SNDA Can Protect Would-Be Business Tenants From Getting An Early Boot When Leasing From Rent Skimming Commercial Landlords Facing Foreclosure

In Bend, Oregon, The Bulletin reports:

• Most businesses lease, putting them at risk of eviction if their landlord defaults. But as Todd and Myrna Dow, of Sisters, learned the hard way, a legal document — called a subordination, non-disturbance and attornment agreement — exists to protect against that very scenario, which has become more common with the down economy.(1) “Landlords losing property has been atypical in Central Oregon,” said Tom Sayeg, a partner at the Karnopp Petersen LLP law firm in Bend. “Normally, it’s tenants that go out of business, but now the shoe’s on the other foot.”

***

• The agreements, also called SNDAs, are common among national chains, he said. They typically appear as an exhibit to a lease and are negotiated at the same time as the lease, but they can be drafted separately or at any time during a lease, Sayeg said. Todd Dow said he had never heard of an SNDA agreement until he consulted his attorney after learning of it in an interview with The Bulletin.

• Still, Dow said his attorney told him they are relatively uncommon in Central Oregon. For the most part, they have been uncommon among small-business owners, Sayeg said. When the economy is good, tenants rarely worry about their landlords defaulting. However, because of the economy, more commercial property owners are defaulting, making an SNDA agreement a good idea, he said. “The SNDA is by far the most common way for tenants to protect themselves,” Sayeg said.

• Generally, when a landlord defaults, the lender can wipe out the lease. There are exceptions, mainly if the lease predates the landlord’s loan agreement with the lender. But if it doesn’t, an SNDA provides protection to a tenant if a landlord defaults. It’s an agreement between the lender and the tenant that requires the bank to assume the lease as long as the tenant stays current on his or her lease payments, although the lender often negotiates to void portions of the lease, such as obligations for tenant improvements, Sayeg said. The agreement also ensures the lease is assigned to whoever purchases the property from the bank. “The SNDA gives the tenant assurances that if the bank takes the property back, their lease will be recognized,” Sayeg said.

For the story, see Eviction protection (When landlords default, leasing businesses suffer the consequences — unless they signed a legal agreement that’s been uncommon locally).

(1) Reportedly, Todd Dow estimates the couple’s framing business will lose $20,000 because of the unexpected, early boot from the rented premises. He said the building’s former owner never told Dow he was in danger of default, the story states.

Home Repair Contractor Faces Criminal Charges For Failing To Pay Material Supplier, Leaving Two Customers With Mechanics Liens On Homes

In St. Petersburg, Florida, The Suncoast News reports:

• When Wendy Whitt of St. Petersburg hired a local contractor to fix her roof, she got more than just a bill for the repairs. She also got a lien against her property. Whitt's problems started when she hired Marco Alamina and his company, Patriot Roofing Inc., in December 2006 to re-roof her home for $8,325, court records show. Alamina completed the project, but a construction lien of $6,499 was placed on Whitt's house because Alamina failed to pay his supplier, Suncoast Roofer's Supply Co., for materials used in the project, according to a complaint filed by the Pinellas and Pasco State Attorney's Office.

***

• St. Petersburg resident Seth Laughlin hired Alamina in September 2006 to re-roof his house for about $5,000, court records show. Alamina finished the job but owed supplier Suncoast $77,962, court records show. Laughlin had to pay an additional $2,182.87 to pay off the lien and prevent his home from going into foreclosure, court records show.

***

• Although Alamina had been served with civil suits and fined by local and state agencies over the years, prosecutors didn't have a viable criminal case against him until the incidents with Whitt and Laughlin, [Assistant State Attorney Theodora] Taktikos-Danzig said. Alamina, 32, was arrested on warrants Monday after the state Department of Business and Professional Regulation forwarded his case to Pinellas prosecutors. Alamina has been charged with three counts of the misapplication of real property improvement funds. He was released from Pinellas County Jail later that evening after posting $30,000 bail.

For more, see Homeowners could find liens against property with bad contractors.

Another Multi-Unit Building In F'closure, More Tenants Living In Misery; Cold Blast Bursts Frozen Pipes; Leaves Renters Flooded, Without Running Water

In San Antonio, Texas, KENS-TV Channel 5 reports:

• One day without water was okay. But 7 days? Foreclosures in California have had a direct effect on a west side man: drying-up his water supply. Juan Gamez says his California landlord is in foreclosure. So, the much-needed plumbing repairs are not being made. As a result, the renter and families in three other units are stuck with no water.

• Last week's hard freeze busted a pipe in the condo, leaving four families with flooded floors and wet furniture. The water was turned off by emergency crews. The landlord isn't talking with his renters, but he has been cashing their rent checks. "You need water to cook. We’ve been eating baloney sandwiches,” said Juan Gamez. The landlord didn’t answer KENS-5’s calls, either. The families say they'll start withholding their checks, since they don't know whom to pay.

Source: West-side residents parched: 7 days and counting, no water.

Tight-Knit Baltimore Investment Group Reportedly Has Cost Foreclosing Lenders More Than $1M So Far With More Foreclosures In The Pipeline

In Baltimore, Maryland, Baltimore City Paper profiles a local real estate investment group - made up of friends, brothers, lovers, and alleged step-relatives who flipped homes to each other - that appears to have fallen on hard times as the foreclosure actions against them continue to mount.

For the story, see Shells Hocked.

For an earlier Baltimore City Paper story on this outfit, see Shell Game (Seven Neighbors, 11 Foreclosures, and More Than a Million Dollars' Profit in One Baltimore Neighborhood).

Joint Purchase By Three Investors At Foreclosure Auction Deemed Bid Rigging By Colorado Appeals Court

In Aspen, Colorado, The Aspen Times reports:

• A foreclosure auction on an Aspen condominium unit was tainted by bid rigging, the Colorado Court of Appeals concluded in a 54-page order issued last week. The unit sold at a Feb. 27, 2008, auction conducted by the Pitkin County trustee.

• The bid rigging occurred, the court determined, when three individual bidders — Mike Seguin, Debra Mayer and Tom Griffin, who was representing an Avon businessman — formed a limited liability corporation called Aspen Alps 123. The LLC claimed ownership of the unit, located at 700 Ute Ave., with a winning bid of $1.86 million, which was the amount Seguin had bid. “Then they agreed to stop bidding and form [Aspen Alps 123] to purchase the condominium unit,” the appellate court said. The ruling added that “because the three bidders intended their agreement to eliminate further competition among them, we conclude that they engaged in bid rigging.” The three had not been associated with each other until they formed the LLC, the court ruled.

• According to state statute, “it is illegal for any person to contract, combine, or conspire with any person to rig any bid, or any aspect of the bidding process, in any way related to the provision of any commodity or service.” The appellate court's decision reversed a previous ruling made by a Pitkin County district judge, who determined that joint bidding occurred. Joint bidding is a legal means of bidders pooling their resources together to buy a property they otherwise could not afford.

For more, see Appellate court: Aspen auction tainted by bid rigging.

