New York Home Equity Theft Prevention Act - Title Insurance Issues

(revised 8-11-07)

Attorney Marvin Bagwell, Esq., of United General Title Insurance Company (a subsidiary of First American Title Insurance Company) has written this Title Advisory on the NYS Home Equity Theft Prevention Act (made available online by Benchmark Title Agency, LLC).

This article offers a brief discussion of four features that have an immediate impact on title insurance underwriters doing business in New York. The article is written for industry professionals, so if you are in the title insurance industry or legal counsel for mortgage lenders doing business in New York, you might find this information helpful.

Included in the article is a copy of the standard notice "Help For Homeowners In Foreclosure" now required (as of February 1, 2007) to be served on homeowners in foreclosure when initiating a foreclosure action, and an affidavit required when an "exempt equity purchaser" is acquiring title from an "equity seller" in foreclosure.
For the full article, see Title Advisory on the NYS Home Equity Theft Prevention Act

For other articles on the Home EquityTheft Prevention Act, see:

• The Negative Impact Of The Home Equity Theft Prevention Act On Legitimate Investors And Lenders, by Thomas Weiss and Kafi J. Harris (originally published in the New York Law Journal, October 17, 2006)
• Home Equity 'Theft', by Bruce J. Bergman (originally published in the New York Law Journal, October 11, 2006)
• New York State Passes the “Home Equity Theft Prevention Act”, by Kirsten Keefe
• Overview of the New Law, from New York State Bar Association Bar Blog

To obtain a copy of the New York Home Equity Theft Prevention Act, please refer to my January 4, 2007 post and my January 12, 2007 post.

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Two South Bend Retirees Duped Into Flipping Scam, Class Action Lawsuit A Possibility

Two Indiana retirees, in separate cases, filed lawsuits against an alleged home flipping group, who operated a local Century 21 real estate brokerage franchise, in Saint Joseph County courts alleging mortgage fraud, according to a story reported at SouthBendTribune.com.

In the first case, the victim ended up owning twelve houses that were worth considerably less than wht he paid for them. A former office manager for the group engaged in the flipping deals came forward in this case and, in effect, acted as a whistleblower, as she filed an affidavit (details in the article) in the victim's lawsuit outlining exactly how the flipping operators conducted their activities. This case ultimately resulted in a confidential, out of court settlement, according to attorney Lee Korzan, who represented the victim.

In the second case, the victim was having trouble selling her home when she was approached by two members of the group with an offer to buy the house. The bottom line in this case was that the house became the subject of a "property flip" where the house was sold for more than double the asking price. Further, while the victim only received the lower price that she originally agreed to, she got stuck with an IRS 1099 form reflecting that she received the entire sale price of the "flip."

Because the victim in the second case learned that others have been similarly scammed by the same group, her South Bend attorney, Douglas Small, has reportedly indicated that he will be seeking class action status for his client's lawsuit (thereby enabling similarly situated victims to join the lawsuit). In this regard, Small may be seeking to have the court force the home flipping group to "provide him copies of all sales transactions they have handled, and he will use those documents to identify other potential victims."

The article also reports on the story of a third victim of the group, who ended up buying three homes worth less than they were worth.

Reportedly, the flipping operation involved:

• recruiting "investors" with satisfactory credit scores,
• phony appraisals,
• intimidating employees to have mortgages placed in their names,
• fabricating documents reflecting false incomes and "phantom" employers for those applying for the mortgage loans,
• fictitious repair invoices from home repair companies that existed only on paper,
• failing to provide the "investors" with copies of the closing documents,
• promises of help finding tenants paying enough rent to cover mortgage payments.

To read the entire story (which is loaded with details) and is Part 2 of a South Bend Tribune story I posted on yesterday, see:

Whistle-blower backs alleged victims' claims of mortgage fraud, reported at SouthBendTribune.com.

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South Bend Man Lured Into Mortgage Scam, Left "Holding The Bag"

A South Bend, Indiana man, lured by the prospect of owning many rental properties without the need for any downpayment while receiving "cash back at closing", and by promises that tenant rentals would cover the mortgage payments, now finds himself mired in over $1 million of debt and the owner of 14 properties, according to a report in the South Bend Tribune.

According to the story, the man, an African immigrant, "is one of a growing number of local people, including other African immigrants, who say in interviews and lawsuits that they have been victimized by mortgage fraud scams" operated by one local alleged scam group.

The story goes on to say that "The Tribune contacted several other African immigrants who live in South Bend and said they had been defrauded by the Shenemans, but they declined to be identified -- either out of embarrassment or because they fear retribution of some kind."

Attorney Lee Korzan is representing the man and another victimized immigrant in civil lawsuits brought against the alleged scam group. To date, law enforcement authorities have made no arrests of the defendants named in the ongoing civil cases.

