Facts

In July 2004, plaintiffs Earl R. and Irene Jones contracted into a retail listing agreement with defendants Melvin Hilliard and Bankers Realty Company to be a representative for plaintiffs regarding the sale of property at 1617 South Bronson Avenue in Los Angeles. On Feb. 23, 2005, Hilliard obtained defendant Vanessa Campbell as a purchaser of the property. Defendant Rob Schultz, working on behalf of Campbell, made it a condition of the sale that defendant Inner City Escrow handle the purchase.

Inner City Escrow was, in fact, a fraudulent escrow company, was not licensed and had no legitimate business purpose. Not knowing that the escrow was a fraud, the Jones deposited their Deed, but Vanessa Campbell never deposited any money. As part of the scheme, Vanessa Campbell obtained a loan from Empire Mortgage (succeeded by defendant Option One
Mortgage) in the approximate amount of $660,000. Empire Mortgage also deposited the loan proceeds in "escrow." The transaction "closed," the Jones Deed and the Empire Mortgage Deed of Trust were recorded, but the check made payable to the Jones for the sellers' proceeds bounced and the Jones received no money. The Jones' sought to regain title to their property and to remove the Empire Mortgage Deed of Trust. The Jones' claimed that the Deed and therefore the Deed of Trust were void and thus no title passed to Empire Mortgage by the Deed of Trust. The Jones contended that it was Empire Mortgage's money which was stolen by the
"escrow" because the conditions for closing had never actually occurred. The Jones' also sued their real estate agent and broker for negligence.

Cross-complainant Option One Mortgage Corporation asserted that the Hillard defendants failed to disclose that defendant Inner City Escrow did not have a licensed escrow company and that the alleged principal, defendant Michale DeVaughn aka Ron Bartlett, did not have a license, or that the company was fake and used for fraudulent purposes. The plaintiffs nevertheless executed escrow directions on Feb. 24, 2005 and made a deposit of a grant deed to the property for defendant Campbell with defendant Inner City in May 2005.

Defendant Campbell authorized a promissory note and deed of trust for $660,000 for cross-complainant Option One's predecessor Empire Mortgage Corporation. At the time that Empire Mortgage asked for proof that Campbell had put the funds into escrow, DeVaughn faxed falsified checks, which acted as inducement to Empire Mortgage to send money to DeVaughn's company, Inner City Escrow. Empire made an assignment of the note to cross-complainant Option One.

The plaintiffs then filed suit attacking defendants Michale and Anthony DeVaughn. The court struck defendant's answers because they did not comply with discovery and court orders. During the first phase at trial, plaintiffs offered evidence that Michael DeVaughn committed fraud in informing plaintiffs that Campbell had put funds into escrow that were the appropriate proceeds to close escrow on the property.

Defendant Inner City Escrow's bank account showed that thousands of dollars were dispersed to Anthony DeVaughn's company, A Squared Management, soon after Empire sent the funds to Inner City's account. Michael DeVaughn additionally was given around $30,000 at the same time. The DeVaughn defendants were put in jail in relation to another but congruous transaction and when trial came around they were in jail as well.

In Phase I of the trial, plaintiffs v. Campbell and the DeVaughns, plaintiffs were restored title and possession to their property after proof of fraud, however, the Empire Mortgage Deed of Trust remained on the Jones' property.

In Phase II, plaintiffs v. Option One (as successor in interest to 0Empire Mortgage), the Empire Mortgage Deed of Trust was invalidated, the court finding that the Jones' Deed to the buyer,
Vanessa Campbell was void because it was delivered (recorded) contrary to the escrow instructions.

In Phase Ill, Option One v. Campbell and the DeVaughns, Option One obtained judgment against the DeVaughns for the losses it suffered as a result of the invalidation of the Deed of Trust among other things.

Plaintiffs separately settled with the real estate agent and broker for the approximate sum of their attorney fees pursuant to a Stipulation for Judgment requiring monthly payments. The agent and broker defaulted and judgment was entered against them for balance of the
settlement.

PLAINTIFFS' CONTENTIONS:
Plaintiffs' claim against the DeVaughns was for simple rescission based on fraud. Plaintiffs' claim against Option One was based upon the contention that the delivery of the Deed (recording) was void as opposed to voidable by virtue of delivery in violation of the escrow instructions which required Vanessa Campbell to deposit certain funds as a condition for recording, which she did not.

Cross-complainant demanded indemnity, unjust enrichment, quiet title, equitable subrogation, judicial foreclosure, and declaratory relief to be given by the DeVaughn defendants, Hilliard defendants, and Rob Schultz. The Hilliards also put in a cross-complaint demanding indemnity from Option One and Schultz. Schultz's motion for summary judgment was granted by the court regarding Option One's indemnity allegation. The Hilliards and Option One resolved the dispute by settling in an agreement in February 2007.

Result

The Jones were awarded rescission against Vanessa Campbell and restored to title and possession of their property. As against Option One, the court invalidated the Deed of Trust and an agreement was reached for the Jones to pay Option One the amount due on the previously existing Deed of Trust which Empire Mortgage did in fact pay off. Cross complainant Empire Mortgage was awarded $582,140 which consisted of $577,896 principal, $4,244 as an advance for hazard insurance, $201,459 in attorney fees, $31,809 in prejudgment interest, and $589 as costs paid by cross-defendants Inner City Escrow, Anthony and Michael DeVaughn, and A Squared Management Corporation.

Other Information

FILING DATE: Aug. 9, 2005.