Despite clever defendants who covered their paper trail well, a pair of volunteer Hennepin lawyers have succeeded in bringing a long and difficult equity stripping case to partial summary judgment in favor of their client.
After putting in nearly 1,000 hours of pro bono effort into the case, the two lawyers, Peter Hennigan and Eleasalo Ale of Faegre & Benson, were gratified to hear U.S. District Judge Patrick J. Schiltz award Telsche Paulson restitution damages in excess of $171,000. The victory is significant since most cases of this sort either die for lack of evidence or are settled out of court.
The two real estate lawyers teamed up almost by accident. Pleading a heavy workload, Hennigan was reluctant at first to join Ale in unraveling the scam, an activity uncovered by Legal Aid Society of Minneapolis attorneys and paneled to volunteer attorneys by the Volunteer Lawyers Network. Then Hennigan noticed that the elderly woman who had lost her property in the scheme was a South Minneapolis neighbor of his.
“Mrs. Paulson lived only two blocks from our house,” Hennigan said. “While we weren’t acquainted, the closeness certainly made the case more real to me. During the investigation, I wheeled our daughter out in her stroller and walked around the outside of the home we were fighting to save.”
Paulson and her husband began living in the property, a duplex, nearly 50 years ago, and refinanced the mortgage a couple of times during their ownership. They raised their children there, living in one unit and renting out the other to help pay the mortgage payments. After their children were grown and Mr. Paulson passed away, she continued to live in the family home amid familiar belongings in the neighborhood she loved.
“In 2004, Mrs. Paulson, who was in her 80s by then, began having trouble making the mortgage payments following the loss of her downstairs tenant,” Hennigan said. “Just as her home was headed for foreclosure, she had the misfortune to meet up with scam artists Timothy and Shelley Beliveau. Since Mrs. Paulson was desperate for financial help at the time, it’s not surprising that she fell for their offer of a so-called mortgage refinancing agreement, which was in reality an equity stripping scheme.”
Rather than refinancing her home, Paulson was duped into selling her home to a person she never met in exchange for a contract for deed, and placing all her equity into an “escrow” fund under the control of one of the Beliveaus’ shell corporations. Almost immediately, a third of Paulson’s equity went in the Beliveaus’ pockets. In 2006, the Beliveaus sold Paulson’s property a second time (again without Paulson’s knowledge) in order to extract the remaining equity through an exorbitant commission. This second sale also extinguished Paulson’s contract for deed. Even though the Beliveaus knew that Paulson no longer had a legal interest in her property, they continued to collect $12,100 in fraudulent “mortgage” payments from her. It was not until late spring 2007 that Paulson learned the truth. By that time, she had lost her home and nearly $160,000 in equity.
When Hennigan first took on the case, he was surprised by the lack of paperwork Paulson had on hand and by the amount of investigative effort that would be necessary to properly represent his client.
“The work ended up being less like a real estate case and more like a criminal investigation, something I’d had experience with from my time working for the Washington, D.C. Public Defender Service during law school,” said Hennigan. “All she had was a contract for deed that referenced an addendum, but the addendum was nowhere to be found. Consequently, there was no information as to the amount of her payments or how many payments she would have to make before her title would be free and clear.
“For a fraudulent activity such as this to slip through the system isn’t as unusual as it may seem,” said Hennigan. “In 2004, we were in the midst of a real estate boom. Large fees were common. No one was looking for fraud. There was very little scrutiny of individual transactions to make sure they were on the up and up. Of course, banks are more involved now that they realize these deals can go bad.”
As the case progressed, the missing addendum was not the only barrier Hennigan encountered. The Beliveaus, by then defendants, chose to take the 5th Amendment during the deposition phase and refused to produce any documents or reveal any information related to the case. That is when Peter Hennigan, lawyer, turned into Peter Falk, ace crime investigator.
The breakthrough came when Hennigan was “generally poking around,” looking for witnesses or anything else that would help his case. His digging turned up the names of the bookkeeper and closing agent who had handled the sale of Paulson’s duplex. The bookkeeper in particular was free with his information, a refreshing change from the tight-lipped defendants. He was able to explain how the Beliveaus had used Paulson’s equity, what role each party had played in the scheme, and how the money flowed. Hennigan, together with Ale, who supervised the case, believes this testimony along with the large amount of evidence they had collected was largely responsible for Judge Schiltz pronouncing summary judgment rather than proceeding to trial.
Asked what lessons he had learned from the case, Hennigan replied: “Like people in general, Mrs. Paulson felt embarrassed by the prospect of foreclosure. She leapt too quickly at the chance to avoid it although it was offered by people she scarcely knew. I hate to recommend not trusting people because that’s not a good way to live either. When my wife and I bought our house, we trusted our realtor, mortgage broker, and lender to make sure everything was done properly. These were reputable people and everything went fine. I guess the lesson is this: be careful of whom you trust and don’t sign a document until you read and understand it completely. And if you’re not sure, ask someone to help you—a family member, a friend, a lawyer.”
One may ask why a law firm like Faegre & Benson would let its staff spend so much valuable time on a case without compensation. On this point Hennigan was emphatic: “Faegre & Benson has a real commitment to pro bono work. The fact that it was an outrageous case, a sympathetic client, and an interesting investigation was just icing on the cake.” Hennigan went on to say that during the long hours spent poring over bank records, searching for paperwork, interviewing witnesses, and otherwise searching for evidence—an activity that often occupied half of his time—not once did his superiors suggest that he cut corners.
The case is not yet closed. Although the two lawyers admit they cannot recover title to Paulson’s home, effort is continuing to get back some of her equity. Recovery from the Beliveaus seems doubtful since the couple is currently being sued by several of their other victims (there are about 30) and their assets are tied up.
Hennigan and Ale are also seeking restitution from the Real Estate Education, Research and Recover Fund, established for such a purpose. This may also be difficult because of numerous competing fraud claims as well as state budget limitations.
Paulson has given Hennigan permission to share her case file with the Hennepin County Attorney’s Office to facilitate future criminal proceedings against the Beliveaus. She is still devastated by the experience and is anxious to protect others from a similar fate.
In the meantime, Hennigan and Ale received a rare accolade in the opinion Judge Schiltz issued on this case, citing the two volunteer lawyers for their “extraordinary and careful work” in representing their client. Kudos are also due to attorneys Elizabeth Wright, Jeya Paul, and paralegal Nancy DiPasquale, who contributed materially to the investigation.
Reflecting on the case, Hennigan said it “certainly reminded me of why I went to law school. It’s not often that an attorney feels so strongly that he’s on the side of the ‘good guys’ as I felt in this case.”
Vigorous pursuit of this case is part of a larger effort by the legal community to combat the practice of equity stripping. Law firms large and small, in conjunction with the Minnesota Attorney General’s office, Southern Minnesota Regional Legal Services, the Legal Aid Society of Minneapolis, and the Volunteer Lawyers Network, have been working on such cases since early 2000. Such actions are complex and lengthy but, as the Paulson case demonstrates, can be immensely rewarding. Attorneys interested in joining in this effort should get in touch with Sue Pontinen at VLN, firstname.lastname@example.org.