Tuesday, April 08, 2014

Unwitting Real Estate Owners Get Roped Into Co-Owner's Bankruptcy Proceeding As Chapter 7 Trustee Seeks Court Approval For Sale Of Entire Jointly-Owned Property, As Opposed To Just Debtor's Interest

From a recent post from Bankruptcy-RealEstate-Insights.com by attorney Vicki R. Harding, Esq.:
  • A chapter 7 debtor owned real estate jointly with three other people as tenants in common. The chapter 7 trustee sought court approval to sell the entire property, as opposed to just the debtor’s tenant in common interest.

    The debtor and his wife listed a 50% interest in real estate described as “125.8 acres rough land” in their bankruptcy schedules. The chapter 7 trustee and the debtors settled a dispute regarding claimed exemptions in the property and agreed to liquidate the non-exempt portion for the benefit of the estate.

    Section 363(h) of the Bankruptcy Code provides that if a bankruptcy estate has an undivided interest in property as a tenant in common, the trustee can sell the interests of both the estate and any co‑owner if (and only if):
(1) partition in kind of such property among the estate and such co-owners is impracticable;

(2) sale of the estate’s undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such co‑owners;

(3) the benefit to the estate of a sale of such property free of the interests of co‑owners outweighs the detriment, if any, to such co-owners; and

(4) such property is not used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power.

In this case two of the three other co‑owners consented to a sale and stipulated that the trustee was entitled to sell the entire property pursuant to Section 363(h). However, the remaining co‑owner (Simons) objected.

The trustee and Simons stipulated to various facts and agreed that “the only issue remaining under §363(h) is whether the Real Property is capable of partition or must be sold as a whole.” However, the court took issue with this characterization of the issue. In particular, it pointed out that if the trustee did not prevail, the result would not be to partition and sell the property, but rather the trustee’s request would be denied, leaving him with the right to sell the debtor’s undivided interest as a tenant in common.

The court decided that the parties had stipulated that factors 3 and 4 were met. Although their characterization of the question suggested that they were focusing only on factor 1, the court felt compelled to consider both factors 1 and 2 since it was not entirely clear what they intended.

On the issue of whether partition was “impracticable”:

[P]racticable is not a synonym for possible; nor is it a synonym for practical. Its meaning falls between the two concepts of possibility and practicality, and incorporates both ideas – something that is not only possible, but also feasible and sensible.

The trustee had the burden of proof, and his only witness clearly did not impress the court. The witness described the property as “rough, rock, and hilly land with no improvements.” According to him, the property could not be divided without affecting his estimated value. However, he gave no indication of the reduction in value nor the basis for these conclusions. (Apparently his testimony was based on a “drive-by” of the property, and he neither walked the property nor had any knowledge of the topography other than a brief view from an adjacent property and a review of an aerial map.)

In response, Simons testified as a fact witness that the property had been in her family for several generations, its only value was timber, and an old logging road evenly divided the property that would allow for a fair partition. The court determined that the trustee did not establish that partition was impracticable.

Considering the issue of whether a sale of an undivided interest would bring significantly less than a sale of the entire property, there was very little information to consider. The range of the only values available in the record led to a maximum difference of ~$6,500. The court concluded that the record did not contain proof that a sale of the tenant in common interest would bring significantly less, nor did the small change in value support a finding that partition was impracticable.

A more interesting argument was the trustee’s attempt to use a state statutory presumption of indivisibility. Although bankruptcy courts frequently look to state law to decide issues, in this case the court held that the question of whether a partition was practicable was a matter of federal and not state law.

The court further commented that it appeared the parties agreed that either the property should be sold as a whole or it should be partitioned. However, partitioning property is not an option under Section 363(h): the trustee either sells all of the interests in the property as provided in Section 363(h), or sells only the debtor’s undivided interest. Notwithstanding the desire of the parties, the court’s judgment was simply that the trustee failed to prove that the elements of Section 363(h) were met, and consequently he was not entitled to sell the property free of Simons’ interest.

The court’s decision to apply federal law to determine whether partition was practicable, while leaving the partition process to state law, could lead to a catch-22 where a trustee is not able to sell all of the co-owners’ interests based on federal law, but also is not able to partition the property under state law.

A co‑owner that is not familiar with bankruptcy would likely be surprised that the bankruptcy court can order the sale of its interests as well as the debtor’s interests. However, it is worth noting that a trustee (or debtor in possession) does not automatically have that right.

Source: Potential Sale of Jointly Owned Property: Practicable Partition Is Somewhere Between Possible and Practical.

For the court ruling, see Higgason v. Brown (In re Brown), 506 B.R. 446 (Bankr. E.D. Ky. 2014).

Monday, April 07, 2014

Court OKs NY Woman's Use Of Divorce Settlement To Buy Home From Son-In-Law, Then File Bankruptcy & Claim Homestead Exemption To Stiff Her Now-Fired Divorce Attorney Out Of $93K In Legal Fees

In Buffalo, New York, the New York Law Journal reports:
  • A Buffalo woman who used a divorce settlement to buy a condominium from her son-in-law— then filed bankruptcy allegedly to avoid paying her divorce lawyer—can use a homestead exemption to shield her assets, a Buffalo bankruptcy judge has held in a case of first impression.

    Western District Judge Michael Kaplan rebuffed HoganWillig's allegations that its former client tried concealing assets to skirt a nearly $93,000 legal bill, noting that as the client's former divorce counsel, the firm "knew every penny of her financial affairs."

    The ruling potentially puts law firms on different, and less stable, footing than other creditors.

    "She hid nothing from anyone, HoganWillig least of all," Kaplan wrote in In re Wrobel, 12-13001. "The firm's effort to argue that it should be treated as, or represents, some other unsecured creditor of the debtor—a creditor who actually might argue surprise and deception—is rejected."

    However, while Kaplan allowed Krystyna Wrobel to claim a homestead exemption, he expressed concern about the possible "insider" transaction and left a lien on the property in place. If Wrobel sells the condominium in the next three years, or her son-in-law returns the money she gave him for the property, HoganWillig may be able to assert a claim.

    The case turned on an analysis of 11 U.S.C. §522 (o) of the Bankruptcy Code, which was enacted in 2005. Under that provision, if a debtor disposes property "with the intent to hinder, delay or defraud" a creditor, the homestead exemption is reduced accordingly.

    Here, Wrobel was living in an apartment owned by her estranged husband and had retained HoganWillig to represent her in what became a lengthy divorce proceeding. At some point, Wrobel fired HoganWillig and hired a different lawyer, who settled the divorce. Wrobel became the apartment building's owner in the settlement.

    When HoganWillig learned that its former client was about to sell the building, and would net about $100,000, the firm went to state court in an unsuccessful attempt to prevent her from using the funds to buy a homestead. Wrobel in turn bought a condominium from her son-in-law; a year later, she filed for bankruptcy and claimed a homestead exemption.

    HoganWillig, which is holding a $92,377 judgment against Wrobel, accused its former client and her current lawyer of scheming to convert non-exempt assets into exempt assets in an attempt "to hinder, delay or defraud" the firm, as that phrase is contemplated in §522(o). While acknowledging the law tolerates bankruptcy exemption planning as a financial device, the firm asked the court to determine "when it is that a pig becomes a hog."

    But Wrobel's current attorneys with the firm Dennis Gaughan in Hamburg said HoganWillig is trying to "bully" a "relatively unsophisticated Polish immigrant" to extract an exorbitant fee from a client in her 60s who works part time as a $20,000-a-year hospital housekeeper. The attorney, Christopher Tyrpak, said Wrobel made no attempt to conceal assets and argued she should not be denied the homestead exemption.

    Kaplan said the dispute centers largely on how §522(o) impacts bankruptcy planning, but with several "twists and turns," agreed with Tyrpak.

    The judge said it "once was clear" that a debtor could convert non-exempt property to exempt property before filing bankruptcy. But Kaplan said that changed in the wake of a few notorious cases where wealthy debtors moved to states with unlimited homestead exemptions to keep their money away from creditors, and Congress responded with the "hinder, delay or defraud" provision.

    Kaplan said there is no Second Circuit authority on applying that provision in the framework of a bankruptcy planning, and no state law that addresses the situation that arose in the Wrobel matter. He said courts have adopted a "smell test" to determine if a debtor had engaged in an inappropriate transaction.

    Here, Kaplan said, HoganWillig's assertion that the debtor concealed assets "borders on sanctionable conduct." He said Wrobel "openly and notoriously acquired the homestead" and rejected HoganWillig's claim that her actions constituted "badges of fraud" and established that the transaction was a sham.

    "The badges of fraud bespeak 'hiding,' 'absconding,' 'avoiding, 'sharp dealing,' etc.," Kaplan wrote. "The natural question is 'Who exactly is it who was victimized by such evil actions?' Certainly not HoganWillig, and no one else is complaining."

