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 contends that the court cannot impose an equitable lien on her homestead because she was not complicit in the fraud,” the majority on the appeals panel said. “We disagree. In Florida, an equitable lien can be imposed on a homestead where an innocent party used fraudulently obtained funds to invest in the homestead.”

The court’s reasoning, in essence, was that Silette, though unaware Hudgins was operating a Ponzi scheme, nevertheless was not entitled to a windfall from the scheme. The retired mortgage on the property represented such a windfall, thus creating a situation in which victims of the scheme could be denied an opportunity for restitution if the receiver were prohibited from foreclosing on the home.

The import of the case is that it solidifies a receiver’s power to seize property paid for with Ponzi proceeds even if the owner was not complicit in the Ponzi.

If you are an HYIP and autosurf promoter — and if you recommend a program to an investor who profits from the scheme and the investor uses the money to pay off or pay down his or her mortgage — not even Florida’s consumer-protective Homestead Exemption can prevent a receiver from foreclosing.

If you are pushing HYIP, autosurf and MLM schemes by featuring photographs of mansions and beautiful homes while planting the seed that one of the best reasons to join a scheme is to pay off mortgages, you’ve set the stage for receivers to target the homes of investors who buy into your sales pitch.

And if you happen to live in Florida and are using Ponzi proceeds to retire your own mortgage, a receiver can go after your property on the theory it represents a windfall and an ill-gotten gain from the proceeds of theft. You won’t be able to assert Silette’s legitimate innocent-owner defense to have even a prayer of forestalling foreclosure because you knowingly pushed a Ponzi.

Read the majority and dissenting opinions from the U.S. Court of Appeals for the Fifth Circuit.

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