Dodging The Income Tax On Foreclosure & Real Estate "Short Sales"

An article by Kevin McCormally of Kiplinger.com is the first article in a mainstream media outlet that I have seen that, when discussing the income tax consequences of a both a foreclosure sale and a real estate "short sale" (when a mortage lender forgives or cancels a portion of a loan secured by property that is worth less than the full outstanding mortgage balance), also mentions one of the most frequently applicable exceptions to the rule (found in Section 108 of the Internal Revenue Code).

The general rule is that when a lender cancels a portion of the mortgage loan, the homeowner has to include the amount cancelled as income. One exception to this rule, referred to as the insolvency exception, essentially says that to the extent you are insolvent, you don't have to include the cancelled portion of the loan as income. The article even points out that the taxpayer is to use IRS Form 982 to claim the exception.

The article concludes with a sound word of advice:

• "If you benefit from debt forgiveness after a foreclosure or short sale, be sure to make a careful inventory of your assets and liabilities at the time. You'll need it to claim an exception under the insolvency rule."

For more, including an illustration of how the exclusion works, see Lose Home, Pay More Tax (As foreclosures soar, a cruel tax rule rears its head).

See also:

• Debt Forgiveness On "Short Sales" Not Always Subject To Income Tax,
• IRS Publication 4681: Canceled Debts, Foreclosures, Reposessions and Abandonments.

Go here for other posts on this subject.

Connecticut "Stings" 160 Home Repair Contractors

WVIT-TV (NBC 30) in West Hartford, Connecticut reports that the Connecticut State Department of Consumer Protection has been conducting an undercover sting by soliciting bids from home repair companies that it suspected were unregistered with the state. According to the report:

• "One hundred sixty contractors were invited to a state-owned sting house and 150 turned out to be unregistered. The other 10 offered contracts that were missing something, because state law requires that they tell the homeowner what the contract period is going to be, when they can expect work done and when money is due."

To date, only four arrests have been made (all from Still River Home Maintenance in New York); the rest will have hearings that may result in fines of $2,000, and possible arrest if they decline to appear. For more, see Four Arrested; Others To Get Fined In Home Improvement Sting.

Go here to watch Channel 30 TV report (by reporter Doug Greene).

California Attorney Gets Off With A Hand Slap In Misconduct Towards Clients

In the "conflict of interest" department, Modesto, California attorney Thomas Patrick Hogan, who also owns real estate and financial services companies, has been punished by the State Bar of California with a hand slap for misconduct in dealing with four clients, according to a story in The Modesto Bee. With respect to his dealings with one client, Hogan used his financial services company to secure a loan for a client facing foreclosure, earning $16,487 in fees from the loan transaction and $6,750 in legal fees, but did not advise the client that she could seek advice from an independent lawyer. Hogan received a public reproval and will be on probation for two years (the story is silent as to whether Hogan was ordered to pay any restitution to any of his clients). For more, see Modesto lawyer disciplined on misconduct allegations.

More Unwitting Renters Being Displaced By Foreclosures

Another story about tenants unwittingly renting homes that are in foreclosure comes from the Star Tribune (Minneapolis - St. Paul, Minnesota). The article reports:

• "[A] growing number of renters being displaced because their landlords are losing their investment properties to foreclosure. While there is no estimate of the number of renters being forced to move because their buildings are in foreclosure, workers on the front lines -- from foreclosure prevention counselors to tenants organizations -- say that starting last year, they began hearing from significantly more people caught in the foreclosure crossfire. The problem has been getting worse."

While the article is not clear on this point, it appears that the equity skimming (collecting rents from tenants while failing to make the mortgage payments) being perpetrated here is being done by the legitimate owners of investment properties who can't afford to keep their investments and, given that they have resigned themselves to losing the properties to foreclosure, have decided to "milk the property" of whatever rent they can get before losing the home to the bank without telling the unsuspecting tenants. It is becoming more common that, like the story of one tenant mentioned in the article, the tenant learns of the foreclosure when someone comes to their rented home and either hands them or attaches to the front door a legal notice ordering them to vacate the premises.

For more, see Foreclosures often lock out renters (Foreclosure doesn't always hurt only the person whose name is on the mortgage. More renters are turning to support agencies for help).

Postcript

As I have commented on before (and as crazy as it sounds), it may start becoming necessary for prospective tenants looking to rent private single family housing (homes, condos, etc.) to do a limited title search on the home being rented to assure themselves that (a) they are renting the property from the legitimate owner (and possibly not a "professional equity skimmer"), and (b) the property does not have a recent history of multiple sales (ie. possible house flipping scam) and is not the subject of a current foreclosure action (which in most jurisdictions, will be reflected by the existence of a recorded lis pendens or notice of default against the home in the office of the county property records).

