Struggling Couple Sues Over “Scam”

by Melissa Bailey | May 22, 2008 12:25 PM | | Comments (19)

DSCF0254.jpgWhen 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.

DSCF0246.jpgWilloughby (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.

DSCF0238.jpgDown 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
• Foreclosure Sale Benefits Archie Moore’s
• Rescue Squad Swings Into Action
• A Bidder Shows Up
• Bank Beats Tanya’s Bid
• Westville Auction Draws A Crowd
• DeStefano: Foreclosure Plan Ready
• Can They Help?
• “We Should Over-Regulate These Bastards”
• Rosa Hears of Rescues
• WPCA Grilled on Foreclosures
• WPCA’s Targets Struggle To Dig Out
• Sue The Subprimers?
• WPCA Hearing Delayed
• 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
• Renters Caught In Foreclosure King’s Fall
• She’s One Of 1,150 In The Foreclosure Mill
• Foreclosures Threaten Perrotti’s Empire
•“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.







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Comments

Posted by: Pamela | May 22, 2008 3:19 PM

Debra: Keep your head up girl, i see this happen to too many people getting scammed this way searching for our American Dream of Home Ownership, take these people to the highest extend of the Law. Don't back down and settle for less than what your family is worth. You might want to write a letter to your Attorney General he would fry this fish big time.

-Pam

Posted by: Ohplease | May 22, 2008 3:29 PM

"In an admittedly unwise move..." Section 8, nine children and a $395,000 house? Look in the mirror.

Posted by: Joan | May 22, 2008 4:17 PM

Maybe someone should check the New Haven Land Records..they might be surprised to see that Mr. Delroy Reid purchased another home a few months later. Who did he use as a broker? L&S. If he was so aggrieved the first time, why did he go back for a second round?

FYI - at a closing, one of the documents you sign is the final loan application which states your income. If he signed a false document, he too is guilty of fraud.

I find it hard to feel sorry for someone that is obviously completely ignorant. These are the not innocent first time homebuyers.

What these clowns should have done was let the bank take it. My guess is they don't have one red cent invested. Instead they appealed to an unwitting reporter whose true motive was to appease the liberals rather than check the facts.

Posted by: kris | May 22, 2008 4:54 PM

Was it after the 1st,2nd,3rd,4th,5th,6th,7th,8th, or 9th kid that she needed section 8 ?I am a single woman with no kids making 70,000 a year and couldnt swing a 395,000 mortgage.If she couldnt swing a rent and needed section 8 than what made her think she could afford a mortgage??Also if she cant pay a rent how is she gonna afford college for 9 kids?Maybe with all the child support money she gets?

Posted by: THREEFIFTHS | May 22, 2008 5:59 PM

Any one of us can be scam.Look at some of the famous people who lost millions of dollars in the nigeria money scam,I know people right from here that lost money to the three card monte scam,Look at the people who got take by enron.My family own a lot of brownstone houses in Harlem and Brooklyn
and you should she the number of senior citizen who are scam out of there million dollar brownstones.
The people of New Orleans are being scam out of there land and homes.So any one can be scam. Last Oh please what are you trying to say with the statement section 8 nine kids and a 395,000 House.

Posted by: Shill at City Hall | May 23, 2008 7:21 AM

Dont worry. The city are hiring a foreclosure attorney to help these poor people. It will only put one or two mil on our taxes.

