How the RTC Trampled One Borrower's Rights

0 Comments | Insight on the News, Jan 3, 2000 | by Berin Szoka

The first rule of the bureaucracy: Protect the bureaucracy." Eleven years ago, John and Rhetta Sweeney of Hamilton, Mass., never could have imagined just how right Ronald Reagan was -- or how far federal bureaucrats would go to protect their administrative dominions.

On a cold day in February 1998 when armed U.S. marshals assaulted the Sweeneys' home, arrested John Sweeney, carried him off to jail in shackles and carted away everything they owned in two 18-wheelers, the Sweeneys lost everything except each other and the clothes on their backs. But the most important thing the marshals stole from them that day was their faith in the U.S. Constitution and the Bill of Rights as more than just scraps of paper.

Why their despair? Because John Sweeney, a former Green Beret, resisted efforts of the marshals to seize his 14-acre estate and has been forced to serve four months in the Plymouth Correctional Facility in Massachusetts for contempt of court. Sweeney's supporters insist that he has committed no crime -- save defending his home and standing up for what he asserts are his "inalienable rights."

"Have we now reached a point in this country where agents for the federal government can drive down any street and say, `Let's take this property'?" asks a frustrated but resolute Rhetta Sweeney.

The Sweeneys' nightmare began in 1987, when they borrowed $1.6 million from ComFed Mortgage bank to develop and subdivide their historic 14-acre property in Hamilton, a leafy, old-money suburb of Boston. After receiving several purchase offers in 1988, Rhetta Sweeney asked ComFed to release the quarter of the loan set aside for construction costs and make good on its written promise to increase the amount of the loan. ComFed refused, saying the purchase offers were too low. Without any other way to pay back the loan, the Sweeneys were forced to default.

The Sweeneys learned some years later that ComFed had been running what some Massachusetts bank officials called a racketeering scheme. Because they worked on commission, ComFed's officers had a strong incentive to inflate the size of the loan a borrower needed, and often did, saddling people with loans they could not possibly pay off.

In April 1989, after ComFed filed for foreclosure, the Sweeneys sued ComFed Mortgage, ComFed Advisory and their parent company, ComFed Savings, along with their mortgage officer for breach of contract, fraud, intentional infliction of emotional distress and violation of the Massachusetts Deceptive Trade Practices Act.

In March 1990, a jury ordered the Sweeneys to pay off the $1.6 million note but also awarded Rhetta Sweeney $65,000 for emotional distress. The case then went to State District Judge Katherine Izzo, who had legal authority to rule on the charges of unfair and deceptive trade practices. Her Jan. 30, 1991, decision against ComFed awarded the Sweeneys $4 million in damages and interest as well as $97,000 in legal fees, and raised the $65,000 emotional damages award to $315,000. Most significantly, Izzo ruled that "ComFed knew or should have known ... that based on its representations the Sweeneys believed ComFed would provide construction mortgage financing once subdivision approval had been obtained for the subject parcels."

But in December 1990, before Izzo filed her decision, ComFed Savings failed and was taken over by the Resolution Trust Corporation, or RTC. Because the case now involved a corporation of the federal government, federal statutes allowed the case to be removed to the U.S. Court of Appeals for the federal circuit in Washington. Along came John Hanify, ComFed's lawyer, who short-circuited this process by taking the original decision from Izzo's court and concealing it in his office for 26 days. He saw to it that the case was transferred to the 1st U.S. Circuit Court of Appeals in Boston, telling neither the Sweeneys nor Izzo of the removal.

The case then came before Judge Edward Harrington, who in an ideal world might have recused himself due to personal ties to Hanify and his family. It turns out that Harrington and Hanify worked together in the U.S. Attorney's Office and Hanify's father, Edward, had testified on Harrington's behalf before the Senate Judiciary Committee in 1987 to help Harrington get confirmed as a federal judge. Harrington's son had gotten a job at Hanify's law firm in 1993, during the Sweeney litigation, say the Sweeneys.

In April 1991, Harrington expunged from the record Izzo's $4 million decision in the Sweeneys' favor. He also swept aside Izzo's ruling of ComFed's fraud, to which ComFed itself admitted publicly, by invoking an arcane legal doctrine called D'Oench Duhme, which holds that federal banking regulators cannot be held liable for secret, sweetheart deals between banker and borrower.

In March 1993, Harrington denied Rhetta Sweeney's motion to remand the case back to state court and instead ordered her to file no further motions in the circuit court and fined her $1,000.

In January 1994, the RTC had the Hamilton county sheriff serve the Sweeneys with foreclosure papers. The RTC foreclosed on the Sweeneys' property at the end of May 1994 and advertised a July 14 auction of their property.