For posts on other stories of tenants unwittingly renting homes in foreclosure, go here and go here, and go here. alpha

Entire Neighborhood Placed On Lock Down As Swat Team Called In To Carry Out Foreclosure Eviction

In Illinois, a McHenry County Sheriff’s SWAT team surrounded an area home on Monday after residents barricaded themselves inside when police tried to serve them an eviction notice, according to a story in the Northwest Herald. After 71⁄2 hours, the matter was resolved peacefully and without further incident. According to the story, numerous deputies in bullet-proof vests, a SWAT team, an armored vehicle and the McHenry County Emergency and Disaster Agency came to the subject home after the owner would not cooperate with the eviction order. About the same time, police used an automatic telephone system to call residents within a quarter-mile radius to warn residents to remain inside. Property records showed that the owners had foreclosures against their home since 2004, which included a lien for failure to pay income taxes. The owner denied that the eviction was due to foreclosure, but acknowledged that he had an unresolved dispute with his mortgage company. Neighbors were on edge because of the incident, and some were aggravated at being locked in – or out – of their homes all day. For more, see Man surrenders house peacefully after 7 1/2 hours.

Go here for other posts on Police stories involing homes in foreclosures. SheriffDeputiesForeclosureAlpha

More Animal Surprises On Foreclosure Evictions

(orig. post -6-12-07; revised 6-13-07; revised 6-15-07)
In another story involving foreclosure and abandoned animals, The Modesto Bee reports that Manteca, California police went to a home on Monday to start eviction and foreclosure proceedings. According to the story:

• "Police on Monday captured nine cats and found a dog chained up in the back yard of a house they believe is unfit for habitation. Sgt. Charles Goeken called it "the most disgusting home I've ever been in." [...] Officers had to don protective masks to endure conditions in the house."

Wanting to seal up the home because of the horrid conditions, Sgt. Goeken began what presumably was an intensive search for the municipal code section in the local ordinance that would allow him to do it. "There has to be a section to cover this," said Goeken. Apparently, the code section has, at press time, yet to be found. Police said the missing resident, Cora Bruno, 49, is wanted on suspicion of animal cruelty. For more, see Cops try to seal feces-fouled Manteca home.

6-15-07 Update:

Some of more than 40 cats rescued from unsafe living conditions in a north Manteca home are up for adoption at the Manteca Animal Shelter, according to police. The homeowner, Cora Bruno, was initially nowhere to be found, but is now being cooperative and has signed the cats over to the city, said police spokesman Rex Osborn. For more, see Rescued cats up for adoption.

Go here for more on pets and foreclosures.

Go here for other posts on Police stories involving homes in foreclosure. SheriffDeputiesForeclosureAlpha

Subprime Bailout Plan Should Be Crafted With Care & Thoughtfulness

One recognized expert in mortgage finance offers a list of principles that he believes should be observed by advocates of mortgage reform when crafting a bailout plan to navigate through the subprime mess. One principle that seems to make good sense is that a bailout plan should not be available to everyone in financial trouble. For example, borrowers who speculated on house-price appreciation and lost should not be bailed out. For more, see Unique plan to save ARM borrowers from foreclosure (reported by Inman Consumer News).

Mass. Governor Files Mortgage Fraud Bill

Reports out of Boston, Massachusetts today are that Massachusetts Governor Deval Patrick filed mortgage fraud legislation to protect the increasing number of families in Massachusetts facing foreclosure. Among other things, the bill would ban foreclosure rescue schemes that allow homeowners to stay in their home in exchange for signing over the property.

Earlier this month, Attorney General Martha Coakley adopted an emergency ban on rescue schemes, which she said entice homeowners facing foreclosure to sign over their property to a temporary purchaser, under the false hope it will help them keep the home over the long run. For more, see:

• Governor Files Mortgage Fraud Legislation (Patrick Hopes To Protect Families Facing Foreclosure). (WCVB-TV Channel 5)
• Watch a related Channel 5 WCVB-TV report (by Janet Wu)
• Patrick files bill to criminalize mortgage fraud (Associated Press; Boston Herald)
• Patrick files bill to help home buyers (Law would offer safeguards against riskier mortgages) (The Boston Globe)

Alleged Minnesota Straw Buyer Scam Focus Of Media Report

In Minnesota, a story by the Star Tribune focuses on a number of real estate transactions involving Universal Mortgage Inc., a brokerage company in Brooklyn Park. According to the story:

• "Property records show Universal has been at the center of a web of transactions where a small group of investors, including several Universal employees, bought rental properties and quickly resold many at above-market prices. At least 27 houses linked to the firm have landed in foreclosure, according to property records. Earlier this year, a mortgage lender filed a federal lawsuit against Universal, accusing two employees of using fraudulent documents to make money from another real estate deal. And two other people who bought houses through Universal are accusing the company of taking advantage of their real estate inexperience to sell them overpriced rental properties."

