For the past several years it had become increasingly apparent that Ross was having trouble taking care of herself. Her family helped out for a while, and the Denver Department of Social Services was called in now and again to provide support. But they finally called it quits, and in January, 77-year-old Hortense left the Poplar Street bungalow she'd called home for the past two decades and moved into an assisted-living center.
Hortense and her husband, Paul, had paid their dues. During the years they'd lived in the home, the couple had steadily made payments on their mortgage. But after Paul's death, Hortense's increasing isolation and what appeared to be a slackening grip on reality caused her to start missing payments. Not hopeful that Hortense Ross would ever pay off the remainder of the debt, the bank called in its loan, and a foreclosure sale was set for this past February. By then, Hortense Ross had built up nearly $40,000 in equity in the Park Hill house.
Which made her the perfect target for the small group of investors who try to make their fortunes off the misfortune of homeowners who lose their properties to foreclosure.
Even though the Poplar Street house was small and in imperfect shape, it soon attracted the attention of a number of such investors because of its equity. According to records at the Denver County Assessor's Office, the house is worth just under $59,000; the balance of the Rosses' loan on the house was only $14,000. So even after paying off expenses, whichever investor ended up with the house stood to make tens of thousands of dollars when he resold it.
Eventually, four separate investors would knock on Hortense's door. One of the first to come calling was a man named Edward Castleberry. He told Hortense he owned and represented a company called Vision Investments. He didn't tell her about his three dozen criminal offenses or the outstanding warrants for his arrest.
But Edward Castleberry was persuasive. On January 5 Hortense Ross gave him power of attorney, thus providing him with legal control of her affairs. Then, on the same day and in his capacity as Hortense's legal representative, Castleberry signed a quitclaim deed on the Poplar Street house, effectively transferring title on the property to Vision Investments.
Using the power of attorney, Ed Castleberry gave Hortense Ross's house to himself.
Castleberry was not the only one who took notice of the confluence of Hortense Ross's long record of regular mortgage payments and her declining health. Three months after Castleberry visited Hortense, a second foreclosure investor representing another company convinced her to sign over another quitclaim deed. Records at the Denver County Public Trustee's Office show that added together, the money the two investors paid Ross for her house came to just over $1,000.
In Denver, two grandmotherly women--Caroline Sandstrom, the chief deputy public trustee, and her assistant, Anita Dubas--guard against suspicious foreclosures. By any measure, it's an impossible job. Every week they must review and sign off on hundreds of documents concerning scheduled foreclosures. To investigate every one of them would be like trying to keep track of what is happening on thirty television channels at once.
"I love it," Dubas says of her job. "But I can't explain why." She moved to Denver in 1966 and since then has worked for the city in various departments and positions. She transferred to the public trustee's office thirteen years ago from the police department's I.D. bureau.
Sandstrom, a native of Chicago, first moved to Colorado in the early 1980s, taking a job in Steamboat Springs at the Routt County Treasurer's Office just as the bottom began falling out of the real estate market. The mound of foreclosures that piled up each week in her office provided a quick introduction to the business. She left the state in 1987 to return to Chicago but came back to Denver four years later when a corporate raider bought out her company. She has been at the public trustee's office ever since.
Colorado's trustees--and their deputies--are public employees. But this state is an anachronism; the 49 others use private trustees. In nine Front Range counties, trustees are appointed by the governor; Denver's trustee, Rosemary Rodriguez, is appointed by the mayor and doubles as the clerk and recorder. In Colorado's other, less busy counties, the county treasurer does double duty.
Generally speaking, the trustee's office is charged with holding deeds. When you purchase a house, the deed of trust is filed with the trustee. When you pay off your mortgage or refinance, the trustee lifts that deed of trust off the public record and, if necessary, records another one. When you can't or don't pay your loan, the trustee's office oversees the foreclosure proceedings.
Foreclosures sit on a teeter-totter across from the economy. When the economy is rotten, the business of foreclosures soars. In 1988, when Denver's economy bottomed out, 4,410 property owners lost their property through foreclosure. In today's hot real estate market, the situation is reversed. In 1996, for example, fewer than 700 property owners lost their homes in Denver County.
