|Homeowners Call California Program a Magnet for Fraud|
Homeowners Call California Program a Magnet for Fraud
by Robert Kahn of Courthouse News Service
October 24, 2018
(CN) — An elderly California woman suffering from stroke, dementia and cancer claims in court that she was charged $129,000 — “more than double the normal price” — for work on her home she did not need, and to replace items she had recently upgraded. Five other poor, elderly homeowners also sued Oakland-based Renew Financial Holdings, on similar charges, in April.
These lawsuits and dozens of others in the past two years involve California’s Property Assessed Clean Energy program, or PACE, which the Legislature authorized local governments to implement in 2008.
The program, according to Los Angeles County’s PACE webpage, “enables homeowners to install energy efficiency, renewable energy and water-saving improvements to their properties without putting any money down!”
Los Angeles County adopted the PACE program in 2012 and “delegated administrative responsibility to Renew Financial and Renovate America in 2015,” according to two April 12 lawsuits in L.A. Superior Court.
As the county’s private lender partners, Renew Financial and Renovate America oversee — or fail to oversee — the contractors who do the work, and tack on administrative fees, generally about 15 to 20 percent.
On April 12, five homeowners sued Renew Financial and L.A. County, and four sued Renovate America and the county. Lead counsels in both suits were Irell & Manella and Public Counsel, both of Los Angeles. Both lawsuits claim that Renew Financial, Renovate America and L.A. County “have spread a plague on thousands of low-income, elderly, and non-native English-speaking homeowners”.
Dozens of other lawsuits, whose defendants include the counties of Los Angeles, San Diego, Riverside, Kern, and San Bernardino, make similar claims against Renew Financial and Renovate America, and the contractors that do the work, and allegedly overcharge for it.
The 40 PACE-related lawsuits filed in California in the past two years assert charges that include fraud, negligence, elder financial abuse, breach of contract, and violations of state laws, including unfair competition and breach of contracts.
Renew Financial has been sued 14 times this year, 13 of them in California courts, according to the Courthouse News database. Charges in the similar lawsuits include financial elder abuse, forgery, bad faith, fraud, misrepresentation, negligence, unfair business practices and infliction of emotional distress.
A July 30 lawsuit in San Diego Superior Court seeks class action certification. The attorney in that lawsuit, James Swiderski, could not be reached immediately for comment Wednesday.
Renew Financial spokesman Colin Bishopp said in an email Tuesday that the company “cannot comment on pending litigation.” Renew’s four top-ranking executives, including its CEO, founder, general counsel and executive vice president for governmental affairs, did not respond to requests for comment.
Renovate America has been sued 27 times on similar charges since 2016, according to the Courthouse News database. Renovate America, based in San Diego, said it could not comment Wednesday.
As for the county defendants, Kern County Counsel Mark Nations said his county was sued for alleged violations of the Public Records Act. “That lawsuit was resolved and dismissed,” Nations said in an email to Courthouse News. “I am unaware of any other lawsuit regarding PACE.”
The Los Angeles county counsel said he was unaware of any PACE-related lawsuits. County counsels for San Diego, Riverside and San Bernardino counties did not respond to emailed requests for comment.
The most recent lawsuit, 71-year-old Valerie Morehouse’s Oct. 19 claim in Contra Costa County Superior Court, includes Green Bay Remodeling, of Concord, as co-defendant with Renew Financial.
Morehouse’s attorney Thomas McCormick, of Orinda, told Courthouse News: “My personal opinion is that the contractors are taking advantage, since they know they do not need to qualify homeowners for the loans — contractors sell the program basically as free improvements to unknowable homeowners. Then the private finance companies, like Renew Financial, are letting the contractors get away with taking advantage of homeowners because the private finance companies get a 15 to 20 percent ‘administration fee.’ This encourages the private finance companies to not monitor the contractors.”
An office worker at Green Bay Remodeling on Tuesday referred a request for comment to the company’s attorney, Efrat Levy, who said she was busy, and did not return the call Tuesday or Wednesday.
According to Morehouse’s 30-page lawsuit: “Green Bay, as a certified ‘PACE Contractor,’ was the source from which Ms. Morehouse received, or did not receive, information about the PACE program. … Ms. Morehouse did not receive a copy of the PACE financing contract until after the improvement work had already started and then she became obligated to pay for that work.”