The story describes one buyer, a 21 year old woman, who was duped into buying ten investment properties; and another couple who purchased homes through Universal's helped who have already lost three homes to foreclosure, and soon will lose six more.

Apparently, there are no criminal charges pending against Universal owner Donald Walthall (who declined comment for the Star Tribune story), Marlon Pratt (a Universal employee who owned five of the houses that one unwitting straw buyer ended up being stuck with), or former Universal employee Andre Bellfield. However, a civil lawsuit filed by a mortgage company names Universal, Bellfield and Pratt as defendants, alleging fraud and racketeering involving the alleged duping of another straw buyer.

For more, see 'Straw buyer' deals fuel tidal wave of foreclosures (Real estate speculators out for profit can manipulate the system, experts say. A woman says she fell victim to a Twin Cities scheme).

Go here for other posts on the alleged Universal Mortgage straw buyer, home flipping scams.

For copy of Federal lawsuit, contact me at HomeEquityTheft@yahoo.com and I'll e-mail it to you.

Scam Artists Targeting Foreclosure Sale Surplus Money

Buried in a story in The News Journal (Wilmington, Delaware) is the following reference to a foreclosure scam involving the scamming of homeowners who recently lost their homes in a foreclosure sale where the home sold for more than what was owed and there was money left over:

• "Another problem comes after a foreclosed home goes to a sheriff's sale. 'When a home is sold in foreclosure and there is money left over, the money belongs to the former homeowner,' said [Delaware Attorney General Beau] Biden. "People are not always aware that this money belongs to them." Superior Court has more than $5 million waiting to be claimed. Now some people are persuading distressed homeowners to sign over their rights to the residual money in exchange for an upfront payment. In some cases, homeowners have signed away as much as $30,000 in exchange for $1,000. Consumers who believe they may be victims of a foreclosure scam can call the Delaware Department of Justice's Consumer Protection Unit at 577-8600, Biden said."

For more, see Officials seek solutions to foreclosure boom (Filings hit record highs in all three Del. counties; authorities warn of spreading scams).

Go here for other posts on scams involving foreclosure sale surplus funds.

25 Unlicensed Contractors "Stung" By S. Florida Law Enforcement

CBS4 TV in Miami, Florida reports that a four-day sting operation by local law enforcement and the Miami-Dade County building code compliance office resulted in the arrest of over twenty people and the issuance of twenty seven civil violations to people for acting as a contractor without a license. According to the story:

• "[T]he operation included a Miami-Dade police officer posing as a homeowner who bought a house in west Miami-Dade, looking to make improvements.The officer called known unlicensed contractors, and made appointments for them to give repair estimates. Individuals came to the house, providing estimates on jobs such as installing shutters, a pool, a stamped concrete driveway, as well as electrical and plumbing jobs."

For more, see 25 Arrested In Unlicensed Contractor Sting (27 Civil Violations Also Served In Miami-Dade Operations).

Colorado Attorney / 1031 Exchange Intermediary Accused Of Ripping Off Clients

In Summit County, Colorado, the Summit Daily News reports:

• "The amount of money Breckenridge lawyer Royal "Scoop" Daniel allegedly defrauded his clients of before disappearing in late April is growing, but police won't have an exact number until a detailed accounting report is complete. In early May, police estimated about $561,000 of clients' money was missing; recent estimates put that number at closer to $800,000, said Breckenridge Sgt. Susan Quesada. Six potential victims have come forward, Quesada said."

The article is not clear as to how many of the victims used attorney Daniel as a 1031 real estate exchange intermediary; however, the report states that he did act as a qualified intermediary for 1031 real estate exchanges and at least one couple reportedly lost $80,303.10 from the proceeds of the sale of an investment condo in Keystone, which Daniel handled as a 1031 qualified intermediary and held the couple's money pending a reinvestment of the funds into another real estate investment. (An opinion article in the Rocky Mountaiin News reports that law enforcement agencies believe that Daniel may have absconded with more than $1 million from the proceeds of 1031 exchanges he had put together for clients; see No cure for rogues).

A 1031 exchange, which is a reference to section 1031 of the Internal Revenue Code, is a process used to legally defer paying capital gains taxes when selling an investment property. For the story, see Scoop investigation waiting on accounting report.