(Recently, however, as personal bankruptcies have been climbing, the number of foreclosures has begun inching up. Last year 821 people lost their Denver homes. And if 1998 continues at its current pace, more than 1,200 Denver property owners will lose their homes by the end of this December.)
While Denver's scorching economy has been a boon for homeowners, it has made life more difficult for those who earn a buck off of other peoples' hard times.
Frank Meeks of Castle Rock has been in the foreclosure-investment business for two decades. As the owner of Jam Holdings LLC, he earns a good living acquiring "distressed properties" at a cut rate, fixing them up if necessary and then unloading them at a profit.
Meeks admits that watching a longtime homeowner suddenly lose it all can be a sad business. But life is hard, he says, and from his vantage point, the often heartbreaking facets of a foreclosure are hidden behind cold economic facts.
Take, for example, Meeks's idea of the perfect deal: A homeowner with a home worth $100,000 pays his mortgage for years and builds up $50,000 equity in his property. But one day he can't make the payments anymore, and the bank forecloses. Meeks buys the remainder of the loan from the bank for $50,001--the bank, after all, just wants the loan paid off--and finds himself with a $100,000 house.
But what of the owner's $50,000 in hard-earned equity?
"Equity is complicated," Meeks explains. "Does a person really have equity if he or she doesn't have the money to keep paying off the loan? To preserve your equity, you gotta have cash. It's tough out there."
Today, Meeks says, making money off of foreclosures is more difficult than ever. In this seller's market, many Denver homeowners who fall behind in their mortgage payments can easily sell their property and walk away debt-free. And for those who can't or don't want to move, more mortgage companies are willing to extend or refinance riskier loans.
"It's very, very difficult to find good deals," he says. "You've got to know a lot of angles to make money in this game."
Of course, one person's angles are another's slippery slope into questionable activity. "Some of these investors have gotten pretty ballsy because there is so much competition," says Gary Pangus, an assistant Denver district attorney who five years ago prosecuted a handful of foreclosure investors who'd blatantly forged documents in the public trustee's office. Recently Pangus has again been fielding worried phone calls from Sandstrom and Dubas.
"These people have become extremely brazen," Sandstrom says.
Adds Dubas: "They're always pushing the envelope. Always."
Dubas and Sandstrom still get enjoyment from their jobs. But these days it comes more from a perverse pleasure: Rather than being surprised when they uncover a shady investor's new tactic, both women now expect the games. They are like schoolteachers who have become convinced that they are watching over an entire class of shoplifters.
Dubas: "We're not supposed to be a police agency."
Sandstrom: "But we're turning into investigators."
Dubas: "If you see this sort of thing, you can't just do nothing.
Sandstrom: "Let's just say we're skeptical."
The games can begin right at the start of the foreclosure process. Between the high speed of computers and the relatively slow pace of the U.S. Postal Service is a small crack that, at times, can permit a shady investor to get his foot in the door--literally.
In Denver, when a property owner falls behind on his mortgage payments, the bank sends its attorney to the trustee's office to file its intent to foreclose. On the same day that it receives the notice of foreclosure, the trustee's office mails a packet of information to the property owner informing him of his legal rights--among other things, that he still has as much as six months to settle his debt.
But sometimes the same-day mailing isn't quick enough. Foreclosure investors keep a close eye on the computers at the trustee's office to learn which properties are being foreclosed on. The more aggressive investors then rush out to those homes before the package spelling out the owner's rights arrives in the mail.
Anita Roquemore and her partners at U.S. Fidelity were especially good at this game.
Pangus, the assistant DA, recalls that U.S. Fidelity would send representatives to the addresses of recent foreclosures--usually houses with poor, minority owners--and tell the people there that under the foreclosure system, they must move out immediately. If this tactic worked, Roquemore would then rent out the empty home or live in it herself. In one instance, Pangus says, U.S. Fidelity moved its offices into a home, sold the owner's furniture and rented out the parts the company wasn't using.
