Underwater owners try to beat the bank

Article Courtesy of The Palm Beach Post

By Kimberly Miller

Published June 20, 2012


By the time the stranger called that Thursday in March, suburban Boynton Beach homeowner Marcie Lowe was out of options to fix her failed real estate wager.


The savvy 78-year-old played her hand well for years in the home-buying game, picking up properties in California and Key West to rent to kids in college and bartenders serving drinks on Duval Street.


But she got caught with a 10 percent interest-only loan on her gated Valencia Isles home, which is now worth hundreds of thousands of dollars less than the $571,000 she paid in 2003.


“What would you think of this?” Lowe remembers the caller saying.

He proposed a fresh strategy to end-run the banks — a complex legal plan that begins when you deed your home to the Fort Lauderdale-based Fidelity Land Trust Co. for an average fee of $2,500.

Conceived, at least in part, by a man barred by the state from engaging in consumer debt-related services, the trust then sues the bank to cancel your mortgage while offering a new contract with lower payments.

“He said more than 250 people were already set up for this,” Lowe recalls.

Optimistic homeowners: Janis and Marc Carpiniello are pursuing a plan they hope will allow them to owe just $60,000 instead of $399,000 on their Coral Springs home.

Fidelity Land Trust has quietly amassed about 80 Palm Beach County deeds since it registered as a limited liability corporation with the state in December.  

The firm is the owner of record for another 76 properties in Broward and Miami-Dade counties, according to clerk of court records.

If the trust is successful in canceling the mortgage through a quiet title action, the homeowner is still responsible for the loan debt, or note, but the trust then tries to buy that debt from the bank for pennies on the dollar.

Because the debt no longer has collateral in the form of the home, the idea is the bank will be more willing to negotiate.

According to a website run by Florida Home Rescue Mission, which markets Fidelity, the trust manages 250 homes in Florida worth a combined $45 million.

Literature sent to potential clients notes there are no guarantees in the legal process, but says that an “unfavorable” outcome “has never happened.” 

60 cases claimed

Still, some real estate attorneys are wary, saying it’s an unproven tactic.

They fear the homeowner could be left owing debt to their original lender while paying a fee to the trust.

“This is a very aggressive, cleverly constructed approach,” said South Florida attorney Marlyn Wiener. “But I don’t know where the homeowner ends up in this. If it works, everyone will be doing it. But there are a lot of risks.”

As many as 60 mortgages have been “quieted, canceled, voided, negotiated or satisfied” statewide by attorneys Fidelity retains, company representatives said.

They acknowledge that most of the wins are the result of default judgments awarded when banks don’t respond to the suit within a certain time period, usually 20 to 30 days. Default judgments are routinely reopened if plaintiffs can show a valid reason why they didn’t respond.

That’s what happened in an October lawsuit using a similar legal strategy to Fidelity’s and filed by Equus Partners — an entity that lists on a deed transfer the same Boca Raton address used by Fidelity in some state records.

The case, Equus Partners vs. Mortgage Electronic Registration Systems, was voluntarily dismissed in May after the lender asked for sanctions against Equus. In the request, it called the lawsuit seeking to cancel a nearly $900,000 mortgage “threadbare,” and likened it to “schemes perpetrated by various people over the last several years seeking to abscond with real estate rights.”

Equus Partners signed its deed over to Fidelity in February. Paul Gellenbeck, managing director of the Fidelity Land Trust Co., said the lawsuit will be refiled with a stronger argument soon and was not dismissed because of the threat of sanctions.“The Equus case was six months ago and our lawsuits went from three pages to 14 pages,” Gellenbeck said. “The strategy completely changed.”

And it’s not one he wants advertised. “We’re very, very, very secretive as far as our work product,” Gellenbeck said. “I don’t want the banks to understand what we do.”

Gellenbeck, 38, is not a lawyer or mortgage broker. His experience to lead Fidelity stems from marketing work he’s done for law firms and his own missteps during the real estate boom and bust, he said. Fidelity’s approach was developed over the past two years, he said, using the homes of friends and family and finally reaching out to clients through nine referral firms paid by Fidelity. The company operates on a skeleton crew of six people, Gellenbeck said, with lawsuits handled by outside attorneys.

Member barred

Within the layers of corporations tied to Fidelity Land Trust is Edward C. Tudor — a registered fictitious name for Edward Cherry, according to the Florida Department of State Division of Corporations.

State records show the managing member of Fidelity Land Trust Co. is Fidelity Land Trust Partners, whose “member or authorized representative” is Edward C. Tudor.

Cherry was barred in a 2009 consent judgment by Florida’s attorney general from dealing in consumer debt-settlement services after a state investigation concluded companies he was involved with “diverted millions of dollars to themselves and a coterie of families and associates.”

In 2010, the attorney general accused Cherry of violating the order after he allegedly conducted debt-related seminars that charged attendance fees of upwards of $95, according to a pending Broward County court case.

Gellenbeck said Cherry is his neighbor and has no involvement with Fidelity other than that he filed the incorporation paperwork with the state.

Cherry did not respond to a request to explain his relationship with Fidelity.

In documents sent in May to a client of Royal Palm Beach-based attorney Tom Ice, Cherry is listed at least once as “MGRM,” a state abbreviation for managing member, of the Fidelity Land Trust Co.

Also, an October lawsuit in Palm Beach County that sought to cancel a mortgage shows Gellenbeck and Cherry are associates in an entity called Eastwinds Partnership.

The two men signed a December request to have Circuit Court Judge Thomas Barkdull disqualified from the case after Barkdull grilled attorneys about the legal concept of canceling a mortgage through a quiet title action.

