Feds Charge Drug Ring Suspect With Mortgage Fraud

The FBI has arrested a St. Louis County man and his mortgage broker wife for allegedly falsifying tax forms, pay stubs and other documents to assist "recruited unsophisticated home buyers" in qualifying for mortgage loans, according to a report on STLtoday.com (the Internet home of the St. Louis Post-Dispatch). Reportedly, these "unsophisticated recruits" also had either a low credit score or a high ratio of debt to income.

According to the article, the husband "[w]as already due in court for a pretrial hearing that afternoon, as one of six men allegedly involved in a drug ring that brought more than 120 kilograms of cocaine to the St. Louis area. As part of that scheme, a Hillsdale police officer has been accused of helping set up the gang's drug suppliers to be robbed by other members."

To read more, see Couple accused of mortgage fraud
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Illinois AG Pursuing Alleged Mortgage Fraud, Home Improvement Scam

The Illinois Attorney General has filed suit against against three unlicensed, related mortgage companies who made over $10 million in illegal loans in connection with home improvement transactions involving allegedly shoddy repair work. The suit also alleges that the three companies hid their relationship to the two home repair contracting companies who did the allegedly shoddy work (The same person is the president of all five companies). To read the whole story, reported by the Chicago Tribune, at chicagotribune.com, see:

Riverside mortgage firms face fraud suit
(State alleges illegal loans, shoddy repairs)
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CNN's "Lou Dobbs Tonight" On Foreclosure Rescue

Lou Dobbs had a report on foreclosure rescue (June, 2006, I think) on his CNN program, Lou Dobbs Tonight. Click here to watch War On The Middle Class, reported by Christine Romans (video no longer available online).
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Private Attorneys Co-Counsel With FHLP

The Fair Housing Law Project ("FHLP") of the Law Foundation of Silicon Valley, a non-profit law firm that provides free legal services to residents in need living in Santa Clara County, California, reports that many private law firms have increased their pro bono representation by co-counseling predatory lending cases with them. In addition to helping needy clients, the firms gain litigation experience for their attorneys. To see the list of the firms providing assistance, see the caption, Private Firms Co-Counseling with FHLP (also, if you scroll to the bottom of the linked page, you can read about one elderly victim of a foreclosure rescue scam who, through FHLP's efforts, received the deed to her home back, plus financial compensation and attorney fees totaling $250,000).
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Equitable Mortgage Cases in Massachusetts

For those readers interested in information on the equitable mortgage doctrine as applied in Massachusetts, I have a brief post that may be of some interest. See Equitable Mortgage Cases in Massachusetts, at the companion blog. equitable mortgage zebra

Finding Equitable Mortgage Court Cases On The Internet

For those of you interested in researching the equitable mortgage cases of your home states on the Internet, I have a brief post on the companion blog regarding this issue that may be of some use. See Search Tips For Finding Equitable Mortgage Cases On The Internet. equitable mortgage zebra

Five "Flippers" Sentenced For Fraud By Federal Judge

A Mississipi Federal judge sentenced five defendants in a house flipping, mortgage fraud scam in Federal Court in Hattiesburg yesterday, according to an Associated Press report in The Clarion-Ledger at ClarionLedger.com. The five were among a group of twelve who were implicated in the flipping operation. Seven others are scheduled for sentencing on February 20. All twelve pleaded guilty, thereby sparing the government the cost of a trial (and probably sparing themselves a few extra years in prison had they been convicted after a jury trial). For more, see Five sentenced in mortgage fraud scheme
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Foreclosure Rescue Operator Ordered To Return Homes To A Dozen Victims

In a 2005 Nebraska Supreme Court decision, two Omaha area foreclosure rescue operators were ordered to restore title to the homes of a dozen homeowners who the operators fraudulently induced into signing over their home titles, or reimburse them for their damages.

In addition, the operators were also ordered to pay approximately $378,000 in attorneys' fees to the lawyers for the victimized homeowners for violations of the state's Consumer Protection Act.

In this case, the homeowners all testified that the operators offered to loan them money to stop foreclosure so that they (the homeowners) could keep their homes, but never disclosed that the operators were actually taking title to the homes. The operators testified to the contrary, asserting that the terms of the transaction were fully explained to each plaintiff and that each plaintiff understood that he or she was conveying title to the home to defendants. In ruling in favor of the homeowners, the court made a specific finding that the homeowners' testimony was credible and that of the operators was not.