Go here for other posts on the recent reported problems in the 1031 exchange industry.

Links To Recent Stories On 1031 Exchange Intermediaries Stealing Escrow Funds

The following links are to articles about some of the more recently reported stories of 1031 exchange qualified intermediaries making off with their clients' escrow money that was to be used for investment:

• No cure for rogues (Abuse of "1031" shelter won't be cured by more rules)
• Looting the Escrow Account: A 1031 Cautionary Tale Continued (Buyers in Hundreds of Pending Deals Left in Lurch as 1031 Intermediaries Go Belly Up or Disappear Altogether)
• I-Team: Judge Rules Former Owner of Collapsed Financial Firm Must Testify
• Big Swindle in the high desert (The Southwest Exchange litigation ensnares an array of businesses in its web)

Go here for stories on other alleged escrow agent mishandling of funds. sneaky slick escrow agents alpha

Another "Beazer Homes" Foreclosure Story

In North Carolina, The Charlotte Observer reports on the aftermath of 41 foreclosures in a 107 unit development of starter homes built by Beazer Homes USA several years ago. Reportedly, Beazer arranged mortgages for 37 of the 41 homeowners who lost their homes. For more, see Lost homes haunt families (107 homes. 41 foreclosures. An ongoing crisis in Barrington ruins finances, credit and lives).

Go here for other posts on Beazer Homes, including links to investigative reports on Beazer by The Charlotte Observer.

Wisconsin Feds Continue Lytle Mortgage Fraud Investigation

The Week in Delavan, Wisconsin reports that a local real estate fraud case in which Lake Geneva mortgage broker James J. Lytle is the central figure, relied heavily on identity theft. At least 11 of the 19 Walworth County properties connected to the fraud scheme had straw buyers whose identities were stolen.

Lytle signed a plea agreement on May 12 and is expected to formally enter a guilty plea to a single charge of wire fraud in a Wisconsin Federal Court on June 27. He is the only person charged, but other charges are expected, according to an FBI source. For more, see Authorities believe real estate fraud scheme relied heavily on ID theft.

Go here for Plea Agreement - U.S.A. vs. Lytle or go here for other posts on this story.

Servicemembers' Civil Relief Act Provides Active Duty Military Protection Against Foreclosure

The Beacon News recently ran a story about the Federal law known as the Servicemembers' Civil Relief Act, whereby troops on active duty are granted various legal protections, including a shield against foreclosure in some cases. The protections in this law are available to troops from all over the country.

In Illinois, families of local reservists or Illinois National Guard members may also apply for grants to help pay their bills with the Illinois Military Family Relief Fund. Information about the fund is available by calling (866) 524-4564. For more information about assistance available to military families in Illinois, people may visit Operation Home Front.

For more, see Law offers protection to military families.

For a prior post on one servicemember suing his mortgage lender for an alleged illegal foreclosure of his home while on active duty, see Michigan Servicemember Loses Home To Illegal Foreclosure, Says Lawsuit.

Go here for other posts on the Servicemembers Civil Relief Act.

Homeowner Protection Under The Illinois Mechanics Lien Act

For those of you in Illinois, a recent article in The Business Ledger discusses basic ways for homeowners to protect themselves and their homes under the Illinois Mechanics Lien Act from stepping into traps when dealing with general contractors and avoid disastrous consequences when contracting for home repair and home improvement projects. Problems can arise if the contractor doesn't perform the work contracted for; they can also arise when the work is satsifactorily completed, and paid for by the homeowner in full, if the contractor decides to stiff the building material supplier or a subcontractor who worked on the project. (The article also suggests ways for subs to protect themselves against a GC who "forgets", fails, or otherwise decides not to pay the sub). For more, see Mechanics Lien Act Can Trap the Unwary.

Weekend I.D. Theft Blotter

This week's identity theft related stories from around the country:

• Alleged I.D. theft ring member gets job at gas station; allegedly steals over 500 customers' bank account and personal I.D. numbers associated with debit cards; ring used stolen information to make over $600,000 in fraudulent withdrawals (see Five indicted in identity-theft ring - Officials: Defendants stole bank info from Hanover gas station),
• I.D. theft suspect arrested; allegedly involved in phony mortgage company used to allegedly solicit personal I.D. info from over 100 unwitting customers (see Deputies arrest Vista fugitive),
• Cops arrest four in alleged "restaurant customer I.D. theft" scheme involving victimizing patrons who handed over credit cards to waiter to pay for meals; waiter then allegedly swiped cards through pager-sized "skimming" device that downloaded account holders' information (see Four arrested in Redondo identity theft case - Today: Redondo Beach police suspect four people of funding shopping sprees with credit card info from residents),
• While serving on Air Force bases in New Mexico and Japan, Illinois seviceman victimized by I.D. theft that currently links him to some 20 delinquent credit accounts, child support obligations to a woman he'd never heard of, and a string of felonies, including drug charge that kept him from landing a job after leaving the military (see While he served abroad, his credit was under siege).