“I’ve never seen a case like this before,” Barkdull says in a transcript of the exchange filed in court records. “Tell me about it. Tell me about your theory of the case and where you came up with this theory, and what’s going on.”

When the attorney said he was not prepared to argue the case, Barkdull asked whether the attorney drafted the pleading. The attorney answered that Edward Cherry did.

Barkdull: Does Mr. Cherry work for your law firm?

Attorney: No, sir.

Barkdull: OK. And you say he’s not an attorney?

Attorney: No, sir.

The Eastwinds case, like Equus, was voluntarily dismissed. Gellenbeck said it too will be refiled.

“They are preying on the disorganization of the banks themselves and their inability to be organized enough to respond to the complaints in order to avoid a default,” said Ice, a foreclosure defense attorney. “It takes advantage of the sheer magnitude of foreclosure cases.”

But Fidelity client Marc Carpiniello is excited about the potential the plan offers to reduce the $399,000 he owes on his Coral Springs home. If successful, Carpiniello said he will owe the trust just $60,000.“I couldn’t get a loan modification, as much as I tried,” Carpiniello said. “I went through months and months and months of faxing documents.”

Fee structure changes

Unlike some foreclosure-rescue plans aimed at unemployed homeowners with few assets, Fidelity’s land trust strategy is for people who can afford to make monthly payments but have been denied such alternatives as a loan modification, Gellenbeck said.

Lowe and her husband, Maynard, met those qualifications. The great-grandparents paid cash for their Valencia Isles home in 2003. It was a furnished builder’s model with one of the three bedrooms converted into a home theater. They cashed out equity to buy more real estate during the boom years.

“Then along came our lovely recession, and, boy, did we get hurt,” Marcie says. With pensions from careers in the airline industry — Marcie was a stewardess; Maynard, a manager overseeing fueling, cleaning and loading— they might afford the soaring payments designed by the defunct Countrywide, now Bank of America.

“That’s for the birds,” Marcie Lowe says about her interest-only mortgage. “We just needed a modification.” So when the man called about Fidelity, she was ready to listen.

The payment plan originally described by Gellenbeck to The Palm Beach Post included an average up-front fee of $2,500, as well as a contract for a flat fee typically equal to the amount of the property’s current value or less. Homeowners are the beneficiaries of the trust.

Monthly fee payments didn’t start until a judgment was entered in favor of Fidelity or an attorney wrote an opinion letter stating the mortgage was unenforceable, Gellenbeck said during a June 8 interview. But last week, Gellenbeck said the fee structure had changed. Under the new plan, homeowners pay $3,500 to create the trust, pay $1,000 per month for a one-year term which can then be extended 10 years “upon favorable outcome of litigation or negotiations.”

In Fidelity’s “Land Trust Terms of Service” given to The Post during the June 8 interview it says clients may also have to make rent payments to the trustee while the court case is pending. “We can’t go two years in litigation and not receive any money, or even a year or eight months,” Gellenbeck said. As of this month, he said Fidelity has not taken a second payment from any of its clients.

Fidelity is prepared to pursue cases all the way to the Florida Supreme Court, Gellenbeck said. But if it ultimately loses, it will cancel the debt the homeowner owes it.

Lowe says she paid $2,700 up front “to get the ball rolling” on her plan with Fidelity. She showed paperwork to The Post that reflects a new $269,600 “mortgage” arranged with a monthly payment that begins July 1. Both her name and address are misspelled on the paperwork. “I still have a little apprehension, but you have to be a gambler in real estate. You go out on a limb sometimes,” said Lowe, who owes about $367,000 to her lender. “Sometimes it works. Sometimes it doesn’t.”

Staff researchers Niels Heimeriks and Michelle Quigley contributed to this story. 


BENEFITS:  If successful, the homeowner will have a canceled mortgage and owe a lower amount to the trust than the unpaid loan amount from the original mortgage. 

RISKS:  If unsuccessful, the homeowner has paid a fee to the trust and the lender

could still pursue the homeowner for the unpaid loan amount. 


Underwater homeowner signs the deed over to the land trust.  The fee charged by Fidelity Land Trust for this is $3,500.  The land trust becomes the owner of public record while the homeowner, now beneficiary of the trust, remains private.


Homeowner signs a 1-year, $1,000-a-month contract with the trust.


In an attempt to cancel the mortgage, the trust sues the homeowner’s mortgage servicer or lender, claiming fraud or legal violations.  Upon favorable outcome of litigation or negotiations, the homeowner’s contract with the trust extends to 10 years. 


If the trust wins its case, the homeowner is still liable for the debt or promissory note, but the trust tries to negotiate with the lender to pay the note off at a lower price.   Because there is no longer collateral — the home — attached to the note, the lender may be motivated to settle for pennies on the dollar.  If not, the lender may go after the borrower for the full amount. 


If the trust pays off the note and gets title insurance on the home, it can sell the promissory note on the secondary market, much like a mortgage-backed security.


Note: Buyer’s personal promise to make repayments on debt. 

Mortgage: Lender’s right to have the property sold to repay the debt if borrower defaults.


Alerted by a Realtor that agents were getting commissions for referring clients to a new land trust company, Palm Beach Post business reporter Kimberly Miller started researching the firm and its pitch to homeowners eager to reduce their mortgages.   Then attorneys started calling Miller with concerns about their clients signing deeds over to the trust.   When Miller pulled up official county records, she learned dozens of Palm Beach County deeds had been signed over to the Fidelity Land Trust.   But homeowners seemed confused as to exactly what they had signed up for.   A review of hundreds of pages of court documents and state records revealed multiple layers of corporations and an evolving legal strategy that one judge is questioning.