One notable point in this case is the illustration of a well-known legal rule regarding the signing of a contract and how it applies in a case like this one. This legal rule, as described by the Nebraska high court, is this:

• “[o]ne who signs an instrument without reading it, when he can read and has the opportunity to do so, cannot avoid the effect of his signature merely because he was not
  informed of the contents of the instrument.”

Having said that, the Nebraska high court went on to state:

• "[t]he general rule that one who fails to read a contract cannot avoid the effect of signing it applies only in the absence of fraud [...] Restated, the rule that one who signs a contract is bound by its terms does not apply where the controversy is between the parties and the execution of the instrument was induced by fraud."

A second point worth noting is that this case illustrates another method of attacking foreclosure rescue transactions. Unlike the equitable mortgage cases reported elsewhere on this blog (in which proof of fraud is not necessary), the homeowners' action in this case were based on allegations of fraud, civil conspiracy, unjust enrichment, rescission, and violations of Nebraska’s Consumer Protection Act and Uniform Deceptive Trade Practices Act (and importantly for private practice attorneys that are considering handling these types of cases, the $378,000 fee award was based on an attorney fee provision contained in the state Consumer Protection Act, and also involved the application of a "contingency fee" or "lodestar" multiplier that increased the "lodestar amount" (the base fee) by 30 percent).

Sources:

Rising foreclosures fuel fraudulent offers of aid (Seizures, byzantine terms spring from promises to help owners keep homes) (MSNBC website)

High Court Slams Foreclosure Scamsters, (WOWT, Channel 6 News - Omaha, NE)

Eicher v. Mid America Financial Investment Corp.. 270 Neb. 370, 702 N.W.2d 792 (2005) (made available online by Findlaw.com)

Counsel For Homeowners:

Mark C. Laughlin, Andrea F. Scioli, and Tamara D. Borer, of Fraser, Stryker, Meusey, Olson, Boyer & Bloch, P.C.,

Catherine Mahern, of Milton R. Abrahams Legal Clinic (Creighton Legal Clinic - Creighton University School of Law)

D. Milo Mumgaard, of Nebraska Appleseed Center for Law in the Public Interest

(revised 4-23-07) equitable mortgage zebra

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Lawyer Nailed In Shady "Cash Back" Land Deal

"A veteran New Haven, Conn., lawyer has been suspended from the practice of law for six months for his role in a real estate transaction that may be a blatant case of mortgage fraud," is how an article in The Connecticut Law Tribune, reported at law.com, begins.

The invetigation, conducted by disciplinary officials with the Connecticut Bar Association, only determined one thing: that the attorney, acting in his capacity as closing agent in a real estate transaction, falsely reported the sale price of a West Haven, Conn., property and deserved punishment.

What was not determined, however, was the degree of culpability of everyone involved in the transaction.

All parties signed off on a HUD-1 closing statement that reflected a sale price of $505,000 and that the purchaser received a $378,750 mortgage. The warranty deed, however, reflected a sale price of $285,000. The buyer reportedly walked away with an additional $79, 000 in his wallet, and the other parties involved in the deal received their fees based on the $505,000 amount. An existing $65,000 second mortgage (which turned out to be the big "monkeywrech" in the deal; more later) was also left off the closing statement.

Other Reported Facts:

1) The lawyer characterized his conduct as nothing more than sloppy oversight. Through counsel, the lawyer essentially blamed his paralegals (who presumably handled all the closing "paperwork") for the errors. He is also accusing the buyer of "inappropriate conduct."

2) The buyer, owner of a local appraisal company, reportedly also served as appraiser in the transaction, according to disciplinary officials.

3) An "unsigned addendum" exists expressing an agreement between seller and buyer that seller would only get $285,000 from the sale, with the balance going to "closing cost repairs." It also states that both seller and buyer agreed to use one attorney in the closing.

4) The seller, an attorney himself as well as an accountant, is blaming the buyer and the suspended attorney for the mess. While he reportedley acknowledged signing the incorrect documents and knew of the "unsigned addendum," he described himself as "a distracted seller going through a contentious divorce [who] just wanted to finish the entire process," according to the article.

