Trademark Trial and Appeal Board Electronic Filing System. http://estta.uspto.gov
`
`ESTTA Tracking number:
`
`ESTTA821626
`
`Filing date:
`
`05/17/2017
`
`IN THE UNITED STATES PATENT AND TRADEMARK OFFICE
`BEFORE THE TRADEMARK TRIAL AND APPEAL BOARD
`
`Petition for Cancellation
`
`Notice is hereby given that the following party requests to cancel indicated registration.
`
`Petitioner Information
`
`Name
`
`Entity
`
`Address
`
`Attorney informa-
`tion
`
`Express Homebuyers USA, LLC
`
`Limited Liability Company
`
`Citizenship
`
`Virginia
`
`6564 Loisdale Court
`Springfield, VA 22150
`UNITED STATES
`
`Timothy J. Maier
`Maier & Maier, PLLC
`345 South Patrick St.
`Alexandria, VA 22314
`UNITED STATES
`trademark@maierandmaier.com Phone:7037408322
`
`Registration Subject to Cancellation
`
`Registration No
`
`3149336
`
`Registration date
`
`09/26/2006
`
`Registrant
`
`WBH MARKETING, INC.
`2140 E. SOUTHLAKE BLVD., STE. L615
`SOUTHLAKE, TX 76092
`UNITED STATES
`
`Goods/Services Subject to Cancellation
`
`Class 016. First Use: 2005/10/21 First Use In Commerce: 2005/10/21
`All goods and services in the class are cancelled, namely: [ REAL ESTATE PAMPHLETS, ] REAL
`ESTATE INFORMATIONAL FLYERS, REAL ESTATE INFORMATIONAL SHEETS,[ REAL ESTATE
`LEAFLETS, REAL ESTATE BOOKLETS, ] REAL ESTATE INFORMATIONAL LETTERS, REAL ES-
`TATE NEWSLETTERS, PRINTED FORMS, PRINTED GUIDES FOR REAL ESTATE, PRINTED IN-
`STRUCTION, EDUCATIONAL, AND TEACHING MATERIALS FOR REAL ESTATE, PRINTED PA-
`PER SIGNS, PRINTED REPORTSFEATURING REAL ESTATE
`
`Grounds for Cancellation
`
`The mark is or has become generic
`
`Trademark Act Section 14(3), or Section 23 if on
`Supplemental Register
`
`Attachments
`
`0854-GEN_PetitionToCancel_WeBuyHouses.pdf(21212 bytes )
`Exhibit A1.pdf(595989 bytes )
`Exhibit A2.pdf(1683562 bytes )
`Exhibit A3.pdf(618355 bytes )
`Exhibit A4.pdf(94013 bytes )
`Exhibit A5.pdf(349948 bytes )
`Exhibit A6.pdf(3194888 bytes )
`Exhibit A7.pdf(186790 bytes )
`
`

`

`Exhibit A8.pdf(358258 bytes )
`Exhibit B.pdf(95945 bytes )
`
`Signature
`
`/Timothy J Maier/
`
`Name
`
`Date
`
`Timothy Maier
`
`05/17/2017
`
`

`

`IN THE UNITED STATES PATENT AND TRADEMARK OFFICE
`BEFORE THE TRADEMARK TRIAL AND APPEAL BOARD
`
`
`
`Express Homebuyers USA, LLC, a Virginia
`LLC
`
`Petitioner,
`
`
`
`v.
`
`
`WBH Marketing, Inc., a Texas Corporation
`Registrant.
`
`
`In the matter of Registration 3,149,336
`
`For the mark WE BUY HOUSES
`
`Registered on September 26, 2002
`
`Cancellation No. ______________
`
`
`
`PETITION TO CANCEL
`
`Express Homebuyers USA, LLC, (“Petitioner”), a Virginia Limited Liability Company,
`
`
`
`
`
`
`
`having a principal place of business at 6564 Loisdale Court, Springfield, VA 22150, believes that
`
`it is and will continue to be damaged by the registration of the mark WE BUY HOUSES, U.S.
`
`Registration No. 3,149,336, and hereby petitions to cancel the same under the provisions of 15
`
`U.S.C. § 1064.
`
`
`
`1.
`
`Express Homebuyers USA, LLC (hereinafter “Petitioner”), has been engaged in
`
`the direct home buying market since 2003 and has become a prominent direct home buyer in the
`
`Maryland, Washington DC, and Virginia region.
`
`2.
`
`On July 11, 2001, Michel Payette filed an intent-to-use application for WE BUY
`
`HOUSES, and filed an Amendment to Allege Use for the trademark on December 2, 2005,
`
`alleging first use in commerce at least as early as October 21, 2005.
`
`
`
`1
`
`

