Thursday, July 16, 2009

Nationwide Loan Modification Scam Sweep Begins As FTC Announces Coordinated Effort Of 25 Federal, State Agencies Involving 189 Legal Actions

The Federal Trade Commission announced yesterday:
  • Federal Trade Commission Chairman Jon Leibowitz, joined by California Attorney General Jerry Brown, [Wednesday] announced Operation Loan Lies, a coordinated national law enforcement effort to crack down on mortgage modification scams. The operation involves 189 actions by 25 federal and state agencies(1) against defendants who deceptively marketed foreclosure rescue and mortgage modification services. The FTC actions, which affect consumers throughout the nation, are being announced in southern California, where the scams originated.

    These con artists see the high foreclosure rates as an opportunity to prey on people in distress,” FTC Chairman Jon Leibowitz said. “They promise to rescue homeowners in troubled financial waters, but after they take their money they throw them an anchor instead of a lifeline. People facing foreclosure should avoid any company or individual that requires a fee in advance, guarantees to stop a foreclosure or modify a loan, or advises the homeowner to stop paying the mortgage company.”

    The FTC announced four lawsuits,(2) bringing to 14 the number of mortgage foreclosure rescue and loan modification scam cases the Commission has brought since April. Twenty-three state attorneys general and other agencies are participating in the operation, taking action against 178 companies engaged in these types of deception. The FTC also announced a settlement in a lawsuit filed last November.

***

  • The FTC also released “Real People. Real Stories,” a three-and-a-half minute video about keeping your home. It features people targeted by foreclosure rescue scammers sharing lessons learned from their experiences. The FTC is distributing the video, and a version in Spanish, to more than 5,000 housing counseling and consumer protection organizations around the country, and posting them at FTC.gov/yourhome and YouTube.com/FTCVideos.

For the entire FTC press release, see Federal and State Agencies Target Mortgage Foreclosure Rescue and Loan Modification Scams (FTC Leads “Operation Loan Lies” to Stop Fraud and Help Distressed Homeowners).

(1) The 25 Federal & state agencies are:

  • U.S. Federal Trade Commission,
  • U.S. Attorney's Office for the Central District of California (Los Angeles),
  • Arizona Attorney General's Office,
  • California Department of Justice,
  • California Department of Real Estate,
  • State Bar of California,
  • Colorado Attorney General's Office,
  • Idaho Attorney General's Office,
  • Illinois Attorney General's Office,
  • Iowa Department of Justice,
  • Kansas Attorney General's Office,
  • Maine Attorney General's Office,
  • Maine Department of Professional and Financial Regulation, Bureau of Consumer Protection,
  • Maryland Department of Labor, Licensing, and Regulation, Office of the Commissioner of Financial Regulation,
  • Massachusetts Attorney General's Office,
  • Michigan Attorney General's Office,
  • Missouri Attorney General's Office,
  • New Jersey Attorney General's Office,
  • New Jersey Department of Banking and Insurance,
  • New Mexico Attorney General's Office, Consumer Protection Division,
  • North Carolina Department of Justice,
  • Ohio Attorney General's Office,
  • Oregon Department of Justice,
  • Texas Attorney General's Office,
  • Washington Attorney General's Office.

(2) The four lawsuits (with links to the FTC complaints) filed by the FTC target three California firms:

  • Aliso Viejo-based Lucas Law Center (other defendants: Future Financial Services, LLC, Paul Jeffrey Lucas, Christopher Francis Betts, and Frank Sullivan),
  • Orange-based U.S. Foreclosure Relief Corp. (firm used eight aliases – U.S. Foreclosure Relief, Lighthouse Services, Pacific Shore Financial, California Foreclosure Specialists, H.E. Service Company, Safe Harbor, Pomery & Associates, and Homeowners Legal Assistance. Other defendants are George Escalante, Cesar Lopez, and Adrian Pomery, Esq.), and
  • Santa Ana-based Loss Mitigation Services Inc., (other defendants: Synergy Financial Management Corporation (d/b/a Direct Lender), Dean Shafer, Bernadette Perry, and Tony Perry),

and Coeur d'Alene, Idaho-based Apply2Save Inc. (other defendants: Sleeping Giant Media Works, Inc., and Derek Oberholtzer).

In addition to these cases, the FTC reached a settlement with Foreclosure Solutions, LLC and Timothy Buckley (Plaintiff's Complaint, Settlement/Stipulated Final Judgment) who claimed that, for a fee often exceeding $1,000, they would stop foreclosure (see press release dated April 29, 2008).

Lenders' Foreclosure Sale Cancellations An Attempt To Slow Growing Stockpile Of Repossessed Inventory, Leaving Abandoned Homes In Legal Limbo

In Central Florida, the Sarasota Herald Tribune reports:
  • Across Florida, tens of thousands of foreclosed homes are being left in limbo, between homeowners who have abandoned them and banks that have not yet taken possession of them. Over the past year, banks and other lenders have canceled up to 50 percent of foreclosure sales in some parts of the state, adding to a growing stockpile of unclaimed homes.

***

  • Pushing foreclosures through quickly used to be in the bank's best interest, so the home could be resold and the bank could recoup the equity in it. Now, depressed housing prices mean few investors snapping up the properties at auction. And banks put off the foreclosure sales in many cases because once they take the property, they become liable for taxes, fees and maintenance, say some analysts and industry watchers. [... A]s long as the foreclosure is pending -- and the foreclosure sale has not taken place -- the banks' ledgers show the mortgage as an asset. And the bank keeps the money it would otherwise spend on maintenance and taxes.

***

  • Foreclosure sales are set by a judge but can be canceled by the lender for any number of reasons. And once it is put off one time, the case does not go back to court unless the bank wants it to.

For more, see Lenders' latest foreclosure strategy: waiting (Banks know that once they take empty property, it's their liability).

Go here for other posts on homes being left in legal limbo (when a lender intentionally delays completion of a foreclosure to avoid taking title to the repossessed collateral, or fails to record its deed after foreclosure sale). responsibility code violations foreclosure

"Now It's The Lenders Who Are Doing The Walking" - Milwaukee Feels The Sting Of Homes In Foreclosure Being Left In Legal Limbo

In Milwaukee, Wisconsin, the Milwaukee Journal Sentinel reports:
  • For years, lenders complained about debtors who left the keys on the kitchen table and skipped town, leaving it to the bank to file for foreclosure and eventually take title by buying it at a sheriff's sale. The latest twist: Now it's the lenders who are doing the walking, often without telling the borrowers, who may believe erroneously they have already lost title.(1)

  • "This is just the meanest and nastiest thing (lenders) could do," said Catherine Doyle, chief staff attorney at the Milwaukee Legal Aid Society. "Even more profound is the terrible damage to the community. All of us are going to have to bail them out." City officials, lawyers and community activists say they've seen an increase in lender walkaways, although they can't estimate how large the problem is.

  • The Journal Sentinel found more than $400,000 in back taxes, fees and demolition costs owed on nearly three dozen properties that lenders foreclosed on in the past two years but didn't complete the process. Three more have been condemned and are scheduled to be bulldozed at an estimated cost of up to $15,000 each.

For more, see Lenders abandoning foreclosed properties (‘Walkaway’ properties quickly deteriorate, dragging down borrowers and neighborhoods).

Go here for other posts on homes being left in legal limbo (when a lender intentionally delays completion of a foreclosure to avoid taking title to the repossessed collateral, or fails to record its deed after foreclosure sale.

(1) In that scenario, the neighborhoods and taxpayers may lose, say city officials and neighborhood activists. "The debtor is gone, the lender is gone and here, Mr. Mayor, you've got this attractive nuisance in your neighborhood," Mayor Tom Barrett said. "Then I get a call from my fire department, and they're telling me we've got too many homes that are attractive nuisances, as they say, for arson or prostitution or drug trafficking. The current situation is a lose, lose, lose situation." responsibility code violations foreclosure

Failure To Inspect For Meth Contamination Could Create Future Financial, Health Havoc For Homebuyers

The New York Times reports:
  • The spacious home where the newly wed Rhonda and Jason Holt began their family in 2005 was plagued by mysterious illnesses. The Holts’ three babies were ghostlike and listless, with breathing problems that called for respirators, repeated trips to the emergency room and, for the middle child, Anna, the heaviest dose of steroids a toddler can take. Ms. Holt, a nurse, developed migraines. She and her husband, a factory worker, had kidney ailments.(1)

  • It was not until February, more than five years after they moved in, that the couple discovered the root of their troubles: their house, across the road from a cornfield in this town some 70 miles south of Nashville, was contaminated with high levels of methamphetamine left by the previous occupant, who had been dragged from the attic by the police. The Holts’ next realization was almost as devastating: it was up to them to spend the $30,000 or more that cleanup would require.

