Tuesday, May 15, 2007

Foreclosure Investors Often Get More Than They Bargain For

A man checking for fire damage at a home he bought in a foreclosure auction was in for a big surprise when he inspected the home for the first time. Go here for the story.

Over two dozen occupants in this foreclosure. Go here for story.
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Ohio AG Zeroes In On Wall Street Firms For Legal Action For Subprime Debacle

Bloomberg News today reports:
  • "Ohio Attorney General Marc Dann, likening the subprime lending industry to armed robbers, said he wants to sue securities firms because their bond sales enabled consumers to get mortgages they couldn't afford."

In an interview, Dann suggested that he might add investment banks and credit-rating firms to an existing lawsuit Ohio currently has against New Century Financial Corporation, or it may start new litigation, possibly using Ohio's civil version of the federal Racketeer Influenced and Corrupt Organizations Act. For more, see Ohio Attorney General Targets Wall Street for Lending.

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Foreclosure Rescue Operator Targeted In Massachusetts Lawsuits; One Victim Successfully Gets Back Home

In Boston, Massachusetts, a WCVB-TV Channel 5 investigation reveals that several lawsuits have been filed against foreclosure rescue operator, Equity Holding Corporation. Attorneys involved in the case are calling the arrangement a "rescue scheme"; a "sophisticated fraud", and in violation of state and federal consumer protection laws. Attorneys said Equity charged one homeowner what amounted to an annual interest rate of at least 68 percent.

The WCVB-TV Team 5 investigation further revealed hundreds of title transactions with Equity Holding Corporation in the Massachusetts Registry of Deeds. The largest number are in Worcester County where Team Five found half of the homeowners never got their properties back. Their homes were sold by Equity to third parties.

Attorney Kimberly Breger and her colleagues at Harvard Law School's Legal Services Center brought suit on behalf of one homeowner in which the case was ultimately settled, resulting in the homeowner getting back the deed to her home, as well as a cash settlement.

For more, see Foreclosure Rescue Scheme Turns Homeowners Into Tenants (Land Trust Agreement That Offers Help Often Costs People Their Homes).

Postscript
In the civil complaint regarding the above mentioned homeowner who got back her home, the foreclosure rescue scheme was referred to as "a sophisticated fraud intended to conceal the usurious terms under which Defendants loaned monies to [the homeowner] in an attempt to evade and avoid the mandatory disclosure and other consumer protection protections applicable to loans secured by her familiy's home."
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The homeowner brought numerous claims against the foreclosure rescue operator, including fraud, negligent misrepresentation, unconscionability, breach of fiduciary duty, civil conspiracy to defraud, and violations of the Federal RICO statute, Federal Truth in Lending Act, Federal Home Ownership and Equity Protection Act, the Massachusetts Consumer Credit Disclosure Act, the Massachusetts Consumer Protection Act, among other claims.
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For more, see Homeowner's Civil Complaint - Sharp-Hegarty vs. Beforeclosures, Equity Holding Corp., et al. (drop me a line at HomeEquityTheft@yahoo.com and I'll e-mail the civil complaint to you - be sure and put "Sharp-Hegarty vs. Beforeclosures, Equity Holding Corp., et al." on the subject line).
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The litigation took place in a Massachusetts Federal Bankruptcy Court. The Chapter 13 Trustee also brought suit to undo the same foreclosure rescue transaction. See Solomon (Ch. 13 Trustee) vs. Sharp-Hegarty, et al. (drop me a line at HomeEquityTheft@yahoo.com and I'll e-mail the civil complaint to you - be sure and put "Sharp-Hegarty vs. Beforeclosures, Equity Holding Corp., et al." on the subject line).
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For links to other cases involving foreclosure rescue operator Equity Holding Corporation in the Federal courts, see Equity Holding Corporation Party Case Index (click the case number for the Docket Sheet in each case; PACER registration required; cost = $.08/page).