`

`Cancellation No. _________
`Express Homebuyers USA, LLC v. WBH Marketing, Inc.
`Petition to Cancel Registration No. 3,149,336
`Mark: WE BUY HOUSES
`
`
`3.
`
`WBH Marketing, Inc. (“Registrant”), a Texas corporation having an address of
`
`2140 E. Southlake Blvd., Ste. L615, Southlake, Texas 76092, is the current listed owner of
`
`record of U.S. Registration No. 3,149,336 for the mark WE BUY HOUSES for “real estate
`
`informational flyers, real estate informational sheets, real estate informational letters, real estate
`
`newsletters, printed forms, printed guides for real estate, printed instruction, educational, and
`
`teaching materials for real estate, printed paper signs, printed reports featuring real estate” in
`
`Class 016. The mark was assigned by Michel Payette in 2004 to Webuyhouses.com, Corp., from
`
`Webuyhouses.com, Corp. to X5 Ventures, LLC in 2012, and from X5 Ventures, LLC to WBH
`
`Marketing, Inc. in 2016.
`
`4.
`
`On or about July 2016, Registrant filed a takedown request with YouTube,
`
`alleging trademark infringement for Petitioner’s use of the statement “We Buy Houses” in its
`
`advertising content for direct home buying services. Youtube notified Petitioner that it had
`
`received a Trademark complaint from X5 Ventures, LLC and that upon analysis of the claim, the
`
`content in question was removed. As evidenced in the Assignment Records and Exhibit B, X5
`
`Ventures is the prior owner of Registration 3,149,336, and shares a common CEO/President with
`
`the current owner WBH Marketing, Inc. On information and belief, YouTube determined that
`
`Petitioner’s use of We Buy Houses was an infringing use by virtue of the registration for WE
`
`BUY HOUSES. Petitioner is adversely affected by Registrant’s claimed rights in generic
`
`terminology in that it can no longer use such generic terminology on YouTube. Therefore,
`
`Petitioner has a real interest in establishing the lack of source indicating function of Registration
`
`No. 3,149,336.
`
`2
`
`
`

`

`Cancellation No. _________
`Express Homebuyers USA, LLC v. WBH Marketing, Inc.
`Petition to Cancel Registration No. 3,149,336
`Mark: WE BUY HOUSES
`
`
`5.
`
`Registrant’s alleged mark WE BUY HOUSES is an affirmative statement of the
`
`exact services offered by direct homebuyers. On information and belief, Registrant is in the
`
`market of direct homebuying and the printed material identified in the Registration is advertising
`
`material for direct homebuying services.
`
`6.
`
`The phrase WE BUY HOUSES is understood and recognized by scholars and the
`
`consuming public at large as referring to direct homebuying transactions and/or direct
`
`homebuying companies in general. See Exhibits A1-A8.
`
`7.
`
`“WE BUY HOUSES” is not capable of distinguishing Registrant’s goods
`
`pursuant to 15 U.S.C. §1052 because it is a generic term for Registrant’s goods.
`
`8.
`
`“WE BUY HOUSES” is not capable of distinguishing Registrant’s goods
`
`pursuant to 15 U.S.C. §1052 because it is so highly descriptive that it is incapable of acquiring
`
`distinctiveness as a trademark.
`
`9.
`
`Petitioner and others in the direct home buying market and more generally in the
`
`real estate industry have a present and prospective right to use the statement “WE BUY
`
`HOUSES” generically and/or descriptively in their business.
`
`
`
`10.
`
`Therefore, allowing continued registration of Registrant’s mark is a source of
`
`damage and injury to Petitioner and others in the real estate industry inasmuch as it would
`
`preclude a prospective purchaser from stating their services by a common, generic statement.
`
`11.
`
`Registrant’s Trademark Registration No. 3,149,336 for WE BUY HOUSES
`
`should therefore be cancelled under 15 U.S.C. §§ 1052 (d) and 1064.
`
`Petitioner reserves the right to amend this Petition to allege other claims in the event
`
`discovery of other information indicates they are appropriate.
`
`3
`
`
`