In 1993 Roquemore and her partners, Tony Saad and Ron Hall, were finally busted--although not for their ploy of deceiving property owners. Rather, they were charged with simple forgery. Roquemore was sentenced to eight years in prison.
It is testament to the haphazard enforcement of the foreclosure laws that Saad and Hall both remain at large. In fact, the men were in the trustee's office gathering information on new foreclosures the day they were to be arrested. But the cops and the crooks missed each other. Today both men are on the lam--but not necessarily out of business. Sandstrom recalls receiving new documents from them several months after they disappeared.
For the past year, Sandstrom has been trying to convince the county's computer gurus to program her computer system so that it will delay for five days the release of the names and addresses of homeowners who are the focus of new foreclosure proceedings--a delay long enough to ensure that the homeowners will receive the office's mailing informing them of their rights. So, far, however, she has been unsuccessful.
Unlike systems in many other states, where the trend has been to condense the amount of time between when foreclosure proceedings begin and the deadline by which a homeowner must reclaim his property, Colorado's system allows a generous amount of time. Strapped property owners here have a chance to get their finances together before losing their homes.
Once the lender's intent to foreclose has been filed, the trustee's office sets a foreclosure sale date for about eight weeks hence; notice of the sale runs in local newspapers for five consecutive weeks. If the homeowner manages to scrape together enough cash to settle up with his lender, he may "cure" his debt at any time during this period and keep the house.
Private investors like to step in when a homeowner has built up equity in the foreclosed-on property. In many of these cases, investors compete against each other at the foreclosure sale to buy the "right to redeem" the property. Even after acquiring this right, however, an investor must wait: Following the sale, the old owner still has 75 days to save his house.
Which is when another game is played, Sandstrom and Dubas fear.
After an investor purchases the right to redeem a property, state laws allow him to charge whatever fees are "reasonable and necessary" to protect the property. For some investors, though, these fees have become another way to squeeze money out of foreclosures.
Two years ago, Aida Mirman began falling behind on mortgage payments on her South Jersey Street home. At a foreclosure sale held last year, a company called United Investors Corporation purchased the redemption rights to the property. According to records at the Colorado Secretary of State's Office, United is owned by a man named Tom Tiede.
After the auction, Mirman calculated that she might be able to pay off her debts. She contacted the trustee's office to find out how much she would have to pay in order to keep her house. Along with the standard costs--reimbursing United Investors for paying off the bank, plus interest--Mirman found a $2,000 "inspection and maintenance" fee.
The fee was generated when United Investors paid a company called Property Management Group, Inc., to protect and maintain the Jersey Street home. The job appeared to have been a time-consuming one: Records at the trustee's office indicated Property Management Group had visited Mirman's house seven times between September 30 and November 12, 1997.
Mirman was perplexed. Since she still occupied the house, she wondered what maintenance and protection had been required. So she called Dubas, who checked to see who owned Property Management Group. The owner was Tom Tiede. Dubas contacted him.
"I know this maintenance firm is expensive," he agreed. "I guess I'd better renegotiate."
"You are the firm," she pointed out.
Mirman got her money back.
Tiede still defends the transaction. He wasn't trying to be duplicitous, he says; he's only part-owner of Property Management Group. And even though Mirman lived in the house at the time he was billing her to protect and maintain it, he adds, regular visits were necessary.
"Properties can be occupied one day and vacated the next," he points out. "I had disgruntled owners once leave the hose running in the basement before they left."
Still, Dubas now keeps a separate directory listing the names and owners of so-called maintenance firms and cross-checks them against the names of investors whenever a large bill shows up.
Mirman wasn't the only one complaining, either. Last December, Dan Sloan, an Arapahoe County attorney, filed a class-action lawsuit against Prime Rate Mortgage, claiming that the company had charged excessive maintenance and inspection fees on properties it acquired at foreclosure sales in Jefferson and Arapahoe counties.
Some of the most daring schemes take place right inside the trustee's office. Anita Roquemore eventually got busted for her efforts--but it took a while.