  • With meth lab seizures on the rise nationally for the first time since 2003, similar cases are playing out in several states, drawing attention to the problem of meth contamination, which can permeate drywall, carpets, insulation and air ducts, causing respiratory ailments and other health problems.

***

  • Meth contamination can bring financial ruin to families like that of Francisca Rodriguez. The family dog began having seizures nine days after the Rodriguezes moved into their home in Grapevine, Tex., near Dallas, and their 6-year-old son developed a breathing problem similar to asthma, said Ms. Rodriguez, 35, a stay-at-home mother of three. After learning from neighbors that the three-bedroom ranch-style home had been a known “drug house,” the family had it tested. The air ducts had meth levels more than 100 times higher than the most commonly cited limit beyond which cleanup is typically required. [...] They moved out, throwing away most of their possessions because they could not be cleaned, and are letting the house go into foreclosure. “It makes you crazy,” Ms. Rodriguez said. “Our credit is ruined, we won’t be able to buy another house, somebody exposed my kids to meth, and my dog died.”

For the story, see Illnesses Afflict Homes With a Criminal Past.

Go here, Go here and go here for other posts on home-based methamphetamine labs.

(1) Some of the health problems associated with living in a meth-contaminated home appear to be similar to those currently being attributed to the "Chinese drywall" problem being experienced in some parts of the country. meth lab yak

Title Company's Failure To Discover Lien Leaves First Time Homeowner Facing Foreclosure Over Prior Owner's Debt

In Highlands Ranch, Colorado, KDVR-TV Channel 31 reports:
  • Brandi Hager just bought her first home 6 months ago, made every payment, but now she's facing foreclosure over someone else's debt. "I haven't been sleeping. I haven't been able to take my mind off of it." Brandi just found there's a $9,000 lien on her property that belongs to the previous homeowner, and unless she pays it, her family could lose their home. The mortgage company, Sterling Mortgage, says it thought the property was free and clear or any liens or debts or the company wouldn't have sold it to her. Sterling Mortgage says the title company, National Real Estate services, should have found the lien and notified Brandi before the sale.

For more, see Family could lose home over title company's mistake. title insurance legal issues

Homeowners Running "Everything Must Go" Foreclosure Stripping Sales May Face Criminal Liability In Colorado

In Aurora, Colorado, KUSA-TV Channel 9 reports:
  • The "everything must go" sales are back and experts say they cost other homeowners money. The sales involve homeowners selling everything inside just days before it goes into foreclosure. 9Wants to Know found a woman selling fixtures in a condominium [...] Thursday morning. The Internet classified site Craigslist listed a sale at 10091 East Carolina Drive in Aurora.

  • Experts say these sales cost banks money because they have to pay to install new fixtures in the homes before they resell them. Those repair costs are passed along to other borrowers. At Thursday's sale, our undercover cameras found plenty to choose from. Colorful price tags offered the refrigerator, the kitchen cabinets, the overhead microwave and the range. Items such as cabinets are traditionally considered part of a home.

***

  • While a house does belong to a homeowner until it goes on the foreclosure auction block, there is a state law that says it's illegal to defraud a creditor. "If you sell fixtures out of your foreclosed upon house, you can be sued. You can be charged with a felony or multiple felonies. It's not a good idea," [9NEWS legal analyst Scott] Robinson said. A class three felony carries a maximum of 12 years in prison. A person who strips a home ahead of foreclosure could also be charged with criminal mischief and theft, according to Denver District Attorney Spokeswoman Lynn Kimbrough. She says prosecutors will look at any case brought to them by police. People buying the merchandise will likely not be charged as long as they did not know they were buying items considered stolen. However, even if they paid for the items, buyers could be required to return them.

For more, see House stripping continues as foreclosures loom.

For another recent post on this issue, see Arizona Crackdown On Foreclosure Stripping Continues As Homeowner Indicted On Charges Of Defrauding A Secure Creditor, Criminal Damage.

Go here for other posts on pre-foreclosure homeowner fixture stripping. foreclosure fixture stripping apple

Wednesday, July 15, 2009

Recruiting Drive For Philadelphia Lawyers To Provide Pro Bono Representation To Local Homeowners Facing Foreclosure Continues

In Philadelphia, Pennsylvania, WPVI-TV Channel 6 reports on a local non-profit legal agency tasked with recruiting local attorneys to represent financially strapped homeowners through the Philadelphia Residential Mortgage Foreclosure Diversion Program:
  • Stefanie Seldin of Philadelphia VIP told Action News that there are 300 lawyers mostly from small to medium-sized and solo firms. A non-profit legal agency, Philadelphia VIP specially trains lawyers to help low-income folks in the program. Sledin adds, though, that the problem is "to sustain the program we really need to hit the large law firms." But many of those firms have lawyers who represent the lenders. "If you have 300 lawyers in a firm and 10 of them represent Citi - those other 290 could not participate in this program until now," Sledin says.

  • Now, Citi has agreed to waive conflicts of interest for law firms who participate in the foreclosure diversion program. Citi says it's a win-win: It has loans that are being paid back again, and homeowners get to avoid a lot of anguish.

***

  • Philadelphia VIP always has a big table set up at the conciliation conferences. You'll get matched up with a free lawyer on-the-spot. By the way, Citi is also giving a grant to Philadelphia VIP to help them recruit and train these volunteer lawyers.

For the story, see Free legal help for homeowners (Free legal help could now be more accessible to thousands of Philadelphia homeowners).

Arizona AG Tags Upfront Fee Loan Mod Firm With Civil Suit, Alleging Violations Of State Consumer Fraud, Consumer Services Acts

From the Office of the Arizona Attorney General:
  • Attorney General Terry Goddard has filed a lawsuit against a Phoenix-based mortgage loan modification company, Santoya Financial Company, LLC and its owners, Thomas Montoya and Robert Sanchez, for engaging in deceptive practices.

The lawsuit alleges that Santoya’s actions violated the Arizona Consumer Fraud Act(1) and the Arizona Credit Services Act,(2) by:

  • Falsely representing the company as being endorsed by HUD,
  • Falsely representing that it and an allied company, Partners in Charity, were approved by HUD to provided foreclosure avoidance counseling to consumers,
  • Failing to disclose the limited nature of its services, which was simply collecting and forwarding clients’ information to independent entities for whom Santoya had no responsibility and who had not complied with Arizona law regulating loan modifications in this state,
  • Failing to provide consumers with information statements and contracts required by law,
  • Charging clients upfront fees [upfront fee of $1,199 plus the equivalent of one month’s mortgage payment, according to the lawsuit] without having obtained a surety bond.

The Arizona AG is seeking full restitution to the screwed over homeowners, civil penalties of up to $10,000 per violation of law, and reimbursement of investigative and litigation costs.

For the Arizona AG press release, see Goddard Sues Mortgage Loan Modification Company for Deceptive Practices.

For the lawsuit, see State of Arizona v. Santoya Financial Company, LLC.

(1) Title 44: Sections 44-1521 through 44-1534, Arizona Revised Statutes.

(2) Title 44: Sections 44-1701 through 44-1712, Arizona Revised Statutes.

Shaky Loan Modifications That Turn Into Questionable Short Sales?

A new form of foreclosure rescue involving purported loan modification services coupled with questionable short sale arrangements has arrived on the scene and possibly gaining in popularity, according to DESPERATE HOMEOWNERS: Loan Mod Scammers Step In When Loan Servicers Refuse To Provide Help, a recently issued report by the National Consumer Law Center:
  • Information is beginning to surface about a new variety of foreclosure rescue involving the sale of a house that is upside down (that is, more is owed on the house than is worth). Indeed, some loan modification websites tout their expertise in short sales.