For the ruling, see Amos v. Aspen Alps 123, LLC.

Arizona AG Brings Consumer Fraud Act Charges In Civil Suit Against Loan Modification Firm; Alleges Phony Refund, Debt Principal Reduction Promises

From the Office of the Arizona Attorney General:

• Attorney General Terry Goddard [...] filed a lawsuit against a Phoenix-based mortgage loan modification company, Asset Creation, LLC, and its owner, Marvin Williamson, for engaging in allegedly deceptive practices. This lawsuit is the latest action in the Attorney General’s crackdown on mortgage loan modification businesses that use misleading advertising or engage in other fraudulent practices. More than 2,500 consumers have contracted with Asset Creation for loan modification services in the past two years.

The lawsuit alleges that Asset Creation’s actions violated the Arizona Consumer Fraud Act by:

• Misrepresenting to consumers that it could obtain specific results,
• Falsely representing to consumers that they would receive a refund of their fees if Asset Creation was unable to obtain a loan modification on the consumers’ behalf,
• Misrepresenting that Asset Creation has been providing loan modification services to consumers since 2003.(1)

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

For the lawsuit, see State of Arizona v. Asset Creation, LLC, et al.

(1) According to the press release, the lawsuit alleges that since January of 2008, Asset Creation falsely represented its loan modification services to consumers throughout the Phoenix metropolitan area on its web sites and in local Spanish language media. According to court documents, Asset Creation charged consumers upfront fees ranging from $1,680 to $3,430 for loan modification services, after representing in newspaper ads that it could obtain a 50 percent reduction in the homeowners’ mortgage payments and stating on its web sites that it could help any homeowner, regardless of their situation. In addition, the company provided all potential applicants a "Client Proposal" that highlighted a new mortgage payment that was approximately 20 percent lower than the consumer's current payment. The lawsuit also alleged that Asset Creation falsely represented that it would refund consumers’ money if it could not obtain a loan modification for them and that it had been performing loan modification services for consumers since 2003.

Alleged Vacant Home Hijacker Asserts Adverse Possession To Claim Ownership Of Abandoned Houses; Bogus Docs Recorded To Cloud Property Titles: Cops

In Las Vegas, Nevada, KLAS-TV Channel 8 reports:

• Victims say Eric Alpert never met a house he didn't like. The state says Eric Alpert never met a house he couldn't steal. Almost. In the first day of a multi-part preliminary hearing, Eric Alpert defended himself from multiple felony counts of theft, burglary, forgery and filing false records. Investigators believe Alpert identified vacant homes going into foreclosure and then broke in, changed the locks and rented them out.

***

• Alpert's defense team believes a law called adverse possession allows people to seize vacant homes. Typically, that law allows for ownership if the person lived continually in the abandoned property for five years -- paying bills and upkeep the entire time.(1)

• Instead, the state says Alpert simply put up homemade notices claiming adverse possession. Then after two weeks time, the out-of-area or out-of-state owners would not respond and Alpert would take control of the property and rent it out. He would also file liens of abandonment, trying to "cloud the title" and make it appear as if he had a true financial interest in the property.

***

• Alpert's defense tried to make the point that foreclosures become abandoned property and the homeowners essentially gave up on them.

For the story, see I-Team: Alleged Squatter Sees Day in Court.

(1) According to an October 3, 2009 story in the Las Vegas Review Journal (see Ex-agent arrested for renting homes he didn't own (Victims lured by cheap rent soon evicted)):

• Alpert appears to file an action to quiet title on properties, and if the owner does not appear to contest the action, he receives title to the property, the lawyer said. He claimed at that time to be legally taking homes by "adverse possession" under Nevada law, but the attorney general's affidavit notes that [Nevada Revised Statutes] NRS 11.150 specifically states that "requirements for adverse possession is occupation continuously for five years" and payment of taxes, which Alpert did not do.

Loan Officer Found Guilty For Stealing Ex-Client's I.D. To Help Another Buy $589K Home; Two Co-Defendants Cop Plea On Eve Of Trial

From the Office of the Queens County, New York District Attorney:

• Queens District Attorney Richard A. Brown [...] announced that a Queens Village woman who is a loan officer has been convicted of stealing the personal identity of a former client to help another client purchase a house in Brooklyn. [...] District Attorney Brown identified the defendant as Janet Salazar, a.k.a.Yanet Salazar, 37, of [...] Queens Village. She was convicted yesterday of first-degree identity theft, third-degree unlawful possession of personal identification information and third degree criminal possession of stolen property following a jury trial [...].(1)

***

• The District Attorney said that the investigation began in August 2007 when Queens resident Aurora Solano received notice in the mail indicating that a mortgage for $589,000 had been issued in her name and that a monthly payment of over $5,000 was due on September 1, 2007. Solano, who did not apply for a mortgage or authorize anyone to use her personal identification, reported the incident to the police. District Attorney Brown said that, according to the trial testimony, Solano provided her personal identification information to Salazar and Garcia in early 2007 for a loan application for a property in Queens. The deal subsequently fell through and the sale did not go forward.

For the Queens DA press release, see Loan Officer Convicted In Identity Theft Fraud Scheme (Stole Identity of Former Client To Purchase $589,000 Property).

(1) According to the press release, her co-defendants, Elba Garcia and Olga Espinal, pleaded guilty at the start of the trial. Garcia, 53, of Elmhurst, who is a realtor, pleaded guilty to first-degree identity theft, third-degree unlawful possession of personal identification information and third degree criminal possession of stolen property. She will be sentenced on January 21, 2010. Espinal, 46, of Corona, who impersonated the victim, pleaded guilty to third-degree identity theft. She will be sentenced on February 1, 2010. Garcia and Espinal are expected to be sentenced to community service. Garcia additionally faces probation and restitution of $20,381.

Mtg Broker Gets Six Years For Conning 86-Year Old Woman Out Of $140K Reverse Mortgage Proceeds; Coughs Up $50K Restitution, Agrees To Pay Back Balance

In San Francisco, California, KPIX-TV Channel 5 reports:

• A former Southern California mortgage broker was sentenced to six years in prison [last] Friday for defrauding an 86-year-old San Francisco woman out of $140,000. The unusual case began in February 2008, when the woman responded to a mailing from a company in Orange County that was advertising reverse mortgages. The woman ended up agreeing to obtain a legitimate reverse mortgage from the company through one of its employees, John McTaggart.

• According to prosecutors, McTaggart then convinced the woman to sign over $140,000 she received from the reverse mortgage to his company in order for them to invest it for her in annuities through an insurance company. [...] However, instead of investing the money, McTaggart deposited the money into his own bank account, prosecutors said.

• Within a month, he quit his job at the mortgage company and moved to Memphis, Tenn. McTaggart continued to send the woman monthly $500 "dividend" checks using the money she had invested, but according to prosecutors, she soon caught on to the scheme when she noticed the checks were from McTaggart's account and not from the insurance company. Police arrested McTaggart and returned him to California on March 13 of last year.