"I had lived in this house in southwest Denver with my spouse and five children," recalls one woman. (She requests anonymity; "I want to put this behind me," she says.) "But after we got divorced, I couldn't qualify for a mortgage on my own. And as each of my children became emancipated, my child support became less and less." In 1992, the bank told her it was foreclosing on the property.
Fortunately, the woman's cousin was a real estate broker. He recommended that she try to sell the property quickly and pay off the bank. When he checked at the clerk's office, however, he discovered that she'd already signed the house over to one Anita Roquemore for $500.
"When did you sell your house?" the cousin asked.
"I didn't," she replied.
After writing her signature over fifty times for a county investigator, the woman convinced the DA's office the document was a forgery. In the meantime, two other Denver homeowners going through foreclosure had discovered they no longer owned their houses, either, having also apparently sold them to Roquemore for $500 each.
"It was frightening to see how simple it was for people to manipulate the system," the woman says today.
Apparently it still is. On April 28, 1995, a very active foreclosure investor named Chad Romero obtained a $190,000 loan from a large mortgage company, Countrywide Home Mortgage Loans. As collateral, Romero offered a piece of property he owned in North Cherry Creek, at 517 Josephine Street.
When Countrywide didn't receive payments on Romero's loan, the company began foreclosing on the property. But to its surprise, Countrywide found it no longer held a claim to the Josephine Street residence. A document filed at the trustee's office showed that the loan had already been paid off. It was signed by Omar Galloway, vice president of a company called Countrywide Funding Corp. of Colorado.
Curious as to how this had happened when in fact Romero had paid off none of his loan, Countrywide investigated. According to a lawsuit filed last year in Denver District Court, it found that neither Galloway nor his company existed.
In all, four such lawsuits were filed last year by lenders who'd given Chad Romero money--and discovered, when checking records after he didn't pay the loan back, that the property he'd used for security had been released. In each case, the release document listed a bank with a name so close to that of the original lender that the slight difference hadn't been caught or even suspected.
"It's so obvious," says attorney Michael Medved. His client, Temple-Inland Mortgage, found that Romero's deed of trust had been erased by Temple Financial Corp. of Colorado. "That's what upsets our client. There's no such thing as this guy [who signed the release]. There's no such thing as Temple Financial Corp. of Colorado."
Three months ago the four cases were turned over to the Denver District Attorney's Office. Because the banks are all federally insured, the DA alerted the FBI to Romero's activities. (Gary Gomez, a bureau spokesman, says the agency cannot confirm or deny ongoing investigations.)
"Eventually, this sort of thing unravels," says Medved. But in the meantime, he adds, "there are a lot of investors out there, and they're all looking for a way to make a million dollars."
"I remember a guy who showed up at the trustee's office with a quitclaim deed from a guy who was dead," recalls Tiede. "I mean, we're sitting there holding the death certificate, and the deed had been filed the day before."
In the foreclosure investment game, most of the action takes place in the gray area between what the laws may have intended and what they actually permit. Much of this maneuvering occurs in the three months between the foreclosure sale and the last day an owner can still pay off his debts and redeem his property, when the front line of investors hits the streets.
"It's an ad-hoc group of guys who over the years have learned how the foreclosure game is played," says Meeks. Their goal is to place themselves in a position to make some claim on the property.
The 75-day period between the sale of a property at a foreclosure auction and when the title is assumed by a new owner is when "junior lien-holders" may file their intent to pay off the debts and claim the property for themselves. An investor can do this simply by visiting the owner and convincing him to sign over a deed of trust--a lien against the property. An owner may sell as many liens as he likes, so the number can climb quickly.
When the 75 days are up, the lien-holders get in line. The last person in line is the one with the final opportunity to get the home. Because the ultimate goal of most investors is to acquire the property, this is the most desirable position for an investor to be in.
(At times the race to be the last lien-holder on record can be chaotic. "We've had fistfights in our office at 4 p.m. on the 75th day after the sale among investors trying to be last in line to file," says Sandstrom. The violence made the women nervous, so three years ago they had an alarm installed in the public trustee's office that rings directly to the sheriff's department.)