Long Island Woman Gets "Sunk" By Rescuer's Tax Lien

On Long Island, New York, Newsday reports of a Rocky Point woman facing foreclosure who went to mortgage broker, Michael Clinco, for help with refinancing her home. At the purported loan closing, the broker reportedly told the woman that the deed and mortgage would have to be put in his name alone. She proceeded with the closing because Clinco reportedly told her that otherwise her house would go up for auction. Unbeknownst to the homeowner, the IRS had a $70,000 tax lien against the broker, which automatically attached to the woman's home equity immediately upon completion of the loan closing. For more, see Careful a 'rescue' doesn't sink you.
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Monday, May 14, 2007

Illinois AG Sues Foreclosure Seminar Operator

According to an Illinois Attorney General Press Release issued today:

  • "Attorney General Lisa Madigan today filed a lawsuit against a McHenry County real estate broker for allegedly deceiving consumers into paying $3,500 each to participate in a three-day seminar designed to teach methods for profiting in the pre-foreclosure real estate market."

The named defendants in the lawsuit are Insider Real Estate and its founder, real estate broker Christopher Scanlan.

For more, see Madigan Sues McHenry County Real Estate Broker (Attorney General Asks Court to Shut Down Business and Order Company to Reimburse Victims).

See Daily Herald story, State says Crystal Lake broker committed fraud.

Editor's Note

It looks like Illinois is serious about eliminating the abuses that are not uncommon in the foreclosure investing industry. The Illinois' Mortgage Rescue Fraud Act, a statute that targets abuses in the foreclosure investing industry went into effect on January 1, 2007. Now it appears that Illinois will be targeting those who promote the "weekend foreclosure seminars", typically conducted in ballrooms at area hotels, by invoking the state's Consumer Fraud and Deceptive Business Practices Act and the Business Opportunity Sales Law. In this case, the Illinois AG alleges that the seminar operator violated these laws by "making false promises to consumers regarding their chances of success and the potential profitability involved in locating and selling property in the pre-foreclosure real estate market."

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Sacramento Feds Get Guilty Pleas From Foreclosure Rescue Operator; Two Straw Borrowers

Christopher Craig, of Auburn, California, pleaded guilty in a Sacramento Federal Court last week to bank fraud relating to foreclosure rescue deals he entered into with a number of Sacramento-area homeowners facing foreclosure, according to a Sacarmento U.S. Attorney's Office Press Release. In addition, co-defendants Donald Edgecomb, of Trevor, Wisconsin, and Jacob Esteves, of Auburn, who allegedly acted as straw borrowers in the scam, also pleaded guilty today to misprision of a felony, admitting that they knew of Craig's felony bank fraud scheme and took affirmative steps to conceal the scheme from detection by law enforcement.

According to the Press Release, Craig admitted to a scheme in which he approached homeowners facing foreclosure, promised to loan them money, and instead, he created documents deeding away their homes. As part of the scheme, Edgecomb and Esteves acted as straw borrowers and applied for home equity loans from Washington Mutual Bank claiming falsely that they were the true owners of the properties and that there were no pending mortgages on the properties. Only part of the $1.2 million of fraudulently obtained proceeds was paid back; WaMu ultimately was stiffed on approximately $975,000.

The homes used in this scheme are located in Auburn, Lincoln, Stockton, Elk Grove, Sacramento and Manteca. Sentencing is scheduled for July 19, 2007. For more, see:

Editor's Note

In reading over both the Indictment and the Craig Plea Agreement, it seems that, because the homeowners signed away their homes to the defendants without realizing they were doing so, the Government took the position that the homeowners (and not the defendants) were still the "true owners" of the homes when the defendants applied for the loans from Washington Mutual. Accordingly, when the defendants submitted the loan applications to WaMu holding themselves out as the "true owners" of the homes, that assertion was treated by the Government as a "false statement made on a loan or credit application" (even though legal title was signed over to the defendants at that point), and served as a partial basis for the criminal prosecution.