`

`Cancellation No. _________
`Express Homebuyers USA, LLC v. WBH Marketing, Inc.
`Petition to Cancel Registration No. 3,149,336
`Mark: WE BUY HOUSES
`
`
`WHEREFORE, pursuant to Section 14 of the Lanham Act, 15 USC §1064, Petitioner
`
`respectfully requests that Registration No. 3,149,336 be cancelled.
`
`This Petition for Cancellation is being filed electronically pursuant to the ESTTA system.
`
`
`
`
`Date: __5/17/2017__________
`
`
`
`
`
`
`
`Respectfully submitted,
`
`Express Homebuyers USA, LLC
`
`
`
`By: _/Timothy J. Maier/__________________
`Timothy J. Maier
`
`Maier & Maier, PLLC
`345 South Patrick Street
`Alexandria, Virginia 22314
`(703) 740-8322
`Customer No. 62008
`
`
`
`
`
`Attorney for Petitioner
`
`
`
`
`
`4
`
`
`

`

`Cancellation No. _________
`Express Homebuyers USA, LLC v. WBH Marketing, Inc.
`Petition to Cancel Registration No. 3,149,336
`Mark: WE BUY HOUSES
`
`
`Certificate of Service
`
`I hereby certify that a true and complete copy of the foregoing Petition to Cancel has
`
`been served on Robert H. Johnston III, Attorney of Record for WBH Marketing, Inc., by mailing
`
`said copy on May 17, 2017, via Federal Express, postage prepaid, to:
`
`Robert H. Johnston III
`Hubbard Johnston, PLLC
`4849 Greenville Ave., Ste. 1490
`Dallas, Texas 75206
`
`
`
`
`
`By: _/Timothy J. Maier/_______
`Timothy J. Maier
`Maier & Maier, PLLC
`345 South Patrick St.
`Alexandria, VA 22314
`(703) 740-8322
`
`Attorney for Petitioner
`
`Date: _5/17/2017________
`
`
`
`5
`
`
`

`

`Cancellation No. _________
`Express Homebuyers USA, LLC v. WBH Marketing, Inc.
`Offered by Petitioner in support of Petition to Cancel Registration No. 3,149,336
`Mark: WE BUY HOUSES
`
`
`
`EXHIBIT A1
`
`
`
`

`

`
`
`“We Buy Houses”: Market Heroes or
`Criminals?
`
`Cori Harvey*
`
`INTRODUCTION
`
`The residential sale/leaseback/buyback (“RSLB”) transaction is a social-
`ly beneficial foreclosure rescue transaction that is being regulated increasing-
`ly by the criminal courts to the detriment of the homeowners, investors, and
`society at large. Because the transaction is being regulated more aggressively
`with the criminal law, peculiar outcomes arise, which include investors being
`sentenced, in some cases, to draconian sentences – a trend that will eviscerate
`the transactions rather than improving them.
`A standard RSLB transaction is a privately arranged alternative to fore-
`closure. The RSLB transaction allows a homeowner in foreclosure to sell his
`property to an investor, lease the property back from the investor, and retain
`the right to repurchase the property at a set price on a set date in the future (a
`call option).1 Although it is not perfect, this arrangement provides numerous
`
` *
`
` Associate Professor of Law, Florida A&M College of Law. Special thanks to Peter
`Carstensen. An additional thank you to Oren Bar-Gill, Donald Joseph, Heinz Klug,
`Stewart Macaulay, and Lua Yuille for their thoughtful and insightful comments, and
`to the participants of the 2013 International Conference on Contracting, the 2014
`University of Wisconsin Junior Faculty Workshop, the 2014 University of Wisconsin
`Graduate Student Seminar, and the Missouri Law Review Editorial Board for their
`comments on the ideas presented here.
`
`1. This Article is the second of a series of articles about residential pre-
`foreclosure investing. Specifically, these articles introduce the We Buy Houses trans-
`action and other residential sale/leaseback/buyback (RSLB) transactions into the legal
`literature from the previously unheard perspective of the oft-demonized investors. To
`a large extent, the RSLB transaction is inside the purview of a select group of inves-
`tors and homeowners in certain neighborhoods, and is widely misunderstood outside
`of those circles. Indeed many people see “We Buy Houses” signs, yet few understand
`the actual transaction. To understand this transaction and how it is executed in prac-
`tice, the Author conducted primary research, including interviews with several real
`estate investors. This article and the one preceding it are the culmination of over one
`hundred hours of interviews with RSLB investors. The bulk of these interviews oc-
`curred in Fall 2012 and Spring 2013, including exclusive interviews and written cor-
`respondence with the first-ever white-collar defendant, an RSLB investor, sentenced
`under a three-strikes law to a potential life sentence for this transaction.
`
` As explained in the previous Article in this series, the description of the
`RSLB transaction presented in this series of articles is a composite of their descrip-
`tions, theorized and converted into the language of lawyers and academics by the
`Author. To the extent that the investors’ versions or observations differ from the
`composite, or especially illuminate a point, individual investors’ explanations or in-
`terpretations are highlighted as warranted.
`
`