To read the whole story, reported at SouthBendTribune.com, see

Mortgage maelstrom
(Scheme appears to target African immigrants)
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"Cash Back" Real Estate Scams Sweeping Across Arizona

A wave of mortgage fraud known as "cash back" deals is rippling through Arizona. The fraud involves getting phony appraisals which falsely represent the value of a home, obtaining a mortgage for more than the home is worth and pocketing the extra money in cash.

Whether it's organized groups of speculators that have bought multiple homes this way or individual deals done by amateurs, this type of mortgage fraud has become a concern for Arizona regulators. Reportedly, in one neighborhood, a group of buyers has been selling and reselling homes to one another.

Calls from homeowners, real estate agents and lenders asking if the "cash back" deals are legal are increasing every month and now come in every day, according to Felecia Rotellini, the head of the Arizona Department of Financial Institutions. She recently hired two consumer complaint investigators and plans to devote the bulk of her agency's resources to investigating mortgage fraud.

In November, Rotellini organized a mortgage fraud task force that includes the Arizona Department of Real Estate, Arizona Housing Department, FBI, Housing and Urban Development, IRS and State Board of Appraisers. They plan to share information and collaborate on cases. Reportedly, local police departments will also be working with the new task force.

To read the entire story, see Valley fighting mortgage fraud wave, reported in The Arizona Republic at azcentral.com. You can also find links to the following series of Channel 12 video reports:

• How the cash-back deals work
• How the deals affect you the consumer
• Cracking down on the fraudulent scheme

Click below to read other mortgage fraud articles published this week by The Arizona Republic:

• Mortgage Fraud Q&A
• Who profits, who suffers; tips to protect yourself
• How the experts see it
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California Statutes Regulating Foreclosure Rescue & Equity Skimming

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California has two statutes, both passed in 1979, that regulate home sale transactions involving homeowners facing foreclosure, investors purchasing from these financially strapped homeowners, and mortgage foreclosure consultants.

1) California's Home Equity Sales Contract Act can be found at Section 1695 through Section 1695.17 of the California Civil Code.

2) California's Mortgage Foreclosure Consultants Act can be found at Section 2945 through Sction 2945.11 of the California Civil Code.

In addition, California also has a statute prohibiting rent skimming (equity skimming) and can be found at Section 890 through Section 894 of the California Civil Code.

Click here to view the entire hyperlinked Table of Contents of the California Civil Code.

September 27, 2008 Addendum:

See AB 180, Bass. Mortgages: foreclosure consultants..

Northern California Woman's Unwitting Sale Of Home Leads To Lawsuit

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In this July, 2006 article, a disabled Antioch woman who had fallen behind in her mortgage payments sought the advice of her church's pastor, whom she had known for 10 years. According to a lawsuit that she ultimately filed, she alleged that the pastor referred her to a fellow church parishioner to assist with a refinancing and, within a month after she signed the legal documents involved in the transaction, both the man arranging the transaction and another party (who claimed to be the new owner of the woman's home) claimed that she was no longer the owner and demanded the house keys and rent for being in the home.

This article points out that the homeowner in this case

• "is luckier than some because she was able to get legal help. Through the Association of Community Organizations for Reform Now ["ACORN"], she was put in touch with the Oakland-based housing advocacy group, Housing and Economics Rights Advocates, which works with the law firm Morgan Miller Blair in Walnut Creek. The law firm took [the homeowner's] case on a pro-bono basis."

In the civil lawsuit, the homeowner (represented by attorney Joshua Cohen) alleged violations of California's Home Equity Sales Contract Act, the Mortgage Foreclosure Consultants Act, fraud, civil conspiracy to commit fraud and unfair business practices, intentional infliction of emotional distress, and undue influence. The defendants in this case include the pastor, the man arranging the transaction, the purported new owner, and others.

To read more, click below for the article, as reported in the East Bay Business Times:

Mortgage fraud cases multiply, hit more homeowners
Homeowner sues pastor, others

For those seeking legal assistance or representation in California, see my blog post immediately preceeding this one.

Editor's Note:

As a personal observation, in cases such as this one (and the one in the blog post preceeding this one), where a victimized homeowner retains possession of the home after a purported sale, this possession under the law generally imparts what experienced real estate lawyers refer to as "notice to the world" that the person in possession of the premises may have a legal interest in the home (whether this "notice" is considered to be "actual notice", "constructive notice", or "inquiry notice" under California law, I welcome input from any California real estate attorneys).