Three Sentenced In Washington State I.D. Theft Operation

A Washington State Federal judge sentenced three members of an organized identity theft ring on Friday, according to a story in The Seattle Times. Rahsaan Moore, 25, (5+ years in prison, $544,000 in restitution) was sentenced for his role in the scheme, which reportedly was to manufacture fake driver's licenses, employee badges and counterfeit checks that he and his cohorts used to fraudulently obtain cash and merchandise. He used personal data that his co-conspirators stole from several institutions — including Virginia Mason Medical Center, Washington Mutual Bank and Seattle Metropolitan Credit Union — where they either worked as insiders or persuaded others to help them.

Also sentenced was Anthony Purdmon, 23, (30 months in prison, $106,500 in restitution) for his role in the conspiracy, which was to have his girlfriend steal information about people applying for home equity loans from Washington Mutual Bank, where she worked. He then passed along the stolen information to Moore so he could perform his handiwork.

Finally, April Tyson, 23, was sentenced (24 months in prison, $32,850 in restitution) for her role, which was to use the phony I.D. to withdraw money from at least three bank accounts. For more, see Forger in ID-theft ring sentenced to 5 years.

Another Home In Foreclosure Goes Up In Flames; Labeled Suspicious

Fire officials in Wilson, North Carolina have determined that a house that burned down and declared to be a total loss was in foreclosure and had been abandoned and left unsecured. They have not, as of yet, declared the fire to be arson, but are labeling the fire as suspicious because there was no electricity or gas at the structure. The home next door, which is also vacant and being held out for rent, sustained some mild heat damage.

Source: The Wilson Daily Times - Officials investigate house fire (Officials are calling a fire that destroyed an abandoned house early this morning suspicious).

Go here for other posts involving fires in foreclosure homes. zebra

ACORN Deal With Lenders To Make Mortgage Loan Workouts Easier

The Boston Herald reports:

• "The activist group ACORN plans to announce a deal ... with 29 lenders to make it easier for people [who are financially strapped] to seek “workouts.” That’s where banks give those in trouble breaks, such as lower loan rates, to avoid foreclosure."

The plan is designed to cut through all of the red tape when dealing with financial institutions by avoiding dealing with banks’ customer service representatives or collection agents who are generally powerless to negotiate loan workout agreements. The lenders in this deal have agreed to give ACORN names of specific employees to deal with on workouts. Banks are also providing detailed instructions on how people can apply for help.

For more, see ACORN deal with lenders eyes easier ‘workouts’ (no longer available online).

Many Subprime Borrowers Qualified For Prime Mortgage Loans

A recent story in CNNMoney.com reports that many borrowers who wound up with higher rate subprime mortgage loans actually qualified for lower rate, prime mortgages. Among other things, the story states:

• "Freddie Mac, a government-sponsored mortgage-loan buyer, estimated that borrowers of 15 to 35 percent of all subprime loans it bought in 2005 could have qualified for prime-rate loans."
• "Fannie Mae, another government-sponsored loan buyer, estimated up to 50 percent of the borrowers, whose subprimes it bought that year, had credit profiles that could have qualified them for prime rates."

For more, see Wow, I could've had a prime mortgage (Why many borrowers who qualified for prime-rate loans wound up with subprimes instead).

Bank, Mortgage Banker, Mortgage Broker: What's The Difference?

Did you ever wonder what the difference is between a mortgage lender and a mortgage broker? Or that there are companies that advertise that they loan money for real estate, but they are not banks. In a recent column in The Daily Herald, one industry professional gives an explanation. For more, see Who's who in the mortgage industry.

More On 38 Count Arizona Indictment In Alleged Tri-State Mortgage Fraud Ring

The Arizona Federal Court hearing the case charging twelve people with conspiracy, money laundering and fraud for their roles in an alleged mortgage fraud ring stretching from Arizona to Nevada to California unsealed the Federal grand jury indictment last week. Those charged in the indictment are Lutrell Maurice Sharpe, 39, (the alleged ringleader) , Charles Dozzell, 63, of California, and Arizona residents Alonzo Love, 33; Breanna Carmela Davis, 25; Misti Lenoir-Stewart, 28; and Autumn-Leigh Bruce, 24; Nevada residents Micah Bowens, 38; Jennifer Sue Sellers, 29; Marcus V. Dozzell, 33; Gina Marie Greco, 37; and Kristy Lynn Murdock, 28.