`

`650
`
`MISSOURI LAW REVIEW
`
`[Vol. 79
`
`benefits for the homeowners, including several which would be lost in the
`traditional foreclosure process,2 and, therefore, should be preserved and sup-
`ported. Instead, the transaction finds itself besieged by consumer protection-
`ists, academics, behavioral economists, the criminal courts, and the public
`alike.3 For this reason, the transactions are often called “foreclosure rescue
`scam[s]” and “equity-skimming scheme[s].”4
`
`
` The group of investors who agreed to be interviewed anonymously for this
`
`project was comprised of eleven investors and three family members or office staff
`members of investors. The interviewees have completed transactions in six different
`states and have each done between “8 or 9” and “well over a hundred or two” similar
`transactions. To fund the RSLB transactions, some use their own or family funds;
`others use outside funds entirely. Over half of the investors complete RSLB or simi-
`lar real estate transactions or do construction full-time. The longest tenured investors
`of the group have been in the business for over thirty years; the shortest real estate
`career has been seven years. Three of the investors are related to each other. Another
`two are a father and daughter duo. Three of the investors were known to the Author
`prior to the Project.
`
` Each investor was asked to describe the process of executing the RSLB
`transaction from start to finish, explaining the “how’s” and “why’s” of each step of
`the transaction. The investors were also asked what they thought were the beneficial
`and problematic aspects of the transaction and the marketplace altogether. They were
`asked to describe their interactions with homeowners, other investors, and lenders.
`Finally, they were asked how they felt about recent prosecutions of investors and
`whether they were optimistic about this Article. Each interviewee believed the RSLB
`marketplace is misunderstood by outsiders. This Article seeks to remedy that prob-
`lem.
` In addition to interviews, the Author also relied on investor and homeowner
`
`training materials for the RSLB transaction, court documents, and personal experi-
`ences in the real estate market. The Author was able to interview Mr. Timothy Bar-
`nett, his family, and associates. Mr. Barnett is an RSLB investor sentenced in 2012 to
`33.3 years in prison under California’s three-strikes law. A case study of Mr. Barnett
`is introduced briefly in Part I and detailed in Part V.
`2. See generally JOHN RAO & GEOFF WALSH, NAT’L CONSUMER LAW CTR.,
`
`INC., FORECLOSING A DREAM: STATE LAWS DEPRIVE HOMEOWNERS OF BASIC
`PROTECTIONS (2009), available at http://www.nclc.org/images/pdf/pr-reports/report-
`foreclosing-dream.pdf (describing how state foreclosure law facilitates the loss of
`homes and equity to big lenders during the foreclosure process because of weak civil
`procedural protections, excessive fee schedules, and other means).
`3. See CAL. CIV. CODE § 1695(a) (West 2014). California’s statutes regarding
`
`home equity sales contracts and governing RSLB transactions reflect the built-in
`biases and assumptions underlying these transactions. The statute states, “The Legis-
`lature finds and declares that homeowners whose residences are in foreclosure have
`been subjected to fraud, deception, and unfair dealing by home equity purchasers.” Id.
`This declaration reflects the legal and social atmosphere in which RSLB investors
`operate.
`
`4. Prentiss Cox, Foreclosure Equity Stripping: Legal Theories and Strategies to
`Attack a Growing Problem, 39 CLEARINGHOUSE REV. 607 (2006), available at
`http://heinonline.org/HOL/LandingPage?handle=hein.journals/clear39&div=72&id=
`&page= (offering numerous ways to go after alleged “acquirers” and their “confeder-
`
`