5) The lawyer has been a defendant in five civil suits charging malpractice since 2004, of which two were dismissed (possibly settled out of court???).

6) A private individual who held the $65,000 second mortgage (the mortgage constituted the deferred sale price of an accounting business sold by the individual to the property seller in this story, unrelated to the real estate deal in question) attempted to enforce a 50% "shared equity" clause in the mortgage based on the "inflated" $505,000 price of the home. When the parties in the transaction failed to "pay up," the individual, through counsel, filed a grievance against both the attorney and the seller (presumably, this was the grievance that initiated the Connecticut Bar investigation resulting in all these facts coming out).

For the whole story, see Conn. Attorney Suspended for Shady Land Deal

To read another story about Connecticut Bar Association investigations of attorneys, see Theft Of Client Funds Concerns Connecticut Bar Association.
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Usurious Loans Masquerading As Sale Leasebacks ?

I have put together a collection of four cases that I stumbled over while looking for something else online. They involve potential or actual usurious loans that were disguised as sale leasebacks of personal property. Since usury is always a possibility when a court deems a deed to be an equitable mortgage, these cases may provide some additional insight as to how the courts analyze fact patterns when determining when a financial arrangement in the form of a sale leaseback should be respected, and when it should be disregarded and treated as a loan. To read more, see Usurious Loans Masquerading As Sale Leasebacks ?, on my companion blog.
equitable mortgage zebra

Indianapolis Feds Get Mortgage Fraud Indictment

An Indianapolis man was indicted on seven counts of identity theft and four counts of bank fraud, according to Federal authorities in Indianapolis. Prosecutors have alleged that the suspect purchased five properties and obtained or attempted to obtain two auto loans using the stolen identities of three men, including their Social Security numbers.

A confederate has been charged with one count of identity theft, relating to an incident when police intervened during an attempt by him to get a $32,000 car loan using a phony Wisconsin driver's license. To read more, see Two charged with identity theft, reported by The Indianapolis Star at IndyStar.com.
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Vista Man Faces 12 Years For Conspiracy Convictions

A Vista, California man that offered a program promising large returns and affordable homes to consumers was found guilty of four felony conspiracy charges on Tuesday, according to an article in the North County Times, reported at nctimes.com. He beat a fifth charge.

The conspiracy charges related to grand theft, false pretenses, forgery and filing a false document. Three co-defendants were also convicted of some of the charges, and received acquittals on others.

The man, through his company, offered prospective homebuyers a 20 percent return on any investment and a program wherein each participant could buy a newly built home for an upfront investment of $7,500. No homes were ever built.

To read more, see Several guilty verdicts in First Latino case
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Boston Mortgage Scammers Sentenced In Federal Court

A former nurse's assistant and two relatives were sentenced Tuesday in Boston Federal Court on charges of Bank Fraud and Aggravated Identity Theft in connection with their theft of hospital patients' personal identity information that they then used to fraudulently obtain mortgage loan proceeds. A third relative of the nurse's assistant was sentenced in December for her role in the scheme. All defendants pleaded guilty to the charges, thereby sparing the government the expense of trial.

The successful investigation was a "joint venture" involving the FBI, the U.S. Postal Inspection Serrvice, and the Massachusetts State Police. To read more, see U.S. Attorney Press Release, Four Sentenced for Bank Fraud and Aggravated Identity Theft, Reports U.S. Attorney, distributed by PRNewswire-USNewswire.
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Los Angeles Attorneys Catch Section 1695 Violations; Save Owners Home Equity

In representing a California homeowner who fell victim to scam artists and lost her home in a foreclosure sale, a Los Angeles law firm found that the scammers violated provisions of the California Home Equity Sales Contract Act in the purchase contract. As a result, the scammers released their claim to over $110,000 of the $130,000+ in excess cash surplus that resulted when their client's home was sold in the foreclosure sale. To read more, see Angela Shaw v. Raymond Mendoza.

Foreclosure Rescue Victim's Case Tossed Out Of Court

A Deer Park, New York couple's four year fight to reclaim the house they lost in a foreclosure rescue scam to a crooked mortgage broker may have come to an abrupt end Tuesday when a judge dismissed their federal lawsuit on a procedural technicality. To read the latest article, reported by Newsday (Long Island) at newsday.com, see Family loses home, then their case

See Long Island Couple Lose Home, "Skimmer" Convicted for previous coverage of this story.