• In December, McTaggart pleaded guilty to one count of first-degree burglary. Prosecutors were able to charge burglary because McTaggart visited the woman in her home when he negotiated the mortgage and annuity deals. As part of the plea, McTaggart gave a $50,000 check to the woman Friday and has agreed to pay her the remaining $90,000.

Source: 6 Years For Mortgage Broker In SF Elderly Fraud.

Four Indicted In Alleged Foreclosure Rescue Scam; Distressed Homeowners Seeking Loan Modifications Signed Over Title To Homes To Defendants: SD DA

In San Diego, California, The San Diego Union Tribune reports:

• A foursome involving a convicted felon and pair of real estate brokers has been indicted and charged with running an investment scam that preyed on San Diego Filipinos. The group, which was first investigated last March by The San Diego Union-Tribune, faces more than 54 charges, including foreclosure consultant fraud, grand theft and securities fraud. The group persuaded families to transfer ownership of their homes to two trusts, with the promise of helping modify and lower their mortgages.

• Defendants Edmundo Rubi, 52, and Joseph Encarnacion, 59, are scheduled to be arraigned Tuesday in San Diego Superior Court. Defendants Ben and Gloria Hebron, ages 51 and 53 respectively, are scheduled to be arraigned Thursday. The group was investigated by the FBI and the San Diego County District Attorney's Office. The indictment was handed down by the grand jury on Dec. 21, but was sealed until [January 11].

Source: Four indicted in foreclosure case (DA says they preyed on Filipinos, promising loan modifications).

For follow up story, see Four plead not guilty to fleecing homeowners (Trial to center on defrauding of 22 property owners).

California State Bar Shuts Down Two Outfits Allegedly Running Bogus Loan Modification Schemes

In Southern California, The Orange County Register reports:

• The California State Bar said [Tuesday] it shut down the loan modification businesses of two men for allegedly lying to consumers about being supervised by attorneys. The bar, which acted with the Orange County Superior Court in this case,(1) has worked with other state and local officials to crack down on companies promising homeowner aid but not delivering it.

• The bar alleges Curtis Melone of Huntington Beach and Christopher Fox of Redondo Beach promised to help homeowners facing foreclosure keep their properties but did nothing. [...] Their operations were halted on Dec. 21.

• The duo operated under the names Guardian Credit Services, Green Credit Solutions, Green Credit Services, Erickson Law Group, Green Credit Law and PacWest Funding. A Web search indicates the companies were based primarily in Foothill Ranch and Irvine.

For the story, see State bar closes mortgage-aid firms.

For a follow-up story, see Judge permits closure of mortgage-aid firms:

• The seizure of a handful of mortgage-aid companies operated by two men was made permanent [Wednesday] by Orange County Superior Court Judge Frederick Horn. The Judge granted a petition by the California State Bar, which closed on Dec. 21 the operations of Curtis Melone of Huntington Beach and Christoper Fox of Redondo Beach.

(1) According to the story, Section 6126.3 of the California Business and Professions Code gives authority to a superior court, on its own motion or upon application of the State Bar, to assume jurisdiction of the business of a person who is not a lawyer. Assumption of a law practice by a Superior Court is based upon the court finding that a person has engaged in the practice of law without being an active member of the State Bar or otherwise authorized to practice in California and that the interest of a client or interested person or entity will be prejudiced if the court does not assume jurisdiction, the story states.

BofA Wiggles Off The Hook For Accepting Forged Check For Deposit; Money Represented Sale Proceeds Allegedly Swiped From Home Seller At Closing Table

In Nassau County, New York, the New York Law Journal reports:

• A man claiming he was swindled out of nearly $42,000 on a real estate deal after his signature was forged on a check cannot sue the bank that accepted the check for deposit for conversion, a New York state judge has ruled. Acting Supreme Court Justice Daniel Palmieri of Nassau County dismissed the suit against the bank, holding that the seller, Walter Wright, never had possession of the check in question.(1)

***

• In March 2006, Wright, who lives in Virginia, sold his Ozone Park, N.Y., home and sent his mother to attend the closing and pick up a $41,841 check for the proceeds from the sale. Named defendants Mitchell Levy and James Boone, representing two mortgage brokers, Myles Mortgage Services and LAC Enterprises, also attended. According to the complaint, Boone took the check payable to Wright and "without the consent of plaintiff ... delivered it to either defendant Levy and/or defendant [LAC]." Five days later, the check, purportedly endorsed only by Wright, was deposited to LAC Enterprises' bank account, cleared and was credited to the account.

• In an interview, Nathaniel Swergold, Wright's attorney, said the broker, through its agent, had "picked up the check that was intended for my client" and "quickly went to the bank and deposited it to [its] own account." [...] Swergold said the decision was consistent with the applicable law but had left his client in the difficult situation of attempting to recoup his loss from the same people alleged to have stolen the money.

For more, see Man Fails in Bid to Hold Bank Liable for Accepting 'Forged' Check.

(1) "[I]t is well settled that a named payee must have actual or constructive possession in order to sue a depositary bank on a forged instrument and here, there is neither an allegation nor any evidence that plaintiff had either," Palmieri wrote in Wright v. Bank of America, 2009 NY Slip Op 52655U; 2009 N.Y. Misc. LEXIS 3515 (NY Sup. Ct. Nassau Cty, December 9, 2009).

Power Shutoff In BofA-Owned Foreclosed Condo Leads To Frozen, Burst Pipes; Elderly Couple With Downstairs Unit Left With Flooded Apartment

In Castle Rock, Colorado, KMGH-TV Channel 7 reports:

• An elderly couple thought the next chapter in their life had begun. Bill and Taloah Thorpe recently moved to an assisted living complex and were getting ready to rent their Castle Rock condo. On Dec. 10, everything changed.

• "There was water everywhere," said Terry Thorpe, the couple's son. According to a report by the Castle Rock Fire Department, a large amount of water was coming through the ceiling -- through fixtures and holes in the drywall. The report stated the water break was on the balcony in the closet in the unit above. To make matters worse, the condo where the pipe burst is in foreclosure.

***

• Thorpe said he contacted the homeowners association but was told it was not their responsibility. He then contacted Bank of America who foreclosed on the condo above his parents. Neither he nor his insurance agent, Bob Lowry, have heard from the bank.

***

• Thorpe said he is frustrated because he knows his family is not the only one having to deal with a situation like this as a result of a foreclosed property. "Just in my parents' condominium complex, there were five condos in foreclosure that all had pipes break in the same week," said Thorpe. Thorpe said the homeowners association told him it contacted the banks which foreclosed on units in the complex and asked them to keep the utilities turned on so this wouldn't happen and every bank refused.

For the story, see Foreclosed Condo Floods Unit Below (No One Taking Responsibility).

See also, KUSA-TV Channel 9: Condo owners left in the cold after neighbor's foreclosure.