`

`2014]
`
`MARKET HEROES OR CRIMINALS?
`
`651
`
`In calling for a retreat from that position, this Article makes both de-
`scriptive and prescriptive claims. The first descriptive claim is that the trans-
`action is a beneficial one and that it has valid, non-fraud raisons d’etre. The
`second descriptive claim is that the level of persecution of this transaction is
`escalating for several reasons. Those reasons emerge from a perfect storm of
`social, political, and economic factors, the desire to criminalize unconsciona-
`bility, which largely has been obliterated as a civil contract doctrine, and the
`triumph of behavioral economics over rational choice economics in home-
`owner advocacy jurisprudence.
`The first prescriptive claim is that criminal regulation creates more harm
`than it cures by eroding the institution of contracting and by exacerbating the
`very market failure that gives rise to the transaction. The second prescriptive
`claim is that, where there are problems with the transaction, there are several
`better alternatives to criminal regulation. Specifically, minor licensing and
`regulation and remedial civil dispositions create better outcomes than crimi-
`nal dispositions.
`Part I will explain the transaction briefly and introduce the generic
`homeowner and investor.5 It will then examine a couple of key cases to
`demonstrate the escalation of RSLB charges from quasi-criminal loan shark-
`ing, including the popular 1L Contracts textbook case from 1988, Browner v.
`District of Columbia,6 to a more recent case in which the first-ever white
`collar defendant, Timothy Barnett, an RSLB investor, was sentenced to 33.33
`years-to-life for residential burglary under California’s Three-Strikes Law.7
`
`
`
`ates,” whom the author accuses of “kicking someone who is down”); Nathaniel C.
`Nichols, Home Alone: Home Mortgage Foreclosure Rescue Scams and the Theft of
`Equity, 11 J. AFFORDABLE HOUSING & COMMUNITY DEV. L. 280 (2002) (arguing that
`foreclosure rescue scams target vulnerable homeowners and failing to acknowledge
`the benefits the transactions bring to homeowners); see also NAT’L CONSUMER LAW
`CTR., FORECLOSURES: DEFENSES, WORKOUTS, AND MORTGAGE SERVICING 375-418
`§§ 15.1-15.5.4.4 (John Rao et al. eds., 2d ed. 2007) [hereinafter FORECLOSURES];
`Steve Tripoli & Elizabeth Renuart, NAT’L CONSUMER LAW CTR., DREAMS
`FORECLOSED: THE RAMPANT THEFT OF AMERICANS’ HOMES THROUGH EQUITY-
`STRIPPING FORECLOSURE “RESCUE” SCAMS
`(2005), available at http://nw
`.org/network/neighborworksProgs/foreclosuresolutions/pdf_docs/foreclosureReport06
`1605.pdf.
`
`5. For an in-depth explanation of the RSLB transaction, see generally Cori
`Harvey, “We Buy Houses”: A Foreclosure Rescue as the Solution to the Trapped
`Homeowner Equity Problem, 79 MO. L. REV. 371 (2014).
`
`6. 549 A.2d 1107 (D.C. 1988). In Browner v. District of Columbia, the defend-
`ants unsuccessfully appealed their conviction for loansharking under a statute that
`prohibited the lending of money at a rate above 6% without a license. Id. at 1109,
`1116. Loansharking in the District of Columbia carries a maximum sentence of “im-
`prisonment for thirty days, or a $200.00 fine, or both.” Id. at 1111. The defendants
`received “suspended jail sentences and were placed on probation and ordered to make
`restitution, pay fines, and perform community service.” Id.
`
`7. Stuart Pfeifer, Housing Scam Brings up to Life Sentence Under Three-Strikes
`Law, L.A. TIMES (Apr. 29, 2012), http://articles.latimes.com/2012/apr/28/business/la-
`
`