    Tyrpak said the ruling clarifies the law in the Second Circuit.

    "I think it is significant because it provides a basis for interpreting §522(o), at least in the Second Circuit, and it adopts a significant portion of the holdings of other circuits that have already answered this question," Tyrpak said.

    Cheryl-Lane Bechakas of HoganWillig represented her firm. Steven Cohen, who runs the firm's litigation department, said HoganWillig will seek leave to appeal to the district court.

    "Judge Kaplan's decision is very, very dangerous," Cohen said. "He is making new law here. What he is saying is that a law firm is not a creditor in the same category of other creditors."

    Cohen said that if the ruling stands, law firms will be understandably reluctant to represent some clients because there would be an almost sure-fire way to cheat lawyers out of their earned fees.

    "Certainly, we went into this with our eyes open and the understanding that there were non-exempt assets we could use for our fees, and [that] encourage[d] us to sink the amount of time and effort into this case that we did," Cohen said. "What his honor has said is, 'I don't care what you and your client talked about. I don't care whether these assets are exempt. I don't care if §522(o) prohibits a debtor from hiding this money in a transaction with a son-in-law. You're a law firm so you don't get paid.' That is troubling."
Source: Judge Permits Homestead Exemption to Shield Assets.

For the court ruling, see In re Wrobel, Case No. 12-13001, (Bankr. W.D.N.Y. March 28, 2014).

Friday, August 16, 2013

Bay State Homeowner Ordered To Demolish Newly-Constructed Home Over Zoning Violations After Discovery That Town Issued Building Permit In Error; Family Estimates Losses Close To $500K

In Rockland, Massachusetts, MyFoxBoston reports:
  • A Rockland man claims he was given the green light to build his three-bedroom house, but now he's being ordered to tear it down because of an alleged mistake made by the town.

    In 2010, Robert Del Prete reportedly purchased a lot at 320 Concord St. in Rockland from his father and uncle to make it useful. The land to the back of it, their old farm, was sold to make a golf course, and other family members live next door.

    "As far as the building inspector was concerned it was a grandfathered lot and he gave us the permit," Robert Del Prete told FOX 25.

    Del Prete and his wife Sheree say they sunk approximately $400,000 into building the home on the lot and even had a buyer lined up for the property.

    The potential buyer told the Del Pretes they were going to use the home to house adults with disabilities; however, around that same time, the town told the Del Pretes they gave the permit in error.

    And now, about three years after getting building and occupancy permits, the town is threatening to tear down the Del Prete's house and says Building Inspector Thomas Ruble shouldn't have issued the permits in the first place.

    Rockland town officials say the Del Pretes are in violation of zoning laws because they're about 3,700 square feet shy of the minimum buildable lot size in town.

    The lot also needs an extra 12 ½-feet of road frontage to comply with the law; however, Del Prete claims his abutter refuses to sell him the land.

    "The land doesn't comply for area. It didn't comply for frontage. And the property was not grandfathered," Rockland Town Administrator Allen Chiocca said.

    The Del Pretes estimate their losses on the home total about half a million dollars with legal bills. They've lost their business and they were forced to move into the Concord Street house after their personal home went into foreclosure.

    The town says they created their own hardship.

    The matter will be back in housing court later in August.

Court Nixes Ex-Wife's Belated Attempt To Invoke California's $100K Homestead Exemption To Justify Pocketing Tax Refund Proceeds That Victims Of Convicted, Ponzi-Scheming Ex-Hubby Were Entitled To

In Monterey, California, The Monterey Herald reports:
  • When convicted embezzler Jay Zubick signed over all his assets to the victims of his $16 million Ponzi scheme in 2007, the agreement meant every penny, a judge ruled Friday.

    Judge Lydia Villarreal rejected a bid by Zubick's ex-wife to retain a $43,000 income tax refund she had received before Zubick's conviction.

    Suzanne Zubick, who was unaware of her husband's crimes and has since divorced him, reasoned that she signed over her Monterra house under duress and without knowing she had the right to invoke a statutory "homestead exemption." The exemption would have allowed her to keep $100,000 of the proceeds from the house's sale.

    Villarreal said the time for her to claim the exemption would have been in 2007 and the tax refund belongs to Jay Zubick's 29 victims.
***
  • She said her life was turned upside down by the discovery of her husband's deceit. In one day, she went from believing her husband was dying to knowing he was a thief. She received telephone calls threatening her children, whose schools had to take measures to protect them.

    On the advice of her husband's criminal attorney, the Zubicks signed over all assets, including the Monterra house. They were allowed to take only the clothes on their backs and one change of clothing. The investors denied a request for the children's beds.

Ex-Michigan High Court Justice Begins Prison Time At West Virginia's "Camp Cupcake" For Role In Using Short Sale Shuffle On Underwater Home To Hide $1M+ In Assets From Bank; Stay Expected To Be 9-10 Months On 366-Day Sentence

In Detroit, Michigan, The Detroit News reports:
  • Former state Supreme Court Justice Diane Hathaway arrived at a federal prison in West Virginia on Tuesday to serve one year and a day for bank fraud, a crime critics said brought shame to the state’s highest court.

    Hathaway, 59, is the latest celebrity inmate at the prison in Alderson, W.Va., dubbed “Camp Cupcakebecause of its mountainous setting and long list of perks, including access to washers, dryers, microwave ovens, hair dryers, curling irons and cosmetology areas where inmate-to-inmate pedicures and manicures are allowed.
***
  • The 366-day sentence will allow Hathaway to get time off for good behavior, meaning her time in custody likely will be nine to 10 months. A Federal Bureau of Prisons spokesperson confirmed the former justice’s arrival at the prison.

    Prosecutors said Hathaway engaged in an elaborate two-year fraud scheme involving a Grosse Pointe Park home. She pleaded guilty in January to one count of felony bank fraud, eight days after she resigned from the bench.

    Prosecutors said Hathaway hid assets worth more than $1 million and misled a bank while negotiating a short sale. A short sale is when the lender allows the sale of a home that is worth less than the amount owed.

Thursday, August 15, 2013

Religious Congregation Sues Its Treasurer For Allegedly Draining $1.1M+ Of Equity In Church Property With Multiple Mortgages, Diverting Proceeds For Personal Use While Allowing Loan Collateral To Be Lost In Foreclosure Sale

In Las Vegas, Nevada, Courthouse News Service reports:
  • A Lutheran church sued its treasurer, claiming he embezzled $1.1 million - some of which he spent to buy land from a distant monastery.

    Amazing Grace Lutheran Church, of Las Vegas, sued Gregory R. Olson and Wells Fargo Bank, in Clark County Court. The church claims it hired Olson as its treasurer in May 2005, and he was embezzling before he'd been there a year.

    "From January 3, 2006 to September 18, 2009, defendant Olson without plaintiff Lutheran Church's approval, drew several checks from the account of plaintiff Lutheran Church in the amount of $1,123,279.84 for his own personal use," the complaint states.

    The church claims Olson took out five mortgages against church property without its permission and without notifying it.

    It claims that Olson was involved in a lawsuit about a property he had defaulted on, and he used some of the embezzled money to pay his legal expenses. He also bought a 2.5-acre parcel of land and told Amazing Grace he used his own money, according to the complaint.

    The church claims it lost title to its property through foreclosure, thanks to Olson's embezzlement.

    To top it off, Olson bought land from a monastery with the stolen money, according to the complaint.

Ex-Pastor Charged For Allegedly Using Short Sale Scam To Screw Financially Strapped Homeowner Out Of Nearly $150K While Leaving Existing Mortgage Unpaid

In St. Petersburg, Florida, The Tampa Tribune reports:
  • The former pastor of a south St. Petersburg church who also founded a foreclosure-prevention company was booked into the Pinellas County Jail this week, accused of swindling nearly $150,000 from a Palm Harbor woman who no longer could afford to live in her house.

    Demetrius Antonio Lewis, 38, of Wesley Chapel, was charged with grand theft and money laundering. Bail was set at $200,000.

    Lewis once was the pastor at the Grand Central Progressive Missionary Baptist Church, 1401 18th Ave. S., but it has been years since he officiated there, parishioners say. Records show he also incorporated a business called Help Is Here Foreclosure Prevention and Credit Repair, though state records show the company as inactive.

    The charges against Lewis are just his most recent brush with the law.

    Last year he was charged with tax fraud after investigators maintained he received and cashed fraudulent tax refund checks issued in the names of eight different people.

    And the year before that, he was accused of taking part in a real estate scam in which authorities say he and an accomplice rented vacant properties they did not own.

    In the Pinellas case, Lewis had an alleged accomplice, Eric Leroy Green, the head of the south St. Petersburg charity Everyone’s Youth United, court records state.

    Green was arrested in June on the same charges leveled against Lewis, in what was the latest spin in the charity’s downward spiral. Everyone’s Youth United lost most of its funding in 2008.