BofA Mistakenly Seizes Home, Says Suit; 75 Lbs. Of Rotten Fish Leaves "Gooey Mess" Says Owner After Power Shutoff Creates "Halloween Horror"

In Galveston, Texas, The Galveston Daily News reports:

• A West End property owner is suing Bank of America Corp., asserting its agents mistakenly seized a vacation house he owns free and clear, then changed the locks and shut the power off, resulting in the smelly spoiling of about 75 pounds of salmon and halibut from an Alaska fishing trip and other damages. Dr. Alan Schroit filed the lawsuit [...] in Galveston against the bank with which he has neither a relationship nor a mortgage. Schroit, a retired professor at M.D. Anderson Cancer Center in Houston, is suing for wrongful invasion of his house [...] in the Pointe West subdivision.

***

• Agents working for Bank of America cut off power to the property by turning off the main switch in the lower part of the house, according to the lawsuit. They also changed the locks, so Schroit was unable to reach the switch to turn the power back on, according to the lawsuit. The Schroits called the police and finally managed to get into the top part of their house, only to be hit by an “overpowering putrid smell of rotten fish,” according to the lawsuit. [...] “It was the most unbearable stench,” Schroit said. “It was so unbearable the police officer asked if we could leave the house so he could take the report; it was absolutely horrible, a gooey mess.”(1)

***

• Schroit’s lawsuit is at least the second in which Bank of America has been accused of seizing the wrong house. According to an Oct. 30 article in the Floyd County Times [see Man sues after bank takes wrong house], a Wheelwright, Ky., man filed a lawsuit against Bank of America for repossessing his home by mistake and refusing to pay for damages other than replacing the locks. “Christopher Hamby arrived home on Oct. 5 to find the locks on his doors changed and winterization chemicals placed in the plumbing and various lines cut at the residence,” according to the article. Hamby also did not have a mortgage with Bank of America, according to the article.

For the story, see Lawsuit accuses bank of seizing wrong house.

(1) According to the story, the lawsuit alleges that “The property sustained water damage, potential mold contamination arising from the standing freezer residue, water, heat and high humidity conditions during the time the electrical power was off.” Schroit reportedly said he kept doors and windows open for days to try to rid the house of the foul odor and that cleanup efforts were substantial. The floors had to be cleaned, as did the joists of a lower-level ceiling, through which fish blood seeped, and some painting had to done to get the house back to a “preinvasion” state, according to the lawsuit.

Scroit said that, as a result of Bank of America's agent's handiwork, he had to cancel a fish fry he was planning for about 30 of his closest friends on Halloween weekend, according to the story. His attorney reportedly dubbed this alleged fiasco "Halloween Horror." misidentified foreclosure

California-Based Law Firm To Cough Up $28K+ To Settle Oregon AG Charges Of Deceptive Advertising, Illegal Collection Of Upfront Fees For Loan Mods

From the Office of the Oregon Department of Justice:

• Oregon Attorney General John Kroger [...] announced a settlement that will provide refunds to some Oregon homeowners and prohibit a California law firm from doing further loan modification work in Oregon.

***

• The Oregon Department of Justice investigated allegations that The USMAC Law Group violated state law by collecting advance fees for loan modifications aimed at preventing foreclosure sales. The investigation also focused on allegedly deceptive infomercial advertising for the firm's loan modification program that was broadcast nationally on satellite television as well as allegedly non-compliant contract language. The 2008 Oregon Mortgage Rescue Fraud Protection Act prohibits loan modification companies from collecting advance fees and using confusing contract language.

• The settlement will provide a total of $6,857 in refunds to two Oregon consumers. Nine additional Oregon consumers who contracted with The USMAC Law Group may also be eligible for refunds. The company also must pay $22,000 to the Oregon Department of Justice and cease doing loan modification work in Oregon. The settlement, in which The USMAC Law Group admits no wrongdoing, was filed in Marion County Circuit Court this week.

For the Oregon AG press release, see Oregon Attorney General John Kroger Uses Mortgage Fraud Protection Law to Crack Down on Loan Modifications (The USMAC Law Group is prohibited from doing loan modifications in Oregon and must pay $28,857 under a settlement with the Oregon Department of Justice).

Illinois Man Posed As Gov't Official While Using Forged Deeds To Steal, Then Sell, Real Estate Out From Under True Owners, Say Chicago Feds

From the Office of the U.S. Attorney (Chicago, Illinois):

• A Chicago man who allegedly posed as a federal government official in a scheme to sell properties he did not own out from underneath the real owners was arrested on federal charges, law enforcement officials announced [...]. The defendant, John Hemphill, was charged with mail fraud and falsely posing as a federal official in a criminal complaint that was filed [...] following his arrest.

***

• According to the complaint affidavit, since approximately 2002, Hemphill has engaged in a scheme to defraud property owners and prospective purchasers of property by creating and recording fictitious deeds with county recorder of deeds offices in various counties in Illinois, posing as the property owner selling the property in question. Hemphill typically filed a fictitious deed with the county recorder that purported to convey title to a parcel of property from its lawful holder to one of Hemphill’s businesses, and then filed a second fictitious deed purporting to convey title to the same property from his business entity (the new purported owner) to a third party.

• Hemphill also falsely represented to prospective purchasers of properties that he and his business entities(1) held title to these properties in their capacity as a "federal receiver" or had other lawful authority to convey the properties to third parties. Under these allegedly false pretenses, Hemphill purported to sell these properties to third parties, usually for cash payments.

For the press release, see Chicago Man Accused Of Posing As Federal Official In Alleged Scheme To Obtain And Sell Properties He Did Not Own.

(1) Accoding to the press release, the business entities that he used in this manner are the "United States Mortgage Release Corp." (USMRC) and the "United States Receivers Caretakers Assn." (USRCA). According to state records, Hemphill is the president of both companies, the press release, states. DeedContraTheft

Ex-Attorney Gets Two Years In $60K "Foreclosure Surplus" Swindle From Client; Continued Peddling Services After Disbarment For Earlier Similar Ripoffs

In Orlando, Florida, WFTV-TV Channel 9 reports:

• A former Orlando attorney, who admitted to stealing from his clients in foreclosure, will spend the next two years in prison. He was sentenced Thursday. Three years ago, Norman Moss was handling unclaimed money from the sale of a Lee County property owned by the parents of Loretta Belfiore, but he stole more than $60,000 from Belfiore and her brother.

• In 2008, Moss pleaded guilty to stealing tens of thousands of dollars from foreclosure clients. He was on probation when he was arrested again over the summer for his crime against Belfiore.(1)

• An online document obtained by Eyewitness News showed that Moss started peddling his legal expertise months after he was permanently disbarred in 2008. The document is no longer online, but the Florida State Bar said it could result in a contempt of court charge from the state’s Supreme Court. That charge could be punishable by jail time.

Source: Disbarred Orlando Attorney Going To Prison.

