Bank South has been accused of fraud in a $5 million lawsuit claiming the bank financed and profited by a foreclosure fraud scheme that robbed 14 poor black families of their houses in Fulton and DeKalb counties.
Bank officials declined comment on the suit filed Tuesday in Fulton County State Court, saying they had not seen it.
Foreclosure fraud has been alleged in hundreds of cases in metro Atlanta in the past two years and has been the subject of a government task force inquiry in DeKalb County and two laws approved by the Georgia General Assembly.
The cases typically involve a claim that a con artist led victims to believe that he or related "investors" can make a loan to help the homeowner catch up on delinquent mortgage payments, when in fact the con artist purchases the victim's house. The "investors" then use the house as collateral for a second mortgage on the property, using that money to buy still more houses.
That is what the 14 families claim Brown Realty Co. of Decatur did to them. One of the homeowners, Annie Thomas, was awarded more than $360,000 by a DeKalb County jury in April. The jury found that the owners of Brown Realty tricked Mrs. Thomas into signing ownership of her home to them.
That verdict has been appealed. Similar lawsuits are pending against Brown Realty and its owners, Alonza C. Brown Sr., his wife Gladys R. Brown, and their son, Alonza C. Brown Jr. The homeowner plaintiffs, who are black, claim the Browns, who are black, told them they were trying to help black families keep their houses, but the papers they signed actually deeded the houses to the Browns.
According to the lawsuit filed Tuesday, Bank South fueled this criminal scheme by lending $1 million to the Browns, and profited by interest paid on that line of credit.
Bank loan documents show the bank increased the Browns' line of credit to $1 million from $600,000 in March 1984. A bank loan memorandum states that the Browns owned 83 houses at that time and planned to expand to 200 houses.
The lawsuit does not claim that Bank South knew how the Browns were obtaining the houses, but one lawyer who filed the suit suggested that the bank must have known.
"I don't think a bank lends anybody a million dollars without knowing what they are up to," said Jeffrey L. Sakas, who filed the lawsuit with lawyers Robert S. Whitelaw and Michael P. Froman.
Whether the bank knew or not, the lawyers claim Bank South acted fraudulently by making no effort to discover if the families were still living in their houses or whether the families believed they still owned the houses.
That claim is based on a 1975 Georgia Supreme Court decision which says lenders have an obligation to investigate before lending money on any property when someone who has sold the property retains possession of it. That ruling was based on the legal maxim that a transaction is presumed to be fraudulent, unless overwhelming evidence is presented, if a seller retains possession of the property.
The lawsuit claims the bank made no effort to discover if the families were still living in their houses or believed they still owned the houses. The actions of the defendants and the bank constituted "theft by deception," the lawsuit claims.
The suit also is based on the state's Racketeering Influenced and Corrupt Organizations law, which provides a civil remedy for anyone injured by a scheme of criminal activity. In this case the crime is alleged to be theft by deception. Although born out of legal efforts to attack organized crime, the civil lawsuit does not imply any connection with traditional criminal organizations.
The law allows recovery of any profits from the criminal activity, in this case the interest the bank earned on loans to the Browns. The law allows recovery of three times the amount of loss, including lost equity in the properties and rent the families later paid, in addition to punitive damages and attorneys' fees. That amount should be more than $5 million, the lawsuit says.
The lawsuit also asks the court to erase any claim the bank has on the properties.
The families also have sued the Browns and their attorney, Jeffrey Kneller of Decatur, in U.S. District Court in Atlanta.Go to the next article or back to the Color of Money index or Power Reporting
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