Opinion
No. CR98-3002
August, 2000
REPORT AND RECOMMENDATION
This matter comes before the court pursuant to the petition of John and Linda Gomez to adjudicate validity of their interest in real property subject to forfeiture. This matter was referred to the undersigned United States Magistrate Judge for the issuance of a report and recommendation. The court held an evidentiary hearing on this motion on July 24, 2000, at which the petitioners were present and represented by David Mullin. The government was represented by Assistant United States Attorney Martin McLaughlin. It is recommended that the court find in favor of the government.
Nature of the Proceedings
This is an ancillary hearing pursuant to 21 U.S.C. § 853 to determine the interest of third parties in property that has been the subject of an order of forfeiture. The object of the forfeiture is a $79,000 insurance check issued when the premises at 2116 South Taft Street in Mason City was destroyed in an arson. That property was the residence of defendant Steven Gomez, the son of the petitioners herein. The defendant has admitted that his interest in the property is forfeitable and it was forfeited in the judgment that followed his sentencing. The petitioners, however, contend the residence in question belongs to them.
Findings of Fact
In October, 1990, the residence at 2116 South Taft Street in Mason City, Iowa, was sold. Title to the property was placed in the names of John and Linda Gomez, the petitioners herein, and parents of convicted defendant Steven Gomez. Steven Gomez found the property and used over $20,000 of a worker's compensation settlement as the down payment for this $45,000 home. He made it his residence until it was destroyed by arson in 1997.
Title to the property was placed in the names of John and Linda Gomez. Petitioners claim that this was done because Steven Gomez's credit rating was bad and would not permit him to secure a mortgage. The government contends that it was Steven Gomez's practice to place items of real and personal property in the names of nominal or straw owners in an effort to avoid the very problem of drug forfeiture. Both of these are true.
The defendant would give his mother sufficient cash to make the monthly mortgage, insurance and tax payments. At the hearing, John Gomez testified that his son made the payments early in the mortgage, but later in the mortgage there were a number of occasions when the defendant did not have sufficient funds to pay the mortgage and John or Linda Gomez would then make the payment. In her testimony, Linda Gomez made it sound as though Steven Gomez hardly ever made a payment on the property. Her testimony was substantially impeached by prior inconsistent testimony in her March, 1999 deposition. In that deposition she testified that she made the payments "once in a while." Deposition of Linda Gomez, page 21. See also page 24. After the residence was destroyed in a 1997 fire, Steven Gomez stopped giving money to his mother and she stopped making payments on the mortgage.
The petitioners own two other houses and rent them to two of their daughters. These residences are located at 1629 North Washington Street in Mason City and 112 — 15th Street N.W. in Mason City. They have owned the residence at North Washington for fifteen years and the residence at 112 — 15th Street for some unknown but shorter period of time. They took a $10,000 mortgage on the North Washington residence to use as a down payment for the 112 — 15th Street residence. The daughters who live in these houses did not contribute to the down payment.
The need for this mortgage to raise down payment money is inconsistent with John Gomez's claim that the $40,000 in cash that he paid for Steven Gomez's lawyer was money that he had saved up over many years. With ready access to this large amount of extremely liquid cash, the court finds it unlikely that this conservative, frugal and hard-working man, who doesn't believe in using bank accounts, would opt to take a mortgage on one house to raise a down payment for another.
In support of his request for a 1997 loan, John Gomez indicated that he owned his own residence and the one on North Washington, but did not indicate that he owned the residence at 2116 South Taft (Government's Exhibit 3).
During the life of the conspiracy, Steven Gomez placed numerous items of substantial value in the names of other persons. Cars and boats owned by Gomez were titled in the names of his girlfriends, drug associates, and other friends. He gave $62,000 in cash to his sister's boyfriend, instructed him to purchase cashier's checks in denominations of less than $10,000, and title the real estate in the name of the boyfriend, David Smith. He placed other assets in the name of his father, John Gomez, or his brother, John Gomez. Petitioner John Gomez testified that he did not know his son was doing this at the time it was happening.
