August 19, 2006
Greedy consumers fuelled mortgage scam
It was a very enticing sales pitch. "Imagine," it went, "if you never had to
make a mortgage payment again. Imagine if you were able to eliminate the single
biggest expense in your life and own your home free and clear. It's possible."
With a sales promotion under the banner "Eliminate your mortgage
payments," this was the come-on of an organization named Brixdale Inc.
It conned some 3,000 Americans into shelling out more than $900,000 in
hopes of paying off their mortgages within a matter of months. (All figures
At the end of June, New York state Attorney General Eliot Spitzer
announced a consent judgment against a Long Island-based website operator and
his associates who ran a string of fraudulent Internet operations.
In September 2005, Spitzer's office had filed a lawsuit against Jeffrey
Augugliaro, of Malverne, N.Y., alleging he operated a mortgage payment scam. The
state Supreme Court has now ordered Augugliaro to pay $200,000 to consumers who
were victimized by the operations of Brixdale.
The court judgment also requires him to pay additional restitution of
more than $700,000 to affected Brixdale consumers, and bars Augugliaro from
operating any more Internet operations.
Using http://www.brixdale.com, Augugliaro promised consumers that if
they allowed him to take control of the electronic transfers of their monthly
mortgage payments, they could fully pay off an entire 30-year mortgage in a
matter of months, and wind up with an additional quarter of a million dollars as
a bonus at the end of the venture.
The attorney general's lawsuit alleged the Brixdale program was an
illegal pyramid scheme. Consumers were encouraged to recruit others to
participate. Those new members, in turn, had to recruit more new members to
perpetuate the scheme.
Consumers were also lured into making "extra" mortgage payments to
But rather than forwarding the mortgage payments to the lenders as
promised, Augugliaro allegedly siphoned off some of the funds for himself and to
pay commissions to others. As a result, hundreds of thousands of consumer
dollars were drained from the Brixdale account.
Although the Brixdale website is no longer online, copies archived by
Google show Brixdale was promoting an "inverse mortgage" program, a
realistic-sounding "innovative banking product the experts are calling the most
powerful financial tool available today."
The site promised that the inverse mortgage "can eliminate more than 16
years worth of mortgage payments."
The way the scheme supposedly worked was for Brixdale to "take over" a
borrower's monthly electronic mortgage payments from his or her bank account,
and for a period of four months make those payments slightly earlier each month.
In some unexplained fashion, Brixdale would then take advantage of
"banking rules on how loans are amortized" to pay off the mortgage within
months, and give participants a free vacation worth $4,000 after the four-month
period was over.
Of course, there is no such thing as an inverse mortgage, which is not to
be confused with the legitimate reverse mortgage used by many seniors to take
cash out of their home to supplement pensions and retirement income.
It's debatable whether it was P.T. Barnum who coined the phrase "There's
a sucker born every minute," but whoever said it, the maxim might well apply to
Brixdale's 3,000 customers.
I'm not sure whether I have any sympathy for them. I'm debating whether
Augugliaro or the greedy consumers should shoulder the losses created by the
I understand that many consumers are not financially astute, but I'm
wondering how much of a role greed played in the whole Brixdale scam.
There is simply no logic to the possibility that a long-term mortgage
could be paid off in a few months and provide participants with an additional
promised $250,000 bonus at the end.
If I were the New York attorney general, I would have directed
Augugliaro's restitution money if he pays it to charity rather than the
injured participants. Mostly, they were the authors of their own misfortune. In
the meantime, here are a few of my own suggestions for dealing with
homeownership, investing and borrowing:
Always get some of your advice from lawyers, accountants or other
fee-for-service professionals who are not selling anything and have nothing to
gain if the client accepts or rejects the advice.
It is possible to pay off a mortgage earlier than the scheduled payout, but
only with more conventional methods. Make more frequent payments, use an
accelerated amortization with higher payments, and take full advantage of annual
prepayment privileges. For most people, making contributions to a Registered
Retirement Savings Plan while trying to pay off a mortgage on a principal
residence is not a good idea.
Consider buying lottery tickets. The chances of success are better than a
And remember: If a financial scheme sounds too good to be true, it probably
Bob Aaron is a Toronto real estate lawyer. He can be reached by email at email@example.com, phone 416-364-9366 or fax 416-364-3818.
Visit the Toronto Star column archives at http://www.aaron.ca/columns for articles on this and other topics or his main webpage at www.aaron.ca.