    On Wednesday, in a telephone interview, Green distanced himself from Lewis, portraying himself as a victim of one of Lewis’s schemes.

    “We just happened to be in the trail that he, you know, rode down and used us after coming up with one of his schemes ... and unfortunately implicated us as we now know.”

    According to court documents, Green told Pinellas sheriff’s Detective David Kavanagh the two men’s financial arrangement was set in motion after he discussed Everyone’s Youth United’s financial turmoil with Lewis.

    The victim was Dorothea Giordano, who by 2010 no longer could afford to live at her house at 2492 Glenpark Road in Palm Harbor, court documents show. A close friend of Giordano’s, Jack Dvorak, agreed to buy it from her but allow her to continue living there.

    Giordano had been introduced to Lewis, who identified himself as an expert in real estate short sales, and who offered to broker the sale.

    As the deal was progressing, the pastor communicated with a Safety Harbor title company, Online Title Services, which was run by real estate agent Cheryl Slaughter, the court documents state. He introduced a woman to Slaughter as a representative of Giordano’s bank, Allied Home Mortgage.

    The woman, identified as Tamkea Womack, sent Slaughter an email indicating Allied had approved the short sale, as long as the amount to settle the mortgage was $143,500, the documents state.

    The money was to be disbursed to an entity called EYU Inc. EYU was represented as an investor, but is the acronym for Everyone’s Youth United, the documents state.

    After the money changed hands on Sept. 27, 2010, Allied Home Mortgage told Slaughter the woman and the company she supposedly was representing, M Caster Home Finance, were not affiliated with Allied, and the money had been improperly disbursed, the documents state. Slaughter called the sheriff’s office.

    After the $143,500 was transferred, Green wrote checks totaling more than $10,000 — a check for an employee for $1,000 and a check of $9,700 for Construction Specialties, which is owned by his mother, records show.

    He also arranged for his mother to deposit $60,000, telling her the money was a payment to Everyone’s Youth United for a fair he had put on for an organization. Green put the money in his personal account, according to investigative records. Green also got a cashier’s check of $59,000 for Lewis, the documents state.

Lehigh Valley Man Faces Forgery, Theft/Securing Execution Of Documents By Deception, Other Charges For Allegedly Ripping Off His 93-Year Old Uncle Of $200K+ Cash/Other Assets; Suspect Allegedly Abused POA To Drain Bank Accounts, Home Equity With HELOC While Since-Foreclosed Victim Was Confined In Nursing Home

In Lehigh Valley, Pennsylvania, The Express Times reports:
  • A Pen Argyl man is charged with 17 counts of theft and related crimes for depleting the life savings of his 93-year-old uncle by using power of attorney and converting property and money for his personal use, according to the Lehigh County’s District Attorney’s Office.

    Scott Lee Bartholomew, 52 of the 100 block of Acker Street, is accused of stealing more than $200,000 from his uncle, Wilbur B. Stiles, authorities said. The crimes happened from January 2006 to June 2012, the district attorney’s office said.

    Because he lost his home to foreclosure and his life savings, police said, Stiles is living in a veterans center in the Scranton, Pa., area.

    Bartholomew is being held in Lehigh County Prison in lieu of 10 percent of $200,000 bail.
    An investigation by South Whitehall Township police, with help from the Institute for Protective Services at Temple University, alleged that a minimum of $217,498 had been diverted from Stiles to Bartholomew, authorities said.

    According to an affidavit filed by South Whitehall police Sgt. Michael A. Sorrentino, Sorrentino conducted numerous interviews with agencies and individuals since December 2012 when investigators learned Bartholomew was acting with power of attorney for Stiles.

    Bartholomew did not make the required payments of $6,050 for the care of Stiles from March 2011 to April 2011, while Stiles was a resident of Cedarbrook Nursing Home in South Whitehall, officials said.

    Bartholomew gained control of Stiles’ finances and directed money from Stiles’ accounts to make unauthorized purchases of vehicles, Internet items and gaming purchases, authorities said.

    They allege Bartholomew made cash withdrawals, paid legal fees of an acquaintance, paid tax bills for property not owned by Stiles, and paid for cellphones and cellphone plans not used for Stiles.

    Additionally, police said, Bartholomew used the money on meals and entertainment for himself and others, and operational fees as an owner/operator of a sole proprietorship trucking company. None of it was reimbursed to Stiles’ accounts, police said.

    Investigators allege that Bartholomew converted Stiles’ savings account, insurance policy, retirement income, real estate, motor vehicles, personal property and savings bonds for Bartholomew’s personal use.

    Bartholomew also obtained a home equity line of credit and converted about $133,526 for his personal use, according to police. They also said almost $89,973 was taken from Stiles’ checking account.

    Bartholomew is alleged to have used the equity in Stiles’ residence for his personal gain. The property ultimately was placed into foreclosure, authorities said.

    Bartholomew was charged with four counts of theft by unlawful taking, three counts of theft by deception, five counts of receiving stolen property, one count of theft by failure of to make required disposition of funds and one count of access device fraud -- all third-degree felonies.

    He is also charged with one count of forgery and two counts of securing execution of documents by deception, police said.

Saga Continues For Maine Family Victimized By State Bureaucrats Who Allegedly Used Conservatorship Proceedings To Move In & Hijack Possession, Then Unload, Waterfront Home, Other Assets At Fire-Sale Prices Of Man Who Was Involuntarily Admitted To State-Run Psychiatric Facility While Giving Beloved Pet Date With 'The Euthanizer'

In Rockland, Maine, the Bangor Daily News reports:
  • The sale of a Rockland man’s waterfront home in Owls Head by the state for less than half its value was only the beginning of a nightmare that has seen an undetermined amount of valuable personal items sold for little in return, according to attorneys working on the case.

    “You couldn’t have dreamed this up,” said attorney David Jenny.

    Jenny, who lives in Owls Head and Maryland, is referring to the case that involves the sale of property belonging to William T. Dean Jr. and his sister Claire Dean Perry of Liberty.

    Dean was hospitalized in 2012 at the state-run Dorothea Dix Psychiatric Center in Bangor. He has since been released and lives in a group home in Camden, according to Jenny, who is a longtime friend of both siblings.

    Jenny said that the state has taken a man who had more than $650,000 in assets and virtually assured that he will he become a ward of the state because of its management of his estate.

    Attorney Cynthia Dill, who represents the sister in a lawsuit against the Maine Department of Health and Human Services, said in her legal career she has never seen a case like this.

    Not only does Dill say the state illegally sold the home owned by William Dean at 9 Castlewood Lane in Owls Head, but that it has since hired an auction company to sell the remaining family belongings and has done it with few records to show what has happened to the items or the money received from the sales.

    The Deans’ parents in 1972 bought the Castlewood Lane home, which has since been a place for family outings. Claire Dean Perry had been living in the Owls Head home while her brother resided at 298 Broadway, Rockland, which had been their parents’ primary residence and owned by the Deans since 1957.

    The state obtained conservatorship of Dean’s finances in September 2012, four months after he was involuntarily admitted to the state-run mental health hospital. When the state learned that back taxes were owed on both properties — $5,192 on the Owls Head home and $2,329 on the Rockland property — it sought and received permission from the Penobscot County Probate Court to sell the properties for a fair market price in order to cover those costs.

    An affidavit filed Sept. 5, 2012, in probate court by Janice Archer, a licensed social worker for DHHS who was Dean’s caseworker, stated that there was already a buyer interested in the Owls Head property. The name of the interested party was not listed and a call to Archer early Wednesday has not been returned.

    Claire Dean Perry was kicked out of the house and the locks changed, Dill said.

    Perry and other family members, however, contested the move by the state, saying they could raise the money to prevent both properties from going into foreclosure for nonpayment of the approximately $7,500 in property taxes.

    The state, however, moved ahead quickly and sold the Owls Head waterfront property to James Taylor of Danvers, Mass., and Owls Head for $205,000, less than half the $476,840 value placed on it by the town.

    The human services department moved the date of the sale up by a day to Jan. 9, knowing that the family was going to court the following day to block the transaction, Jenny said.

    The Owls Head property consists of nearly 1 acre with 100 feet of ocean frontage and a two-story, 1,000-square-foot home.

    After selling the Owls Head property, the state turned to disposing of the Rockland home. The state had reached an agreement with a party that was willing to pay $65,000 for the Rockland property that was assessed at $177,200 — again less than half its value. Dill said the potential buyers backed out after learning of the family’s looming legal challenge.

    The state surrendered its conservatorship in March. On Aug. 1, the probate court appointed Dean’s cousin, Pamela Vose of Union, as conservator over his remaining properties.

    But Jenny and Dill said that after the sale of the Owls Head home and before the change in conservatorship, there was a fire sale of possessions owned by both Dean and Perry for reasons they cannot understand.
***
  • Dill also noted that when state officials took control of Dean’s properties, they had his beloved cat, Caterpillar, euthanized without asking family members if they could care for the animal.