This point may be significant to the victimized homeowner because if, after litigation, the homeowner is successful in voiding the sale, and the holders of any subsequent intervening interests (in the above case, the purported interests of the new buyer and the mortgage company that financed the new purchase) are deemed to have had this "notice to the world", it seems to me that the homeowner should be entitled to get the home back free from any claims of the new buyer or bank. (Being deemed as being "on notice" may possibly "disqualify" the new buyer or mortgage company of the legal status of being a "bona fide purchaser for value, and without notice.") For any victimized homeowners and others wanting more information on this point, seek out a competent, experienced real estate attorney in your home state.

Should this be the case, then the new buyer and the bank or mortgage company financing the purchase would end up "holding the bag". However, if they each obtained a title insurance policy to protect their interests as part of the purchase, then it seems to me that they may have a "title claim" to submit to the title insurance company issuing the policy (I wonder how title insurance companies are dealing with issuing title policies in foreclosure rescue situations. If anyone knows of any cases or articles addressing the ramifications to the title insurance industry in connection with foreclosure rescue issues, please drop me a line by clicking "Comments" below).

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Southern California Woman Alleged Victim Of Home Theft, Mortgage Broker Arrested

In this May, 2006 story, a financially distressed mother of two seeking to refinance her defaulted mortgage was reportedly convinced by a local mortgage broker to sign over her home to the broker's father to take advantage of his better credit rating to obtain a refinancing of her existing mortgage. Unbeknownst to the homeowner, the property was subsequently sold, with her name allegedly forged on documents authorizing the sale proceeds to be sent to someone unknown to her.

The broker was subsequently arrested on various charges, including forgery, after an investigation by Riverside County authorities.

Denise Meenan, a consumer attorney employed by the Riverside office of Inland Counties Legal Services, which serves San Bernardino and Riverside Counties with free legal assistance to the elderly and to low-income households, was quoted as believing that most foreclosure investors "are basically putting the nail in the coffin as far as taking the last bit of a homeowner's equity."

Private attorney Tim Liebaert, representing the victim in this story in a civil suit to get her house and equity back, said in the past year he has filed five cases on behalf of victims of foreclosure fraud.

To read more, click below for the following article in The Press Enterprise at pe.com:

False Hopes
Inland homeowners facing foreclosure encounter scams under guise of refinancing

Click here to find consumer protection attorneys throughout California

Click here to find low cost / no cost legal self help and possible attorney representation to low income, elderly, and disabled Californians
(revised 1-29-07)
(revised 4-10-07)
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Ex Church Youth Pastor Gets 46 Months In Flipping Scam

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A New York man was sentenced to 46 months in prison and ordered to pay more than $460,000 in restitution after being convicted of Federal charges for his part in an illegal property flipping scam. The properties were located in Westchester County and New York City. The scam involved filing false mortgage loan applications with lending companies, and filing other types of false information and documents, like fake W2 forms and fake payroll stubs, which falsely reflected inflated income amounts needed by borrowers to qualify for the loans.

To read more, see Ex-church youth pastor, convicted in mortgage fraud scheme, going to prison, reported at EmpireStateNews.net.
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Indianapolis Cop Gets 57 Months In Mortgage Scam

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An Indianapolis cop was sentenced in an Indiana Federal Court Wednesday to 57 months in prison for his role in a mortgage fraud scheme. This conviction, as well as 57 others, is a result of a probe by a little-known federal task force set up in 2002 to look into Indianapolis' long rash of real estate scams.

To read more, see Cop gets 57 months for fraud, as reported at IndyStar.com (The Indianapolis Star).

Former Indianapolis patrolman gets 57 months for fraud, report by WAVE Channel 3

Former Indianapolis patrolman gets 57 months for fraud, Associated Press wire report at The News-Sentinel at FortWayne.com.

revised 1-19-07 (4:11 p.m.)

"Shotgunning"

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"Shotgunning" is the term used to identify one of the latest real estate frauds that one industry insider refers to as "the fraud of the year." This scam comes in two forms. To read more, see How mortgage scams snare unsuspecting sellers, reported at marketwatch.com.
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Another Land Flipper Sentenced To Federal Prison

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A Massachusetts man was sentenced yesterday in federal court in Sprigfield, Massachusetts for his role in a land flipping and mortgage fraud scam. According to prosecutors, the scam involved drawing in unwitting buyers with realty investment opportunities without the need for any downpayments, promising them money back at the real estate closing, and generating false documentation to induce mortgage lenders to approve loans. Also involved in the conspiracy were real estate appraisers who provided false property appraisals to support the loan amounts for the artificially inflated property values, and attorneys who generated false and fraudulent real estate closing documentation to facilitate and conceal the fraud.

To read more, see Wilbraham Man Sentenced to Prison for Role in Multi-Million Dollar Mortgage Fraud Reports U.S. Attorney, as reported at prnewswire.com.