For those of you interested in a copy of the indictment in this case, e-mail me at HomeEquityTheft@yahoo.com and I'll e-mail it to you.

For story update, see Mortgage Fraud Leaders Sentenced To Prison.

Maryland Man Pays Off Mortgage; Loses Home To Foreclosure Anyway

In this story, reported in yesterday's Baltimore Sun, an immigrant from Ghana and his family lost their home to foreclosure involving a mortgage that they had already paid in full (or so they thought). The problem apparently started with a refinancing of a home mortgage in 2001 with Washington Mutual Bank ("WaMu") (the existing mortgage that was being refinanced, and which is central to the problem in this story, was also held by WaMu - acquired through a bank merger with a predecessor bank). Four years later, claiming that they never received the proceeds from the 2001 mortgage payoff, WaMu forecloses on the property, and the homeowner and his family lose their home.

The factors that make this story as troubling as it is are:

• WaMu claims that they never recieved the payoff of the existing mortgage from the closing agent back in 2001,


• However, WaMu was both the existing mortgage holder and the bank providing the refinancing; why they disbursed money to the closing agent on a new mortgage that was only going to be sent back to them anyway as a payoff of the existing mortgage is a question that apparently has no answer - the refinance on WaMu's books could have easily been handled in-house by making the appropriate bookkeeping entries,


• While there is no evidence that Dwayne E. Pope, owner of Advance Settlement Agency Inc., the now-defunct title company that handled the homeowner's refinancing, did anything improper in this particular case, the less-than-honorable Mr. Pope is currently doing "a 30 month residency" at the Federal Correctional Institution at Fairton, N.J. for embezzling more than $1.6 million in escrow settlement funds on apparently unrelated cases that occurred in 2002 and 2003,


• Assuming WaMu didn't get paid on the existing refinanced mortgage in 2001, it didn't do anything to immediately seek out the whereabouts of the payoff when the refinancing took place and when the transaction was still fresh in everyone's mind. Rather, they apparently fell asleep on its rights to demand payment until 2005, at which point it woke up from its four year nap and initiated a foreclosure action against the homeowner (at a point in time when the above mentioned closing agent / embezzler Mr. Pope was probably being criminally prosecuted, if not already in prison; I can only speculate that getting the relevant transaction records from someone in Pope's shoes is probably pretty tough, especially if such records may have already been destroyed),


• The homeowner couldn't prove in court that the mortgage was paid off because of the alleged loss of key documents by the mortgage lender and the now-incarcerated Mr. Pope (for example, the original check for the payoff is missing, and only a copy of the front of the missing check was found),


• The attorneys for Washington Mutual who foreclosed on the home filed an affidavit saying that it had lost the original promissory note that was signed by the homeowner (legally, the foreclosing mortgage lender is required to present the original promissory note as a prerequisite to foreclosure; but because the vast majority of foreclosures are not contested by the homeowner - usually because they don't know their rights - although many attorneys don't know what rights homeowners have in these situations, either - and they have neither the time or expertise to go out and find an attorney who knows what they're doing, nor the money to pay the attorney if he/she is found, mortgage lenders can typically get away with not presenting the original note in court simply by filing an "affidavit of lost note", knowing that the affidavit will probably go unchallenged),


• Reportedly, Maryland law puts homeowners at a severe disadvantage in foreclosure cases. Unlike renters in disputes with landlords, or cases involving even the smallest of small claims lawsuits, the law in Maryland reportedly neither guarantees a court hearing in disputes between homeowners and mortgage companies, nor does it require receipt of notice by a homeowner about a foreclosure. In addition, Maryland reportedly has the fastest foreclosures in the country.


• Proposed legislation was introduced in the Maryland legislature to require at least 30 days' notice and posting of the property before any foreclosure sale. The homeowner in this story actually testified at a state Senate hearing in this regard, giving his story. However, the proposed legislation ultimately failed, although reportedly, it is expected to be reintroduced next year.

For the whole story, see Out of townhouse, but not by choice (Immigrant loses his dream through foreclosure). - Story Page 1, Page 2, Page 3, Page 4.

Postscript - Legal Question

In the "too little - too late" department, I wonder if, given the inexplicable and (in my view, unreasonable) delay by WaMu in waiting four years to initiate the foreclosure action, coupled with the possible difficulty in obtaining all the relevant transaction records from Pope that could have proven that the mortgage payoff was received by WaMu (given Pope's own legal troubles that arose well after the 2001 refinancing), there was enough for the homeowner to assert a defense of laches in the foreclosure action under Maryland law, notwithstanding the fact that the statute of limitations on bringing a foreclosure action may not have expired.