Admitted Flipper "Earns" Federal "Get Out Of Jail Free Card"

An admitted mortgage fraudster who, by his own account, profitted, among other ways, "by selling nine "uninhabitable" homes to inexperienced home buyers" and who, overall and with 13 others, ripped off banks and home buyers out of approximately $15 million, avoided conviction on all mortgage fraud charges and instead, was sentenced to three months in a halfway house, four months home confinement, a $15,000 fine and three years' probation on two misdemeanor tax charges for failure to pay tax on his earnings in Federal Court in Springfield, Massachusetts.

He earned his "Get Out Of Jail Free Card" because of "[his] role as a cooperating witness in overlapping mortgage fraud and public corruption cases" which resulted in convictions against a dozen defendants in the real estate fraud cases, with an additional 33 people either being convicted or pleading guilty in the overlapping public corruption probe.

To read more, see the article in The Republican, reported at MassLive.com, Tax defendant spared prison.
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Mortgage Fraud In Central Florida Home Building Operation Suspected

(revised 8-11-07)
A situation that has been described as a "$110 million residential loan dilemma" is currently facing Coast Bank and St. Petersburg-based homebuilder CCI Homes, according to an article in the Bradenton Herald at Bradenton.com.

Sarasota attorney Alan Tannenbaum has reportedly been contacted by about 100 potential clients and anticipates representing at least 50 to 75 who claim to have lost money in the deal. He says the way investors were approached to buy homes constitutes investment fraud. He is representing clients in a potential class action suit against two other companies that worked on investor packages linked to the residential home development.

At least two other attorneys are representing groups of investors whose homes were being built by CCI.

Reportedly, some investors were promised a portion of the home sale price in exchange for allowing their credit scores to be used to obtain construction loans on homes being built by CCI. Bank loans totaling $110 million to 482 borrowers were made and, to date, "[a]bout half of those "homes" still amount to empty lots" according to a recent SEC filing.

To read more, see Coast Bank loan holders may file lawsuit.

For a more recent story on Coast Bank, see Coast Bank discloses SEC inquiry (Bradenton Herald - 8-11-07).

The Equitable Mortgage Doctrine, The Truth In Lending Laws, Usury & Foreclosure Rescue

Foreclosure rescue operators are being sued by financially strapped homeowners around the country for the "sale leaseback" / "lease buyback" arrangements they are entering into. Some cases are invoking the equitable mortgage doctrine in order to have a purported conveyance from a homeowner to a foreclosure rescue operator with a simultaneously executed leaseback and purchase option be declared a mortgage; and then attacking the transaction as being violative of the Federal Truth In Lending Law disclosure requirements and state usury law, among other claims. For a more extensive post, see The Equitable Mortgage Doctrine, The Truth In Lending Laws, Usury & Foreclosure Rescue.
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Unwitting Title Transfers & Foreclosure Rescue Tactics

In an effort to organize the posts on this blog dealing with the unwitting transfers of ownership by homeowners facing foreclosure to foreclosure rescue operators, I have prepared an index of all posts dealing with this issue. Click here for the index to posts dealing with unwitting title transfers.

There is also a permanent link to this index in the sidebar to the right of the screen, under the caption Search For Blog Posts On, labeled Unwitting Title Transfers.
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Iowa Bankruptcy Court Calls Conditional Sale Contract An Equitable Mortgage

A Federal Bankruptcy Court in Iowa ruled last month that the equitable mortgage doctrine was applicable to a real estate transaction between a "financially strapped" property owner and an investor involving a contract of sale coupled with a simultaneously executed lease agreement. The court disrgarded the form of the transcaction as portrayed by the executed documents and looked to the substance of the deal and called the entire transaction an equitable mortgage. For a more extensive post, including the link to the case, see In re Litwiller; Iowa Bankruptcy Court Calls Conditional Sale Contract An Equitable Mortgage
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Pittsburgh Area Neighborhoods Victimized By Flipping Scam

Homes in the communities of Wilkinsburg, East Liberty and other Pittsburgh area communities were involved in a mortgage flipping scam which ultimately led to prison time for those involved and victimized the neighborhood around it. To read more, see IRS and FBI report real estate fraud on increase, reported in the Pittsburgh Post-Gazette at post-gazette.com.
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Two Fraud Investigators Charged With Mortgage Fraud