For a previous report on this story, click here for Real estate fraud case nets prison, confinement.
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Indiana Mortgage Fraud Prosecution Reaches Conclusion

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The last of ten criminal defendants in a local mortgage fraud case was sentenced in Indianapolis Federal Court Wednesday to 57 months in prison. The fraud was an illegal flipping scam involving over 40 properties.

To read more, see FRAUD: Final sentence delivered, as reported in the Marion Chronicle Tribune at Chronicle-Tribune.com (Grant County, Indiana).

To read other reports involving this prosecution, see:

• U.S. Justice Department Press Release
• 3 get prison time for mortgage fraud
• Three get prison time in mortgage scheme

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Two Equity Skimmers Sentenced To Federal Prison

Two Utah men accused of ripping off tenants, distressed homeowners, and lenders in an equity skimming operation have each received a one year sentence in federal prison Tuesday afternoon.

The operation was exposed by local Salt Lake City Channel 2 investigative reporter Bill Gephardt just over three years ago.

The reporter poses a question that all prospective tenants and financially strapped homeowners should ask themselves in order to avoid getting sucked into an equity skimming operation:

• "If you give your rent to a landlord, are you sure the landlord owns the property? Or, if you're a distressed homeowner, would you trust someone's promise that they'll take over all the payments, and allow you to walk away from your debt? It's the basis of equity skimming."

To read more, see Get Gephardt: Equity Skimming Crooks Sentenced, as reported at the KUTV Channel 2 website, kutv.com.

Click here to watch/listen to Bill Gephardt's Channel 2 report.

To read an earlier Channel 2 report, see Two Utah Men Accused Of Rental Fraud.

Almost 3500 Register Under Colorado's Morgtage Brokers Registration Act

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Colorado's Morgtage Brokers Registration Act, a new state law which took effect Jan. 1, has already had almost 3500 people register under its terms and has barred 10 people from registering as mortgage brokers.

At least 500 more applications were waiting for the completion of the statutorily mandated criminal background checks.

Legislators passed this new law with the view to prevent the frauds associated with real estate scams, predatory lending, and foreclosures.

To read more, see Mortgage broker law already bars 10 people, at RockyMountainNews.com.
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Atlanta Trial of 12 In Alleged Flipping Scheme Begins

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A trial of twelve defendants accused of engaging in a "straw buyer" mortgage fraud using a flipping scheme involving over 300 homes and condos in metro Atlanta began yesterday in Atlanta Federal Court. The trial, crowded with the twelve defendants and their attorneys, was described as resembling a "business seminar."

Click here to read the full story as reported by the Atlanta Journal Constitution at ajc.com.
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Baltimore Woman Unwittingly Signs Over Home Title, Gets It Back After Fraud Investigation

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In this 2006 story, a Baltimore area woman, struggling with cancer and mounting medical bills, was strapped for cash and facing foreclosure. In an attempt to save her Middle River, Maryland home and get some money to pay her medical bills, she entered into a transaction with a company (that turned out to be a local foreclosure rescue operator) whereby she thought she was signing for a home equity loan but, in fact, was signing away her home. Ultimately, the company gave the house back after a year long ordeal and following a state department of labor licensing and regulation investigation.

'There are so many people who are cash-poor but equity-rich in their homes,' said Phillip R. Robinson, a consumer protection attorney and executive director of Civil Justice Inc., a network of solo, small firm and community based lawyers in Baltimore that handles predatory real estate cases in Maryland & Washington, D.C. (as well as provide services for local attorneys).

Attorney Michael Morin, who represented the victim, reportedly stated that the mortgage fraud in the area has gotten to the point that he's seeing 'hobby con artists,' people doing it in their spare time.

Sources for this story:

Woman Unknowingly Sells Her House (5-24-06; Channel 11 / Baltimore)
Woman Gets Home Back After Fraud Investigation (9-25-06; Channel 11 / Baltimore - read story and watch/listen to video)
State warns of foreclosure 'consultants' (9-26-06; Baltimore Sun)
Foreclosure Rescue Fraud Prevention Slide Show

Additional Resources:

Click here for new Maryland law regulating foreclosure rescue purchasers & consultants ( see Subtitle 3 - Protection of Homeowners in Foreclosure)

Click here to find Maryland consumer protection attorneys who are members of the National Association of Consumer Advocates (NACA).

Click here to find Maryland Non-Profit Legal Services Providers.

Click here for Maryland's Peoples Law Library (legal & self help information).
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Mortgage Fraud Increasing, Reports FBI

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New FBI statistics indicate a continuing increasing trend in mortgage fraud cases. Reportedly, the FBI had 938 pending mortgage-fraud investigations as of early January, compared with 818 at the end of September and 721 in September 2005. The bureau also estimates that the actual number of cases was closer to 36,000 for the year ended Sept. 30, compared with 22,000 the previous year.

To read more, see this New York Times article, appearing in The Detroit News online presence, detnews.com.
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