Posted by: Joe | May 23, 2008 7:59 AM

first, a few things to say to previous posters. not that i'm a fan, but so what if she has 9 kids, she's raising them and doing the best to survive. second, think about the house they'd have to RENT and the COST of that rent. from experience, it was probably cheaper to pay a mortgage than a rent. and no offense who cares if she was on section 8 big friggin deal. then the posting of public records to try and bring the family down - nice cheap shot but a serious question are you a disgruntled former friend, lover or someone trying to undermind the lawsuit? and who cares that the guy has a couple of other kids out there, maybe. and as a note, the new haven independent is doing their job and reporting the news. at least they did that in an unbiased way. maybe you people should learn a lesson from them. i'm sure from reading the article, they tried to get both sides of the story. while i may not know those involved, i have been through both the child support system which is a joke, as they sent their papers to a 20 year old address and then never followed up. i wound up owing over 42k and when it popped up on my credit, i had to pay to re-open the case and a lawyer, etc and after over 20k in fees, baet it. now i have to get permission from the state to sue the state which is a joke. oh and trust me i will go the full route just on principle. also, both my wife and i have and are going through the mortgage bs ourselves and guess what Jose from Ameriquest on long wharf here in New Haven outright told us to lie and inflate our income and that it was no big deal when we were refinancing our home which we are now fighting to keep. Ameriquest also had their attorneys from The Law Barn in Weathersfield represent all parties involved and at NO TIME were we ever told it was a conflict of interest. We were told by both Jose and the attorney that they were doing us a favor to help us keep extra money from having to be paid out. We were also told that after 2 years of timely payments Ameriquest would have no problems re-financing at a better rate. We went in to lower our payments and when we left, the payments were higher and after the 2 years, the payments exploded. We are now paying double what we were in the first place with Option One. Couple of other things Ameriquest contacted us and told us 1st that they would save us money (yeah I guess if there's no house to pay, they did) and 2. they never went over any of the paperwork with us at all, everything was rush rush. If we did have an attorney of our own, I am sure he would have pointed out that we signed an adjustable rate mortgage not a fixed rate. And another thing, we first told Ameriquest that we were not interested and they kept chopping away on more than one occasion till we caved (by the way. back in the day, I worked in sales did you know that when a customer says no they are really just asking for more information? That's what I was taught-Rehash, rehash). Another funny thing is that like i said Ameriquest initiated contact with us, not the other way around and something even funnier, now that we are having these issues and fighting for our home, the amount of mortgage companies wanting to "help" us and the amount of attorneies wanting to "help" us is unbelieveable, they came out of the woodwork like roaches.I get at least 7-10 unsolicited letters in my mail everyday with all these "helpful" people. Sorry but we will win and be able to keep our home which we have been in for 12 years now. The attorney we did hire will make sure of that. Are we considering action? You bet we are. Instead of all these individual lawsuits, maybe all those screwed over should make one nice big class action suit against each of those helpful mortgage companies. Another interesting thing is that our fine state went after Ameriquest awhile back for their shady practices and supposably got a nice big settlement for the citizens of CT that were wronged by them. Funny I never got my check. Am I pissed? you betcha I am. Do I have an axe to grind? yup several. i was mislead, misinformed and outright lied to by people who gained my trust. if an individual did this in this state it would be a crime, but since a business did and does it conviently it's a civil matter.
Joe

Posted by: EarlyBird | May 23, 2008 8:14 AM

...what are you trying to say with the statement section 8 nine kids and a 395,000 House.

Perhaps she's trying to say it's the year 2008, birth control is readily available, and there is no reason to bring children you can't support into the world?

Just sayin'.

Posted by: tobie | May 23, 2008 10:29 AM

first of all to all the haters i am one of the nine kids of debra willoughby. you shouldn't speak if u don't no nothing. my mother is a good mother and she did a hell of a job raising us i am the second oldest yes i went to college little did you no an also my oldest sister make that amount you make and one of my younger sister is an college now. second there's no babys my sister ,brother are big. hey to the girl that said she make 70,000 who care about how much u make we are talking about a scam here were not talking about who better then who. you are giving impressing that you are down with it.

Posted by: on whalley | May 23, 2008 11:43 AM

I don't think you're helping your cause "Tobie."

If anything you should probably try getting a refund for that tuition somebody paid. U no the impressing I'm giving?

Posted by: kris | May 23, 2008 11:59 AM

Hey Joe, first of all SHE is not supporting her kids...WE ARE with our tax dollars,section 8 food stamps medical...Second of all,you are gonna say you have been through the child support nightmare and owe 42,000.Did it take a letter in the mail to find out that you had a child you needed to support.You should have been supporting your kid all along.Why do you need a reminder letter from the state.Did the state send you a letter telling you to father a child?I hope the state tacks on intrest.It must be nice to own a house and have a roof over your head and in the mean time there is a kid out there without getting support from their father but thats the states fault for sending the reminder letter that you have a kid to the wrong address.

Posted by: Edward_H | May 23, 2008 12:38 PM

" unsophisticated homebuyers"

Just what does this phrase mean? I know lots of people who can be classified as "unsophisticated" but they have all purchased homes without a problem. To paraphrase the comedian Chris Rock: "Can't they just be ?" Did anyone bother to ask her how she expected to pay any type of mortgage when she is relying on the rest of us tax payers to pay her rent?

"We got suckered," said Willoughby, a heavyset mother of nine

What does her being heavyset have to do with anything?

Joe

think about the house they'd have to RENT and the COST of that rent. from experience, it was probably cheaper to pay a mortgage than a rent.

The only way this is true is if the purchaser puts down a HUGE down payment or goes for a ridiculous 50 year mortgage. If this were true more people would own homes and few people would be renting. Taxes, insurance and maintenance make owning a home much more expensive than renting. No wonder you got taken for a ride by Ameriquest.

Tobie
first of all to all the haters i am one of the nine kids of debra willoughby. you shouldn't speak if u don't no nothing.

It is admirable gesture for you to attempt to defend your mother from the "haters" but your mother decided to put her business "out in the street" as they say in the hood. Did the NHI force her to participate in the article? If not then I hope she has thicker skin than you seem to have because someone living off of section 8 and breeding kids non stop is not a sympathetic figure.