`

`652
`
`MISSOURI LAW REVIEW
`
`[Vol. 79
`
`Finally, Part I will spell out the benefits to homeowners in these transactions
`to highlight the importance of preserving these transactions as viable options
`for certain homeowners.
`Part II will explore the means of and justifications for criminal regula-
`tion of this transaction. Part II will provide a brief overview of the statutes
`that are being used to prosecute these investors – traditionally fraud and its
`subspecies, and now residential burglary. This Part will include a brief dis-
`cussion of the evidentiary problems inherent in criminal regulation of con-
`tract disputes and the problems with using burglary and other street-crime
`statutes to prosecute white-collar offenses. Rejecting both the justifications
`and the means described, Part II will suggest instead that a perfect storm of
`social, political, and economic exogeneities – coupled with both a goal to
`revive the dormant unconscionability doctrine in the criminal courts and a
`triumph of behavioralism over rational choice economics – actually explains
`the escalation of criminal regulation of these transactions. The result is an
`environment that criminalizes unconscionability and finds fraud and misrep-
`resentation in too many contracts.
`Part III will outline several problems with criminal regulation of ordi-
`nary economic behaviors, concluding that criminal regulation of foreclosure
`rescue transactions erodes the institution of contracting and exacerbates the
`market failure that typifies this already precarious market.
`Part IV will suggest several alternatives to criminal regulation, including
`some that have been outlined by consumer protection advocates. Although it
`may over-sell the size and scope of the problem, consumer protection juris-
`prudence has proposed many good remedial measures and has made great
`strides in combatting such problems in non-criminal ways. Finally, Part IV
`will conclude that socially-beneficial conduct must enjoy clear legal bounda-
`ries or it will cease to exist, thereby harming the most vulnerable homeown-
`ers who need the options most.
`Part V will detail the peculiar case of Timothy Barnett, which is intro-
`duced briefly in Part I. This case is important because it represents a confla-
`tion of white-collar and three-strikes jurisprudence, a blurring of the contract-
`crime divide, and, potentially, the scapegoating of a small accessible investor
`as the “fall guy” in a nation-wide foreclosure crisis in which large lenders are
`outside the reach of the criminal enforcement authorities. Mr. Barnett’s case
`
`
`
`fi-0428-three-strikes-fraud-20120428. Timothy Barnett was sentenced under Califor-
`nia’s three-strikes law, also known as California Proposition 184, for his third of three
`cases, which all stemmed from foreclosure rescue transactions. Id. This sentence
`stands as the first time a white-collar defendant was ever sentenced to a possible life
`sentence under a three-strikes law. Id. Mr. Barnett’s first two strikes stemmed from
`real estate transactions in the 1990’s, which were prosecuted simultaneously using
`California’s residential burglary statute, an enumerated felony under California’s
`three-strikes law. Id.
`
`