(1) For more on Moss' pre-disbarment foreclosure surplus ripoffs from other foreclosed homeowner-clients, see:

• Ocala Star Banner: Couple says lawyer took their money,
• WFTV-TV Channel 9: Lawyer Apologizes For Stealing Victim's Money,
• Referees's Report (in disbarment proceedings): The Florida Bar v. Norman Sanders Moss (The referee found that Moss engaged in a course of conduct in which he intentionally misappropriated funds totaling over $107,000.00).

Unrecorded Mortgages, Judgment Liens, & Bona Fide Purchaser - Who's On First?

A recent court case decided by the Maryland Court of Special Appeals sets forth the following facts:

1. On July 15, 2005, Bank makes a $150,000 home loan secured by a deed of trust to a homeowner on a home located in Baltimore County.
2. Through inadvertence, the deed of trust was not recorded in the Baltimore County Land Records.
3. On May 11, 2007, as a result of an unrelated lawsuit against the homeowner brought by a third party individual, a judgment for $2,000,000 is obtained against the homeowner; the judgment was recorded and indexed in the Circuit Court for Baltimore County on the day it was docketed (May 11, 2007), and it became a lien against the home that same day for $2,000,000, plus post-judgment interest.
4. The now-$2,000,000 judgment lienholder had no notice (either actual or constructive) of the earlier-created, but as of yet recorded, $150,000 deed of trust on the home.
5. Post-judgment, the $2,000,000 judgment creditor/lienholder sought and obtained a writ of execution and the Sheriff levied on the home by posting notice that it was to be sold. The Sheriff's Sale was scheduled and advertised for October 25, 2007.
6. On October 9, 2007, after the Sheriff's Sale was advertised, Bank finally records its deed of trust in connection with the home loan given on July, 15, 2005, some 2+ years earlier.
7. On October 18, 2007, a week before the Sheriff's Sale, Bank and its title insurer filed suit seeking to enjoin the Sheriff's Sale and to obtain a judgment declaring that, by reason of its now-recorded deed of trust, it has a lien against the home that takes priority over the judgment creditor's earlier-recorded $2,000,000 judgment lien.

Question: Does the $2,000,000 lien held by the judgment creditor have lien priority over Bank's earlier-created, but later-recorded, deed of trust?

• If you said the earlier-recorded $2,000,000 judgment lien has lien priority over the later recorded $150,000 deed of trust, you're wrong!

The court ruled that the earlier-created mortgage has priority over the later-created judgment lien, even though the judgment lien was actually recorded prior to the mortgage.

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

This case provides a reminder that simply because one interest in real estate is recorded before another doesn't mean that the earlier-recorded interest has priority over the latter.

Further, the ruling provides an illustration of the general rule in determining the priority of competing liens encumbering real estate that one who holds a lien against real estate by reason of he/she/it being a judgment creditor is not a bona fide purchaser for value because it does not "purchase" its lienholder's interest in the property "for value." The judgment lien is obtained simply by recording a money judgment in the county land records. Accordingly, its lien will be inferior in priority to an earlier-created, but later recorded, deed, deed of trust, or mortgage.

In Maryland, this general rule is codified in the state recording statutes at Section 3-201, which appears in Subtitle 2 of Title 3 of the Real Property Article. Title 3 governs "Recordation" and Subtitle 2 is entitled "Priorities Based on Recording." In its ruling, the Maryland Court of Special Appeals noted:

• Section 3-201 further provides, in relevant part, that "[e]very deed, when recorded, takes effect from its effective date as against . . . every purchaser with notice of the deed, and every creditor of the grantor with or without notice." Mary B. is not a "purchaser" of the Property, whether bona fide for value or otherwise. Eastern Shore Bldg & Loan Corp. v. Bank of Somerset, 253 Md. 525, 530 (1969) (quoting Stebbins-Anderson Co., Inc. v. Bolton, 208 Md. 183, 188 (1955) (stating that a judgment creditor is not a bona fide purchaser for value)). Within the meaning of the words in RP section 3-201, Mary B. only can be a "creditor" of Petr.

***

• That position also is supported, even more strongly, by Knell v. Green St. Bldg. Ass'n, 34 Md. 67 (1871), which holds that a judgment obtained after the execution, but before the recording, of a previously executed mortgage does not take priority over the mortgage. Indeed, the wording of RP section 3-201 incorporates the holding in Knell.

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

For one to be considered to be a bona fide purchaser (aka good faith purchaser) in the context of real estate transactions, one must acquire, or purchase, its interest:

• in good faith,
• for value, and
• without notice (either actual or constructive) of any third-party claim, or other legal or equitable interest.

This case merits attention here from a legal standpoint(1) because it is a reminder that to receive the special protection of the recording statutes, all three of the above requirements must be met. Failure to meet all three requirements renders the protections of the recording statutes inapplicable, in which case priority is determined on the date the competing interests are created (and without regard to when they are actually recorded in the county land records).

(Earlier posts in this blog on the bona fide purchaser doctrine have focused on the issue of notice - more specifically, constructive notice - in the context of undoing or unwinding certain real estate scams like bogus sale leaseback foreclosure rescue ripoffs and other unwitting title transfers.(2))

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

For the court ruling referenced above, see Chicago Title Insurance Company v. Mary B., No. 2219/08, 2010 Md. App. LEXIS 1 (January 4, 2010).

Thanks to Bill Collins of Crossroads Abstract, Rochester, NY for the heads-up on this court case.

(1) From a human interest standpoint, the story within the story is that, Mary B., the judgment creditor in this case, was a minor female who was sexually victimized on numerous occasions over a period of years, beginning when she was 13 years old, by the homeowner/judgment debtor Petr, who was also her aunt's then-boyfriend, and soon-to-become uncle by marriage. Mary B. lived in the home with Petr and her aunt. By the time Mary B. was 14, she had been impregnated twice by Petr: the first pregnancy ended in a miscarriage; the second resulted in the birth of a son, Jesse B.

Mary B. ceased living in the home in 2006, when the local department of social services intervened, removing Mary and Jesse from Petr's home and placing them in foster care. The civil lawsuit she filed for battery that yielded the $2,000,000 judgment was in connection with the rape committed against her by Petr. Prior to filing, and during the pendency of, the civil suit for battery, Mary B.'s representatives conducted multiple title searches on the home to determine that their were no recorded liens against the home. Undoubtedly, learning of the existence of the earlier-created, unrecorded mortgage shortly before the scheduled Sheriff's Sale must have caught Mary B.'s representatives by surprise. Further, the ruling of the Maryland appeals court must have hit them all like a ton of bricks, particularly since the lower court in this matter ruled in Mary B.'s favor, finding that her judgment lien had priority over the Bank's $150,000 deed of trust, only to be reversed by the appeals court.

By the way, Petr is now a ward of the Maryland Department of Corrections, where he is serving a 20-year prison sentence for second-degree rape.

(2) See, for example:

• Lack Of Knowledge Or Partcipation In Fraud Not Enough To Sustain Bona Fide Purchaser Status In Equity Stripping, Foreclosure Rescue Deal,
• Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.