Wednesday, August 14, 2013

More On "Show Me The Note!"

The following is the abstract of a recent article by law professors Bradley T. Borden & David J. Reiss, and law student William KeAupuni Akina, all of Brooklyn Law School, published in a recent issue of Westlaw Journal Bank & Lender Liability (June 3, 2013):
  • News outlets and foreclosure defense blogs have focused attention on the defense commonly referred to as "show me the note." This defense seeks to forestall or prevent foreclosure by requiring the foreclosing party to produce the mortgage and the associated promissory note as proof of its right to initiate foreclosure.

    The defense arose in two recent state supreme-court cases and is also being raised in lower courts throughout the country. It is not only important to individuals facing foreclosure but also for the mortgage industry and investors in mortgage-backed securities.

    In the aggregate, the body of law that develops as a result of the foreclosure epidemic will probably shape mortgage law for a long time to come.

    Courts across the country seemingly interpret the validity of the "show me the note" defense incongruously. Indeed, states appear to be divided on its application. However, an analysis of the situations in which this defense is raised provides a framework that can help consumers and the mortgage industry to better predict how individual states will rule on this issue and can help courts as they continue to grapple with this matter.
For the entire article, see Show Me the Note!

Toxic Land Titles & Title Insurance

The following is the abstract of a recent article by Molly Rose Goodman, Suffolk University Law School published in a recent issue of Real Estate Law Journal:
  • By failing to properly transfer ownership of loans and mortgages, recording fraudulent documents, and performing unlawful foreclosures, financial institutions and law firms have generated property titles that range from defective to toxic.

    Those actions evince a systemic failure to comply with longstanding principles of real property law and regulations governing financial transactions. Title companies participated in title services and issued title insurance policies throughout the housing boom and although they did not directly cause toxic titles, many title insurers have ultimately assumed the risk for the bad practices that became the industry norms in the last decade.

    In this article, I will discuss how title insurers have exposed themselves to liability for toxic titles.

The Payday Playbook: How High Cost Loan Peddlers Fight To Keep Their Consumer Debt Traps Legal

Investigative reporter Paul Kiel writes in ProPublica:
  • [O]utrage over payday loans, which trap millions of Americans in debt and are the best-known type of high-cost loans, has led to dozens of state laws aimed at stamping out abuses. But the industry has proved extremely resilient. In at least 39 states, lenders offering payday or other loans still charge annual rates of 100 percent or more. Sometimes, rates exceed 1,000 percent.

    Last year, activists in Missouri launched a ballot initiative to cap the rate for loans at 36 percent. The story of the ensuing fight illuminates the industry’s tactics, which included lobbying state legislators and contributing lavishly to their campaigns; a vigorous and, opponents charge, underhanded campaign to derail the ballot initiative; and a sophisticated and well-funded outreach effort designed to convince African-Americans to support high-cost lending.
For more, see The Payday Playbook: How High Cost Lenders Fight to Stay Legal.

This article is part of an ongoing ProPublica investigation: Debt Inc.: Lending and Collecting in America (How lenders tempt consumers with high-cost credit products that go far beyond payday loans).

Tuesday, August 13, 2013

WV Attorneys Providing Free Legal Services To Low-Income Consumers Continue Hammering Banksters With Predatory Lending Lawsuits Alleging Ripoffs In Originating Home Loans

In Huntington, West Virginia, The West Virginia Record reports:
  • A lawsuit filed against Nationstar Mortgage LLC alleging predatory lending practices has been removed to federal court. Nationstar is formerly known as Centex Home Equity Company. Mark Greenlee was also named as a defendant in the suit.

    The lawsuit has been removed to federal court because the amount they are seeking exceeds the $75,000 requirement, according to a Notice of Removal filed July 25 in the U.S. District Court for the Southern District of West Virginia at Huntington.

    The loan amount was for $76,500, according to the Notice.

    Greenlee was also “fraudulently joined in this action and, thus, should be disregarded for diversity purposes,” according to the Notice of Removal.(1)

    Adam West first moved into his home in Hurricane in 1998, when he agreed to purchase the home pursuant to a land contract for $55,000, according to a complaint originally filed May 2 in Putnam Circuit Court.

    West claims in November 1999, when the land contract vendor began experiencing financial problems and West’s mother arranged to finance the remaining balance on the land contract.

    In early 2000, West sought to obtain a loan to repay his mother and closed on a loan with UC Lending on April 25, 2000, with a principal balance of $66,700, according to the suit.

    On Aug. 18, 2001, Adam West and Bethany West were married and she moved into the home with him, and the plaintiffs went to Lending Tree, an online service, to find a lender.

    The Wests claim a few days later, Nationstar contacted them to solicit them into a loan for refinancing and they asked for a fixed rate loan and Nationstar informed them an adjustable rate loan would be best for them.

    Nationstar arranged for Greenlee to appraise the Wests’ home, according to the suit, and Greenlee, who has a practice of providing inflated appraisals, provided them with an inflated appraisal and indicated their home was more than $76,000 when it was, in fact, worth approximately $55,800.

    The Wests claim after making payments for one year, they contacted Nationstar about promised refinancing, but Nationstar refused to refinance the loan.

    Nationstar refused to apply payments to the Wests’ account and charged them illegal fees, according to the suit.

    The Wests are seeking compensatory and punitive damages. They are being represented by Colten L. Fleu and Jennifer Wagner of Mountain State Justice.(2)
Source: Nationstar Mortgage suit removed to federal court.

(1) See, generally, Erroneous Removal As A Tool For Silent Tort Reform: An Empirical Analysis Of Fee Awards And Fraudulent Joinder for more on the 'cat-and-mouse' games played by state court plaintiffs and defendants jockeying around to either move or block moves of state court cases into federal court.

See also, Bankster Fails In Attempt To Have Suit Accusing It Of Mortgage Flipping Racket Heard In Federal Court; U.S. District Judge 'Abstains' From Hearing Suit, Boots Case Back To State Court, Saying There's No Pressing Federal Interest To Decide Matter Entirely Involving Unsettled Issues Of WV Law.

(2) Mountain State Justice is a non-profit public interest law office dedicated to pursuing impact and significant litigation on behalf of low-income West Virginians. MSJ provides free legal services in our areas of practice to qualifying individuals. MSJ's work currently focuses primarily on combating predatory lending and abusive debt collection techniques through individual and class action lawsuits..

NC Appeals Court Leaves Sloppy Lender Holding The Bag By Voiding Wife's Loan Guarantee Given By Hubby Acting As Her Attorney In Fact; Bank Failed To Read Recorded Instrument, Missed 'Surprise' Provision In POA Making Husband's Authority Ineffectual

From a client alert from the law firm Poyner Spruill LLP:
  • On November 6, 2012, the North Carolina Court of Appeals ruled in a unanimous decision that several commercial guaranties were invalid when signed by an attorney in fact, pursuant to a power of attorney which contained a condition precedent that had net yet occurred. This case contains important lessons for lenders regarding transactions with attorneys in fact.

    In this case, the appellant-wife executed a durable power of attorney appointing her husband as her attorney in fact. The power of attorney was properly recorded with the Wake County Register of Deeds.

    After the execution and recordation of the power of attorney, the husband and his business partner, through various business entities, borrowed money from plaintiff-lender. The husband signed a series of commercial notes, unconditional personal guaranty agreements, and a deed of trust in his wife’s name, relying on the power of attorney. The notes went into default, and the lender/plaintiff commenced foreclosure proceedings. The sale of the collateral yielded less than the outstanding obligations, and the plaintiff sued the borrowers and guarantors – including the wife - to recover the deficiency balance. The trial court granted the plaintiff’s motion for summary judgment as to all defendants.

    On appeal, the wife argued that the power of attorney was ineffective, and she should not be bound by the guaranty executed by her husband as her attorney in fact.

    The power of attorney contained a provision titled “RESTRICTIONS ON EXERCISE OF POWERS BY ATTORNEY-IN-FACT” which stated that “the rights, powers, duties and responsibilities herein conferred upon my Attorney-in-Fact shall not be exercised by my Attorney-in-Fact until a physician has certified to my Attorney-in Fact that in his or her opinion I am no longer able…to handle my…affairs.”

    The Court of Appeals reversed the decision of the trial court, holding that no power of attorney ever vested in the husband, that the wife’s guaranty was invalid, and that the plaintiff was not entitled to recover from the wife as a guarantor.

    First, the Court of Appeals agreed with the wife that the power of attorney was ineffective because there was no evidence in the record indicating that the wife had been certified incompetent by a physician, which was a condition precedent to the effectiveness of the power of attorney. Since there was no evidence that the wife was certified incompetent by a physician, no power of attorney ever vested in her husband, and he had no authority to bind her to the guaranty.