`

`2014]
`
`MARKET HEROES OR CRIMINALS?
`
`653
`
`also may have tremendous precedential value in California and his prosecu-
`tion may serve as a guideline for prosecutors in other jurisdictions.8
`
`PART I: THE RSLB MARKET, TRANSACTION, & BENEFITS9
`
`To execute an RSLB transaction, in effect, a homeowner in foreclosure
`contracts with a small, non-bank investor to sell the home to the investor, and
`to rent the home back for a negotiated period of time, usually between two
`and five years,10 called the “leaseback period,” at a negotiated rent, while
`retaining the right to repurchase the property at a negotiated price on a nego-
`tiated date.11 This solution averts the foreclosure by liberating the homeown-
`er’s trapped equity.12 However, the transaction is not without risk for the
`investor and homeowner. While some of these transactions result in the
`homeowner eventually losing the home, the potential is there for the home-
`
`
`8. This Article relies primarily on California law because California investors,
`
`including Mr. Barnett, have been on the forefront of the RSLB transaction. The
`transaction is prevalent in many states, however. California also has long-established
`statutes that govern home equity sale contracts, including RSLB transactions, which,
`although not perfect, may serve as a guide for other jurisdictions. CAL. CIV. CODE §
`1695.1-.17. Many other states also have such statutes already.
`
`9. Unless otherwise noted, the information in this Part comes from the inter-
`views conducted by the Author. See supra note 1.
`
`10. The leaseback period is usually set to be longer than the homeowner’s right
`of rescission, which in California, for example, is two years. CAL. CIV. CODE §
`1695.14(a). During this period after the sale to the investor, the homeowner can re-
`scind and recover his property under certain conditions. See CAL. CIV. CODE §
`1695.14. Because the title is tentative, the investor has an added incentive not to
`resell the property. See CALIFORNIA RESIDENTIAL FORECLOSURES: THE COMPLETE
`GUIDE TO EQUITY PURCHASES AND THE LAWS GOVERNING DISTRESS SALES (Fred
`Crane ed., 5th ed. 2008). The homeowner’s right of rescission can be waived in some
`states, but not in others. Compare TENN. CODE ANN. § 66-8-101 (West 2014) (allow-
`ing homeowners to waive right of rescission), with CAL. CIV. CODE §§1695.10,
`1695.14 (prohibiting homeowners from waiving their right of rescission).
`11. See BLACK’S LAW DICTIONARY 972, 1419 (9th ed. 2009) (defining “lease-
`
`back” and “repurchase,” respectively); BARRON’S DICTIONARY OF FINANCIAL AND
`INVESTMENT TERMS 293 (4th ed. 1995) (defining “leaseback”); FORECLOSURES, supra
`note 4; see generally Harvey, supra note 5.
`
`12. In its purest form, the sale to the investor pays off the homeowner’s foreclo-
`sure and other existing liens at the closing table. Specifically, the sale before the
`leaseback is what liberates the equity. Kyle S. Wells & Ryan J. Whitby, Evidence of
`Motives and Market Reactions to Sale and Leasebacks, 22 J. APPLIED FIN. 56 (2011),
`available at http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd
`=1&ved=0CB8QFjAA&url=http%3A%2F%2Fhuntsman.usu.edu%2Feconomicsandfi
`nance%2Ffiles%2Fuploads%2FWhitby%2FWells%2520and%2520Whitby.pdf&ei=8
`VXQU-DrLs-byAS3nIGADg&usg=AFQjCNE3Bm4VYOAy6RhrPfWScJumZZkVk
`Q&sig2=u4iWZwQNhZkr_MqjVuTduw&bvm=bv.71667212,d.aWw (“Thus, a sale
`and leaseback provides a means of raising money based on an asset while continuing
`to use the asset.”).
`
`

`

`654
`
`MISSOURI LAW REVIEW
`
`[Vol. 79
`
`owner to salvage his home, which some homeowners indeed do. Even for
`those homeowners who do not end up salvaging their homes, they will end up
`no worse off, and possibly better off, for having had the chance to save their
`home.
`
`A. The Market Failure
`
`Foreclosure rescue transactions arise from a specific set of market fail-
`ures. The RSLB rescue transaction arises because certain homeowners lack
`access to or the ability to qualify for traditional mortgage refinancing13 and
`do not trust mainstream banks.14 Because these homeowners cannot access
`traditional sources of capital, which would allow them to access the equity
`stored in their homes, they seek opportunities in non-traditional marketplaces,
`often using services provided by small entrepreneurial firms who operate
`outside of the traditional banking system.15 These smaller firms can often
`help homeowners access their stored equity in ways the larger banks cannot
`or are unwilling to do.16 Home equity is the difference between the market
`value of a home and all encumbrances upon it.17 Equity, once extracted as
`cash, can be used to meet any cash needs the homeowners might have.18
`These homeowners face the “trapped equity paradox.”19
`The trapped equity paradox refers to the simultaneous conditions of hav-
`ing equity in one’s home, needing cash, and not being able to access the equi-
`ty to convert it to cash.20 The trapped equity paradox can cause high-equity
`homeowners to find themselves defaulting on their short-term debt payments
`
`
`13. MICHAEL S. BARR, NO SLACK: THE LIVES OF LOW-INCOME AMERICANS 10,
`
`15, 133-78 (2012).
`14. See Ronald J. Mann, After the Great Recession: Regulating Financial Ser-
`
`vices for Low- and Middle-Income Communities, 69 WASH. & LEE L. REV. 729, 731-
`48 (2012) (describing the dearth of financial services for low-income people and their
`preferences for local, non-bank solutions).
`15. See id. at 740-43.
`
`16. See id. at 729.
`
`17. Home Equity, THE LAW DICTIONARY, http://thelawdictionary.org/home-
`
`equity/ (last visited Apr. 19, 2014).
`18. See Home Equity Conversion Mortgage, THE LAW DICTIONARY,
`
`http://thelawdictionary.org/home-equity-conversion-mortgage-hecm/
`(last
`visited
`Apr. 19, 2014).
`
`19. The Author coined this term in the first article in this series of articles about
`RSLB transactions. Harvey, supra note 5.
`
`20. All homeowners, to some extent, have trapped equity, unless they have ac-
`cess to 100% loan-to-value financing. However, the trapped equity paradox arises
`when the homeowner has a critical cash need that cannot be met. See generally Home
`Equity Terms, NATIONWIDE, http://www.nationwide.com/what-is-home-equity.jsp
`(last visited Apr. 19, 2014). The paradox is akin to the situation in Coleridge’s “The
`Rime of the Ancient Mariner.” SAMUEL TAYLOR COLERIDGE, THE RIME OF THE
`ANCIENT MARINER (1798), available at http://www.poetryfoundation.org/poem/
`173253 (“Water, water, every where, / Nor any drop to drink.”).
`
`