***

  • In one version of a short sale scam, the realtor and the buyer collude to conceal the full price of the sale from the lender so that they can pocket the difference, often by using option contracts and back-to-back closings.(1) This version is aimed primarily at defrauding the lender, though the homeowner is also hurt by an artificially low sales price, either by being liable on a deficiency or by paying taxes on a higher forgiven balance.(2)

  • In another version of a short sale scam, the buyer takes over the mortgage without satisfying the due-on-sale clause and the sale is concealed from the lender.(3) The owner of a We Buy Houses franchise explained at trial that these deals work when the homeowner is only 10% to 15% upside down, because the home is sold to a buyer who cannot qualify for a regular loan and so is willing to pay a premium above fair market value to avoid a credit check. Depending on how the transaction works, the homeowner may be out cash, lose the home, and still end up with a foreclosure on the credit report.

***

  • These transactions may begin as traditional loan modification contracts, in which the homeowner pays a fee in the hopes of saving the home. The rescuer may then pressure the homeowner into agreeing to the sale—and into paying a sales commission to the rescuer. Thus, the homeowner has to pay two fees, loses the home, may still have her credit blemished by a foreclosure if the new buyer defaults, and may be exposed to liability for violating the contract.

For more, see What Else Are They Selling? Loan Mods That Turn Into Questionable Short Sales? (begins at page 17 of the report).

See also ATIF Refuses To Issue Title Insurance On Controversial Short Sale Deals Involving Simultaneous Investor "Flips" - involving the recent decision by title insurance underwriter Attorneys' Title Insurance Fund to refuse to issue title insurance policies on deals made using the controversial method for closing flips of short sales (possibly recognizing the potentially fraudulent nature of these transactions).

(1) Also known as "flipping."

(2) The NCLC report cites three media reports indicating the existence of this scam. See Nick & Cindy Davis, Sellers Beware of Short Sale Scams (Apr. 21, 2009); Bill Gassett, Short Sale Scammers We Buy Houses (Aug. 14 2008); New "short sale" scam taking root?, St. Petersburg Times (April 22, 2008).

(3) The NCLC report cites an article appearing on several real estate investing websites which explains how the due on sale clause is avoided. "The game for us is how to transfer ownership to the property without getting caught by the lender." Attorney William Bronchick, There's No "Due on Sale" Jail (an article which pre-dates the foreclosure crisis and the loan modification explosion).

Fire Damage, Code Violations, Growing Fines, Unresolved Insurance Claim, 50+ Apts. In Foreclosure May Spell Doom For 182-Unit C. Florida Condo Complex

In Titusville, Florida, Florida Today reports:
  • Code violations keep racking up at Bay Towers Apartments, the fire-scarred riverfront complex facing a crippling cash crunch. The south tower remains condemned after a May 2008 fire. Since Feb. 6, Titusville officials have fined the property’s South Florida owners up to $1,400 per day for damaged elevators, stairwells, plumbing and other problems. As of today— 159 days later — these ongoing fines total $222,600.

***

  • Bay Towers Development LLC unsuccessfully targeted the aging 182-unit complex for an apartment-to-condominium conversion during the real estate boom. [Registered agent Bernie] Feldman estimated that the fire wreaked $5 million in damages, but the complex’s insurance company only paid about a quarter of that. He said his company cannot bring the building into code compliance without this additional money. An insurance-claim appeal remains unresolved, he said.

  • Making matters worse, Feldman said 104 units were sold before the fire — and more than 50 have slipped into foreclosure. He said the condominium association faces tremendous financial problems.(1)

For more, see Titusville condo owners face fines for violations.

(1) According to the story, one of the remaining condominium owners is a Boca Raton resident who paid $180,000 for a two-bedroom unit in the south tower in September 2006. Testifying before the code board, he called the Bay Towers situation “ludicrous,” “a quagmire,” “just ridiculous” and “fraudulent from top to bottom.” He used the condominium as a weekend destination until the fire struck. Three days after the blaze, Titusville building officials declared the structure unsuitable for human habitation. “They need to fix this. I want to get inside my condo. Fourteen months have gone by,” he said. “I see my mortgage payment leave my bank account, for what? For nothing. I can’t use what I rightfully own. It’s maddening now,” he said.

Indiana Man Gets One Year Home Confinement In Flipping Scam That Left Homes In Foreclosure, Unwitting Investors Holding The Bag

From the Office of the U.S. Attorney (Indianapolis, Indiana):
  • Marvin G. Hampton, 66, Noblesville, Indiana, was sentenced to 12 months home confinement months [last week ...] following his guilty plea to mortgage fraud, announced Timothy M. Morrison, United States Attorney for the Southern District of Indiana.(1)

***

  • Between 2003 and 2005, Hampton operated a real estate company, Glen Mar Land & Home Corp. Hampton’s company purchased distressed homes in economically disadvantaged neighborhoods for between $5,000 and $30,000. Hampton then performed a minimal number of repairs, and sold the properties for between $60,000 -$70,000. Hampton recruited individuals as investors to purchase the properties. He promised to pay the down payments and gave the investors $1,500 incentive fee to purchase the homes. Hampton set the prices instead of the prices being arms length transactions. None of these facts were disclosed to the lenders. As additional enticements to the investors, Hampton also promised them that he would find renters and make up missed payments for the first six months. Nearly all the properties are now in foreclosure. Hampton walked away with an average of $20,000 profit on each property.

For the press release, see Noblesville man sentenced for mortgage fraud.

(1) The sentence reportedly also includes one year supervised release following Hampton’s time in home confinement, and an order requiring Hampton to make restitution in the amountof $262,424.76, to three victim lending institutions.

Ex-Twin Cities Loan Officer Taken Down By Jury Verdict Finding Guilt To 17 Counts In Mortgage Fraud Racket

In Hennepin County, Minnesota, the Minneapolis Star Tribune reports:
  • A former loan officer at a Twin Cities mortgage company was convicted [last week] of 17 counts of theft by swindle and two counts of racketeering for his role in a sprawling scheme involving homes in north Minneapolis, Brooklyn Center and Golden Valley. After a seven-week trial and deliberations over two days, a Hennepin County District Court jury found Marlon Pratt guilty on all counts. Pratt, a former loan officer for Universal Mortgage Inc., showed little reaction as Judge Steven Lange read the verdicts.(1)

For more, see Jury convicts former Twin Cities loan officer in mortage fraud case (Marlon Pratt was accused of inflating the prices of homes on loan applications and taking kickbacks. Five others have been convicted or pleaded guilty in the scheme).

Go here for other posts on the Twin Cities' area Universal Mortgage straw buyer, home flipping scams.

(1) According to the story, five other men already have been convicted or pleaded guilty for their roles in the fraud perpetrated by Universal Mortgage. The scheme involved falsifying employment histories, incomes, net worths and buyers' intentions to live in the homes. All the homes ended up in foreclosure. Assistant Hennepin County Attorneys Kirstin Canski and Tom Fabel argued that Pratt received $700,000 in kickbacks for inflating numbers on $3.2 million in loans made for 17 homes.

Tuesday, July 14, 2009

BofA Moves Against Judge For Refusing To Boot Ailing Elderly Couple Onto Street Following Foreclosure Of Dilapidated Bungalow Over Unpaid $7K HELOC

In Grand Rapids, Michigan, The Michigan Messenger reports:

  • Bank of America is suing a Grand Rapids District Judge Michael Christensen for allowing an ailing, elderly couple to remain in their foreclosed home until the couple can move, the Grand Rapids Press is reporting. The couple purchased the house in 1976, for $12,000 and had paid it off. However they took out a line of credit, and ended up defaulting on nearly $7,000 of that credit line. In Nov. the judge ruled they had to go, but in April he set aside that ruling, giving the couple another three months.(1)

For more, see Bank suing Grand Rapids judge for allowing elderly, ailing couple to remain in foreclosed home.

For The Grand Rapids Press story, see Grand Rapids judge tells bank to let ailing couple stay in foreclosed home until they are able to move.

(1) For story updates, see The Grand Rapids Press:

Nevada Governor Signs Emergency Regulations Imposing Tougher Controls In Fight Against Foreclosure & Loan Modification Scams

In Carson City, Nevada, the Las Vegas Sun reports:
  • Gov. Jim Gibbons has signed emergency regulations to allow the state to impose tougher controls to stop foreclosure and loan modification scams. The regulations permit the state Division of Mortgage Lending to license loan modification and foreclosure consultant companies and their agents. [...] The state will be able to charge $750 for an application for a company and $100 additional for each branch office. And there will be a $500 a year fee for a company. An agent application fee is $185. The division must adopt permanent regulations by Aug. 27.