    Further, the Court of Appeals held that the plaintiff was deemed to be on notice of any limitation or restriction contained in the power of attorney as it was in writing and “a third party who fails to inspect a POA’s terms does so at his own peril since he is deemed on notice of the limitations and restrictions contained therein.”

    Nor could the plaintiff argue that it justifiably relied on the husband’s representations of authority based upon the broad grant of authority and the third party reliance provisions contained in the North Carolina General Statutes. Despite the broad grant of authority contained in the statutes, the statutes did not override the restriction that the wife be certified incompetent by a physician. Here, the power of attorney conferred no powers upon the husband because the condition precedent never occurred.

    Likewise, statutes which generally protect third parties who rely on the apparent authority of an attorney in fact, did not apply because the plaintiff had constructive notice of the terms of the power of attorney, which was part of the public record, and the power of attorney indicated that there was no apparent authority for the husband to execute the guaranty on behalf of his wife.

Judge To Those Facing (Potentially Faulty) Non-Judicial Oregon Foreclosures: Avoid "Presumption Of Finality" - Don't Sit On Your Rights; Time For Properly-Noticed Homeowner To File Court Challenge Is Before The Sale, Not Afterward

In Portland, Oregon, LegalNewsline reports:
  • A federal judge ruled last month that an Oregon homeowner could not sue following a completed trustee sale of his property.

    Though MERS, the national mortgage registry, was not a party to the action, the plaintiff in the case — Alan Chen — alleged that the foreclosure was wrongful based, in part, on MERS’ role in his deed of trust.

    The named defendants in the suit included: Bank of America N.A., ReconTrust Company N.A. and Federal National Mortgage Association, also known as Fannie Mae.

    In Chen v. Bank of America N.A., Judge Owen M. Panner for the U.S. District Court for the District of Oregon dismissed the complaint with prejudice. He found that, in accordance with the Oregon Trust Deed Act, Chen received proper notice of the sale, which barred his post-sale challenges to the foreclosure.

    “Although plaintiff here had sufficient time to raise any of the current challenges before the sale, he chose instead to raise such challenges after the trustee’s sale and recording of the trustee’s deed,” Panner wrote in his five-page order, filed July 25.

    The judge further held that “plaintiff’s challenges to the trustee’s sale are barred, as plaintiff’s interest in the property was ‘foreclosed and terminated.’”

    Chen asked the court’s permission to amend his complaint to align his allegations with the recent Brandrup v. Recontrust and Niday v. GMAC decisions from the Oregon Supreme Court.

    In both cases, the state’s high court ruled MERS did not meet the statutory definition of trust deed “beneficiary” under Oregon law.

    Panner denied the request, finding an amended complaint “would be futile” because Brandrup and Niday dealt with pre-sale challenges to non-judicial foreclosure sales as opposed to Chen’s post-sale challenges, which are barred under state law.(1)
For the story, see Federal judge dismisses wrongful foreclosure complaint involving mortgage registry.

For the court ruling, see Chen v. Bank of America, N.A., 3:12-cv-194-PA (July 25, 2013).

(1) Judge Panner's discussion on the applicable law follows:
  • After briefings and arguments in this case, I issued an opinion in a case involving similar issues. See Mikityuk v. Northwest Tr. Servs., Inc., 2013 WL 3388536 (D. Or.). There, plaintiffs waited nineteen months after the sale before filing the complaint. Id. at *1. After examining both ORS 86.770(1), which states the trustee's sale "forecloses and terminates" one's property interest in certain scenarios, and the dual objectives of the Oregon Trust Deed Act, I concluded:

    "The legislature provided notice and reinstatement provisions to protect grantors against the threat of wrongful foreclosure. [Staffordshire Investments, Inc., v. Cal-Western Reconveyance Corp., 209 Or. App. 528, 542 (2006).] Voiding the sale here would encourage" grantors who receive notice of a sale to sit on their rights, rather than compelling grantors to bring pre-sale challenges to a trustee's sale. Grantors are wise to raise any challenges to non-judicial foreclosure proceedings, including challenges based on ORS 86.735, before the statutory presumption of finality contained in ORS 86.780. Post-sale challenges run the risk of being barred, as is the case here, because the grantors' interest in the property was "foreclosed and terminated" pursuant to ORS 86.770(1)."

    Mikityuk, 2013 WL 3388536 at *10.

    Like the plaintiffs in Mikityuk, plaintiff's challenges to the non-judicial foreclosure sale here are barred. As plaintiff received advance notice of the sale, his interest in the property was "foreclosed and terminated." ORS 86.770(1). Plaintiff's argument that notice here was ineffective because it was not signed and dated by a notorial officer is meritless. The time to make such a challenge is long passed. As discussed in Mikityuk, the notice provisions of the Oregon Trust Deed Act reflect the legislature's intent to provide those whose property interests could be affected by a trustee's sale sufficient time to act to protect those interests before the sale. 2013 WL 3388536 at *6 (citing Staffordshire Investments, Inc. V. Cal-Western Reconveyance Corp., 209 Or. App. 528, 542 (2006); NW Property Wholesalers, LLC v. Spitz, 252 Or. App. 29, 34 (2012)).

    Although plaintiff here had sufficient time to raise any of the current challenges before the sale, he chose instead to raise such challenges after the trustee's sale and recording of the trustee's deed. Plaintiff's challenges to the trustee's sale are barred, as plaintiff's interest in the property was "foreclosed and terminated." Mikityuk, 2013 WL 3388536 at *10; ORS 86.770(1). For the reasons discussed in Mikityuk, this action is dismissed, with prejudice.

    Additionally, plaintiff's request for leave to file an amended complaint [#46] is denied.. Plaintiff seeks to amend the complaint, purportedly to align with the recent Oregon Supreme Court opinions in Brandrup v. ReconTrust Co., 353 Or. 668 (June 6, 2013) and Niday v. GMAC Mortgage, LLC, 353 Or. 648 (June 6, 2013). Those opinions concerned MERS and the Oregon Trust Deed Act. An amended complaint, however, would be futile. Brandrup and Niday dealt with pre-sale challenges to non-judicial foreclosure sales. Neither case affects the outcome here, where plaintiff's claims are barred due to ORS 86.770(1). See Mikityuk, 2013 WL 3388536 at *1 n.2.

Monday, August 12, 2013

Pennsylvania Appeals Court: OK To Void Assignee Bankster's Mortgage, Promissory Note When Homeowner Raised TILA Rescission, Other Issues Involving Originating, Now-Defunct Lender's Pre-Assignment Conduct As Foreclosure Defenses; FIRREA Liability Limitation Involving Certain Asset Transfers Between Financial Institutions Applies Only To Counterclaims

In Philadelphia, Pennsylvania, Law360 reports:
  • The Pennsylvania Superior Court ruled Thursday that federal law does not prevent judges from voiding mortgage agreements through counterclaims brought during foreclosure proceedings, affirming a lower court's ruling voiding the mortgage agreement for a woman whose closing agent absconded with nearly $80,000.

    In a precedential ruling, a three-judge panel found that while the federal Financial Institutions Reformation, Recovery and Enforcement Act — or FIRREA — prevented a Clearfield County judge from voiding a mortgage agreement as part of a declaratory judgment bid brought by a homeowner...(1)
For more, see Judges Can Void Some Foreclosed Mortgages, Pa. Court Says (requires subscription).

For the ruling, see Sass v. Amtrust Bank, 2013 PA Super 230 (August 8, 2013).

(1) When applicable, FIRREA (apparently? - as best as I can figure it, anyway) deprives courts of subject matter jurisdiction to impose liability on a successor financial institution for pre-assignment conduct by the predecessor institution without exhaustion of administrative remedies before the Federal Deposit Insurance Corporation (but don't quote me on this!).

In this case, the 3-judge panel first explained the distinction between defenses/affirmative defenses and counterclaims, and then decided whether the FIRREA limitations on imposing liability on a successor financial institution for pre-assignment conduct by the predecessor institution precluded a trial judge from voiding the homeowner's home mortgage and associated promissory note when a rescission defense (based on both the Truth In Lending Act and other theories) was raised by the homeowner/defendant against a financial institution in a foreclosure action:
  • Courts are well suited to determine whether the merits of a stated defense, affirmative defense, or counterclaim bring it within the ambit of the jurisdictional bar of the FIRREA, and may not premise a determination merely on the label a pleading may carry. See id.

    Thus, “[c]ourts should not allow parties to avoid the procedural bar of § 1821(d)(13)(D) by simply labeling what is actually a counterclaim as a defense or affirmative defense.” Id.

    Similarly, courts must retain a healthy degree of skepticism in applying the bar to assertions pled as defenses merely because their application would compromise the value of assets assumed by a successor bank under FIRREA.

    “[A] claim (or a counterclaim) is essentially an action which asserts a right to payment.” Id.

