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‘Loan to own’ part of Met’s legacy

Thu., Feb. 17, 2005

James Colson lost everything to Metropolitan Mortgage and Securities Co. Inc.

Although the Spokane company and Old Standard Life Insurance Co., a Metropolitan subsidiary, were only indirectly involved in the swindle that cost him his home, they should have known what kind of deal was going down.

Last month, Metropolitan settled for $200,000 a $1 million claim Colson brought against the company. Unfortunately for him, Metropolitan’s bankruptcy will further discount the worth of his claim. He joins thousands of other Metropolitan creditors hoping to recover some of the $500 million-plus invested with the defunct financial services firm.

Nevertheless, the New Jersey social worker says he’s happy that eight years of litigation — possible only thanks to legal assistance from Seton Hall and Gonzaga universities — has finally come to an end.

“It’s been a long and arduous road,” says Colson, who in January 1996 was physically removed from his former home by hammer-wielding thugs. They nailed the windows shut and padlocked the doors with all Colson’s possessions inside. He’s never been back.

On March 20, 1997, Old Standard purchased Colson’s Orange, N.J., home for $100 at a sheriff’s sale. Old Standard had obtained the mortgage on the property through Metropolitan, which in November 1994 underwrote a new mortgage on the home. The deal was as egregious a case of predatory lending as you will find.

Colson had lost a job as an architectural draftsman in November 1993. By February, his lender was threatening to foreclose on the mortgage he had taken on 10 years earlier. The remaining balance was only $21,000. He also got behind on his utility payments. The IRS held a service lien on the property. Essex County sent notification he owed $1,200 in fines.

His financial situation was complicated further by personal and family problems.

With no job, conventional lenders would not touch Colson’s applications for a home-equity loan. But he made a connection with another lender through an old acquaintance, a Calvin Reed, who said he could arrange a $40,000 loan. Colson planned to use the extra funds to create a basement apartment that could generate some income.

Reed, with the help of a conniving attorney, double-crossed Colson. With a Nov. 23, 1994, court date to settle the Essex County fine only hours away, he convinced Colson to deed the home to Reed’s cousin, Kevin Williams, a “straw man” who supposedly had a credit record that would be more appealing to lenders. In fact, Williams had virtually no credit, a fact known to Metropolitan. The transaction, rife with misrepresentations, closed anyway.

All Colson received was a check for $3,308.62. It was not until the original mortgage holder on the property again threatened foreclosure that he realized what had been done to him. Too late. Reed and the hammer people showed up.

Colson, an articulate man who says the desperation of his circumstances in 1994 overcame his good sense, was not going to let the matter go.

“I really knew I had been done a grave injustice,” he says. The Center for Social Justice at the Seton Hall School of Law agreed, and took his case. Center lawyers and law students sought out experts and hired investigators, resources Colson never could have afforded on his own. In fact, his damage claim included $715,000 for attorneys’ fees.

“They’ve done an absolute and excellent tireless job,” Colson says.

Linda Fisher, who led the Seton Hall team, says Metropolitan knew what was going down “from the get-go.”

The paperwork Colson signed was deliberately complex so the parties involved would be able to cover their tracks, she says, adding that the center has never been able to find Reed and Williams.

Fisher calls the Colson deal a classic “loan to own” in which the lender fully expects the borrower to default and hand over the property.

“That sort of business practice is beyond the pale,” she says.

Fisher credited Gonzaga’s Al McNeil for carrying the case forward once Metropolitan filed bankruptcy, but McNeil says the Seton Hall team did most of the work, which included obtaining summary judgments for Colson in the New Jersey courts.

McNeil has pursued his share of crooked lenders in the Spokane area.

“It’s just amazing what they do,” he says. “It just seems like there’s no end to the creativity.”

Colson has moved on. He lives in the bottom floor of a duplex with his two teenagers. He hasn’t tried to get another mortgage, knowing lenders will see only a foreclosure on his credit record, not the skulduggery behind it. He’s justifiably proud of his own persistence, and has only praise for the young legal team that saw the case through.

“I don’t know how else to express my joy,” Colson says.

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