CLEARWATER — Pinellas County Circuit Judge Jack St. Arnold on Monday threw out the $458,100 sale of a gulf-front condo because of what he called an "unscrupulous" and "conniving" scheme to trick bidders at a foreclosure auction.
His ruling means that the owners of Orlando Realty Group will get back the money they bid on what turned out to be a second mortgage held by a company connected to Clearwater attorney Roy Skelton. Only later did the bidders discover that a different lender had a superior first mortgage and could soon foreclose, leaving them with no condo and out nearly a half million dollars.
While he rapped Orlando Realty for not doing sufficient due diligence before bidding, St. Arnold had especially harsh words for Skelton.
"Clearly you set a trap for unwary buyers," the judge said.
Skelton said after the hearing that he would either sell the unit in the Ram-Sea Condominiums on North Redington Beach or try to pay off the first mortgage.
"While I respectfully disagreed with the judge's decision, I will respect it and will not file an appeal," Skelton said.
Two years ago, Skelton's Outbidya, Inc. paid $157,8000 for the condo at a homeowners association foreclosure auction. Last year, shortly after Wells Fargo began foreclosing on the first mortgage, Skelton created Deutsche Residential Mortgage — no relation to the giant German bank — and took back a second mortgage from Outbidya.
In February, while Wells Fargo's case dragged along, Skelton's Deutsche obtained a final judgement of foreclosure on its second mortgage and set the stage for the contested June auction.
The sole witness at Monday's hearing — which was held on an emergency motion to set aside the sale — was John Houde, who owns Orlando Realty Group with his wife.
Houde testified that he thought the auction involved a first mortgage because the only lis pendens — initial notice of foreclosure — he saw was filed by Wells Fargo. Before bidding, he said, he reviewed public records including the docket in the bank's case.
"I've done quite a number of these," Houde said, referring to online foreclosure auctions. "This (review) is to make sure which mortgage is foreclosing."
But under questioning from Skelton, Houde acknowledged that he had not read the entire final judgment, which showed that Deutsche Residential held the mortgage being foreclosed. Skelton also accused Houde of committing fraud by indicating in the online auction process that he had thoroughly read all documents in the case even though he had not.
"He comes with unclean hands," Skelton said.
Skelton and Matthew Weidner, one of Houde's lawyers, traded sometimes dense legal and technical arguments in the 90-minute hearing — which included a brief recess to watch the eclipse. But another of Houde's attorneys, Jon McGraw, was more straightforward in his remarks.
Follow trends affecting the local economy
Subscribe to our free Business by the Bay newsletter
You’re all signed up!
Want more of our free, weekly newsletters in your inbox? Let’s get started.Explore all your options
"It's a very cunning plan by Mr. Skelton and his group," McGraw said and one in which Orlando Realty "stands to lose a substantial amount of money."
Before ruling, St. Arnold said Houde's company had failed to do its due diligence "in a competent manner," and added that he had little sympathy for bidders at foreclosure auctions who "pick on the bones" of people who lost their homes.
But, calling it a case of "complicit versus conniving," the judge said in effect that he found Skelton's actions much more egregious. The mortgage company Skelton set up "was not a legitimate lender," St. Arnold said, and its sole purpose was to further a scheme to reap "an unconscionable profit."
Skelton, who conceded that his Deutsche Residential never made a single loan, is involved in a similar case in which a person thought he was bidding on a first mortgage on a Largo townhome owned by another of Skelton's companies. That buyer forfeited a $5,000 deposit rather than go through with the $112,000 purchase.
Despite the judge's criticism of him, Houde was relieved to be getting his money back.
"You shouldn't be allowed to create a scheme to defraud buyers," he said.
Contact Susan Taylor Martin at email@example.com or (727) 893-8642. Follow @susanskate