Abbott recently joined resulted in punitive damages from a foreclosure rescue company.

North American Foreclosure was ordered last week to pay $100,000 in punitive damages to a client and $48,000 in civil penalties to the State in the bankruptcy case of Michael and Brenda White. The State of Texas also recovered $10,000 in attorneys fees and $48,000 in civil penalties from Jireh Capital Services, which cooperated with Abbott's investigation.

The Whites had filed for bankruptcy to save their home. Federal judge Stacey G.C. Jernigan called mortgage rescue schemes "a new cottage industry of bottom feeders."

"This court is satisfied that the Whites have been naively duped in this matter and have not themselves knowingly or fraudulently participated in acts that might be described as a bankruptcy crime," Jernigan added.

"At worst, they appear to be 'bit characters' in a scheme to defraud borrowers and lenders alike who are in the midst of foreclosure proceedings."

In June 2006, the Whites were struggling to make mortgage payments on their Mesquite home and sought Chapter 13 bankruptcy protection, an adjustment of debts for those with regular income.

The Whites could not keep up with their new payment schedule and defaulted, resulting in a Feb. 2007 foreclosure date. They then reached out to North American Foreclosure and its local representative, Jireh Capital.

An employee of Jireh had the couple move 1 percent of their home's value to an out-of-state individual who would agree to file bankruptcy, delaying the foreclosure date. The value was transferred to a woman in California who had filed for bankruptcy on her own and had no idea that she owned 1 percent of the White's home.

The Whites paid North American $650 once, but Jernigan ordered them in to discuss North American's scheme.

Abbott intervened in January. The Whites were already represented by the Leinart Law Firm of Dallas, which had been on the case since it was filed in June 2006.

"At a time when regulators, policy makers and stakeholders are working to help struggling families, unscrupulous operators are scheming to profit at homeowners' expense," Abbott said. "Judge Jernigan's order sends a strongly worded signal that the courts will not tolerate fraudulent schemes that abuse the bankruptcy system in an attempt to gain illegal profits. We will continue aggressively pursuing scams that prey upon Texas homeowners."

Jernigan recommended the U.S. Attorney's Office investigate potential criminal violations. The Whites are still living in their home and are working with their mortgage company.

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