`

`2014]
`
`MARKET HEROES OR CRIMINALS?
`
`655
`
`and, in the case of RSLB homeowners, facing foreclosure because they can-
`not meet the monthly mortgage payments on the very home with the equity
`trapped inside of it.21 It is while in the midst of the trapped equity paradox
`that a homeowner would pursue an RSLB transaction.
`Although accessible under normal market conditions using ordinary
`banking and credit functions, in the trapped equity paradox, a homeowner’s
`equity cannot be released, or put to work, for lack of access to credit.22
`Homeowners who suffer the trapped equity paradox are primarily asset-rich
`and cash-poor.23 The only asset they have is the equity in their homes. How-
`ever, their equity is inaccessible because, when these homeowners cannot
`show both a means and a willingness to pay loans, either with current cash
`flow or other liquid assets, they cannot qualify for financing or refinancing to
`extract this equity.24
`When homeowners approach the final stages of non-payment before a
`foreclosure sale of their properties and eviction, they have a couple of options
`to bring their loans current to avoid foreclosure – all of them problematic.25
`Homeowners can try to refinance their loans using their own credit, or the
`credit of friends or loved ones; they can make a lump-sum payment; they can
`lease the property out; or, they can sell their homes quickly.26 Unfortunately,
`
`
`21. RealtyTrac demonstrated in its most recent report, US Home Equity & Un-
`
`derwater Report, that nationally 31% of homes in foreclosure had positive equity in
`them (defined as loan to value of 100% or less). 9.3 Million U.S. Residential Proper-
`ties Deeply Underwater in December 2013, Down from 10.7 Million in September
`2013, REALTYTRAC (Jan. 7, 2014), http://www.realtytrac.com/content/foreclosure-
`market-report/us-home-equity-and-underwater-report-december-2013-7959.
` That
`number is significantly higher in some states and metro areas. For example, in Okla-
`homa, 62% of homes in foreclosure have positive equity (led by Oklahoma City with
`63%), in Colorado 54% (led by Denver with 64%), in New York 52% (led by Buffalo
`with 74%). Id.
`
`22. A lack of access to credit may be due to little to no income, or a poor credit
`score. See FIN. CRIMES INTELLIGENCE UNIT, FED. BUREAU OF INVESTIGATION 2010
`MORTGAGE FRAUD REPORT: YEAR IN REVIEW 6 (2011), available at http://www.fbi
`.gov/stats-services/publications/mortgage-fraud-2010/mortgage-fraud-report-2010
`(citing the Federal Reserve Bank of Philadelphia report, which argues that “low-
`income households still struggle to access credit . . . [and] . . . [t]he top three factors
`contributing to a lack of access to credit include lack of financial knowledge, under-
`writing standards/credit ratings, and lack of cash flow”).
`
`23. See id.
`to Access Credit,
`24. See Jon Prior, Low-Income Households Struggle
`
`HOUSINGWIRE (May 17, 2011), http://www.housingwire.com/articles/print/low-
`income-households-struggle-access-credit.
`
`25. For a more thorough explanation of these four options, see Harvey, supra
`note 5.
`26. See id. As described in the previous Article in this series, there is a foreclo-
`
`sure rescue market for the outright sale of high-equity homes facing foreclosure. This
`can be a good option for people with homes in saleable condition, who want to leave
`their homes and take some cash with them, while avoiding further harm to their credit
`and the humiliation of a foreclosure. An outright sale re