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Appeals court upholds $300K award in foreclosure rescue fraud

An Annapolis-based mortgage broker owes the victim of a foreclosure-rescue scheme $300,000, including $150,000 in punitive damages and $80,000 in attorney’s fees, an appellate court has held.

The Court of Special Appeals rejected Fidelity First Home Mortgage Co.’s argument that it should not be liable for what it called the unauthorized actions of a loan officer and his accomplice, whose criminal acts cost Charlene Williams the title and equity in her Capitol Heights home.

In its 3-0 decision, the intermediate court said Fidelity First, not the officer, had solicited Williams’ business in a letter that promised help in reducing her mortgage. Williams’ call to the brokerage was returned by James Fox, the agent who defrauded her, the court added.

“Fox’s initial contact with Williams in response to a Fidelity First solicitation letter, his offer to assist her to refinance her mortgage and his origination of [his accomplice’s] fraudulent loan application all were conduct of the kind he was employed to perform,” Judge Deborah S. Eyler wrote for the court.

Fox and his accomplice, James Dan, pleaded guilty to wire fraud in 2010. Williams’ lawsuit went to trial in Prince George’s County Circuit Court in February 2011.

Affirming the verdict late Tuesday, the appellate court said “reasonable jurors could infer that [Fidelity First owner Daniel] Eubanks tolerated and even encouraged forgery in the pursuit of closing more loans.”

Eubanks had fired Dan but had let Fox keep his job and did not give special scrutiny to his transactions despite “three known instances of forgery,” Eyler wrote.

“[W]e have no difficulty in concluding that a reasonable juror could find by a preponderance of the evidence that Fidelity First was negligent in supervising and retaining Fox as an employee,” the court added.

The company was also liable for punitive damages, as an employee’s “conscious and deliberate” fraud in the course of his employment can be imputed to the employer under the legal doctrine of respondeat superior, the court said.

Fidelity First’s attorney, Howard J. Schulman, said he will seek review by Maryland’s top court, the Court of Appeals.

“We disagree with the Court of Special Appeals’ analysis with regard to respondeat superior,” said Schulman, of Schulman & Kaufman LLC in Baltimore. “It hung the employer for a fraudulent mortgage rescue scam that was being operated as a side business … without actual knowledge that this scam was taking place.”

But Williams’ attorney, Joseph M. Creed, said Fidelity First’s no-holds barred efforts to close loans put Fox’s fraud within the ambit of his employment.

“Given the culture within the company, the fraud scheme was within the scope of employment,” said Creed, of Joseph, Greenwald & Laake P.A. in Greenbelt. “The culture within the company was that [loan officers] were encouraged to close these loans by whatever means necessary.”

Williams, who purchased her childhood home from her parents, had filed for bankruptcy, and her lender had initiated foreclosure proceedings when she received Fidelity First’s February 2006 letter stating she had been “pre-approved for a lower interest rate and/or debt consolidation.”

She made the call, which Fox returned, saying he could help refinance her mortgage.

On May 11, 2006, Williams signed papers given to her by Fox. Under the terms of the contract, she agreed to transfer title to the property for $225,000 to Dan (who had been fired a year earlier by Fidelity First), remain in the property and continue to pay the mortgage.

The next day, Dan applied for a mortgage loan, with Fox serving as the loan officer and Fidelity First as the broker. On the application, Dan misrepresented his income, savings and employment, according to the Court of Special Appeals’ opinion.

A Fidelity First loan processor approved the application.

The property went to settlement on Aug. 4, 2006, with Dan paying the $225,000 purchase price, $11,620 settlement fee with the loan brokered by Fidelity First as well as cash and a seller’s credit.

Fidelity First received $5,128 from the transaction, including a $3,600 origination fee, which it split with Fox, the opinion stated.

Williams received a check for $63,893 in sale proceeds, following payment of about $118,000 in mortgage, credit-card and personal-loan debt.

She endorsed the check over to Dan, who cashed it and gave her $3,000. Dan and Fox told Williams the remaining $60,893 would be held in escrow for the mortgage, the opinion stated.

However, Dan instead deposited the money into his own account.

When Williams received an $11,804 check for overpayments made to creditors from the settlement, Fox had her endorse the check over to him, gave her $3,000 and said the rest would be deposited into the escrow. But he put that money into his account as well, the opinion added.

For several months, Williams received from Fox a monthly “receipt” for her mortgage payments from escrow.

Eventually, the actual mortgage payments stopped and foreclosure proceedings ensued.

In 2007, Williams discovered she was a tenant and not the property owner when she received an eviction notice.

She sued Fidelity First, Dan and Fox in January 2010, but later dismissed her claims against the men. The jury found Fidelity First liable for violating the Maryland Protection of Homeowners in Foreclosure Act, a law to safeguard homeowners from mortgage rescue schemes.

The jury awarded Williams $70,000 in compensatory and $150,000 in punitive damages. The circuit court later awarded Williams $80,034.50 in attorney’s fees and $3,902.90 in costs.



Fidelity First Home Mortgage Co. v. Williams, CSA No. 726, Sept. Term 2011. Reported. Opinion by Eyler, D., J. Argued Sept. 11, 2012. Filed Nov. 27, 2012.


Did the trial court err in allowing the jury to award compensatory and punitive damages against the defendant on the basis of respondeat superior?


No; the doctrine of respondeat superior treats an employee’s tortious conduct, in the course of his employment, as the legal act of the employer.


Howard J. Schulman for appellant; Joseph M. Creed for appellee.

RecordFax # 12-1119-20 (44 pages).