Attorney General alleges three King County residents scammed foreclosed homeowners

The lawsuit claims that employees of a real estate company misrepresented the process by which foreclosed homeowners can recover surplus funds.

An injunction against a real estate foreclosure company and three Eastside residents has been granted by King County Superior Court, stemming from a lawsuit filed by the state alleging they scammed residents out of hundreds of thousands of dollars.

The lawsuit filed by Attorney General Bob Ferguson alleges that Bellevue resident Kerry Hemmingsen, Bothell resident Daniel Stack and Kirkland resident William Gastineau scammed foreclosed homeowners while working for the Kirkland and Portland-based Real Estate Investment Network, LLC (REIN). The lawsuit was filed on April 17 and at a May 29 hearing, the court granted an injunction against the defendants, barring them from engaging in deceptive practices while the lawsuit progresses. The lawsuit was filed as a violation of the state’s Consumer Protection Act.

The lawsuit alleges the three Eastside residents misrepresented the process by which foreclosed homeowners can recover surplus funds. With a hot real estate market in the Puget Sound region, some homeowners who are foreclosed on receive more money from the foreclosure sale than their mortgage is worth. This cash is sent to the county superior court where homeowners can recover it through a relatively simple process.

However, Ferguson alleges in his lawsuit that Hemmingsen, Stack and Gastineau preyed on homeowners by creating a false sense of urgency with high-pressure sales pitches and lying to emotionally vulnerable foreclosed homeowners, telling them the process to recover surplus funds was too complicated for them to do on their own. They also allegedly lied about the amount of surplus funds available and the true cost of their services. Under state law, agencies like REIN are only allowed to collect up to five percent of the total surplus funds as service fees. Hemmingsen, Stack and Gastineau would regularly take more than half, and in at least one instance, took nearly 70 percent of the surplus funds, the lawsuit said.

The lawsuit alleges that the three men would research which houses would be foreclosed and within days, or even hours of the homeowner receiving legal notice that surplus funds were available, they would approach the homeowners, the lawsuit alleges.

In at least one instance alleged in the lawsuit, Stack approached a foreclosed homeowner’s 9-year-old daughter as she got off a school bus and gave her a note for her father. Stack then — along with three others — convinced the girl’s father to give REIN rights to all of his surplus funds in exchange for a smaller upfront payment from the company, the lawsuit alleges.

Another instance documents Stack repeatedly showing up to a homeowner’s residence uninvited and being repeatedly asked to leave. During one visit, Stack and another REIN representative pressured the homeowner to sign an agreement with the company after saying she would run out of time to recover her surplus funds and be “left in the street and not have anywhere to live,” the lawsuit alleges.

Elderly defendants were also targeted, including at a retirement home. Unsolicited phone calls and home visits were also common practice, the lawsuit alleges.

“Between the consumers’ lack of understanding regarding the foreclosure and Surplus Funds processes and vulnerable emotional and financial position, Defendants’ sales tactics pressured consumers to enter into a transaction involving tens of thousands of dollars in the matter of hours or, at most, days,” the lawsuit alleges.

At least 10 Washington state residents had been victimized, the lawsuit said. In one instance documented in the lawsuit, a foreclosure resulted in $134,000 in surplus funds with REIN pocketing $90,000 of it.

On top of barring REIN employees from making false statements, the temporary injunction also restricts them from taking more than five percent of surplus funds as fees and levies a $2,000 per violation condition on the company. If Ferguson’s lawsuit is successful and REIN is found to have violated the Consumer Protection Act, the company would be forced to pay restitution to its victims as well as pay court costs.

“Foreclosure can be a confusing and vulnerable time for homeowners,” Ferguson said in a press release. “Surplus funds from a foreclosure sale can be the lifeline a person needs to get back on their feet. I will hold companies accountable for preying on homeowners facing foreclosure.”

Hemmingsen, named in the lawsuit, has been the subject of two prior enforcement actions by the state after selling $200 audio programs in 2010, marketing himself as “America’s Foremost Foreclosure Profit Expert.” He filed for bankruptcy in 2010 and is already barred from making false pitches or claims.

A Facebook page for REIN appears to have been removed as was a website. Gastineau, the company’s district sales manager, did not respond to a request for comment at the time of publication.

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This story was first published in the Bellevue Reporter.

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