Source: Regulations allow controls on loan modification industry.

Connecticut's Voluntary Foreclosure Mediation Program Now Mandatory

In Hartford, Connecticut, the Hartford Courant reports:
  • As mortgage delinquencies continue to mount in Connecticut, the governor has signed three bills to help homeowners struggling with mortgage payments — including making participation in the state's foreclosure mediation program mandatory as of July 1. Gov. M. Jodi Rell said the legislation is aimed at homeowners who have lost their jobs, have taken a cut in pay or were victims of abusive lending practices — not those who bought more house than they could afford.

For more, see Rell Signs 3 Bills To Help Homeowners With Mortgage Payments.

See also The Connecticut Post: New law makes mortgage meltdown help mandatory.

Missouri AG To Testify At Senate Hearing On Growing Complaints Of Mortgage, Debt Repair Fraud

In Jefferson City, Missouri, The Associated Press reports:
  • Missouri Attorney General Chris Koster is scheduled to testify before a U.S. Senate committee(1) about growing complaints of mortgage and debt repair fraud. [...] Koster said he planned to outline the growing number of complaints his office has received about fraudulent schemes to help people with mortgage or debt problems. In the past few months, Missouri has filed suit against seven companies offering mortgage refinancing, foreclosure relief or debt settlement services.

Source: Mo. AG Koster to testify about fraud complaints before U.S. Senate Commerce Committee.

Go here for AG Koster’s prepared statement.

(1) The Senate hearing, The Economy and Fraud: Protecting Consumers During Downward Economic Times, is scheduled for Tuesday, July 14, 2009, 10:00 AM.

FTC Identifies Individuals Accused Of Making Deceptive Claims Of Affiliation With Free Federal Foreclosure, Loan Modification Assistance Programs

The Federal Trade Commission recently announced:
  • A U.S. district court has ordered newly named defendants to stop making deceptive claims that they are affiliated with free federal government programs, such as Making Home Affordable.

  • On May 14, 2009, the FTC charged that Internet search ads were diverting homeowners from free counseling available through government-endorsed www.makinghomeaffordable.gov to Web sites that marketed loan modification services for a fee. The defendants’ identities were then unknown, and the district court on May 15, 2009, entered a temporary restraining order that barred the deceptive practices and authorized the FTC to identify the unknown defendants. The Commission has now identified several of the previously unknown parties in this case, and amended the complaint accordingly.(1)

For the FTC press release, see Court Bars False Claims of Affiliation with United States Homeowner Relief Programs.

For the amended lawsuit, see FTC v. Cantkier, et al.

(1) The amended complaint names the following advertisers that placed deceptive online ads for the Making Home Affordable program: 1) Jeffrey Altmire, 2) Sean Cantkier, 3) Michael Haller; 4) Lisa Roye, 5) Scot Lady, 6) Alan LeStourgeon, 7) Kean Lee Lim, 8) Greg Rivera, and 9) Neil Sperry. At the FTC’s request, following a preliminary injunction hearing on June 25, 2009, the U.S. District Court for the District of Columbia entered orders barring eight of the defendants – four of whom agreed to the orders – from engaging in the allegedly illegal conduct. loan modification

Consumer Advocate Calls For Ban Against Upfront Fees For Loan Mod Help Or Any Comp Unless Mortgage Workout Actually Helps Distressed Homeowners

The Cleveland Plain Dealer reports:
  • The National Consumer Law Center [NCLC] is calling for a ban on advance fees for loan modification help and a federal rule that no one can charge homeowners fees unless the loan modification actually helps homeowners avoid foreclosure. The NCLC's report was released [Friday], just ahead of the Federal Trade Commission's deadline for comments on whether the agency should take steps to declare some loan modification practices unfair and deceptive.

For more, see Consumer law group urges FTC to save homeowners from foreclosure rescue scams.

For NCLC's report, see DESPERATE HOMEOWNERS: Loan Mod Scammers Step In When Loan Servicers Refuse To Provide Help.

Defeated Bankruptcy Cramdown Proposal Being Reconsidered By Some Lawmakers In Light Of Failing Voluntary Loan Modification Program

The Washington Independent reports:
  • The Obama administration has all but abandoned it, and the Senate has already voted it down. But a proposal to allow struggling homeowners to escape foreclosure through bankruptcy got a boost [last week] from a small band of House Democrats convinced that voluntary mortgage modifications aren’t alone solving the housing crisis.

  • They have a point. Despite White House efforts to entice mortgage lenders and servicers to alter the terms of mortgage loans at their own discretion, participation in the program has been meager. As a result, hundreds-of-thousands of homeowners continue to face foreclosure months after the program took effect. That instability in the housing market has, in turn, stifled federal efforts to heal the banks and get them lending prolifically again. In the eyes of some Democratic lawmakers, the combination of trends is evidence enough that Congress needs to return to its bankruptcy proposal to save the homes that the voluntary strategy is not.

For more, see Band of House Dems Revisits Cramdown (As Foreclosure Crisis Worsens, Critics of Voluntary Loan Modification Program Speak Up).

Orlando Cops, Ex-Wife Nab Alleged ID Thief Accused Of Defrauding Non-Profit Home For The Mentally Challenged; Took Out Loan, Leaving It In Foreclosure

In Orlando, Florida, WFTV-TV Channel 9 reports:
  • Police say a man took identity theft to a whole new level. He didn't steal a person's identity. He stole it from a non-profit house that helps mentally challenged people. Police say Afries Rodriguez even took out a second mortgage on the Kat Cadogan Home for the mentally challenged. Now, Rodriguez has been captured thanks to his ex-wife, who helped his victims lure him back to Florida after he was hiding out in Georgia. [...] The house is the Kat Cadogan Home, a place where mentally-challenged adults and children can live safely. But those who run the home say Rodriguez likely destroyed it all by posing as the non-profit's president and essentially stealing its identity.

***

  • As smart as his scams were, his ex-wife would outsmart him. Tuesday, she lured Rodriguez to a parking lot, with a promise of lawsuit settle[ment] money, where Orlando police took him down. He's being held without bond on 19 different charges with more to come.

For more, see Man Steals Non-Profit Organization's Identity. DeedContraTheft

Mass. Man Charged In Alleged Foreclosure Rescue Scam; Allegations Include Collecting Rents From Victims' Properties, Failing To Make Mortgage Payments

In Fall River, Massachusetts, The Herald News reports:
  • City businessman Joseph Pereira is facing more larceny charges after two victims told police they were swindled in a scam that resulted in the loss of their homes. Pereira, 44, [...] has been charged with two counts each of larceny over $250 by a single scheme and unauthorized practice of law, subsequent offense.(1) [... Authorities say they were] recently approached by two alleged victims claiming Pereira said he could help the men avoid foreclosures on their properties.

In the first instance, according to authorities, a Fall River man reached an agreement with Pereira for assistance, after which he began receiving delinquency notices. He said the matter was brought to Pereira’s attention and was told it would be taken care of. But soon after, the victim learned his two properties were being foreclosed. The victim reported losing a $22,000 Harley Davidson motorcycle and an estimated $110,000 after Pereira collected rent from tenants at the Fall River property and allegedly pocketed the money.

In the second instance, according to authorities, a Rhode Island man who said that he feared losing him home said he contacted Pereira, and was told that for $2,000 cash, Pereira would take care of the mortgage problems. A short time later, the victim reported he was notified his house was going into foreclosure and that no payments had been made since he made the arrangement. The man reported losing his home and the $2,000 given to Pereira.

For the story, see Pereira arrested on new fraud charges.

(1) Reportedly, Pereira has been charged multiple times since January, including larceny by false pretense, larceny greater than $250 by single scheme, unauthorized practice of law, embezzlement, employer failing to pay wages in a timely manner and possession of ammunition without a FID card. See:

According to the story, these charges later led to a Superior Court indictment in June on 12 felony counts of larceny by a single scheme greater than $250 and one count of unauthorized practice of law. He’s also been arraigned 38 times since 1982, with 34 of those charges larceny related. He spent 15 months in jail in 1996 and 1997 for similar charges, the story states.