    Consequently, the court must consider whether the disputed assertion of a party’s pleading stems from the desire to establish a right to payment and collect on the resulting debt, or from an explanation of why the debt is not valid or collectible.

    Consistent with this rational, courts have generally accepted the proposition that a defense of rescission is an affirmative defense—not a counterclaim―as it does not seek payment of any sort, but operates to invalidate a contract based on circumstances that render enforcement unlawful. See id. at 394, n.26.

    Although the net effect of such a defense in reducing sums payable by a defendant may be equivalent to that wrought by a counterclaim for damages, the mechanism by which that effect is achieved is entirely distinct.

    While a counterclaim naturally sets off damages awarded to its claimant against those due on the underlying claim, the affirmative defense of rescission more directly nullifies the contractual basis for the claim.

    Thus, we need not hesitate in concluding that Sass’s assertion of an entitlement to rescission of the mortgage contract is an affirmative defense beyond the reach of section 1821(d)’s jurisdictional bar and subject fully to the jurisdiction of the trial court.

    That defense makes no claim on Nationstar for an award of damages, but merely posits that based on a multiplicity of circumstances, including the conduct of the closing agent in absconding with the proceeds of the loan and the failure of AmTrust to comply with various statutory prescriptions at closing, the terms of the contract cannot be enforced.

    Thus, the defenses and affirmative defenses so characterized in Sass I are exactly that and, as such, are not subject to the jurisdictional bar of section 1821(d).

    We conclude accordingly, that while the declaratory judgment action Sass commenced in Sass II is plainly barred by FIRREA, Sass’s attempts, by way of defense and affirmative defense to nullify, rescind, or otherwise invalidate the contract in response to Nationstar’s mortgage foreclosure action in Sass I are not.

Federal Appeals Court Kiboshes Bankster's "Heads I Win, Tails You Lose" Method Of Offering Trial Period Loan Modification Plans To Financially Strapped Homeowner; Judge: Wells Fargo's Continuing Option Of "Modifying The Loan Or Stiffing Him ... Is A Fraudulent Coin Toss"; Court Says HAMP "Seems To Have Created More Litigation Than It Has Happy Homeowners!"

In San Francisco, California, Reuters reports:
  • Wells Fargo must face lawsuits by homeowners who claim the largest U.S. mortgage lender refused to offer them permanent mortgage modifications for which they had qualified, a federal appeals court ruled on Thursday.

    The 9th U.S. Circuit Court of Appeals said Wells Fargo was required under the federal Home Affordable Modification Program to offer loan modifications to borrowers who demonstrated their eligibility during a trial period.

    Reversing the dismissals by a San Francisco federal judge of two lawsuits seeking class-action status, the appeals court rejected the argument that Wells Fargo became bound only upon sending borrowers signed modification agreements.

    The court said this would create "unfettered discretion" for the San Francisco-based bank to reject modifications "for any reason whatsoever—interest rates went up, the economy soured, (or) it just didn't like the borrower."

    While a federal appeals court in Chicago reached a similar conclusion last year,(1) the 9th Circuit decision applies in several western U.S. states—among them California, Arizona, and Nevada—that have been particularly hard-hit by foreclosures.(2)

    Wells Fargo said it had $352 million of loans under HAMP in a trial modification period as of June 30.

    "The 9th Circuit did not rule on the merits of the underlying cases, and found only that the district court should consider the arguments put forth by the plaintiffs," the bank said in a statement. "Wells Fargo has strong defenses to those arguments, and is prepared to present its case."

    'Heads I win, tails you lose'

    Unveiled by the Obama administration in 2009, HAMP pays mortgage lenders and servicers to rewrite loan terms for borrowers who cannot afford their payments.

    While steps have been taken to broaden HAMP's reach, fewer loans than expected have been modified, and both Democrats and Republicans have complained that many borrowers who get help default on their modified mortgages.

    The program has also spawned other litigation, and the 9th Circuit said it "seems to have created more litigation than it has happy homeowners."

    In a separate lawsuit in Massachusetts, homeowners accused Bank of America Corp of offering employees financial incentives to stall HAMP applications because foreclosures or in-house loan modifications could be more profitable.

    A judge is considering whether to make that case a class action.

    One of the Wells Fargo cases was brought by Phillip Corvello, who claimed he complied with a written trial period plan for a HAMP modification, and the other by Jeffrey and Karen Lucia, who claimed to comply with an oral plan.

    The Lucias' home was sold at foreclosure in August 2010, but they kept possession of the property, Wells Fargo said.

    Both the unsigned majority opinion and a concurring opinion by Circuit Judge John T. Noonan faulted Wells Fargo's drafting of the trial period plan, saying that to rule in the bank's favor would render the benefits for borrowers illusory.

    "No purpose was served by the document Wells Fargo prepared except the fraudulent purpose of inducing Corvello to make the payments while the bank retained the option of modifying the loan or stiffing him," Noonan wrote.

    "'Heads I win, tails you lose' is a fraudulent coin toss. Wells Fargo did no better."
Source: Wells Fargo can be sued over mortgage modifications.

For the court ruling, see Corvello v. Wells Fargo Bank, N.A., No. 11-16234 (9th Cir. August 8, 2013).

See also, Public Citizen Consumer Law & Policy blog: Ninth Circuit to Wells Fargo: keep your promises on loan modification.

(1) Wigod v. Wells Fargo Bank, NA, 673 F. 3d 547 (7th Cir. 2012).

(2) The 9th Circuit Court of Appeals also covers Washington, Oregon, Idaho, Montana, Alaska, Hawaii, Guam, & the Northern Mariana Islands.

The 7th Circuit Court of Appeals covers Illinois, Indiana, and Wisconsin. 

For other U.S. Courts of Appeals, see the U.S. Circuit Court of Appeals Locator Map.

California Appeals Court: Mortgage Transfers To Securitized, NY-Organized Trust After Closing Date Are Void, Giving Homeowners Standing To Challenge Loan Assignments

In Fresno, California, the Central Valley Business Times reports:
  • In a ruling that could impact other home foreclosures in California under similar circumstances, the state’s 5th District Court of Appeal says “that a borrower may challenge the securitized trust’s chain of ownership by alleging the attempts to transfer the deed of trust to the securitized trust … occurred after the trust’s closing date.”

    The Fresno-based appellate court says transfers that violate the terms of the trust instrument are void under New York trust law, and borrowers have standing to challenge void assignments of their loans.

    Thomas Glaski, a resident of Fresno County, sued Bank of America, losing at the Superior Court level but prevailing on several arguments upon appeal.

    Mr. Glaski purchased a home in Fresno for $812,000 in 2005 with a variable interest rate loan of $650,000, issued by Washington Mutual and California Reconveyance Company as the trustee.

    After several interest rate adjustments, with ever-higher monthly payments, Mr. Glaski defaulted in 2007.

    But like many mortgages prior to the burst of the housing bubble, his mortgage had been sold into a securitized trust known, in this case, as the WaMu Securitzed Trust. “In simplified terms, ‘securitization’ is the process where (1) many loans are bundled together and transferred to a passive entity, such as a trust, and (2) the trust holds the loans and issues investment securities that are repaid from the mortgage payments made on the loans,” the court explains.

    Three years after the original mortgage was signed, WaMu was broke, with JPMorgan Chase Bank picking up its pieces and parts.

    Mr. Glaski contends that the attempt to assign his note and deed of trust to the WaMu Securitized Trust was made after the closing date and, therefore, the assignment was ineffective.

    “If Glaski‟s loan was not validly transferred to the WaMu Securitized Trust, it is possible, though not certain, that JP Morgan acquired the Glaski deed of trust when it purchased WaMu assets,” the court of appeal says.

    “Another possibility, which was acknowledged by both sides at oral argument, is that the true holder of the note and deed of trust cannot be determined at this stage of the proceedings,” the court says. “This lack of certainty regarding who holds the deed of trust is not uncommon when a securitized trust is involved.”

    The foreclosure process bumped along and a notice of sale was signed on March 10, 2009, by Deborah Brignac, as vice president for California Reconveyance.

    Mr. Glaski alleges that Ms. Brignac‟s signature was forged to effectuate a fraudulent foreclosure and trustee’s sale of his home.

    He also says that from March until May 2009, he was led to believe by his negotiations with Chase that a loan modification was in process with JP Morgan. Despite the negotiations, a nonjudicial foreclosure sale of the home was conducted on May 27, 2009. Bank of America, as successor trustee for the WaMu Securitized Trust and beneficiary under Mr. Glaski’s deed of trust, was the highest bidder at the sale.

    “Among other things, Glaski raised questions regarding the chain of ownership, by contending that the defendants were not the lender or beneficiary under his deed of trust and, therefore, did not have the authority to foreclose,” the court says.

    While agreeing in some parts with the Superior Court’s ruling against Mr. Glaski, the 5th District Court of Appeal sides with the homeowner on a key argument.