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California Caretaker Gets 8 Years In Theft Of Elderly Couple's Home

KGTV Channel 10 in San Diego reports that Gina Trevino, who pleaded guilty in February to bilking an elderly, vision-impaired couple out of their Encinitas, California home (worth over $500,000) while serving as their caretaker, was sentenced Friday to eight years in prison. Reportedly, Trevino also stole the victims' identity and bought two cars. Her husband, Robert Holman, allegedly participated in the scheme and has a court hearing scheduled next week and a trial set for June 5. He faces four years if convicted. The victims' daughter says civil court proceedings are still pending in an attempt to get back the title to her parents' home. For more, see Woman Sentenced For Stealing From Elderly Couple.

Go here to watch the Channel 10 Video report, by reporter Charisse Yu.

Go here for other posts on this story.
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Fraud Charges Against Florida Foreclosure Investor, Title Agency Clerk

The Palm Beach Post reports that foreclosure investor Kevin Klier, who operated Kevin Klier Real Estate, and title company employee Christine Portuese have been the subject of a year-long criminal investigation that brought the arrest of Portuese last Thursday on charges of organized fraud. Klier is expected to surrender on fraud charges this week, according to law enforcement officials. These charges were the culmination of a joint investigation conducted by the Florida Department of Law Enforcement, the Martin County Sheriff's Office and several other state and federal agencies.

Reportedly, as many as two dozen Florida homeowners facing foreclosure thought that, in selling their homes to Klier, he was going to pay off the outstanding mortgages on their homes. Klier, however, apparently took title to the homes subject to (and without paying off) the mortgages. Further, neither he nor Portuese reportedly ever bothered to tell the mortgage lenders holding the loans secured by the homes about the sales out of a concern that they (the lenders) would exercise their right to call in the entire balance on the loans.

For more, see 2 charged with fraud in 'sales' of homes.

Editor's Note

What is interesting about this story is that there is no allegation that Klier engaged in either equity skimming (where rent is "milked" from the home without making the mortgage payments), or in an equity stripping scam, or a pattern of sale-leaseback, foreclosure rescue arrangements (although a passing reference is made to a sale leaseback deal made with one financially strapped homeowner; presumably, the homeowners in the other sales simply sold the homes to Klier and moved out). Further, based on the quotes from law enforcement in the article, they seem to implicitly (and possibly, begrudgingly) acknowledge that Klier actually made all the mortgage payments and he paid off the mortgages as he sold off properties at a profit. There was no allegation of any actual damage done to any of the homeowners' credit, which would have occurred had Klier stiffed the mortgage holders and "milked" rent out of the properties.

Based on how the article reads, the possible "bad acts" involved seem to be limited to (1) not paying off the homeowners' existing mortgages when title exchanged hands, and (2) not telling the lenders holding the mortgages that the homes were sold. To the extent that Klier and Portuese in some way actually tricked or otherwise intentionally deceived the homeowners into believing that their mortgage loans would be paid off as part of inducing them into selling to Klier, they (Klier and Portuese) possibly should get hammered to some degree.

However, as far as not telling the lenders of the property transfers, I didn't (and still don't) think that there is anything criminal about that. In all the mortgages I have read (although I confess to not reading any lately), I can't recall reading anything that contractually mandates anyone to inform the mortgage lender of a property sale. The only thing I've seen that may come close is that, if the property is sold without getting the lender's approval of the new buyer assuming the existing mortgage, the lender can call in the entire balance of the loan and initiate a foreclosure action if not paid within 30 days of the call-in (ie. "due-on-sale clause").

Maybe the article is missing some additional key facts. If so, I hope that come out soon in a follow-up story. If not, I must comment that as commendable as it is for law enforcement to begin directing their focus on organized fraud committed in the context of real estate foreclosures, I hope that future investigations are directed towards those who are doing much worse things than what the two individuals described in the article allegedly did (and hopefully, the investigations don't take a whole year to complete).
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Sunday, May 13, 2007

Subprime Refinance Threatens Loss of Retired Pittsburgh-Area Couple's Home

KDKA-TV Channel 2 in Pittsburgh, Pennsylvania reports of a local elderly couple, in need of money for medical bills and rising debts, who were put into a subprime loan that now threatens the loss of their home of 27 years. According to the victim, the loan was represented as having a fixed rate, only to change right before closing, and he felt pressured to sign the new paperwork under duress. An inflated appraisal may have also been involved. For more, see McKees Rocks Man On Verge Of Losing His Home.