Monday, July 13, 2009

Chicago-Area Homeowners In Foreclosure Urged To Show Up To Court "Case Management Call" To Seek Assistance

In Chicago, Illinois, the Southwest News Herald reports:
  • Cook County Circuit Court Clerk Dorothy Brown said a recent administrative order issued by a Chancery Court judge represents a second chance for many homeowners facing foreclosures to have their cases heard in July and August, noting that some may be able to save their homes through mediation. Brown is getting the word out about Chancery Division Presiding Judge Dorothy Kinnaird’s administrative order, which provides that a “case management call” be set for the mortgage foreclosure section of all pending mortgage foreclosure cases filed prior to April 1, 2009.(1)

***

  • A few of the issues case management hearings will consider are: whether the necessary requirements have been met to foreclose; whether an Access to Justice attorney should be appointed; whether credit counseling is appropriate; and whether the case is appropriate for a court-ordered mediation.

For more, see Second Chance To Hear Cases Of Foreclosures.

(1) Brown especially urges people whose banks are not willing to do modifications to come to court for case management. She said people who show up for the case management hearings in July and August will automatically be given a 30- to 45-day continuance to allow them to go to the Pro Se Advice Desk for assistance with their cases. Brown noted that individuals do not need attorneys in order to come to the case management calls. Defendants may also seek to have the $188 appearance fee waived.

Central Florida Feds Expect To Bag 100+ Suspects In Upcoming Mortgage Fraud Indictments

In Central Florida, the Bradenton Herald reports:
  • Federal authorities are investigating several suspected cases of mortgage fraud in Manatee and Sarasota counties as part of a larger statewide crackdown, the Bradenton Herald has learned. Those investigations are zeroing in on organized groups and industry insiders suspected of defrauding mortgage lenders out of tens of millions of dollars during the housing boom. The cases, part of a crackdown that began in March, could result in criminal charges against more than 100 people locally and throughout Florida later this year.

***

  • The FBI and U.S. Attorney’s Office in Tampa confirmed the investigations Thursday but declined to discuss specifics other than to say they’re part of a concerted “surge” to combat the growing problem. “We have investigations going on throughout the (middle) district (of Florida), from Naples to Jacksonville and everywhere in between,” U.S. Attorney A. Brian Albritton said. “We’re trying to do as many cases as we can, and I expect it to be over 100 defendants.”

  • Albritton said authorities hope to file charges against most of the defendants by November. In some cases, prosecutors have already begun negotiating potential plea deals, he said. The effort already has netted its first convictions: Three people recently received prison sentences of 46 months to 22 years for a $30 million mortgage fraud scheme in Cape Coral that was investigated by the Internal Revenue Service and the FBI.

For more, see FBI investigating local mortgage fraud.

Trustees In Mortgage Securitizations May Begin Finding Themselves In The Crosshairs As "Joint Venturers" In Lawsuits Seeking To Impose Fraud Liability

The New York Times reports on the hot water facing many of those big institutions who played any part in the creation and peddling of mortgage securitized interests in toxic loans:
  • Some legal experts point to a number of cases in which plaintiffs contend that firms involved in the securitization process, like trustees hired to oversee the pools of loans backing securities, worked so closely with the lenders that they should face liability as members of a joint venture. And these experts see a rising receptiveness to this argument by some courts.(1)

Among the cases referred to in the story is current litigation brought by the Atlanta Legal Aid Society on behalf of a couple fighting foreclosure of an allegedly abusive and predatory loan. They seek punitive damages from the lender, NovaStar Mortgage Inc., as well as from the original trustee (JPMorgan Chase) and the subsequent trustee (Bank of New York Mellon).(2)

Another lawsuit referred to in the story was one targeting lender First Alliance, in which its main backer, Lehman Brothers, found itself hammered with some of the liability.(3)

A third lawsuit referred to involving the issue of liability for abusive lending going beyond the original lender resulted in a settlement after the court denied two motions to dismiss it.(4)

For the story, see Looking for the Lenders’ Little Helpers.

(1) From the story:

  • As we are unpeeling what was happening on Wall Street, we may see that Wall Street didn’t find the safety from litigation risk that it hoped to find in securitization,” said Kathleen Engel, a professor at Cleveland-Marshall College of Law at Cleveland State University. “I think there is potential for liability if borrowers can engage in discovery to see exactly how much the sponsors were shaping the practices of the lenders.”

(2) From the story:

  • We contend that the trustee has direct liability on the theory that even though they were not sitting at the loan closing table, they were involved in the securitization and profited from it,” said Sarah E. Bolling, a lawyer in the Home Defense Program at the Atlanta Legal Aid Society who represents the [homeowners]. “The prospectus had been written before the loan was closed. If this loan was not going to be assigned to a trust, it would not have been made.”

(3) From the story:

  • More than 7,500 borrowers had successfully sued First Alliance for fraud, and in 2003 a jury found that Lehman, which had lent First Alliance roughly $500 million over the years to finance its lending, “substantially assisted” it in its fraudulent activities. Lehman was ordered to pay $5.1 million, or 10 percent of damages in the case, for its role.

(4) From the story:

  • That matter turned on the language in the securitization’s pooling and servicing agreement, which provides details not only on the types of loans in a pool but also on the relationships of various parties involved in it. Diane Thompson, a lawyer with the National Consumer Law Center, said that the meaning of the agreement was that “the trustee was a joint venture with the originator and was therefore responsible for everything that happened in that joint venture.” Many such agreements, she said, create a joint venture by force of law. “Everybody I know that has tried this argument has had pretty good success. Absolutely we are going to see more of these cases.”

Onslaught Of Chapter 11 Filings Expected From Condo Associations Suffering From Decrease In Maintenance Fee Collections, Deadbeat Unit Owners?

In South Florida, the Daily Business Review reports:
  • In a move an increasing number of condo associations are expected to follow, the Maison Grande in Miami Beach has filed for bankruptcy.(1) Facing almost $1 million in claims by unsecured creditors, a troublesome recreational lease, and at least 100 unit owners [out of 502] delinquent on payments of their fees, the association filed a Chapter 11 petition last month in U.S. Bankruptcy Court in Miami. As one of the first condo association bankruptcies of the current economic crisis, “it’s definitely cutting edge,” said attorney Mark Schorr, a solo practitioner in Fort Lauderdale who represents the Maison Grande association.

***

  • [Attorney Robert] Kaye represents a Tamarac condo association that is considering bankruptcy. With half of its 280 unit owners delinquent on their maintenance fees, the association is in the red to the tune of $50,000 per month, he said. Kaye also represents a Palm Beach County condo association that is likely to file for bankruptcy after losing a court case against a roofing contractor. A judgment of $130,000 could grow to more than $300,000 after attorney fees and court costs are added, he said. “They can’t afford that, and 20 percent [of 120 unit owners] already are delinquent in paying fees,” Kaye said. These associations, which he declined to name — and many more — are likely to file for bankruptcy protection as they run out of funding options, he said.

***

  • As foreclosure filings have soared in the wake of the housing and financial market bust, they can take almost two years to complete. That means condo associations still must maintain the foreclosed units, and the remaining condo owners must pick up the tab of their non-paying neighbors. “As long as lenders are extending foreclosures into 18 months and two years, the associations are pretty well stuck because there is no cash flow and they can’t raise funds necessary to operate,” Kaye said.(2)

For more, see $1 million debt sends condo association into Chapter 11.

(1) Go here for the Maison Grande's Chapter 11 Case Management Summary, filed with the Federal Bankruptcy Court in Miami pursuant to Local Rule 2081-1(B), and which provides the facts and circumstances surrounding the filing of its bankruptcy petition.

(2) In a related story, see South Florida Sun Sentinel: Community associations confront squatters (Options are limited for associations):

  • In some cases, squatters are owners of units in foreclosure who stop paying mortgage or maintenance fees and leave their electricity, cable and water bills for the rest of the association residents to pick up while they live cost-free. In others, they are holdover renters in units or homes in foreclosure who stay put without paying a dime in rent or other fees.