For busy investors, though, fighting for a place in line is an unreliable way of making money. And so some seek shortcuts through the weak links in the system: panicky, unsophisticated homeowners.
Mary Pietrafeso certainly fit that bill. On October 18, 1988, Mary and her husband, Richard, took out a $35,000 loan from Home Savings of America. A deed of trust on their home at 6930 East Thirteenth Avenue secured the debt. In the following years, however, the Pietrafesos' marriage crumbled, and the two became estranged. Despite her mounting debts--including missed payments on the $35,000 loan--Mary kept the bad financial news from her husband. In March 1997, the loan was in default, and Home Savings of America began foreclosure proceedings.
HSA claims it sent various official notifications to Mary Pietrafeso. But because of Mary's alienation from Richard, the couple never responded. On June 10, 1997, the right to redeem the couple's home was sold at auction to investor Steven Klein for $40,008.13--an incredible deal considering the home's appraised value of $175,000.
The Pietrafesos still had 75 days to reclaim their property. That, according to a lawsuit filed recently in Denver District Court, is when investors representing a company called Europa Investments LLC "invaded" the couple's home.
By paying Mary several visits when her husband was not present, the suit claims, these investors "learned that Mary Pietrafeso was suffering from severe stress over her failure to pay the mortgage [and] was also ashamed [of] not informing her husband."
In short, "Mary Pietrafeso was willing to agree to almost anything to solve the foreclosure problem and keep her husband from knowing about it."
Sensing this, the two men then allegedly offered Mary a deal that would buy her some time to save the Pietrafeso house. But it was a deal that guaranteed Europa would make thousands of dollars off the Pietrafesos, no matter what else happened.
First Europa allegedly convinced Mary Pietrafeso not to try to recover the house herself, as she was legally entitled to do. Then she signed a deed of trust giving Europa legal standing to buy the property. Finally, in late August 1997, she signed an "option agreement" in which Europa apparently promised to sell the property back to her in a month--if she could come up with $50,000, more than she originally owed.
"Due to her weak mental/physical state and her fear of asking for financial help to meet the more expensive terms of the new agreement, Mary Pietrafeso was unable to satisfy the new agreement," the lawsuit claims.
On October 29, 1997, Mary received a letter from Europa's attorney. "Please be advised that legal proceedings [to take possession of the house] will be instituted starting November 3, 1997," the investors' lawyer wrote. "Failure to vacate immediately could cause your personal belongings to be placed on the street."
Too frightened to keep the news from her family anymore, Mary confessed to her son. He contacted a lawyer, Dan Schendzielos, who filed the lawsuit against Europa under the Colorado Organized Crime Control Act.
"This is a national problem," Schendzielos says. "These 'redemption angels' who come seemingly from heaven to 'save' your house are devils in a blue dress, tin men. But they're very, very sharp. They're very sophisticated. In this case, there was a breakdown in communication between husband and wife, and they took advantage of it."
Graham Pryce, an owner of Europa, declines to comment on the case and refers questions to his attorney, Brit Clayton. But Clayton, who declines to discuss the suit before trial, says only that the facts of the case are "hotly disputed." Both Pryce and Clayton deny that there was any wrongdoing.
While much of the foreclosure-investor maneuvering is distasteful, Assistant DA Pangus points out that it's not necessarily against the law. "Most victims are unsophisticated people," he says, "but they sign the papers. They're legal documents. It goes on quite a bit, and there's nothing illegal about it."
Whether or not investors took unfair advantage of Hortense Ross will be decided in a Denver courtroom next week. On Monday, Denver District Court Judge John Coughlin ordered a physician to determine whether or not Hortense knew what she was doing when she signed away the rights to her house to two different people.
For the moment, Frank Meeks is the owner of record of 2616 Poplar Street. Edward Castleberry transferred the property over to him on January 22 for an undisclosed fee. Castleberry could not be reached for comment; however, Meeks says he has worked with him before. "Ed is exactly what he is," he says. "He's a hustler who goes out and finds deals."