Where did you go to college? My niece is nearing college age and I would like to know which schools to recommend she avoid at all costs. Just a guess but was it a HBCU?

In the past when people would starve for being idiots, there were a lot less idiots.

Posted by: THREEFIFTHS | May 23, 2008 2:25 PM

Kris
Our taxes was used to bail out the corporatist company bear stearns for the slick sub prime hedge fund scam!!! How the tax dollars that bail out chrysler, And must not forget the savings and loan scam by king bush brother!!! And you know about this war,How much of our tax dollars are going to this Made of war.By the way as far as child support a person should pay,But i was reading that due to the fact that people are being laid off there is a back log of these people
who are behind in there payments,I know some of them in fact.I know people who are in West Haven who are laid off from bayer which good old skull and bones yale now own,There house are now in foreclosure.Wake Kris anyone can be next,I hope it is not you.

Posted by: DEBRA | May 23, 2008 10:07 PM

JUDGE ME JUDGE ME NOT I CAN'T BELIVE HOW PEOPLE ARE FOUCUSING ON THE FACT THAT I HAVE 9 KIDS AND WAS ON SECTION 8 ..I WAS TOOKING OF SECTION 8 BECAUSE I HAD TO MUCH INCOME I WAS A WORKING [[MOTHER]]AND NOT LIVING OFF PEOPLE TAXES I CAN'T BELIVE HOW YOU PEOPLE ARE UP HERE JUDGEING ME ABOUT MY NINE KIDS AND SECTION 8 THAT I ONCE HAD THE STORY IS ABOUT HAVING A DREAM OF OWNING MY OWN HOUSE IF I WORRIED ABOUT WHAT PEOPLE SAY I WOULD HAVE NEVER BEEN A [[STRONG BLACK WOMEN I AM TODAY]]I AM 45 YEARS OLD AND MY YOUNGEST CHILD IS 13 AND MY OLDEST IS 28 SEE I DON'T HAVE [[BABIES]] SO YOU SEE YAH TAX MONEY IS NOT TAKING CARE OF ME AND MY KIDS WHO ARE YAH TO JUDGE ME[[ONLY GOD]] WHEN U GET A SECOND CHANCE OF LIFE YOU DON'T WORRIE ABOUT WHAT PEOPLE SAY AND THINK OF YOU MY MAIN CONSERN IS MAKING SURE WHEN I LEAVE THIS WORLD THAT MY KIDS ARE OK AND THEY HAVE A PLACE THEY CAN CALL HOME IF IT WAS WRONG FOR ME AND DELROY TO OWN A HOME THEN I DON'T KNOW WHAT IS WRONG WITH YOU PEOPLE SO FOCUS ON THE FACT ABOUT THE HOUSE ALL IWAS TRYIN TO DO IS TO LET PEOPLE KNOW TO BE CAREFUL WHO YOU TRUST AND WHO YOU BELIVEING AND HOW YOU BELIVE IN A DREAM OF OWNING YOUR OWN HOUSE AND PAYING PEOPLE RENT SO ALL YOU PEOPLE THAT HAVE NAGITIVE THINGS TO SAY ABOUT THIS CASE AND STORY [[ONLY GOD HAVE TO ANSWERE AND CAN JUDGE]]SO YAH HAVE A NICE DAY AND [[KEEP TALKING ABOUT ME]]ONLY THING IT KEEP ON MAKING ME STRONGER AND STRONGER

Posted by: Bill Saunders | May 25, 2008 5:14 AM

Maybe the scam is the "American Dream" of home ownership.

Between interest payments, taxes, upkeep (or condo fees), the math does not really play out in the owners favor anymore (unless you are a quick-flipping investor).

Even those of us that bought our houses at reasonable prices twenty years ago (by today's standards), are facing epic problems due to energy costs associated with large housing stock. Yet, developers keep building even bigger McMansions.

Well, at least we got to refinance those crippling 12% loans from the era of BUSH1, under BUSH2.

But wasn't the whole scheme a slick tradeout to put our bloated interest payments into the pockets of big oil?? (without the tax deduction)

So, the American dream stupidly lives on -- in a large part because of the sharks.

PT Barnum's fault, or the Sucker?


Posted by: kris | May 26, 2008 8:52 PM

Debra, you are right.. the story was about the american dream not the fact that you have 9 kids.I thought about it and i do apologize.Good luck with everything and stay strong.

Posted by: Chris Gray | May 26, 2008 11:56 PM

For the last two days I have been depressed about the comments section on this article.

Debra, thanks for having the courage to tell your story. Kris, thanks for having the decency to apologize.

Bill Saunders, you hit the nail on the head!

Posted by: Fedupwithliberals | May 28, 2008 7:00 AM

Bill,

In what parallell universe did you find a 12 percent home loan under Bush? Was it the same one where we had 22 percent interest under Carter?

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