$900K Real Estate Deposit Part Of $2.2M In Escrow Cash Ripped Off From Clients By NYC Attorney, Says Manhattan DA

From the Office of the Manhattan District Attorney:
  • Manhattan District Attorney Robert M. Morgenthau announced [Wednesday] the second indictment charging a lawyer with stealing settlement and escrow monies from his clients. This second indictment charges the defendant with stealing more than $1.5 million from five clients. This follows a previous indictment that was unsealed on May 19, 2009 charging the defendant with stealing $652,600 from 11 medical malpractice and personal injury clients. The total amount the defendant is charged with stealing in both indictments is $2.2 million.

  • MARC A. BERNSTEIN, 54, of Bernstein & Bernstein, LLP in Manhattan, was arrested [Wednesday] on charges of grand larceny and scheme to defraud. [...] The investigation leading to [the current] indictment, and the one preceding it, revealed that BERNSTEIN engaged in a scheme to steal from his victims, many of whom were affected by medical malpractice or injury suffered as a result of car accidents. In the typical case, BERNSTEIN negotiated a settlement on behalf of the victim, took control of the incoming settlement money and then stole it.

  • In one instance that has now given rise to charges, Bernstein, acting as an escrow agent, received $900,000 in real estate deposit money on a contract of sale for the purchase of a building in lower Manhattan and stole that money from the intended purchaser of the property.(1)

Go here for the entire Manhattan DA press release.

Go here, Go here, Go here, Go here, and Go here for other stories of trust account / escrow account theft of funds.

(1) For those who have been screwed out of money or property through the dishonest conduct of a New York attorney in the course of providing legal representation, and seek some financial reimbursement for the screwing over, go to the The Lawyers’ Fund For Client Protection Of the State of New York for more information. For other states and Canada, see:

NYC Man To Pay $95K Restitution For Home Sold Out From Under Elderly Stroke Victim; Agrees To Cough Up $40K By Sept. To "Buy Out" Of 3-9 Year Sentence

From the Office of the Queens County District Attorney:
  • Queens District Attorney Richard A. Brown [Thursday] announced that a St. Albans an has pleaded guilty to stealing the identity of a 68-year-old Jamaica, Queens, man who had been disabled as a result of a stroke and then secretly selling his house out from under him and pocketing the profits.(1)

***

  • The District Attorney identified the defendant as Shawn Corcas, 39, of [...] St. Albans. The defendant pleaded guilty [...] to one count of second-degree grand larceny and one-count of first-degree falsifying business records.(2) He was ordered to pay $95,000 in restitution to the victim, Keith Simmons. As a condition of the plea, the defendant agreed to pay $40,000 restitution by September 14, 2009, the date of his sentencing. If he adheres to that condition he is expected to be sentenced to five years’ probation. If the defendant fails to make that amount of restitution by that date he is expected to be sentenced to three to nine years in prison.(3)

***

  • District Attorney Brown said that, according to the charges, [... t]he defendants sold the home of the victim, Keith Simmons, 68, [...] in Jamaica, on March 6, 2008, without his knowledge, then deposited the proceeds of the sale – $95,801.29 – into [a] business account [...]. The victim suffered a stroke in January 2008 that left him without the ability to speak coherently. [...] An unidentified man is alleged to have posed as Keith Simmons [at the title closing] using a fraudulent driver’s license in his name as identification.

For the Queens DA press release, see ST. ALBANS MAN PLEADS GUILTY IN CONNECTION WITH FRAUDULENT SALE OF DISABLED 68-YEAR-OLD QUEENS MAN’S HOME (Faces 3 To 9 Years In Prison In Event Of Failure To Pay Part Of $95,000 Restitution To Victim By Date Of Sentence).

(1) District Attorney Brown said, “The victim was swindled out of his home by this defendant with the help of his sister. He took advantage of an elderly man suffering from disabilities to strip the equity dollars from his home without regard to the financial and emotional consequences that his actions would cause. Fortunately, the victim’s niece reported the crime. Today’s guilty plea – and the ordered restitution – provide a measure of justice for this victim.”

(2) The defendant’s sister, Patricia Corcas, 55, of Rosedale pleaded guilty earlier this year to first-degree falsifying business records and is expected to be sentenced on July 15, 2009 to five years’ probation.

(3) My guess is that another term of Corcas' probation might be for him to make monthly payments to the victim to be applied to the unpaid balance on the $95K restitution order over the five year probation period, with any subsequent default in the payments constituting a probation violation.

Obama Administration About To Turn Up The Heat On Mortgage Servicing Industry Over Sluggishness In Making Loan Modifications?

A column in The New York Times reports on an invitation recently extended(1) by the Treasury & HUD Secretaries to the top 25 mortgage loan servicers to get together in Washington on July 28 for a chat:
  • The subject of the meeting is going to be loan modifications. Specifically, the government is going to be asking — in none-too-friendly fashion — why the nation’s big servicers aren’t doing more to modify loans for homeowners who are in danger of defaulting on their mortgages. Back in the spring, after all, they all signed onto the administration’s new Making Home Affordable program, which uses a series of incentives — not the least of which is $1,000 to the servicers for every mortgage they modify — to help keep people in their homes and prevent foreclosures. And yet, five months later — and two years into the housing bust — the rising tide of foreclosures remains the single biggest threat to economic recovery.

Among the reasons cited by loan servicers for their difficulties in modifying delinquent loans are:

  • The volume of loans is overwhelming servicers,
  • The process is a one-on-one process that requires servicers to actually underwrite the loan, many of which were not properly underwritten when originated (“Servicers have to become full-blown underwriting shops,” according to one loan servicing firm CEO).

However, some suspect the continuing lack of incentive for the lenders and servicers in accomplishing loan modifications as being equally or more compelling reasons for the sluggisness surrounding the loan modification effort:

  • Many times, when a mortgage holder falls behind, he will “self-cure” (as it’s called in the trade) — and eventually get current with his mortgage. So the bank, or the servicer, often has a reason to simply wait him out,

  • The rate of re-default on modified mortgages can be as high as 50 percent, resulting not in foreclosure avoidance, but merely foreclosure postponement,

  • Many institutions also are reluctant to do large-scale mortgage modifications because the write-downs of the portion of the loans they'll have to eat will hurt their balance sheets,

  • The length of time it takes to complete a foreclosure can take a long time, enabling lenders to keep the loans on their books at their inflated values,

  • The $1,000-per-modification being dangled by the government was pretty meaningless, given the amount of time, money and effort they require, according to some in the industry.
For the story, see From Treasury to Banks, an Ultimatum on Mortgage Relief.
.
Thanks to Mike Dillon at GetDShirtz.com for the heads-up on the story.
.
(1) From the story:
  • That letter the administration sent out on Thursday did not mince words. It demanded that the servicers begin “adding more staff than previous planned, expanding call centers beyond their current size, providing an escalation path for borrowers dissatisfied with the service they have received, bolstering training of representatives, developing extra online tools, and sending out additional mailings to borrowers who may be eligible for the program.”

Sunday, July 12, 2009

Cook County Sheriff Charges Four With Digging Up Graves & Reselling Plots, Allegedly Netting Scammers $300K

In Aslip, Illinois, The Associated Press reports:
  • Prosecutors on Thursday charged three gravediggers and a manager in an elaborate scheme in which hundreds of corpses were dug up at a historic black cemetery near Chicago and strewn in a weeded area or reburied with other bodies so that plots could be resold, authorities said.(1) As frantic relatives of the deceased descended on the Burr Oak Cemetery -- the final resting place of lynching victim Emmett Till, blues singers Willie Dixon and Dinah Washington -- investigators said it could be months before they fully understand what took place.

Reportedly, more than 300 bodies are suspected to be disturbed and dumped into at least one mass grave as part of a scam that netted the workers about $300,000, authorities said.

For more, see 4 Charged In Grave Robbing Plot.

See also Chicago Sun Times: Infant headstones among the missing at Burr Oak.

(1) Reportedly, the suspects, all of whom are black, were identified as Carolyn Towns, 49, Keith Nicks, 45, and Terrence Nicks, 39 -- all of Chicago -- and Maurice Dailey, 61, of Robbins. They have each been charged with one count of dismembering a human body, a felony. DeedContraTheft

Ohio Woman Gets Help From Non Profit Law Firm In Saving Home From Foreclosure, Filing Suit Alleging Loan Modification, "Rescue" Scam

In Hamilton, Ohio, the Middletown Journal reports:
  • A Middletown woman filed suit Thursday, July 9, in Butler County Common Pleas Court against two Cincinnati-based companies and a Kentucky attorney alleging a foreclosure rescue scam, according to the Legal Aid Society of Southwest Ohio. The lawsuit alleges the defendants were running a scam that promised to save Marsha Fuller’s home but did little or nothing in exchange for the $1,200 fee. Foreclosure Assistance USA and a related company, American Foreclosure Professionals(1) preys upon homeowners desperate to save their homes from foreclosure, according to the complaint filed in court.