Go here to watch Channel 2 Video report, (then, click Play) by investigative reporter Andy Sheehan.
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Cleveland Senior Loses Home To Repair Scam

WKYC-TV Channel 3 in Cleveland, Ohio reports that a 75 year old, recovering stroke victim with a fully paid off home of 50 years, fell victim to a door-to-door home repair scam that resulted in the loss of his home. Reportedly, a stranger showed up at the front door of the victim's home offering to fix up the front porch and add a little bit of carpeting. All the victim had to do was sign on the dotted line. So he did. What the victim unwittingly signed was an $80,000 mortgage that he can't remember signing and can't afford. The mortgage loan was subsequently sold, the new mortgage holder ultimately initiated a foreclosure action, and the victim's home was sold at auction. The victim is fighting to get it back. For more, see Predatory lenders target elderly man.

Go here to watch Channel 3 Video Report, by reporter Eric Mansfield.

Go here , go here , and go here for other posts on elder financial abuse. zeta elder financial abuse

Five Chicago Straw Buyers Charged In Mortgage Fraud

Daily Southtown reports that, in a Chicago, Illinois mortgage fraud investigation that resulted in charging reputed Gangster Disciples gang member Terry Faulkner with real estate ripoffs about six months ago, additional charges have been brought against five of his associates on Wednesday for fraud involving about $1.4 million of South Side home sales. The five were allegedly recruited by Faulkner as straw buyers to buy eight houses from him through the use of bogus loan applications and inflated property appraisals.

The five men charged include Keith Manning, Dartanyen Davis, and Christopher Faulkner, all convicted felons and reportedly also Faulkner's colleagues in the Gangster Disciples Gang. Also charged were Andre Blount and Elbert Simmons III. All were charged with loan fraud and forgery.

For more, see Police: Gang caught in real estate fraud (Cops 'follow the money' to five arrests).
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California Man Guilty In Death Of Uncle In Dispute Over Home

A Vallejo, California jury found Ivory Phillips Jr. guilty of first-degree murder in the slaying of his uncle, 69-year-old Ruben Andrews Jr. last Thursday, according to The Times-Herald.

Reportedly, in 1995, the victim, a Vallejo resident, bought Phillips' home in Los Angeles County and paid off the mortgage to avoid foreclosure. Then he allowed Phillips to continue living there. But in 2004, Andrews evicted Phillips for failing to pay rent. Phillips reportedly sued Andrews for fraud, and lost when he failed to show up at the hearings.

Deputy District Attorney Chris Pedersen had argued that the property in Los Angeles County was at the heart of the dispute between the relatives. He said "It's sad that someone would be so obsessed about a house that he could kill someone."

For more, see Nephew convicted of pickax murder.
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"Andy Griffith" Loses Run For County Sheriff; Wins In Court

In another post having nothing to do with this blog, a Federal judge recently ruled that a man who changed his name to Andy Griffith, and then ran for county sheriff in Wisconsin, did not violate trademark and copyright laws, nor did he violate the privacy of the actor who played Mayberry's folksy sheriff on the "Andy Griffith Show", according to The Associated Press.

The better known Andy Griffith apparently went into "Matlock" mode by initiating legal action against the lesser known Griffith in an attempt to protect his intellectual property related to the popular 1960s TV show from trademark and copyright infringement; the lawsuit was ultimately dismissed without a trial.

However, the name-changing maneuver was of little help in the election for the lesser known Griffith; the "new" Andy Griffith finished "up the track" with 7.5% of the vote. For more, see Judge: Sheriff candidate named Andy Griffith did no harm to famous actor.
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Home Repair Scam Review

The following stories involve home improvement and repair fraud:

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Weekend I.D. Theft Blotter

The following identity theft stories appeared this week around the country:

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Saturday, May 12, 2007

Murder Suspect Tries Mortgage Scam In Attempt To Obtain & Flee With Proceeds

CourierPostOnline.com reports that a New Jersey man facing a murder charge reportedly (and apparently free on bond) plotted with two others to sell a home in Laurel Springs, New Jersey without the property owner's knowledge. Prosecutors claimed that the murder suspect planned to use the proceeds of the phony sale to flee to avoid his murder trial. He was nailed on the mortgage fraud in Federal court and awarded an 83 month visit to Federal prison (said visit was dwarfed by the 64 years in state prison that he got upon his conviction in state court of the murder charge). For more, see Appeals court upholds Camco murder conviction.
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Federal Government Fumbles The Ball On Electronic Data Protection

The Federal Government's loss of electronic data stored on laptops, external hard drives, etc. is exposing tens of thousands of people to the risk of identity theft. Personal identification information such as names, addresses, social security numbers, dates of birth, etc. of former and current government employees as well as the information of citizens, generally, is being exposed in alarmingly high numbers. For more on Federal government organization losing things, see:

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Are Subprime Borrowers In Trouble "Qualified" For Victimhood?

Bloomberg News columnist Michael Lewis offers a perspective on the subprime mortgage lending collapse that questions the "victimhood" of those homeowners who bought homes they couldn't afford to buy by borrowing money they couldn't afford to repay. For more, see Subprime mess produces unqualified victims (It’s easier to blame the lender who offered the loan than the borrower who couldn’t repay it), reported in Daily Report.
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Friday, May 11, 2007

Detroit Man Cops Fraud Plea; Lenders Out $21.7 Million

Kalil Khalil of Dearborn, Michigan pleaded guilty in a Michigan Federal Court earlier this week to one count of wire fraud in connection with a scheme to defraud mortgage lenders out approximately $21.7 million. Tariq Hamad, a Khalil associate, pleaded guilty before the same Federal judge to the same wire fraud scheme back in December.

The loan packages submitted to banks were fraudulent in one or more of the following ways:
  • loan purpose was not to buy or refinance a residence; borrower described on application was not the true borrower; false description of borrower's employment; bogus documents used to prove borrwers' employment; inflated and forged appraisals; property title not free and clear, use of straw title company purporting to insure clear title; photographs included in loan package were not of the subject property.
For more, see the U.S Attorney Press Release, Dearborn Man Pleads Guilty In $20 Million Mortgage Fraud.
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More On Sacramento Area Alleged Mortgage Fraud Scam

This is a follow up post on KCRA Channel 3's investigative mortgage fraud report by Josh Bernstein involving homes in Elk Grove, California to supplement the May 2, 2007 post on this blog (Sacramento Area Real Estate Group Accused Of Duping Investors).

A May 10 report by KCRA Channel 3 reports that:
  • "Many industry insiders have been sounding off about [Jim] Martin and his partners and are calling for a federal investigation. Mike McGee, past president of the California Association of Mortgage Brokers, said Martin and others deserve to be prosecuted. Since KCRA 3's investigation, Martin and his partners have switched business names. They are now operating at Esnian Mortgage and Realty Network."
Those reportedly involved in the alleged mortgage fraud operation include:
  • Jim Martin, VFM Investment Group LLC, Gabriel Viramontes, Freedom Capital Mortgage, Inc., Joseph S. Gallo, Esnian Mortgage & Realty Network, Mario Fellini III, real estate agent Yajen Huang - aka Jennifer Huang, and others.
For more, see Mortgage Brokers Association Condemns Real Estate Scheme (Investment Organizers Now Doing Business As Esnian Mortgage)

Go here to watch the latest KCRA report (no longer available online).
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For previous online reports from KCRA on the Elk Grove mortgage fraud, see:

To watch the previous KCRA Channel 3 Elk Grove mortgage fraud TV reports by Josh Bernstein (no longer available online):

  • Elk Grove Mortgage Fraud Part 1
  • Elk Grove Mortgage Fraud Part 2

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More Foreclosure Rescue Victims Fighting Back

WSVN-TV Channel 7 in Miami reports on two cases of financially strapped homeowners who unwittingly signed away their homes and who decided to fight back. In one case, attorney Carol Lombardi of Legal Services of Greater Miami, who has been involved in maybe 15 or 20 of these types of cases, successfully brought legal action against foreclosure rescue operator Hencile Dorsey to take back the home he took from Lombardi's client.