Lender’s Refusal To Modify Loan May Have Violated Borrowers’ Fifth Amendment Due Process Rights, Says Federal Judge In Denying Motion To Dismiss

In San Diego, California, iStockAnalyst reports on a recent ruling by a Federal judge denying a motion to dismiss filed by a foreclosing lender in a lawsuit alleging that it failed to grant a loan modification to a delinquent homeowner pursuant to the Federal government's Home Affordable Modification Program ("HAMP").

• The case involves non-judicial foreclosure proceedings on a single family home in Ramona, California. The borrower defaulted on the mortgage in November 2007. In February 2008, a notice of default was recorded and served. And in December 2008, a notice of sale was recorded and served, setting a date for the public auction of borrower's home. The borrower has alleged that their Fifth Ammendment rights to due process have been violated, and a federal court has refused to dismiss the case.

***

• The most interesting aspect of the case is that the borrower alleges that the lender violated their Fifth Amendment procedural due process rights, even though the Fifth Amendment only applies to governmental actions, not those of private corporations. The court, in refusing to dismiss the complaint, agreed that in some circumstances the Fifth Amendment does apply to private entities, so long as there is sufficient nexus between the government and the private entity.

For more, see Federal Court: Denial of Loan Modifications May Constitute Violation of Fifth Amendment.

See also: Calculated Risk: HAMP Loan Modifications and the Fifth Amendment.

For the ruling, see Huxtable, et ano. v. Geithner, et al. (available online courtesy of Foreclosure Combatant).

Thanks to mortgage servicing fraud watchdog Mike Dillon at GetDShirtz.com for the heads-up on the court case.

Procedural Rules Violation Trips Up Foreclosing Lender Lacking Capacity To Sue As Florida Judge Dismisses Action Against Strapped Homeowner

In Pinellas County, Florida, foreclosure defense attorney Matt Weidner blogs:

• On December 16, 2009 Pinellas County Circuit Court Judge Anthony Rondolino granted a Motion to Dismiss which was filed by St. Petersburg attorney Matthew D. Weidner on December 16, 2009. The foreclosure case was filed by Wachovia Mortgage against Weidner’s Client, Pinellas County resident Anne Matacchiero.

• Weidner’s Motion to Dismiss asserted that because the entity filing the lawsuit was not properly identified as a Florida corporation, that Plaintiff could not continue its pursuit of the case according to Florida states and rules of civil procedure that restrict the activities of out of state corporations.(1)

• According to Weidner, the ruling has major impact on foreclosure cases filed across the State of Florida and in Pinellas and Hillsborough County in particular because the Plaintiff’s are not identified as required by law in the vast majority of cases. Weidner further claims that, “If this argument was effectively made and the same ruling issued, it could result in approximately 70% of the cases currently pending in Pinellas County being dismissed.”

For more, see Foreclosure Case Dismissed in Pinellas County Based on Florida Rule of Civil Procedure 1.120(a).

Thanks to the blogger(s) at Foreclosure Hamlet and Rob Harrington at LoanChex, Inc. for the heads up on these developments.

(1) See Willis & Baruch's Florida Rules Decisions reporter for the following commentary on this case:

• In this Mortgage Foreclosure case, the Defendant/Homeowner prevailed on a Motion to Dismiss based on Rule 1.120(a), Fla. R. Civ. Pro., arguing that the Plaintiff had not adequately plead that it had the capacity to sue.

• "'Capacity to sue' is an absence or legal disability which would deprive a party of the right to come into court." Here, the caption of the Complaint lists the Plaintiff as "Wachovia Mortgage, FSB, F.K.A., World Savings Bank." No further identification of the Plaintiff or explanation of the Plaintiff's capacity to sue is set forth in the Complaint. After the Defendant moved to dismiss the case, the Plaintiff attempted to address the defect in a Response to Defendant's Motion to Dismiss. The Court found that the Plaintiff's response was inadequate as the Complaint itself was still defective and that, by failing to sufficiently identify itself in the Complaint, the Plaintiff effectively denied the Defendant the right to address the Plaintiff's identity in a responsive pleading.

For the court order, see Wachovia Mortgage v. Matacchiero, No. 08-16936 (Fla. 6th Cir. Ct. Dec. 15, 2009).

Appeals Court Reverses Foreclosure Judgment, Scraps Suit By Lender Who Relied On Certified Mail Only To Send Default Notice To Delinquent Homeowner

A June, 2009 decision of an Ohio Court of Appeals ruled that a foreclosing lender's failure to either deliver a notice of default providing an opportunity to cure, as expressly required in the note and mortgage, to a delinquent homeowner, or send it to her by first class mail, was enough to reverse a summary judgment of foreclosure against the homeowner and dismiss the foreclosure action. In this case, the foreclosing lender sent the notice of default by certified mail only, which went unclaimed, and was subsequently returned to the lender as such. From the ruling (paragraphs 26, 28-29):

• The express language of the note and mortgage requires that notice be given by either first class mail or by delivery to the property address or other address provided by the mortgagee. National City did not send the notice of default via first class mail. Instead, it sent the written notice of default by certified mail to Richards at the property address. National City states that it utilized certified mail to ensure that Richards received the notice of default. However, National City subsequently received a certified-mail return receipt, stating that the certified mail had been unclaimed.

***

• Here, had National City mailed its notice of default via ordinary, first class mail, it would not only have been entitled to a rebuttable presumption of delivery based on the mailbox rule, but would have satisfied the express requirements of the note and mortgage. By contrast to the facts in Doyle, however, National City mailed its notice of default to Richards only by certified mail, which was returned to National City unclaimed. National City did not mail a notice of default by ordinary mail, either contemporaneously with its certified-mail notice or after return of the certified-mail envelope. Accordingly, no presumption of delivery arose. Moreover, even if a rebuttable presumption had arisen upon National City's certified mailing, the presumption was decisively rebutted by the uncontradicted evidence that the certified mail was returned to National City unclaimed.

• In a final attempt to demonstrate compliance with the requirements of the note and mortgage, National City suggests that the postal service's unsuccessful attempts to deliver the certified mail to Richards's property address equate to delivery, as permitted in the note and mortgage as an alternative to first class mail. We disagree. "Delivery" presumes the giving or yielding of possession or control to another. See Black’s Law Dictionary (7th Ed.1999); Webster's Encyclopedic Unabridged Dictionary (Random House 1997). The postal service did not give or yield possession of the notice of default to Richards. To the contrary, each attempt by the postal service to transfer the notice to Richards failed, ultimately leading to the postal service's return of the notice to National City. Notification that certified mail is being held for a recipient is undeniably distinct from delivery of the certified-mail contents. Here, the postal service's return of the certified-mail envelope to National City eliminates any possible inference of delivery to Richards.

Representing the homeowner in this case was attorney Rachel K. Robinson of Equal Justice Foundation, Columbus, Ohio.(1)

For the ruling, see National City Mortgage Co. v. Richards, 182 Ohio App.3d 534, 2009-Ohio-2556, 913 N.E.2d 1007 (10th App. Dist.).