    “We conclude that Glaski‟s factual allegations regarding post-closing date attempts to transfer his deed of trust into the WaMu Securitized Trust are sufficient to state a basis for concluding the attempted transfers were void. As a result, Glaski has a stated cognizable claim for wrongful foreclosure under the theory that the entity invoking the power of sale (i.e., Bank of America in its capacity as trustee for the WaMu Securitized Trust) was not the holder of the Glaski deed of trust,” it says.

    The appellate court ruling returns the case to the Superior Court for further arguments.
Source: Appeals court ruling might impact foreclosure world (Homeowner challenges chain of ownership of his home’s deed; “This lack of certainty regarding who holds the deed of trust is not uncommon”).

For the court ruling, see Glaski v. Bank Of America, No. F064556 (Cal. App. 5th Dist. July 31, 2013) (unpublished).

Editor's Note: Subsequent to the issuance of this ruling, the California appeals court determined that the nonpublished opinion filed on July 31, 2013 meets the standards for publication specified in the California Rules of Court, rule 8.1105(c). Accordingly, it ordered that the opinion be certified for publication in the Official Reports. Opinion ordered published on 8/8/13.

Thanks to Deontos for the heads-up on the order of publication.

Heat Continues For Colorado Foreclosure Mills As State AG Probe Lays Out Theory Of Conspiracy, Price-Fixing That Two Firms Allegedly Engaged In To Corner Lucrative Piece Of State Foreclosure Market

In Denver, Colorado, The Denver Post reports:
  • Colorado's two biggest foreclosure law firms, Castle Law Group and Aronowitz & Mecklenburg, appear to have manipulated and influenced the foreclosure process — in practice and at the Capitol — in a way that guaranteed themselves millions of dollars in profits at the expense of homeowners and taxpayers, according to state investigators.

    In a stunning court filing made public Thursday, Attorney General John Suthers' office lays out a theory of conspiracy and price-fixing that investigators say the two firms allegedly engaged in to corner a lucrative piece of the state's foreclosure market.

Outraged Banksters, Feds Pair Up In Tag-Team Effort To Squelch Municipalities' Plans On Invoking Eminent Domain To Snatch Deeply Underwater Home Mortgages

The Los Angeles Times reports:
  • The nation's top housing finance regulator threatened to choke off mortgage lending in cities that use eminent domain to seize underwater loans from lenders.

    The salvo from the Federal Housing Finance Agency came Thursday, on the heels of a lawsuit directed by major Wall Street firms and U.S.-sponsored mortgage giants Fannie Mae and Freddie Mac against the Bay Area city of Richmond.(1)

    Richmond is the first to push forward with the plan, also being debated in cities across the state and nation. Richmond wants to require lenders and investors to sell underwater mortgages at a deep discount. The city would then refinance borrowers into more-affordable mortgages.

    The federal housing agency, which regulates Fannie and Freddie, on Thursday made clear it doesn't intend to let this happen. The agency said it would instruct Fannie and Freddie to "limit, restrict or cease business activities" in any jurisdiction using eminent domain to seize mortgages.

    The move would be a "huge blow" to the city of Richmond, said Guy Cecala, publisher of Inside Mortgage Finance.

    "It is pretty much a death sentence these days in terms of mortgage financing," Cecala said. "It is sort of an atom bomb solution, and the real question is would they pull the trigger on it, or is it just a threat? But it is the kind of thing they could do fairly quickly."

    Executives and legal counsel for Fannie Mae and Freddie Mac also singled out the eminent domain plan this week during conference calls with journalists to discuss second-quarter financial results.

    The use of eminent domain is "a serious issue that has the potential to unsettle investors in mortgage securities," Fannie Mae Chief Executive Timothy J. Mayopoulos said Thursday.

    On Wednesday, the two mortgage giants joined with big bondholders in suing Richmond, seeking an injunction against the city and its private partner, Mortgage Resolution Partners. The city's program could cause investors losses of $200 million or more if the plan goes forward, the lawsuit said.

    The other bondholders directing that suit include Newport Beach-based Pacific Investment Management Co., BlackRock Inc. of New York and DoubleLine Capital of Los Angeles. In a separate action filed in the same San Francisco court Wednesday, the Bank of New York Mellon also sued the city and Mortgage Resolution Partners.

    Eminent domain is typically used to seize land, not loans, usually to take over blighted property or land needed for projects such as a highway. But the unorthodox plan by Mortgage Resolution Partners would use the power to force private investors to sell mortgages.

    Mortgage Resolution Partners first marketed the plan last year to San Bernardino County and two of its cities, Fontana and Ontario. The firm is now contracting with the city of Richmond to implement the strategy.

    Other cities considering the proposal include El Monte, which weighed the idea behind closed doors during a City Council meeting Tuesday. At least three other California municipalities — La Puente in Los Angeles County, and Orange Cove and San Joaquin in Fresno County — are also consulting with Mortgage Resolution Partners. Half a dozen other California cities have had less formal discussions with the firm.

    North Las Vegas, Nev., has also approved a similar plan, and Seattle and Newark are also considering adopting the measure, according to Mortgage Resolution Partners.

    That makes the working-class city of Richmond, situated just north of Berkeley in the East Bay, an important test case. The hardscrabble town of 106,000 people has sizable black and Latino populations and was hard hit by the housing crisis, with homeownership rates well below the national average.
For more, see U.S. warns against eminent-domain mortgage seizures (Federal Housing Finance Agency threatens to curtail lending in cities, including Richmond, Calif., that resort to eminent domain).

(1) See The Wall Street Journal: Investor Group Calls Richmond, Calif., Eminent Domain Plan Unconstitutional (Suit Against City Would Block Its Plans to Seize and Buy Mortgages) (requires subscription; if no subscription, TRY HERE, then click appropriate link).

Sunday, August 11, 2013

Mississippi Attorney Gets 46 Months For Bankruptcy Scheme Used To Hide His Fraudulently Snatching Of Property Co-Owned With Business Partner, Then Pocketing Proceeds From Subsequent Refinance

From the Office of the U.S. Attorney (Jackson, Mississippi):
  • Michael E. Earwood, 61, an attorney from Madison, Mississippi, was sentenced [] in U.S. District Court to 46 months in prison, followed by three years of supervised release, for bankruptcy fraud, announced U.S. Attorney Gregory K. Davis, [and others]. Earwood was also ordered to pay restitution in the amount of $792,228.53.

    Earwood previously pled guilty to devising and executing a scheme to obtain money from a business partner by falsely representing that the money would be used to maintain real property owned by Kinwood Capitol Group.

    He admitted transferring title to the real property assets of the business without the knowledge and consent of his business partner, who held a majority interest in the assets of the business.

    Earwood admitted that he transferred these assets to his own company named Northlake Development. He then used that property as collateral for bank loans to Northlake Development but still continued to solicit money from the business partner for a period of time.

    Earwood admitted that when the bank attempted to foreclose on the Northlake Development loan, he placed Northlake Development into bankruptcy and continued to conceal the unauthorized transactions from his business partner and the banks from which he had obtained loans.(1)
For the U.S. Attorney press release, see Madison Attorney Sentenced in Bankruptcy Fraud Scheme.

(1) Don't feel bad for the business partner who co-owned the property with this thief. As it turns out, the deed used to snatch the property was found to be void and having no legal effect (as opposed to merely voidable). Consequently, the business partner dodged the financial hit, and it was the bank that made the loan (and/or the title insurance company that issued the title policy) that was left holding the bag. For more, see Voidable Or Void Ab Initio (Or "Void Unless & Until Later Ratified")?

Disbarred Florida Closing Attorney Who Got Bar Boot For Exposing Title Insurance Fund To $10M+ In Claims Exposure For Allegedly Failing To Record At Least 17 Deeds & 21 Mortgages Continued To Practice Law, Now Receives A 2nd "Permanent" Boot

The South Florida Sun Sentinel reports:
  • Okechukwu Josiah Odunna of Lauderhill was permanently banned after he first was disbarred in 2010 for appearing to be "causing great public harm."

    Odunna was accused of failing "to record at least 17 original deeds and 21 original mortgages, exposing a title insurance fund to more than $10 million in claims exposure," according to Florida Bar records. "A Florida Bar compliance audit of Odunna's trust accounting records determined that he misappropriated more than $370,000 in client funds."(1)

    This year he was found to still be practicing law. Odunna could not be reached for comment [].
Source: 3 South Florida attorneys permanently banned.

(1) The Florida Bar's Clients' Security Fund was established to reimburse clients who have suffered a loss due to misappropriation or embezzle­ment by a Florida-licensed attorney.

For similar "attorney ripoff reimbursement funds" that sometimes help cover the financial mess created by the dishonest conduct of lawyers licensed in other states and Canada, see:
Maps available courtesy of The National Client Protection Organization, Inc.