In another case, South Florida attorney James Brady has filed suit on behalf of a husband and wife who unwittingly signed over their home to Florida Housing Council, another local foreclosure rescue operator.

Jack Moussa of the Florida Housing Council has taken the position that the homeowner needs to follow the contract they signed, pay the trust $160,000 for its work and they will get the house back in their names. According to Moussa, "They are quite aware of the American system. They do realize what a contract is."

For more, see Home Heartache.

Postscript

I don't know what law school foreclosure rescue operator Jack Moussa of Florida Housing Council went to, but he better hope that all the judge does is order him to give back the home to the victims. If a judge finds that his forecloure rescue arrangement should be recharacterized as an equitable mortgage / disguised loan, and a judge calculates his "profit" on the deal to be more than 18% per annum, he may be found to have violated Florida's civil usury statutes (Section 687.03, Florida Statutes). Further, if Mr. Moussa's "profit" is calculated to be more than 25%, he potentially stands to forfeit any money he invested in the arrangement (and he also may be getting a visit from local prosecutors regarding possible criminal misdemeanor charges; "profit" over 45% per annum could result in felony charges; see Section 687.071, Florida Statutes).

See:

Upstate NY Feds Get Guilty Pleas From Two In Flipping Scam; 54 Deals Involved

The Albany Business Review reports that Matthew Kupic and Francis Disonell, both of Clifton Park, New York and owners of Team Title Abstractors and Real Estate Consultants, have pleaded guilty in Federal Court to bank fraud and income tax evasion for their roles in a mortgage fraud scam. Reportedly, the two men have agreed to forfeit $600,000 each, according to U.S. Attorney Glenn Suddaby.

The scam appears to be the typical, standard, run-of-the mill mortgage fraud operation that scam artists are getting nailed for all over the country (ie. excessive mortgages for residential properties, use of phony loan applications, sales contracts, settlement statements and other documents, flipping, use of straw buyers who apparently were left "holding the bag", diversion of funds for personal use, etc.).

The two men reportedly diverted $1.9 million to themselves and others out of a total of approximately $3.6 million in fraudulently obtained mortgage proceeds in 54 real estate deals; most of the properties involved soon ended in foreclosure.

For more, see Guilty pleas in mortgage fraud case.
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New Jersey Legislature Targeting Foreclosure Rescue Scams

The introduction of a two-bill package aimed at mortgage and foreclosure abuses is on the agenda in the New Jersey legislature, according to PoliticsNJ.com. One bill would counteract foreclosure rescue scams that have been on the rise across the country. The other is aimed to better protect consumers who might be tempted to sign onto mortgages with tantalizingly low initial interest rates - "teaser rates" - that balloon to unaffordable levels in a few short years, forcing bankruptcies for borrowers. For more, see Two-Bill Package Crafted to Protect Consumers from Fallout of Subprime Mortgage Meltdown.

For more information on legislation being considered in New Jersey aimed at foreclosure rescue fraud, check New Jersey Legislature for:

  • Assembly Bill A4214 - "Foreclosure Rescue Fraud Prevention Act"
  • NJ Senate Bill S2699 - "Foreclosure Consulting and Anti-Fraud Act"

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Congress Struggling With Mortgage Reforms

The Associated Press reports of the struggle in one U.S. House of Representatives Congressional subcommittee trying to address possible mortgage reforms relating to the trouble in the subprime mortgage industry, reporting:
  • "[L]awmakers are weighing whether new lending rules are needed or whether the market is already in the process of self-correcting. The task of crafting reforms is made more complicated by the long list of players involved in mortgage transactions."

This comes on the heels of U.S. Senate Banking Committee Chairman Christopher Dodd's emphasis that increased regulatory oversight and voluntary reforms by lenders are preferable to legislation.

For more, see Congress debates mortgage reforms.

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Thursday, May 10, 2007

Five Charged in Bay Area Mortgage Scam

In California, CBS-TV Channel 5 reports that a 73-count felony complaint was filed in Alameda County Superior Court charging five people in connection with a complex real estate fraud scheme involving seven homes in Oakland through which they allegedly stole more than $3.5 million. Charges against the defendants include grand theft, identity theft, filing false documents and forgery.