See also, Ohio Practical Business Law Blog: Yes, You Really Do Have to Follow the Notice and Cure Provisions in the Promissory Note.

(1) Equal Justice Foundation is a 501(c)(3) nonprofit organization providing legal representation to low income persons.

Ohio Doc Nearly Loses All After Unwittingly Co-Signing Promissory Note Booby-Trapped w/ Cognovit Clause; Says Lender Sprung It On Him At Loan Closing

In Newark, Ohio, The Newark Advocate reports:

• A local doctor co-signed on a commercial loan to help a Newark couple develop a 30th Street property and nearly lost everything for his efforts. Mourad Abdelmessih, a neurologist, said he did not fully read the contract when he co-signed the cognovit note, which sets aside every defense a borrower might otherwise have. "It gives banks the leverage, for whatever reason, to call back the loan," Abdelmessih said. "It puts every business owner or operator in jeopardy, even if not in default. They have no right to trial and cannot defend themselves."

***

• The bank wanted to foreclose on the property and force Abdelmessih to pay the $370,000 difference between the liquidation value and current loan value. The bank got a court judgment against Abdelmessih, garnished one bank account and wanted to garnish his wages. "I was really flabbergasted," Abdelmessih said. "I couldn't believe this could exist in the United States and in a civil society. They hire an attorney for me to speak against me."

***

• James Thurston, spokesman for Ohio Bankers League, said, "It's a pretty generally accepted business practice in Ohio. If you don't want to take a loan with that specific practice, you don't have to." [...] Dave Stuthard, head of commercial loans at Chase Bank in downtown Newark, said the cognovit feature is common in commercial loans and certainly not hidden.(1)

***

• The problem, Abdelmessih said, is digesting so much information at the closing. "It is (spelled out), but it's among the 125 papers that you sign," the doctor said. "And, you've already set up the plan. It is really too late to let people know about it at closing. You're already ready to go. My point is to let people know what they're signing," Abdelmessih said. "If you couldn't refinance, you could be forced into bankruptcy."

For the story, see Licking County doctor: Commercial loan procedure unfair (Banks say borrowers made aware of ramifications).

(1) Use of the cognovit language in promissory notes is not allowed in most states - only a few states allow it. In Indiana, for example, not only is it prohibited, it's a Class B misdemeanor (punishable by a $1,000 fine or 180 days imprisonment) to slip the cognovit language into a promissory note or to try to enforce a cognovit note taken in another state or other jurisdiction where such a racket is allowed by law. Indiana Code 34-54-4-1.

For more on cognovit notes in Ohio, see:

• Ohio Rev. Code 2323.13(D): Sets forth the exact "warning" language required to be used when a lender wants to booby-trap a promissory note for a commercial loan (can't do it on a consumer loan) with this clause,
• Ohio Practical Business Law Blog: Cognovit Promissory Notes Explained,
• Ohio Practical Business Law Blog: The Ten Most Important Things to Know about Cognovits and Confessions of Judgment in Ohio.

NY Times: Nation's Largest Title Underwriter Failed To Disclose Suits Accusing Two Subsidiaries Of Playing Roles In Mortgage Fraud Schemes

The New York Times reports:

• For years, Fidelity National Financial, the nation’s largest title insurance company, did not tell investors about dozens of lawsuits accusing two units and several employees of playing a role in an elaborate mortgage fraud scheme in San Diego. The first lawsuits by victims of the fraud were filed in 2006 and the architect of the scheme pleaded guilty in 2007, claiming in sworn depositions that Fidelity National employees helped concoct the paperwork for the sham home sales at the heart of the scheme. Fidelity National did not mention this litigation to its shareholders until October 2009 — a silence that speaks volumes about how tricky “full disclosure” can be in a world that increasingly demands it but rarely defines it.

***

• But whether the company’s disclosure decision is relevant to the civil litigation, it may be relevant to the marketplace — Fidelity National is a public company, with 2008 revenue of $4.33 billion and shares that trade on the New York Stock Exchange. And while title insurance and escrow accounts do not seem like the stuff of white-knuckle drama, the legal adventures that gave rise to the San Diego cases would keep “Law & Order” rolling for months.

***

• [Confessed criminal Rollo Norton II] and two associates, who also pleaded guilty, are cooperating with federal prosecutors, who say their criminal investigation is continuing. Several current and former Fidelity National employees are asserting their Fifth Amendment rights, seeking to avoid testifying in civil suits. The company has settled several dozen claims filed against the two subsidiaries, the Chicago Title Company and the Chicago Title Insurance Company, apart from the ones scheduled for trial at the end of the month.

• The company’s chairman has said the settled claims exceed $83 million, before insurance — a bit more than its latest quarter’s profits — and some of its insurers are balking at the legal bills and losses.

For more, see A Public Company Defends Staying Silent About a Legal Snarl.

See also, The Florida Times Union: Fidelity National Financial refutes claims that it violated disclosure laws (Fidelity dealing with numerous lawsuits from a mortgage fraud scheme in San Diego).

For the court documents in one of the lawsuits, see Miller, et al. v. Chicago Title Company, et al.

Florida Title Agent Caves On Eve Of Trial; Cops Plea To $660K+ Swindle Of Clients' Real Estate Escrow Funds

In Lakeland, Florida, The Ledger reports:

• A 31-year-old woman pleaded no contest [last] Monday to charges that she stole more than $660,000 while working as a Lakeland real estate title agent. [...] Daniels was the former owner of Independent Title Agency LLC in Lakeland.

• She was arrested March 14, 2008, after an investigation concluded she took $660,786 set aside from clients to pay for title services. Daniels used some of the money to buy a BMW sedan, an in-ground swimming pool and a personal watercraft, according to an affidavit of Michael Hennessy, a detective with the Florida Department of Financial Services' Fraud Division.

• Jury selection was to begin Monday in Daniels' case. Instead, she pleaded no contest to money-laundering, grand theft and three counts of misappropriating escrow funds.

Source: Lakeland Real Estate Title Agent Pleads No Contest to $660,000 Theft. EscrowRipOffKappa

Connecticut Woman Invokes "Estate Planning Defense" After Allegedly Abusing POA To Hijack Title To Elderly Mom's Home & Loot $72K From Bank Accounts

In Milford, Connecticut, The New Haven Register reports:

• An Ansonia woman accused of taking ownership of her elderly mother’s house against her mother’s wishes, and stealing more than $72,000 from her mother’s bank accounts has until the end of the month to consider a plea offer following a brief court appearance Monday. Donna D. Kingston, 61, faces three counts each of first- and second-degree larceny for allegedly abusing the power of attorney her elderly mother gave her over finances, prosecutors said.

• Kingston is accused of emptying $72,000 from her 89-year-old mother’s bank accounts into her own in June and July 2007. She is also accused of using the power of attorney over her mother’s finances to take full ownership of her mother’s house in Ansonia, appraised at $263,000, according to an arrest warrant affidavit.