***

  • The company did hire an attorney to represent Fuller, but she alleges that attorney failed to independently investigate the case and instead relied on information received from Foreclosure USA, according to a news release from the Legal Aid Society of Southwest Ohio. When the attorney discovered the Ohio Attorney General’s Office sued both companies for running a deceptive business, he withdrew from the case and left Fuller without an attorney to respond to the lender’s motion for a foreclosure judgment, according to the complaint.(2)(3)

Source: Woman files suit in foreclosure rescue scam.

(1) For more on the Ohio AG's civil suit against these operators, see Foreclosure Rescue Companies Sued for Deceptive Practices.

(2) Reportedly, the homeowner received assistance from legal aid, which negotiated a loan modification and saved her home from foreclosure.

(3) Three relatively recent rulings of the Ohio Supreme Court illustrate how attorneys who allow themselves to be "pimped out" by upfront fee loan modification firms and foreclosure rescue operators can find themselves in hot water. For more, see Attorneys Incur License Suspensions For Fee Sharing, Other Violations In Arrangement With Loan Modification, Foreclosure Rescue Operator.

Rent Skimming Landlords Pocketing Gov't Rent Subsidies While In Foreclosure; Section 8 Tenants Forced Out Onto Street With Trampled Legal Rights

In Central Florida, WFTV-TV Channel 9 reports:
  • A growing number of Central Florida's poorest residents are being forced out of their rental homes because their landlords aren't making the mortgage payments. Eyewitness News reporter Berndt Petersen found out that more and more Section 8 landlords are taking the federal rent payments while they default on the mortgages.

***

  • Stacey Kleinfeld runs Lake County's Section 8 Housing program, which helps lower income tenants pay their rent. However, a growing number of Section 8 landlords aren't paying their mortgages. "The federal government is being taken advantage of," Kleinfeld said. [...] Kleinfeld says some landlords are pocketing the federal rent money, sometimes more than $1,000 per month, while defaulting on the mortgages. Kleinfeld's office has had a tough time finding the landlords.(1)

For the story, see Landlords Accused Of Pocketing Rent Money.

(1) A federal foreclosure law signed this spring by President Barack Obama requires (with one exception not applicable here) property owners who come into land through foreclosure to honor all existing leases, and to provide a 90-day window for any month-to-month tenants. See Section 702(a)(2) of the Protecting Tenants at Foreclosure Act of 2009.

In addition, in the case of a tenant who receives a Section 8 federal rent subsidy (ie. a "Section 8" tenant), it has been reported that federal law prohibits a new owner, including foreclosure purchasers and foreclosing lenders, from evicting Section 8 tenants unless they first go to court and prove they’re being economically harmed by having a tenant remain in a building, or show other good cause. However, many Section 8 tenants panic and don’t fight eviction notices, not realizing they have these special rights granted by Federal law (and even if they are aware of their rights, they may be unable to find and/or afford legal representation competent on this legal issue). For more on this point, see Foreclosures hit tenants (Activists: New owners trample on renters’ rights).

For the specific federal regulation on this point, see 24 CFR 982.310(d)(1). Go here for the regulations (24 CFR 982) regulating the Section 8 rent subsidy program. RentSigmaSkimming

Wells Fargo Suing Itself In Foreclosure Actions Becoming Common??? Proliferation Of 80/20 Mortgages During Housing Boom Cited As Reason

In Hillsborough County, Florida, Dow Jones Newswires columnist Al Lewis opines:
  • You can't expect a bank that is dumb enough to sue itself to know why it is suing itself. Yet I could not resist asking Wells Fargo Bank NA why it filed a civil complaint against itself in a mortgage foreclosure case in Hillsborough County, Fla. "Due to state foreclosure laws, lenders are obligated to name and notify subordinate lien holders," said Wells Fargo spokesman Kevin Waetke.

***

  • In this particular case, Wells Fargo holds the first and second mortgages on a condominium, according to Sarasota, Fla., attorney Dan McKillop, who represents the condo owner. As holder of the first, Wells Fargo is suing all other lien holders, including the holder of the second, which is itself. "The primary reason is to clear title and ownership interest in a property to prepare it for sale," Waetke said in an email exchange. "So it really is not Wells Fargo vs. Wells Fargo."

  • Yet court documents clearly label "Wells Fargo Bank NA" as the plaintiff and "Wells Fargo Bank NA" as a defendant. Wells Fargo hired Florida Default Law Group., P.L., of Tampa, Fla., to file the lawsuit against itself. And then Wells Fargo hired another Tampa law firm -- Kass, Shuler, Solomon, Spector, Foyle & Singer P.A. -- to defend itself against its own lawsuit, according to court documents. Wells Fargo's defense lawyers even filed an answer to their client's own complaint.

***

  • Rather than suing itself -- a stunt that was never even attempted on the MTV show "Jackass" -- wouldn't it be easier for Wells Fargo to release one of the liens to itself? Or pursue some other internal accounting strategy rather than tie up the court with nonsense?(1)

***

  • Still trying to comprehend this legal lunacy, I called the Florida Bar, which put me in touch with Florida mortgage foreclosure lawyers. One of them, Tampa attorney Kristofer Fernandez, said he's seen several cases where a large bank has sued itself for foreclosure as the holder of both first and second mortgages. "Four or five years ago, you would have never seen this," Fernandez said. "Now, it's very common."(2)

For the story, see Wells Fargo Bank Sues Itself.

For the original Consumer Warning Network story raising this issue, see Have the Banks Gone Crazy? Wells Fargo Sues Itself.

(1) "This is just folks cranking out paperwork without conscious thought," said Anthony Sabino, a law professor at St. John's School of Law in New York City. Sabino added that it is possibly more confirmation of the old saw that a lawyer is one who can speak from both sides of the mouth.

(2) According to the column, in the final years of the housing boom, banks were lending to homeowners with no money down. To do this, they often made 80/20 loans, giving homeowners an 80% first mortgage and a 20% second mortgage.

Long Island Man Found Guilty Of Hijacking Homes In Foreclosure & Renting Them Out To Unwitting Tenants

In Riverhead, New York, North Country Gazette reports:
  • After a three week trial and three hours of deliberations, a Suffolk jury convicted a Medford man Friday of burglary, grand larceny and fraud charges for breaking into foreclosed houses in Patchogue, Medford, Shirley, and Holbrook and renting out the homes to unsuspecting tenants. Paul Salamone, 28, smashed lockboxes, changed locks, removed For Sale signs, and put guard dogs in the homes to keep realtors and the rightful owners of the property away while he searched for potential tenants.

***

  • District Attorney Thomas Spota said evidence turned up by DA fraud investigators found that Salamone filed a total of 13 fraudulent liens with the county clerk’s office and the New York Department of State. “These liens were based on phony debts that, even if they were valid, would not have allowed Salamone to break and enter the houses in question, much less rent them out,” DA Spota said. The district attorney said Salamone’s scheme relied on fraudulent liens, receipts and other paperwork that falsely legitimized “a con game that victimized tenants and the legal owners of the houses”.

Source: Jury Convicts Man Of Foreclosure Scam.

See also:

Notice Of Disciplinary Charges Filed By State Bar Against California Attorney In Connection With Disgruntled Loan Modification Client

In Southern California, the Orange County Register reports:
  • One state regulator has faced a hurdle in trying to stop companies from scamming people who need help avoiding foreclosure. But this week another agency stepped in to join the fight. The California State BAR on July 7 filed its first disciplinary case against an attorney related to the burgeoning, and sometimes messy, loan modification business. [... O]n Tuesday it filed a notice of disciplinary charges against Sean Rutledge, a lawyer with United Law Group in Irvine.

  • The notice accuses Rutledge of taking $1,750 from a homeowner in November 2008 but never making an effort to get his loan modified. After the client requested a refund, it took months to get his money back and the client had to first sign a document releasing Rutledge of all legal liabilities, according to the filing.