Those named in the complaint include Amy Schloemann and Karim Akil, also known as Scott Kinney, the husband and wife owners of Hiddenbrooke Mortgage in Vallejo. Others charged are Hiddenbrooke Mortgage employee Michelle McGuirre, Financial Title escrow officer Wonda Kidd, and Gregory Lamont Orr, the owner of G.L.O. Enterprises, Inc.

Elements of the alleged scam include artificially inflated home values, creation of false documentation for loans by using false addresses, fake bank accounts and forged documents, use of the identity of local real estate brokers and individual citizens without their knowledge to make the transactions look legitimate, and the diversion of the fraudulently obtained loan proceeds to the alleged co-conspirators. New Century Mortgage and Right-Away Mortgage were the reported victims of the fraudulent loan applications.

For more, see Vallejo Mortgage Co. Charged With $3.5M In Fraud.
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Las Vegas Man Files Suit In Loss Of Home In Foreclosure Rescue Deal

KLAS-TV Channel 8 in Las Vegas, Nevada is reporting on the story of a local homeowner who lost his home to a foreclosure rescue operator. The victim has brought suit against the operator and others for breach of contract, bad faith, fraudulent misrepresentation, civil conspiracy and wrongful eviction, among other claims.

The lawsuit alleges that Ken Ragle, aka Kenneth Ragle, the president of a company called Dreamscape Solutions, agreed to purchase the victim's home for $233,000. The deal would stop the pending foreclosure and offer the homeowner the chance to stay put. He would then rent the house from the Ragle and buy it back in a few years for close to a $100,000 over the purchase price. Before the closing, Ragle reportedly flipped the contract to a California realtor named Shana Burbank. When all the dust settled, the $233,000 sales price was never paid, nor was the homeowner's existing mortgage ever paid off, and the homeowner found himself being evicted from his home.

For more, see I-Team Investigation: From Homeowner to Homeless.

To read the lawsuit, see Complaint - Ogilvie vs. Dreamscape Solutions, Inc., Kenneth Ragle, et al.

Go here to watch KLAS-TV report by investigative reporter Colleen McCarty.

(revised 5-12-07)

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North Carolina AG Pursuing Mortgage Broker

The North Carolina Attorney General is going after mortgage broker Hall Financial Service, of Matthews, on allegations that the company's owners have engaged in mortgage fraud, according to a report by WCNC-TV. The attorney general claims that one third of Hall's loans are headed to foreclosure, and he wants to strip the company of its license and permanently bar its owners from the mortgage business. For more, see Dream home destroyed by mortgage fraud.
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Ohio Prosecutors Indict Franklin County Trio In Flipping Scam

The Columbus Dispatch reports that an indictment was unsealed in state court last week charging Mohamed A. "Mike" Mohamed (who acted as the buyer), Jeremy K. Virgin (who prepared the inflated appraisals), and Karen Axline (who was a clerk for a title agency who used forged documents to help Mohamed buy the property), with theft, forgery, money laundering and falsifying loan applications for their roles in an alleged flipping mortgage fraud scam. An organized-crime task force of Columbus police, prosecutors and the Ohio Attorney General's office brought the charges. For the details, see 3 indicted in mortgage scheme (Suspicions aroused by buyers who offered much more than some houses' asking prices).
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Wednesday, May 09, 2007

$17.6 Million Fraud Involving 280 Properties Gets Missouri Man 5 Years In Federal Slammer

Jeffrey Tyler Wine, of Kansas City, Missouri, was sentenced in a Missouri Federal Court today to five years in federal prison and ordered him to pay $4.9 million in restitution for his role in a nearly $17.6 million straw buyer / flipping mortgage fraud scam that involved 280 residential properties. According to John Wood, U.S. Attorney for the Western District of Missouri:
  • "Dozens of financial institutions were victimized by this mortgage fraud scheme, which in turn erodes the area's real estate market and negatively impacts the local economy. Wine will not be allowed to profit from his deception; in addition to a lengthy prison term, virtually all of his assets will be used for restitution for his victims."