The complaint continues: “Defendant Green Bay acted as an unscrupulous contractor by selling Ms. Morehouse overpriced goods and services, items that she did not need, items that were not necessary for her home, and items which she had recently updated, all financed by the PACE program. All the while, Ms. Morehouse suffered from cancer treatments, a stroke, and dementia.”
Green Bay charged Morehouse $111,065 “for work that would have normally cost less than $50,000,” according to the lawsuit. Renew Financial tacked on 16 percent in fees, and billed her $129,268, according to the lawsuit, which itemizes the charges, which include $29,004 for 11 windows and two sliding glass doors.
“Green Bay was able to charge Ms. Morehouse more than double the normal price because Ms. Morehouse is an elderly person with limited knowledge and was suffering from dementia,” attorney McCormick wrote.
He seeks an injunction, discharge of the liens, and damages for financial elder abuse, breach of contract, unfair competition, fraud, negligent misrepresentation and negligence.
“This is why regulation and oversight is necessary — to keep unscrupulous people from taking advantage of others,” McCormick said in an interview. “Hopefully, Renew Financial will do the right thing and correct this situation.”
(After this article was published, San Bernardino County spokesman David Wert said in an email that his county’s PACE program is administered by the San Bernardino County Transportation Authority, which is a regional government agency separate from county government.)
Two recent decisions by the California Court of Appeals have dealt Deed of Trust holders a huge blow in their ability to directly recover attorneys’ fees after successfully defending challenges to their DOT.1 In both Hart v. Clear Recon Corp and Nationstar and Chacker v. JPMorgan Chase Bank, separate panels of the Second Appellate District held that the provisions in the standard form Deed of Trust relied on by the prevailing lender, only allowed the holder to add fees and costs incurred in defending the litigation to the loan balance--the provisions did NOT, however, allow for a separately recoverable fee award against the borrower. In other words, if the property does not have sufficient equity to cover these amounts, the holder is out of luck. And, even worse, if the defendant assigned away its interest in the DOT prior to judgment, it is completely out of luck as it would not even have the potential for recovering its fees through the foreclosure sale; or, as the Court, quoting the late Justice Scalia in another context, stated in Chacker, the assignor “must take the bitter with the sweet.”2
The facts and ruling of both cases are relatively similar. In Chacker, the borrower sued Chase to stop the foreclosure sale. Chase’s Demurrer was sustained without leave to amend, and the trial court entered a judgment of dismissal. Chase’s attorneys then moved for attorney’s fees under the standard language of paragraphs 9 and 14 of the DOT, which was granted by the trial court. The Court of Appeal reversed, vacating the judgement for fees and ordering Chase’s attorney’s fees could only be added to the loan balance, not collected directly from the borrower.
In Hart, two Plaintiffs (mother and son) sued Nationstar for wrongful foreclosure. Neither Plaintiff was the borrower under the DOT. The sole borrower was not a party to the action. Nationstar obtained summary judgment on the basis that the Plaintiffs were not borrowers, and therefore had no rights under the DOT, and had no right to sue to stop the foreclosure. Nationstar’s attorneys sought its attorney’s fees as a prevailing party under the DOT. Unlike in Chacker, Nationstar relied exclusively on the attorney fee language in Paragraph 9 of the DOT. Like Chase’s DOT, Paragraph 9 of Nationstar’s DOT provided that, if there is a legal proceeding that might significantly affect the lender’s interest in the property or security, the lender may do and pay for whatever is reasonable to protect the lender’s interest, including paying attorney’s fees to defend itself in a lawsuit. The provision then provides that “[a]ny amounts disbursed by Lender under this Section 9 shall become additional debt of Borrower secured by this Security Instrument.” Trial Court granted Nationstar’s attorney’s fees motion, holding that paragraph 9 of the DOT was an attorney’s fees provision. The Court of Appeals reversed, holding that the Paragraph 9 did not permit an award of attorneys’ fees against the plaintiffs.
As you can see, while the Court’s recent decisions seem clear cut, they raise a plethora of issues for a lender, servicer and trustee to consider when moving for fees. We recommend analyzing your DOT at the outset of any litigation to determine whether you can ultimately recover your attorney’s should you ultimately prevail. Even if you never end up filing the fee motion, knowing your options is useful when negotiating with the other side or at a mediation.
Disclaimer: The above information is intended for informational purposes alone and is not intended as legal advise.