In New South Wales, Australia, a senior fraud investigator and a team leader in the Fraud Squad's Assets Confiscation Unit have each been charged with one count of obtaining financial advantage by making a false or misleading statement in a mortgage loan application by the Police Integrity Commission, according to an article from The Daily Telegraph, reported at news.com.au. To read more, see Fraud Squad officers charged over loan bid.
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Massachusetts Cops Probe Attorney Involvement In Loan Scams

Lawrence, Massachusetts police have launched an exploratory probe into mortgage broker fraud, focusing on the participation of local attorneys who may have taken "under-the-table money" from home buyers who got duped into taking out loans they couldn't afford, according to a report in The Eagle-Tribune Online. To read more, see Police looking for help from victims of lawyers suspected in loan fraud.
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Accused Equity Skimmer Commits Suicide; Attorney's Law License Suspended

This story (originally covered by The Ledger - Lakeland, Florida beginning in March, 2005) is of a real estate operator who was engaged in an equity skimming operation in and around the city of Lakeland, in Central Florida's Polk County. The operator bought homes from home sellers whereby he promised to take over and continue to make the sellers' mortgage payments. He would then turn around and sell the same homes to new buyers, whereby he would collect downpayments from them and allow the new buyers to make monthly payments to him for the balance of the purchase price.

When authorities arrested him after a 15 month investigation on March 30, 2005, he was accused of collecting nearly $153,000 in excess of the mortgage payments and more than $86,000 in down payments and monthly rent but did not pay off debts on the homes that he promised the original sellers he would pay. The bogus deals reportedly involved 19 Polk County homes.

Less than two weeks after he was arrested, local authorities arrested an attorney for his role in the fraudulent transactions. The attorney acted as the title agent and closed loans on a few, but not all, of the real estate transactions involved.

About a year later, after having his bail revoked for contacting the victims of his alleged fraud and after a four hour standoff, the real estate operator fatally shot himself in front of Polk County Sheriff's deputies who were attempting to execute an arrest warrant to take him into custody. He was reportedly distraught about the prospect of going to prison for up to 30 years and facing an order to pay restitution (roughly estimated at between $700,000 to $800,000) to the scam victims on account of the charges he was facing.

After pleading guilty for his role in the transaction, the attorney was sentenced to five years probation. At the time of sentencing the attorney had already fully paid the amount of victim restitution attributed to his role (just under $115,000).

According to an e-mail reportedly sent by the attorney to The Ledger after his sentencing, there were apparently 40 or so victims that may never see any compensation for their losses in this scam.

The attorney was ultimately suspended by the Florida Supreme Court from practicing law in Florida for three years, according to the Florida Bar.

Sources:

Head of firm arrested, reported in The Mortgage Fraud Blog, The Prieston Group, based on an article appearing in The Ledger, (3-31-05)

Lakeland Lawyer Is Arrested In Inquiry, The Ledger (5-11-05)

Standoff With Deputies Ends With Suicide, The Ledger (5-2-06)

Officials: Death Won't Stop Case, The Ledger (5-3-06)

Lawyer Receives 5 Years' Probation, The Ledger (7-15-06)

Polk Attorney Reprimanded, The Ledger (1-12-07)

Lawyer Loses License for Real Estate Fraud, The Ledger (1-13-07)
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North Carolina Mortgage Fraud Links

1) Vance County, North Carolina
Convicted Mobile Home Mogul Gets 75 Months, $7.5M Restitution Order

Vance County mobile home operator was sentenced after pleading guilty in March to mail and bank fraud and money laundering while selling mobile homes and preparing falsified mortgage documents. See:
Donald Gupton to face punishment today (1-24-07)
Gupton sentenced to 75 months in prison, $7.5 million restitution (1-25-07)
Man sentenced in mortgage scheme (1-25-07)

2) Fayetteville, North Carolina
Banks commissioner cites fraud, ID theft in revoking loan officer's license (1-25-07)

A Fayetteville mortgage loan officer's license was revoked for allegedly falsifying documents in connection with mortgage loan closings and for allegedly stealing and using the financial identities of her customers to fraudulently obtain loans for her personal benefit in their names.
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