84-Year Old Attorney Ingloriously Ends 50+ Year Career By Getting Double Bar Boot After Ripping Off Dead Client's Estate, Then Continuing To Practice Law After Initial Disbarment

The South Florida Sun Sentinel reports:
  • Robert Joseph Friedman of Hallandale Beach had been practicing law since 1958 but got into trouble when he was named a personal representative for a client's estate, according to Florida Bar records. When the beneficiary attempted to cash a check from the estate, he couldn't because there wasn't enough money in the account, the Bar reported. Friedman then "admitted that he misappropriated trust funds," staffers for the Florida Bar wrote.(1)

    This spring, Friedman got into more problems when the judicial watchdog found he had continued to practice law and tell clients he was an attorney despite being disbarred in May. The Florida Supreme Court then found him in contempt and banned him from ever practicing law. Otherwise, he would have had a chance to reapply for his license in five years, said Bar spokeswoman Karen Kirksey.

    Friedman said in a brief telephone interview, "I resigned." He said he was no longer practicing law and had no further comment. The Florida Bar had honored him five years ago for being a 50-year member.(2)
Source: 3 South Florida attorneys permanently banned.

(1) The Florida Bar's Clients' Security Fund was established to reimburse clients who have suffered a loss due to misappropriation or embezzle­ment by a Florida-licensed attorney.

For similar "attorney ripoff reimbursement funds" that sometimes help cover the financial mess created by the dishonest conduct of lawyers licensed in other states and Canada, see:
Maps available courtesy of The National Client Protection Organization, Inc.

(2) I wonder what the punishment is if this guy again gets caught practicing law. A triple bar boot???

Florida AG: Tampa Attorney Ran Nationwide Loan Modification Racket That Duped Homeowners Into Paying Illegal Fees By Using Websites That Mimicked Gov't Sites, Other Deceptions, Then Stiffed Them On Promised Services

From the Office of the Florida Attorney General:
  • Attorney General Pam Bondi’s Office [] sued Tampa lawyer Eric Mader, alleging he ran a nationwide foreclosure-rescue operation that charged illegal fees and failed to provide promised assistance to consumers.

    Some of the allegations include that Mader and his firm, Mader Law Group, lured consumers with websites mimicking government sites, misrepresented that consumers would be enrolled in government assistance programs or could get loan modifications from lenders, and charged fees for services never rendered.

    Mader allegedly offered refunds to some consumers only if they would withdraw their complaints about him to the Florida Bar, which regulates lawyers.

    “We will not allow scam artists to defraud Florida’s homeowners who are seeking financial relief,” stated Attorney General Pam Bondi.

    Among other things, the lawsuit seeks an order to prohibit Mader and his firm from charging up-front fees for foreclosure-rescue services and to require them to comply with Florida's foreclosure-rescue law. The lawsuit is also seeking restitution for consumers.
For the Florida AG press release, see Attorney General Bondi's Office Sues Tampa Law Firm for Foreclosure Rescue Operation (go here for the Spanish version of the press release).

For the lawsuit, see State of Florida v. Mader, et al.

(1) The Florida Bar's Clients' Security Fund was established to reimburse clients who have suffered a loss due to misappropriation or embezzle­ment by a Florida-licensed attorney.

For similar "attorney ripoff reimbursement funds" that sometimes help cover the financial mess created by the dishonest conduct of lawyers licensed in other states and Canada, see:
Maps available courtesy of The National Client Protection Organization, Inc.

Georgia Lawyer Faces Unlicensed Practice Of Law Complaint Over Loan Modification Solicitations Mailed To Rhode Island Homeowners; Letters Contained Non-Existent Local Address; Calls To Local Phone Number Were Redirected To Atlanta

In Providence, Rhode Island, the Providence Journal reports:
  • A lawyer from Atlanta, Ga., is in hot water with the Supreme Court's disciplinary counsel for soliciting Rhode Island residents facing mortgage foreclosures while having no office or license to practice law in this state.

    According to David Curtin, chief disciplinary counsel for the Rhode Island Supreme Court, Georgia lawyer Daniel J. Saxton "caused solicitation letters to be mailed" to about a dozen Rhode Island residents in February, advising them that their properties were going to be auctioned "on the Providence County Courthouse steps" on a particular date and "suggested that the recipient immediately contact [him] for assistance in mortgage negotiation and settlement."

    One of the property owners was offended by the solicitation, Curtin said, and contacted a Rhode Island lawyer who anonymously forwarded the mailing to Curtin's office.

    Curtin said the lawyer's solicitation letter listed a local phone number and a firm address of 20 Weybosset Street, an address that does not exist. If someone called the Rhode Island number, the phone was answered at Saxton's law firm in Atlanta, Freeman Saxton P.C., Curtin alleged.

    In his disciplinary complaint, Curtin said that on Feb. 28 of this year, a telephone call was placed to the phone number listed on the solicitation and the caller was put through to someone named "Roberto" who insisted that Freeman Saxton P.C. was located at 20 Weybosset St., but that the caller could not come to the office because he did not have an appointment.

    Saxton, a partner in the Atlanta firm of Freeman Saxton P.C., faced a public hearing July 23 before the court's disciplinary board, which could recommend a sanction ranging from censure to disbarment. It will be up to the justices of the Rhode Island Supreme Court to make a final decision on the punishment to be meted out, if any.

    "By offering to provide legal services to Rhode island residents while not being authorized to do so," Saxton not only violated the Supreme Court Rules of Professional Conduct but he also violated state law "which makes it a criminal offense to practice law without a license or falsely hold oneself out as a lawyer," Curtin wrote in his disciplinary complaint.

    Curtin said Wednesday that bar overseers in Georgia are awaiting the Rhode Island disciplinary board's decision.(1)
For the story, see Georgia lawyer faces disciplinary proceedings for soliciting RI residents facing mortgage foreclosure.

(1) The Clients' Security Fund of the State Bar of Georgia (Part X of the state Bar rules handbook) was established to provide a public service and to promote confidence in the administration of justice and the integrity of the legal profession by providing some measure of reimbursement to victims who have lost money or property because of theft or misappropriation by a Georgia attorney.

In Rhode Island, the Rhode Island Bar Association's Client Reimbursement Fund was established to provide a public service and to promote confidence in the administration of justice and the integrity of the legal profession by providing some measure of reimbursement to victims who have lost money or property because of theft or misappropriation by a Rhode Island attorney, and occurring in Rhode Island during the course of a client-attorney relationship.+

For similar "attorney ripoff reimbursement funds" that sometimes help cover the financial mess created by the dishonest conduct of lawyers licensed in other states and Canada, see:
Maps available courtesy of The National Client Protection Organization, Inc.

Saturday, August 10, 2013

Fair Housing Feds' Probe Triggered By HUD Complaint Filed By Legal Guardian For Intellectually Disabled Ward Leads To $80K Settlement With St. Peters In Suit Accusing City Of Discriminatory Zoning Practices

From the U.S. Department of Justice (Washington, D.C.):
  • The Justice Department announced [] that the city of St. Peters, Mo. will pay $80,000 and make changes to its zoning laws to settle a lawsuit alleging that the city violated the federal Fair Housing Act (FHA) and Title II of the Americans with Disabilities Act (ADA) when it denied a zoning request to operate a group home for four women with intellectual disabilities.

    The lawsuit is part of the Justice Department’s continuing effort to enforce civil rights laws that require states and municipalities to end discrimination against, and unnecessary segregation of, persons with disabilities. The settlement was filed [] and must be approved by the U.S. District Court for the Eastern District of Missouri.

    “The Fair Housing Act and the Americans with Disabilities Act ensure that municipalities cannot enforce discriminatory land use policies that restrict the rights of their residents to live in the housing of their choice,” said Jocelyn Samuels, Acting Assistant Attorney General for the Civil Rights Division. “This important settlement compensates the individuals who were harmed by the city’s practices and will prevent future housing discrimination against the city’s residents who have disabilities.”

    Zoning ordinances that unjustifiably keep group homes out of neighborhoods violate the Fair Housing Act,” said Bryan Greene, U.S. Department of Housing and Urban Development’s (HUD) Acting Assistant Secretary for Fair Housing and Equal Opportunity. “HUD and the Department of Justice will continue to work together to ensure that everyone, including persons with disabilities, has access to the kind of housing that meets their needs.”

    The settlement resolves the United States’ claims that the city violated the FHA and ADA when it adopted and enforced a facially discriminatory 2,500 foot group-home spacing requirement and when its Board of Adjustment refused, without justification, a variance petition to allow Community Living Inc. (CLI) to operate a group home for four women with disabilities.

    The complaint also alleges that the city refused to make reasonable accommodations to the city’s rules, policies, practices or services that were necessary to afford the residents an opportunity to use and enjoy their home.
***
  • The case began when a legal guardian for a resident of the group home filed a complaint with HUD after the Board of Adjustment denied the group home’s variance petition. HUD referred the complaint to the Justice Department, which conducted an investigation.