***

  • Diane Curtis, a spokeswoman for the BAR, said in disciplinary cases attorneys face a range of punishments, from nothing to disbarment.(1)

For more, including Rutledge's response, see Irvine attorney is first to face discipline over loan mods.

(1) Russell Weiner, acting chief trial counsel for the BAR, said, “Attorney misconduct in connection with the provision of loan modification services is a significant and growing problem. It is unfortunate that any attorney would fail to adhere to the highest ethical standards in providing legal services to a vulnerable client possibly facing the loss of their home.”

For the February 2, 2009 "Ethics Alert" on loan modifications from the State Bar of California Committee on Professional Responsibility and Conduct, see Legal Services to Distressed Homeowners and Foreclosure Consultants on Loan Modifications. For the State Bar's subsequent press release, see State Bar Issues Foreclosure Ethics Alert.

Saturday, July 11, 2009

Sentencing Phase Finally Begins In Maryland Equity Stripping, Straw Buyer, Sale Leaseback Foreclosure Rescue Scam; 1st Of 10 Defendants Gets 10 Years

From the Office of the U.S. Attorney (Maryland):
  • U.S. District Judge Roger W. Titus sentenced Kurt Fordham, age 39, of Ft. Washington, Maryland, [Friday] to 10 years in prison, followed by five years of supervised release for conspiracy to commit mail and wire fraud in connection with a mortgage fraud scheme that falsely promised to help homeowners facing foreclosure keep their homes and repair their damaged credit, announced United States Attorney for the District of Maryland Rod J. Rosenstein. Judge Titus also ordered Fordham to pay restitution of $13,131,287.63, and forfeit three residential properties in Oxon Hill, Capitol Heights and Laurel, Maryland, and three vehicles.(1)

For the entire press release, see Metropolitan Money Store Conspirator Sentenced to 10 Years in Prison in over $35 Million Mortgage Fraud Scheme (Fordham Personally Responsible for Over $13.5 Million in Losses to Mortgage Lenders and Used Over $800,000 of Fraudulently Obtained Proceeds to Pay for His Wedding).

Go here for other posts on the Metropolitan Money Store sale leaseback foreclosure rescue scam.

(1) Nine other defendants have pleaded guilty to the conspiracy and are facing a maximum sentence of 30 years in prison: JoyJackson, age 41, President of Metropolitan Money Store, and Jennifer McCall, age 47, both of Ft. Washington, Maryland, a chief executive officer of Metropolitan Money Store and owner of JC and JC Investments LLC; Katisha Fordham, age 35, of Washington, D.C., a loan processor at the Metropolitan Money Store; Richard Allison, age 37, of Camp Springs, Maryland, an attorney and employee of the U.S. Census Bureau; Clifford McCall, age 47, of Lanham, Maryland, president of Burroughs & Smythe Financial Services, Inc., based in Lanham and a director of the Fordham & Fordham Investment Group, Ltd., a foreclosure consulting and credit servicing business based in Lanham and Greenbelt, Maryland; Carlisha Dixon, age 31, of Hyattsville, Maryland, vice president and a director of Burroughs & Smythe Financial Services, Inc.; Chandra Jones, age 31, of Lanham, Maryland, the daughter of co-defendants Jennifer and Clifford McCall; Ronald Aaron Chapman, Jr., age 34, of Washington, D.C., a loan officer at MMS; and Wilbur Ballesteros, age 33, of Lanham, Maryland, a licensed real estate agent, and closing agent on more than 60 straw buyer properties.

NYC Controller Urges All Brooklyn Residents To "Make Out A Will ASAP!" To Avoid Risk Of Getting Fleeced By Public Administrator's Office

In Brooklyn, New York, the New York Daily News reports:
  • Brooklyn's scandal-plagued court system gets a new black eye in a scathing audit that found the borough's public administrator's office riddled with "mismanagement and laziness." The city controller's office uncovered shoddy recordkeeping, suspicious real estate deals and auctions run by a shadowy company that vanished when auditors started asking questions.

  • "From the time my auditors began this audit, there seemed to be one startling revelation after another with regard to the lack of detail paid to the process of distributing and accounting for the estates of the deceased," Controller William Thompson said.

  • Surrogate judges in each borough appoint a public administrator to oversee the estates of people who die without wills. Thompson's auditors found a "culture of mismanagement and laziness" in Brooklyn's public administrator office. Things were such a mess that Thompson urged all Brooklyn residents to "make out a will as soon as possible" - avoiding the risk of being bilked by the office.

For more, including descriptions of a couple of fishy-smelling deals involving real estate owned by deceased property owners, see Audit reveals shady shenanigans in Brooklyn courts.

-------------------------

For an example of what happened to one alleged victim of the Brooklyn public administrator's office, see:

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It appears that the Brooklyn office of the public administrator should be getting used to allegations of the "grave robbing" ripoffs of the dead, the near-dead, and others who are otherwise incapacitated, based on an April 8, 2006 story in the New York Daily News (see B'KLYN TOMB-RAID PROBE: EX-JUDGE FOCUS IN THEFTS FROM VICS WITH NO WILLS):

  • A WIDE-RANGING SECRET PROBE of the Brooklyn public administrator's office, its booted surrogate judge and contractors hired by the office has uncovered brazen thefts from the assets of people who died without wills, the Daily News has learned.

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Based on the following excerpt from a June 29, 1988 story in The New York Times, shenanigans in the office of the public administrator may have been taking place for decades. See 3 in Surrogate's Office Charged With Thefts:

  • Three investigators from the Brooklyn and Bronx Public Administrators' offices were arrested yesterday and charged with falsifying public records and stealing valuables from rooms they believed had been occupied by people who died without leaving a will. The arrests ended an elaborate two-year sting investigation into the city's Public Administrators' offices, said the city Investigations Commissioner, Kevin B. Frawley, who conducted the inquiry with State Attorney General Robert Abrams and State Comptroller Edward V. Regan. An inspector for the Queens Public Administrator's office was arrested in March. The city's Public Administrators' offices handle the estates of people who have died without leaving a properly executed will.(1)

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According to a June 1, 2009 Daily News story, the Bronx public administrator's office hasn't been so hot lately, either. See Audit Court invested Bronx estate cash illegally.

Go here for other posts on the escapades of public administrators' / public guardians' offices when taking over the assets of the dead and incapacitated.

(1) For other stories involving the Brooklyn Public Administrator's office, see:

  • New York Daily News (August 18, 2002): WRINGING OUT THE DEAD IN BROOKLYN (If there's no will, court grabs big hunk of estate),
  • New York Daily News (May 29, 2002): Spitzer to probe legal fees (Eying payouts to Brooklyn Surrogate Court counselor),
  • New York Daily News (October 28, 2005): 31G RAISE FOR COURT OFFICIALS: SOME ADMINISTRATORS UNDER FIRE,
  • New York Daily News (May 15, 2002): B'KLYN COURT PANEL CLOSED TO THE NEWS (The oversight commission for state Surrogate Court administrators marked its first meeting in five years yesterday by barring a Daily News reporter from the session),
  • New York Daily News (May 9, 2006): L.I. LAND SALE SCANDAL. COURT OKD AUCTION OF DEEDED SITE (Officials in Brooklyn Surrogate's Court improperly sold off a piece of East End real estate - never notifying the property's rightful owners, the Daily News has learned),
  • New York Daily News (December 16, 2008): AG seeking payback on estate fees (Attorney General Andrew Cuomo is seeking to reopen 170 estates of deceased people in order to reimburse heirs who were gouged by a greedy Brooklyn lawyer, the Daily News has learned. Legal papers were filed yesterday in Surrogate's Court to recover exorbitant legal fees charged by Louis Rosenthal, former counsel to the Brooklyn public administrator),
  • New York Times (February 3, 1988): Wider Inquiry Into Stealing From the Dead (New York State and city investigators, expanding their inquiry into thefts of property from the dead, seized accounting records yesterday from Public Administrators' offices in Brooklyn, Queens and the Bronx),
  • New York Law Journal (July 1, 2005): Judge Loses Seat After Showing 'Shocking Disregard' for Law (New York state's high court finds actions constituted removable misconduct). daily eagle retired judge