Fakers, Breachers, Slackers, and Deceivers: Opportunistic Actors During the Foreclosure Crisis Deserve Criminal Sanctions

• Author: Creola Johnson
• Position: Professor of Law, The Ohio State University, Michael E. Moritz College of Law
• Pages: 853-898

FAKERS, BREACHERS, SLACKERS, AND DECEIVERS:

OPPORTUNISTIC ACTORS DURING THE FORECLOSURE

CRISIS DESERVE CRIMINAL SANCTIONS

CREOLA JOHNSON*

I. INTRODUCTION

The subprime mort gage foreclosur e crisis was the spar k that ignited

the current economic crisis.1 Although experts claim that the Great

Recession2 has ended, a number of continuing economic conditions, such

as high unemployment, underemployment, and tightened lending standards

have resulted in a persistently high number of foreclosed and vacant

residential properties.3 Consequently, the housing market continues to be

ripe for opportunistic criminal behavior.4 This behavior is rampant among

several bad actors, including con artists who swindle security deposits

from prospective tenants who think the con artists are legitimate landlords,5

devious property owners who take rent checks from innocent tenants

lacking notice of pending foreclosures,6 and foreclosure relief companies

that steal money from homeowners via false claims to save them from

Copyright © 2012, Creola Johnson.

*Creola Johnson (johnson.1904@osu.edu), Professor of Law, The Ohio State

University, Michael E. Moritz College of Law. For research assistance, I than k Jill Fridley

(2012 graduate) and Shaun Markley (2013 graduation candidate).

1 Jeff Sovern, Preventing Future Economic Crises Through Consumer Protection Law

or How the Truth in Lending Act Failed the Subprime Borrowers, 71 OHIO ST. L.J. 761, 832

(2010) (“The subprime crisis precipitated the worst eco nomic decline since the Great

Depression.”).

2 Id. (stating that current economic crisis “has earned the sobr iquet ‘the Great

Recession’”).

3 CRAIG K. ELWELL, CONG. RESEARCH SERV., ECONOMIC RECO VERY: SUSTAINING U.S.

ECONOMIC GROWTH IN A POST-CRISIS ECONOMY 3–4 (2011), available at http://www.

fas.org/sgp/crs/misc/R41332.pdf.

4 See FED. BUREAU OF INVESTIGATION, 2010 MORTGAGE FRAUD REPOR T, YEAR IN

REVIEW 5 (2010), available at http://www.fbi.gov/stats-services/publications/mortgage-

fraud-2010/mortgage-fraud-report-2010.

5 See infra Part II.A.

6 See infra Part II.B.

854 CAPITAL UNIVERSITY LAW REVIEW [40:853

foreclosure.7 Although some may disagree with the characterization of

these opportunistic actors as criminals, they have one thing in common:

They convince vulnerable consumers to part with limited funds to obtain or

maintain roofs over their heads.

Consider the story of Shalamar Daniels, who responded to an ad

posted on Craigslist for a two-bedroom apartment in her price range.8 She

met with David Fl ores, the person who had posted the ad and claimed to be

the landlord.9 He appeared to be legitimate because he had keys that he

used to show her the apartment. 10 Furthermore, he had her sign a written

lease and gave her a receipt for the $2,650 cash she paid as a security

deposit and first month’s rent.11 By the time she was scheduled to move

in, she used the keys to open the door to her new apartment and, to her

surprise, discovered a young woman and her baby living there.12 After

confronting the woman, Ms. Daniels realized that she had been duped

because Mr. Flores had rented the same apartment to the other woman,

Mrs. X, who had paid Mr. Flores $2,700 to rent the same apartment.13

Tragic consequences arose from the fake landlord’s fraudulent

behavior.14 Ms. Daniels, who was five months pregnant at the time, only

had twenty-four cents in her bank account after paying Mr. Flores.15 Ms.

Daniels also wound up going to the hospital because her blood pressure

skyrocketed after realizing she had been scammed.16 Similar to Ms.

Daniels, Mrs. X was also a victim because the utility company shut off

services, and she got a notice from the true owner demanding that she

move.17 She and her baby ended up living in a homeless shelter.18 In an

7 See infra Part II.C.

8 Fake Landlord Scam (My Fox News N.Y. television broadcast May 20, 2009),

available at http://www.myfoxny.com/dpp/news/shame/09520_Fake_Landlord_Scam

[hereinafter Fake Landlord Scam].

9 Id.

10 Id.

11 Id.

12 Id.

13 Id.

14 Id.

15 Id.

16 Id.

17 Id. Mrs. X stated that Flores told her utilities were free because he had the “homeboy

hookup,” but he either was stealing utility services or had failed to pay the utility bills. Id.

18 Id.

2012] FAKERS, BREACHERS, SLACKERS, AND DECEIVERS 855

undercover hidden-camera investigation, a reporter discovered that Mr.

Flores claimed to be the owner and landlord of multiple properties, but in

reality, real-estate records demonstrated that others owned these

properties.19 One of the owners told the reporter that he knew tenants were

living unlawfully in one of the properties that he purchased in a foreclosure

sale.20

The story above highlights three opportunistic actors that are discussed

in this article. Mr. Flores is a “Faker” to the extent he is a complete con

artist. He is also a “Breacher” to the extent he appears to be the owner-

landlord of record because he is deviously misleading tenants into paying

rent for properties that may be subject to foreclosure. The true owners are

“Slackers” to the extent they fail to properly monitor and maintain

properties they have purchased via foreclosure proceedings.21 Their failure

leaves open the doorway to foreclosed properties being used by other

criminal wrongdoers, including a fourth opportunistic actor, the

“Deceiver.” Foreclosure rescue companies are Deceivers when they

falsely represent that they can save homeowners from losing their homes to

foreclosure.22

The Fakers, Breachers, Deceivers, and Slackers should be subjected to

criminal prosecution under state law. Part I of this article describes these

opportunistic actors and the victims they harm. Part II explains to what

extent the opportunistic actors are treated as criminals under applicable

laws and how frequently they are prosecuted. Where state law already

identifies the misconduct as a crime, Part III of this article argues t hat

wrongdoers should be zealously prosecuted. Because the Breachers and

Slackers are rarely ever prosecuted under generic criminal statutes, Part III

asserts that states need to pass laws that explicitly make conduct by these

actors a crime. Part IV argues that judges need to impose sentences that

have creative shaming components to deter future misconduct and educate

consumers about various crimes perpetrated against homeowners, renters,

buyers, communities, and taxpayers. One suggested shaming punishment

would be for convicted wrongdoers to be required to pay for billboard

advertisements containing their photo, identifying their crime, and

providing consumers with information about their rights and where they

can obtain legitimate help.

19 Id.

20 Id.

21 See infra Part II.D.

22 See infra II.C.