APOLOGISTS INTERRUPTED: Two Court Rulings Show That HYIP Operators, Players Setting Stage For Painful Downfalls, Foreclosures; Woman Loses Home While New Mom Loses Everything

Silette, the homeowner, did not know the money she received from Hudgins — $368,500 in all — had been polluted in a Ponzi. Silette, a single woman, met Hudgins through an online dating service in October 2007. A few months later, in January 2008, Hudgins wooed her with money, saying he wanted her to pay off her debts so she would be free to travel with him. She used $328,000 of the sum to retire her mortgage on the condo she had owned since 2000.

Kelly M. Crawford, the court-appointed receiver in the Hudgins case, petitioned the district court for an order to take possession of the condo for the purposes of selling it to compensate victims of Hudgins’ massive fraud. Records suggest Crawford and Silette had been unable to reach an accommodation that would permit her to return the money to the estate by remortgaging the home because of the collapse of real-estate prices in Florida and the restrictive banking environment that had ushered in an era of tight credit.

Although the $328,000 mortgage was fully paid off and Silette had 100 percent equity in the home, three appraisers concluded the home was worth far less than the $328,000 needed to make the estate whole. One appraiser valued the home at only $190,000. The average appraisal was only $205,000, meaning that Hudgins’ gift to Silette to free her to travel put her in a $123,000 hole even if the property sold at $205,000.

Hudgins, in his bids to impress, put a number of people in the hole, including members of his own family. Among the gifts he doled out were Rolex watches and large sums of cash, all of which the receiver sought to claw back as ill-gotten gains. Records suggest that Hudgins had been using investor funds for years to distribute gifts.

The district court granted the order. Silette appealed, arguing that the property was protected by Florida’s Homestead Exemption. A divided, three-judge appeals panel ultimately affirmed the lower court’s ruling, awarding the home to the receiver to compensate Hudgins’ victims.

“On June 3, 2009, the district court rejected Silette’s argument, holding that while Florida’s homestead exemption did apply, state law nonetheless allowed the imposition of an equitable lien because the homestead was purchased with fraudulently obtained money,” the appeals court said, while setting the stage to affirm the lower court’s ruling. “Accordingly, the receiver owned an equitable lien on the condominium and could immediately foreclose.”

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