Tuesday, February 06, 2007

Unwitting Homeowner Facing Foreclosure Signs Over Home

A recent news report on WRC-TV Channel 4 in Washington, D.C. warns of foreclosure rescue operators, and interviews one woman who fell prey to a local scammer. Click here to watch the news report, by NBC4 consumer reporter Liz Crenshaw.
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Appraiser 'Lands' 42 Month Sentence In Property Flipping Scam

An appraiser, part of a group of ten people initially hauled in by cops for their roles in a multimillion-dollar property flipping scam located primarily in Madison County, was sentenced in a Mississippi Federal Court to 42 months in prison yesterday. Five others were sentenced in December. For the whole report, found in The Clarion-Ledger, at clarionledger.com, see Man receives 42 months in prison in mortgage fraud scheme.

For another Mississippi "flipping crew" recently sentenced in Federal Court, see Five "Flippers" Sentenced For Fraud By Federal Judge.
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Alleged Funds Mismanagement Results In Sale Of Elderly Man's Homes

A son who, along with his wife, were trusted to care for his Alzheimers-stricken father, have been accused in a civil lawsuit of depleting the elder man's assets on spending for their own personal benefit. They have also been accused of attempting to place claims of lien on the elderly man's residence and vacation home after his funds were depleted. The total amount depleted is estimated at close to $200,000. A court-appointed guardian ultimately sold the residence and second home to cover the ill man's expenses. Reportedly, there is $12,000 left from the sale proceeds which, once depleted, will leave the elderly man dependent on the State of Washington for support. For the whole story, reported by The Daily News Online (Longview, Washington), see:

Did couple take advantage of father?
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"Cash Back" Mortgage Fraudsters Target Home Sellers In Weak Markets

Home sellers having a rough time in finding a buyer for their home are targets of unscrupulous loan originators for "cash back" scams, according to an article in New York House, reported at UpstateHouse.com.

The article speculates that mortgage lenders who originate these loans are co-perpetrators in the fraud, and because they don't hold the loans (the loans are sold to wholesale lenders, and then to the ultimate holders, who are likely to be investors in mortgage-backed securities), they don't take the risk of default and foreclosure.

While loan originators who sell loans in the secondary market can be required to repurchase loans that go into default within a certain time period after the loan closes, the article posits "[t]he ringleader protects the [originating] lender against buybacks by selecting borrowers who can carry the payment with the help of [a] supplement [a cash set-aside derived from the fraudulently obtained funds]. So long as the supplement lasts, which will be one to two years, the likelihood of default is low."

The expectation apparently is that by the time the cash set-aside is depleted, the loan originator's "buy back" period for the fraudulently procured loan will have expired.

To read more, see:

$750K mortgage fraud too sweet to pass up
(Sellers without any purchase offers are most likely to participate)

written by Jack Guttentag.
(revised 9:12 am)
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Monday, February 05, 2007

Appraiser Pressure Up To 90%

A key element in "property flipping" and "cash back" mortgage fraud scams is the use of artificially inflated appraisals. A recent article by Kenneth R. Harney (reported online at Realty Times) reports, among other things, that:
  1. A recent national survey of real estate appraisers indicates that those who claim to have been pressured to raise property valuations by mortgage brokers, real estate agents, lenders and individual home sellers is up to about 90%,
  2. In lining up an appraiser for a particular property valuation, some mortgage loan originators will pressure appraisers by engaging in a practice known as "pre-comping" (also known as "dialing for values"),
  3. Some real estate agents respond to receiving unfavorable appraisals by letting lenders know that mortgage customer referrals to them (the lenders) may stop if they continue to use the appraisers that are "coming up short" on their property valuations.