Baltimore Sun Follows Up

I suspect that this story was troubling enough to those over at the Baltimore Sun that they decided to give this story more space in their newspaper today. For one follow-up story and an opinion article related to this story, see:

Help for homeowners (Md. officials vow hearings, reforms on foreclosure) (6-8-07)

The court of Catch- 22 (6-8-07). Kwaku Att Poku

Go here for other posts on this story, including links to media reports. Kwaku Atta Poku

Maryland Homeowner Granted Right To Return Home Until Resolution Of Foreclosure Rescue Lawsuit

By court order, a Glen Burnie, Maryland homeowner and her three children have been granted the right to return to their home pending the resolution of a lawsuit in which she alleges that two business associates perpetrated a foreclosure rescue scam against her, according to a story in The Capital (Annapolis, Maryland). As a condition of the court order, however, the homeowner will have to pay the mortgage and bills, which currently appear unaffordable. "We just won, but it doesn't mean anything," said Michael Gregg Morin, one of the homeowner's attorneys.

Reportedly, the lawsuit charges that Michael W. Powell, of Baltimore, and Amanda Mende, of Linthicum, swindled her out of more than $100,000. Her attorneys claim she paid them more than $50,000 in the past 15 months and they bought her $325,000 house from her for $50,000 less than market value. For more, see Family wins right to go home, but bills still pose problem.

New Hampshire Senate Passes Foreclosure Rescue Legislation

New Hampshire Business Review reports:

• "In a 23-0 vote, the Senate passed a bill May 31 that would regulate mortgage foreclosure consultants, some of whom offer to “help” those facing foreclosure by getting them to sign over the deed of their house for a rental purchase agreement. Theoretically under such agreements, the homeowner would be able to gain the equity back while living at the home, but because of undisclosed terms, the victim could end up losing the house anyway — and go deeper in the hole as well. As amended in the Senate – at the request of the Banking Department — House Bill 365 would increase disclosure requirements, allow cancellation requirements and implement civil and criminal penalties, including forcing violators to repay equity to the homeowner.

I suspect that House Bill 365 will shortly be going to the Governor to be signed into law. For more, see State House wrap-up: Foreclosure ‘rescues’ targeted.

Ex-Delaware County Official Avoids Fraud & Racketeering Charges; Pleads To One Count of Lying On Loan Application

In Delaware, less than a week before she was to stand trial on racketeering and fraud charges, former New Castle County chief administrator Sherry Freebery decided to plead guilty in Federal court Wednesday to one count of making a false statement on a loan application. Prosecutors dropped remaining racketeering and fraud charges against her. Freebery's guilty plea involved an application for a mortgage refinancing in which she failed to disclose that she had signed a promissory note for a $2.3 million loan. For more, see Guilty plea ends Freebery ordeal (reported in The Delaware News Journal).

For local editorial commentary on the conviction of Sherry Freebery, see Years spent to get Freebery to admit she erred on paperwork.

More On FBI, IRS Raid Of Sacramento-Area Real Estate Offices

KCRA-TV Channel 3 has provided updated information on its website in connection with raid of the Sacramento area real estate offices by Federal investigators earlier this week related to an investigation of possible real estate and mortgage fraud involving Freedom Capital Mortgage, VFM Investment Group, Lyon Real Estate, Gabriel Viramontes, Jim Martin, Mario Fellini, Joseph Gallo, and Jennifer Huang.

Go here to watch the updated KCRA Channel 3 TV report (no longer available online) (by investigative reporter Josh Bernstein) and go here for Application And Affidavit For Search Warrant, which sets forth the necessary probable cause for the Federal agents to conduct their raid of the real estate offices and homes - about a half dozen locations (Note: this document is a 22.2 MB "monster", just in case you're using a "dial-up" connection).

Go here for prior posts on this story, with links to prior KCRA reports.

P.S. Thanks to one of my Northern California readers for the "heads-up" on this additional information.

Ohio AG Sues Ten Companies Alleging Improper Pressure On Appraisers

Bloomberg.com today reports:

• "Ohio, the state with the third highest number of foreclosures, sued 10 real estate companies for improperly pressuring appraisers to inflate home values. The companies, based in Ohio, California, Arizona and New York, set specific estimated values on properties and communicated a desired price to appraisers, according to the lawsuits filed by Attorney General Marc Dann today. In Ohio, it's illegal to influence an appraiser. Those sued include seven mortgage brokers, two lenders and an appraiser."

For the whole story, see Ohio Sues Real Estate Firms for Pressuring Appraisers.