For more, see:

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Illinois Files Disciplinary Actions In Alleged Flipping Scam; 125 Homes Involved

According to a Press Release issued yesterday from the office of Illinois Governor Rod R. Blagojevich:

  • "[O]fficials from the Illinois Department of Financial and Professional Regulation (IDFPR) and the Governor’s Mortgage Fraud Task Force (MFTF) today announced a series of disciplinary actions against more than a dozen real estate licensees, including mortgage brokers and loan originators, allegedly involved in a ‘mortgage flipping’ scheme – buying houses below market rates and re-selling the same properties for artificially higher prices. The scheme, centered in the Chicagoland area, involved more than 100 properties, said IDFPR officials during a press conference called to disclose the results of a three-month investigation."

Those named in the state disciplinary actions are:

  • Tyrone Matthews: Appraisal and LoanOriginator, Felicia Matthews: Appraisal, Joseph Holman: Appraisal, Jomonique Moore: Appraisal Associate, John Tagtmeier: Loan Originator, Illinois Mortgage Assoc.: Residential Mortgage Broker, Carteret Mortgage: Residential Mortgage Broker (Va.), Contemporary Financial Services Inc. Mortgage Broker, New Family: Residential Mortgage Broker, Kelly Husband: Loan Originator, Appex Mortgage: Residential Mortgage Brokers (Fla.), Cynthia Woodcox: Unregistered Loan Originator, Odeh Saleh: Unregistered Loan Originator, Clint Welsh: Unregistered Loan Originator, Deangelius Smith: Unregistered Loan Originator, Tri-Star: Title Agency, Resource: Title Agency.

For more, see Blagojevich Administration officials take action against massive mortgage fraud ring.

See also Chicago Tribune story, 17 penalized in 'mortgage flipping'.

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Debt Forgiveness On "Short Sales" Not Always Subject To Income Tax

An article by syndicated columnist Kenneth Harney (reported in The Ledger, of Lakeland, Florida) describes the income tax "hand grenade" that homeowners in default on their mortgages face when mortgage lenders agree on either a mortgage modification or a "short sale" where, as part of the deal, the mortgage lender agrees on forgiving part of the mortgage debt. Under general income tax rules, the part of a debt that is forgiven is subject to Federal income tax (and state and local income taxes, if applicable, as well). Such a tax generally causes a problem for a homeowner because he/she is not actually receiving money to pay the tax with. Further, since these situations typically arise with financially strapped people, they usually don't have any other source of cash to pay this tax with.

Reportedly, proposed legislation in Congress could soften some of the impact on financially stressed homeowners, however. The Mortgage Cancellation Tax Relief Act of 2007 (HR 1876), if ultimately passed by Congress and signed into law, would amend the tax code to exclude debt forgiveness on principal home mortgages from treatment as income.

For more, see The Tax Man Will Care About Your Forgiven Debt.

For those who can't wait that long, I will point out that there are a number of exceptions and exclusions to this income tax rule. Among the exceptions and exclusions are:
  • debt that would have been deductible if paid,
  • debt that is canceled as a result of Hurricane Katrina,
  • debt that is canceled in a Federal Bankruptcy case,
  • debt that is canceled while you are insolvent, but limited by the dollar amount of your insolvency,
  • and others.

I suspect that many financially strapped homeowners losing their homes may, in fact, be insolvent. I also suspect that, because there doesn't seem to be much written about the insolvency exception (or the other exceptions, either) to the general rule, it is probably being overlooked by many people. To read more about all the exceptions and exclusions to the general rule that subjects an individual to income tax on the amount of debt that is forgiven, see:

If you need assistance in determining whether or not you qualify for one or more of the exceptions or exclusions, I highly recommend retaining the services of an experienced tax professional who knows something about doing some basic tax law research (ie. tax attorney, CPA, or Enrolled Agent; this is not a job for your average tax form preparer). And be prepared to show the tax pro copies of the three references listed above, just in case.

Go here for other posts on this subject.

(revised 5-9-07; 1:12 pm)

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