To read more, see Appraisers Say Pressure on Them to Fudge Values is Up Sharply

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Using Equitable Mortgage Defense Against Eviction In A Foreclosure Rescue Situation

For those interested in how an equitable mortgage defense could possibly be used by a financially strapped homeowner in an eviction action by a foreclosure rescue operator, see Using Equitable Mortgage Defense Against Eviction In A Foreclosure Rescue Situation (Part 1 of a multi part post). equitable mortgage zebra

Predatory Mortgage Servicing

The following two posts from the website Mortgage Servicing Fraud, a site devoted to Predatory Mortgage Servicing, may contain items of interest to those concerned with this issue:

1) How they steal your home
2) The important difference between "loan servicing scams" and "predatory lending"

Go here , go here , and go here for posts on questionable mortgage servicing practices. questionable mortgage servicing practices tactics zebra

Sunday, February 04, 2007

New York State Home Equity Theft Prevention Act Becomes Effective

(revised 8-11-07)
The New York State Home Equity Theft Prevention Act ("HETPA") became effective on February 1. The New York State Banking Department has posted on their website an HETPA information sheet with information for those seeking foreclosure advice and assistance, including links to consumer information (rights under the law, how foreclosure rescue scams work, sample ads by foreclosure rescue operators). Also available are the following links to information for industry professionals:
  1. Text of the law (includes RPL Sec. 265-a; RPAPL Sec. 1303; Banking Law Sec 595-a (subdivision 1, paragraphs (e), (f), (g), and (h))
  2. Help for Homeowners in Foreclosure Notice
  3. Notice of Right to Cancel Contract
  4. Notice of Contract Cancellation form
  5. Form letter from Deputy Superintendent of Banks to the industry
  6. Homeowner Payment Accounting Form
  7. Homeowner Payment Accounting Form - Instructions

Links to online reference articles on the HETPA can be found in my January 22 HETPA post.

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Dayton Area Task Force Fighting Flipping

An assembled team of investigators in Montgomery County, Ohio that includes agents from the FBI, the IRS, the Ohio Attorney General's office, federal postal inspectors and others are fighting activities relating to mortgage fraud and property flipping, according to a report in the Dayton Daily News, reported at daytondailynews.com.

One conviction that's resulted from their efforts, where the alleged scammer opted for a guilty plea agreement with prosecutors in lieu of going to trial, related to allegations of involvement in 148 fraudulent loans.

In a pending case involving more than double the number of properties, four members of an alleged mortgage flipping ring are under indictment for their participation in an operation that, according to allegations, recruited many of the buyers from the Pittsburgh area, and promised:
  1. 100 percent financed loans,
  2. cash payments once the loan was closed,
  3. that the properties would be fixed up,
  4. that the properties would be fully rented before any mortgage payments were due, and
  5. that the properties would generate a minimum of $100 a month in positive cash flow.

In addition, according to the indictment, the deals involved:

  1. homes described as "low income, dilapidated and otherwise depressed,"
  2. obtaining phony, inflated appraisals on these properties,
  3. a group member acting either as a loan officer or title agent in the deals to falsify loan documents and handle loan payments,
  4. a specific group member ending up with the bulk of the cash from the sale of the "flipped" homes, from which distributions were made to his "teammates" once all the dust settled.

In addition to these four members of the fraud ring currently under prosecution, three other members, who are named but not charged in the indictment, already pleaded guilty to related federal charges when the current charges were filed in September 2005 (presumably, they opted to "sing to the Feds" in exchange for possible leniency).

The trial in this case is set to start Tuesday in Federal Court before Judge Walter Rice.

In expressing the vigor in which the mortgage fraud task force is approaching their investigations in Montgomery County, a local police detective who helped organize the task force said of them,

  • "I would not want to be making a living in criminal activities and be the focus of their investigation [...] Trust me. It may not be tomorrow, it may be next month or next year, but your day in court or prison is their passion."

For the entire story, see House Flipping Shell Game Special Report in the Dayton Daily News.

See also Mortgage scams built on promises leave nightmares in wake regarding the Federal case slated to start on Tuesday.

(Both articles contain a "Click-2-Listen" audio feature.)

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Problems With Stated Income (Liars') Loans???

To read the personal concerns expressed by one mortgage professional in his blog about the mortgage fraud problems in the mortgage lending industry being caused by the use of the popular mortgage loan program known as "Stated Income Loans" (referred to by some as "Liars' Loans"), see True Lies: Stated Income Loan Gets Originator Indicted.
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Saturday, February 03, 2007

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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Friday, February 02, 2007

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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Thursday, February 01, 2007

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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Wednesday, January 31, 2007

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.