Tanking Of Subprime Mortgage Market A Good Thing For Some On Wall Street

On Tuesday, I put up a post regarding possible legal complications that are arising from Wall Street hedge funds that may impact the ability of financially strapped homeowners with subprime mortgages to negotiate with many mortgage holders the modification of the terms of their troubled mortgages (see Legal Complications Arise In Modifying Troubled Subprime Loans).

While, admittedly, I don't have a clue as to how the Wall Street trading strategies involving the subprime mortgage market work, I am reading that there are Wall Street hedge fund investors that have made "indirect bets against the financial health of struggling homeowners" and that stand to make (additional?) fortunes if the subprime market keeps tanking and financially strapped homeowners "default and get thrown out of their homes." Apparently, these investors are now starting to bellyache at the fact that measures are being taken to stabilize this market, with the intent on keeping these financially strapped homeowners from losing their homes (exactly what some of these hedge funds don't want).

In any event, for those who want a better prospective as to what is going on with these hedge funds in the subprime mortgage market context, see The Sure Bet Turns Bad (Funds Howl As Bear Stearns Buys Mortgages) (reported in The Wall Street Journal Online).

For commentary about the millions of dollars that are reportedly flowing into the campaign coffers of presidential candidates from Wall Street hedge funds, and the questioning of whether there is any connection between this reported flow of cash and the desire of these hedge funds to see a continuation of the tanking of the subprime mortgage market, see The Dangers of Democratic Hedging (Not About Iraq) (The Huffington Post).

Go here for links to other blogs on this story. MortgageServicingIssuesAlpha

Delaware Homeowner Victimized In Foreclosure Rescue Scam

In Delaware, The News Journal reports a story of a Wilmington homeowner facing foreclosure who had a "smooth talking savior" appear at her front door offering to bail her out from foreclosure. The foreclosure rescue operator talked the homeowner out of $600 and a signed deed to the home in exchange for a purported promise allowing the homeowner to buy back the home through a 25-year "installment sale". The homeowner found out that the arrangement was a scam when, about a month later, someone from the mortgage company came to her door, told her the house would be sold at a sheriff's sale and offered her $1,000 to move out. For more, see This conference may save your home (Public foreclosure notices invite con artists masquerading as saviors).

Connecticut Real Estate Agency Sued; Predatory Lending, Fraud Alleged

In Connecticut, the New London real estate agency that has been the subject of an investigation by the Connecticut Attorney General involving a possible straw buyer, mortgage fraud scam has now been sued by four former clients for alleged predatory lending, claiming they were defrauded of their money and credit, according to a story by TheDay.com.

New London attorney Jason Westcott filed three lawsuits on behalf of the former clients in a Connecticut state court naming the real estate agency Elizabeth Athan Real Estate as the defendant in the lawsuit. This company, which lists loan officer Jose Guzman, real estate broker Elizabeth Athan, and her husband, William Athan, as its principal agents, are also listed as participants in dozens of real estate transactions under investigation by Connecticut Attorney General Richard Blumenthal's office.

For more, see NL Real Estate Firm Target Of Three Lawsuits Alleging Fraud (Company took money and ruined credit, according to complainants).

Go here for other posts on this investigation.

Oklahoma Realtor, 4 Others Convicted In Mortgage Fraud Conspiracy

Edmond, Oklahoma Realtor Theresa Ann Campbell was sentenced Monday in an Oklahoma Federal Court (2 months in jail, 2 years probation, ordered to pay restitution - $52,490 at sentencing and a $4,000 fine) for conspiracy to commit wire fraud in connection with the sale of a home, according to The Edmond Sun. According to the criminal charge filed by Federal prosecutors, Campbell and others were charged with falsely causing the closing statement (HUD-1) to falsely reflect the source of the payment of closing costs, accomplishing this by inflating the purchase price of the home involved by $75,000 more than the price the home was listed in the Realtors' local Multiple Listing Service. In addition, the Oklahoma Real Estate Commission revoked Campbell’s real estate license and fined her $5,000 in March.

For the details of the criminal charge, see USA vs. Campbell.

In separate but related cases, four other individuals pleaded guilty and were convicted in this scheme. They were: Timothy J. McDaniel, of Edmond, Anthony Jew, (ordered to pay restitution - $449,409 at sentencing), also of Edmond, Dalton Joe Alford (8 months in prison, 2 years probation, ordered to pay restitution - $172,500 at sentencing), of Oklahoma City, and Toney Charles Mykel (6 monthes in prison, 1 year probation, ordered to pay restitution - $263,489 at sentencing), of Edmond. For more, see Realtor receives sentence.