According to the Colorado Bureau of Investigation, over the past decade Castleberry has been charged with forty crimes in five different counties around Denver and Colorado Springs. They range from traffic offenses to drug possession, fraud, car theft, shoplifting, domestic violence, trespassing and resisting arrest. He is currently wanted on four separate warrants issued by Denver County courts.
Meeks says that Castleberry was actually the second suitor to visit Hortense at home. Later, Meeks himself stopped by several times. "Sometimes she'd answer the door, sometimes she wouldn't," he says. But Castleberry's persistence paid off. After several visits, using the power of attorney given him by Hortense herself, he finally obtained a quitclaim deed to the Poplar Street house.
Although the court has yet to receive the physician's report on Hortense Ross, Meeks insists she knew what she was doing. "Hortense Ross is competent. That's what's so crazy about all this," he says. "And she received compensation from Mr. Castleberry."
According to the quitclaim deed, Castleberry's Vision Investments paid Ross $10 for the house in which she had nearly $40,000 in equity. (Meeks says it was more than $10 but declines to say how much.)
The foreclosure sale on that house was held on February 24. The opportunity to turn a quick profit on the place attracted a number of investors to the auction. The lender that held the mortgage, Federal National Mortgage Association, bid the amount still owed by Ross, $14,025.29. But Tom Tiede's United Investors Corp. won the bidding, paying $14,600 for the right to take over the house if no one else did during the 75-day redemption period. (Meeks says he and Tiede clashed at the sale. "I told him, 'Why don't you get out of the way? I own the house.' But he kept bidding up the price. Tiede," Meeks concludes, "is a snake.")
By winning the bidding, Tiede won the right to own the house--if no one else pays off the outstanding balance in the meantime.
But the maneuvering by investors hoping to cash in on Ross's misfortune wasn't over yet. In early April, a one-year-old company called 99 Corp., owned by Boulderite Hans Fedge, contacted Dubas and Sandstrom at the trustee's office to complain about Castleberry's tactics.
"They told us that the way Castleberry had obtained this deed on Ross's house was invalid because Hortense Ross was mentally incompetent," Dubas recalls. Although her office had received the initial foreclosure notice, this was the trustee's first clue that something might be amiss at Hortense Ross's place. Sandstrom quickly called the city attorney's office, which instructed the Denver Department of Social Services to check it out.
Meanwhile, despite 99 Corp.'s earlier claims that Ross was incompetent, Fedge began visiting her himself at the nursing home. According to trustee records dated April 17, he finally persuaded Ross to sign over yet another quitclaim deed. This time she received $1,000 for transferring her house to 99 Corp.
"I'm not sure how they got that deed," Assistant City Attorney Patrick Wheeler said in court this week. "If she was incompetent for [Castleberry's] Vision Investment, she was incompetent for 99 Corp. as well."
Hans Fedge refers calls to his attorney, Jeffrey Parsley, who declines detailed comment on the transaction.
The assorted contracts signed by Ross have left two parties claiming ownership to the house. So last month, Fedge and 99 Corp. sued Vision, Castleberry and Ross, claiming that 99 Corp. was the rightful owner of Ross's old house.
Although the two parties hoped the lawsuit would settle the question of who owned the house, it also set off alarms at social services and in Judge Coughlin's chambers.
At a court hearing on the case held May 4, Coughlin questioned whether Ross was mentally competent enough to have given her house to anyone. Two weeks later, on May 18, he ordered the public administrator, Robert Steenrod, to assess Ross's lucidity; he also halted any further action on the foreclosure.
If, at the next hearing, scheduled for May 29, the judge finds that Hortense Ross was unaware of what was happening to her when she signed the deeds, then Steenrod's office will begin representing Ross, and the process will start all over again. Part of Steenrod's job will be to make sure that Ross receives a fair value for her old home.
The recent court action has left Meeks livid: Hortense, he says, is owed nothing. "If you don't have the money to redeem, you got nothing to sell," he argues.
Since he acquired the Poplar Street property from Castleberry, Meeks adds, he has already spent $20,000 fixing it up to prepare for resale. He figures the house could go for as much as $70,000.
"Foreclosure," he says, "is quite a game."
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