In conclusion, Steve Gomez selected the residence, immediately paid cash for half of it, and then after titling the property in his parents' names, gave his mother the funds necessary to cover the mortgage, insurance and taxes. The court does not doubt that Linda Gomez made some of the $278.00 monthly payments. However, even pursuant to the testimony of John and Linda Gomez, there is no principled way to determine the amount of these payments. The court is left completely to speculation in this regard. The court finds that John and Linda Gomez have no interest in the property in question. They are nominal or straw owners of that residence.
CONCLUSIONS OF LAW
This is an ancillary hearing pursuant to 21 U.S.C. § 853(n). The property in question has been ordered forfeited to the United States and John and Linda Gomez have filed a petition to adjudicate the validity of their interest in the property. The court is entitled to consider both the evidence adduced at the hearing and the relevant portions of the record of the criminal case which resulted in the order of forfeiture. 21 U.S.C. § 853 (n)(5).
It is the owner or owners of the res who have standing to challenge a forfeiture. Broadly speaking, ownership may be defined as having a possessory interest in the res, with its attendant characteristics of dominion and control. United States v. One 1945 Douglas C-54 (DC-4) Aircraft, 604 F.2d 27, 28 (8th Cir. 1979). The possession of bare legal title to the res may be insufficient to establish ownership. Id. Possession of mere legal title by one who does not exercise dominion and control over the property is insufficient even to establish standing to challenge a forfeiture. United States v. One Parcel of Land, 902 F.2d 1443, 1444 (9th Cir. 1990). The claimant in a forfeiture action has the burden of showing that he owns or has an interest in the forfeited property.Id.
To qualify as an innocent owner of property, the ownership interest must be more than nominal. No standing exists where the titleholder is a straw man holding nominal title as a subterfuge for a drug trafficker, rather than being a true owner of an interest in the property. United States v. Vacant Land, 15 F.3d 128, 130 (9th Cir. 1993); see also United States v. The Premises and Real Property, 113 F.3d 310 (2d Cir. 1997);United States v. Herrero, 893 F.2d 1512, 1542 (7th Cir. 1990); United States v. One 1973 Rolls Royce, 43 F.3d 794 n. 8 (3d Cir. 1994).
The dispositive issues in this matter are factual, not legal in nature. The issue is whether John and Linda Gomez are real owners of the property in question or merely straw holders of title. For the reasons set forth in the Findings of Fact above, the court believes and finds that they are straw owners of the property in question and are not entitled to the $79,000 insurance proceeds.
It is very curious that the Bank of America never filed a petition to adjudicate its interest in the property. The parties know that Bank of America has a mortgage on the property in the approximate amount of $26,000. Still, for some unknown reason, the bank has not filed a petition nor has it yet foreclosed on the mortgage which is in default. At this point, it would seem to be in John and Linda Gomez's best interest to encourage the bank to file a petition so that the mortgage they signed can be satisfied out of the proceeds of the insurance check at issue here.
Upon the foregoing,
IT IS RECOMMENDED that, unless any party files objections to the Report and Recommendation in accordance with 28 U.S.C. § 636 (b)(1)(C) and Fed.R.Civ.P. 72(b) within ten (10) days of the service of a copy of this report and recommendation, the petition to adjudicate validity of John and Linda Gomez's interest in the property at issue herein be denied.
Objections must specify the parts of the report and recommendation to which objections are made. Objections also must specify the parts of the record, including exhibits and transcript lines, which form the basis for such objections. See Fed.R.Civ.P . 72. Failure to file timely objections may result in waiver of the right to appeal questions of fact. See Thomas v. Arn, 474 U.S. 140, 155 (1985); Thompson v. Nix, 897 F.2d 356 (8th Cir. 1990).