***

• Kingston, who was arrested is September, admitted to moving her mother’s money into accounts only she could access and taking sole ownership of her mother’s house, but said she did it with her mother’s permission, according to court documents. Kingston allegedly told investigators that it was part of estate planning to protect her mother’s assets from going to the state if she were to become infirm. Investigators said Kingston breached her fiduciary duty and state law by taking control of her mother’s assets.

For more, see Woman weighs plea in family theft case.

Lenders' Failure To Comply With City's Foreclosure Mediation Ordinance Could Result In Broken Chain Of Title, Ownership Problem For Subsequent Buyers

In Providence, Rhode Island, The Providence Journal reports on a potential problem with the city's recently passed foreclosure mediation ordinance:

• As it is written, the “foreclosure mediation ordinance” requires a meeting between lenders and homeowners prior to foreclosure. The goal of the meetings (moderated by an independent third party) is to modify a mortgage so that a homeowner can remain in his or her home.

• Any lender failing to comply with the requirements would not be able to have a deed of ownership recorded by the city Recorder of Deeds, a step necessary to complete the foreclosure process. Mayor David N. Cicilline, whose administration developed the ordinance, says changes are being requested to address problems noted since the roll out of the new mandates in September.

• One potential problem is the breaking of the chain of title if a bank or lender fails to comply with the ordinance. “Should the Recorder refuse to record the foreclosure deed, it would create a gap in the chain of title, which will affect the value of the property and create a problem for the purchaser,” according to a memo from the acting Recorder of Deeds, John A. Murphy.

For the story, see City seeks to add fine to foreclosure law.

More On Questionable Short Sale Flipping

In Nashville, Tennessee, The Tennessean reports:

• [S]ome short sale practices are controversial in an industry already battered by rising numbers of foreclosed or distressed properties, and a recent history of questionable mortgage practices. So, regulators and real estate brokers say homeowners must be alert to a slew of potential risks and consequences of a short sale.

***

• For instance, some brokers or investors get distressed homeowners to give them a legal interest in the property with little or no compensation, via such documents as an option to purchase or power of attorney. The broker or investor then goes out and tries to find another buyer to flip the property to a new owner. In other words, the investor or broker buys it and then resells it quickly to someone else for a higher price, sometimes on the same day, pocketing the spread. That's all well and good if another buyer is found. If not, the flipper can just walk away and the home is foreclosed.

• [Tennessee] State regulators and real estate brokers said that's all perfectly legal, as long as the practice is being properly disclosed to buyers and sellers. One of those doing it is Heather Benjamin, a broker for Reliant Realty in Hendersonville, who worked with Coldwell Banker Barnes a few years ago. Benjamin, a former model, said she got into the short sale business a few years ago as real estate sales lagged, her income fell, and her own home was foreclosed upon.

• She said she discloses everything to homeowners, including the fact that she is planning to sell the home for a profit, and said the homeowners already are in a desperate situation and need someone with experience dealing with lenders. She said she offers them $10 to $100 for an option to purchase the property. [...] Benjamin said she wasn't getting rich off homeowners but did manage to buy a series of townhomes in Davidson County from an investor in December 2008 for $376,000 and sold them for $508,000 a few days later to another investor.(1)

For more, see Desperate homeowners turn to short sales to unload houses (Sales avoid foreclosure but can come with risk).

(1) Attorneys representing homeowners who, either knowingly or not, have had their properties flipped for profit by a real estate broker, agent or anyone else after receiving nominal or no consideration for the option to buy (or power of attorney or any other device) should take a close look at their state's real estate license law for a way to void the deal and recover, for the homeowner, the profit pocketed by the flipper.

For example, in Florida, the state real estate license law provides for a way to potentially undo such an arrangement for the homeowner and possibly recover, from the flipper, the derived profits (and without regard to any amount of disclosure given to the homeowner - interestingly, there are some people who think they can get away with anything and everything when dealing with people who are experiencing financial distress or desperation, as long as they "disclose" it). Chapter 475.43, Florida Statutes, provides:

• In all criminal cases, contempt cases, and other cases filed pursuant to this chapter [ie. Chapter 475, Florida Statutes], if a party has sold, leased, or let real estate, the title to which was not in the party when it was offered for sale, lease, or letting, or such party has maintained an office bearing signs that real estate is for sale, lease, or rental thereat, or has advertised real estate for sale, lease, or rental, generally, or describing property, the title to which was not in such party at the time, it shall be a presumption that such party was acting or attempting to act as a real estate broker, and the burden of proof shall be upon him or her to show that he or she was not acting or attempting to act as a broker or sales associate.

• All contracts, options, or other devices not based upon a substantial consideration, or that are otherwise employed to permit an unlicensed person to sell, lease, or let real estate, the beneficial title to which has not, in good faith, passed to such party for a substantial consideration, are hereby declared void and ineffective in all cases, suits, or proceedings had or taken under this chapter; however, this section shall not apply to irrevocable gifts, to unconditional contracts to purchase, or to options based upon a substantial consideration actually paid and not subject to any agreements to return or right of return reserved.

In the case involving a flipper who is not a Florida licensed real estate broker, and to whom is applicable the above referenced rebuttable "presumption that such party was acting or attempting to act as a real estate broker" in this type of arrangement, such flipper may be exposed to criminal liability for his/her actions, as set forth in Chapter 475.42(1)(a), Florida Statutes:

• A person may not operate as a broker or sales associate without being the holder of a valid and current active license therefor. Any person who violates this paragraph commits a felony of the third degree, punishable as provided in s. 775.082 or s. 775.083, or, if a corporation, as provided in s. 775.083.

As I read Ch. 475.43 and Ch. 474.42(1)(a), taken together, such a flipper in this case who lacks a Florida real estate broker's license may find him/herself in a position of being presumed guilty unless proven innocent of a third degree felony.

For those flippers who do hold a valid Florida real estate broker's license, Chapter 475.43, Florida Statutes presumes that the flipper was merely acting as a real estate agent, in which case the agent would only be entitled to a commission on the sale, and not the entire profit on the flip. The opton contract, power of attorney, or other device would be treated simply as a listing agreement. The statute places the burden of rebutting the presumption in this case on the flipper/Florida real estate license holder.

For those of you outside Florida, a careful review of your state's real estate license law should reveal whether you have a similar statute. (While I recognize that Florida, as a nationally recogonized "scam capital" may have a need for such a law, I find it hard to believe that it is the only state with such a statute. In addition, it wouldn't surprise me that this statute isn't the original work product of the Florida legislature, but rather, it may be an adaptation that's been patterned after the law of another state - possibly California or another state that provides fertile ground for abuses in real estate transactions).

11,000+ Unit NYC Apartment Complex Defaults; City Lawmakers Concerned About Possible Neighborhood Fallout; Appraisers Say $5.4B Property Now Worth $2B

In New York City, Reuters reports:

• The joint venture led by Tishman Speyer and BlackRock Inc that owns New York City's vast Stuyvesant Town/Peter Cooper Village apartment complex on Friday said it missed making its full loan payment, moving the deal one step closer toward possible foreclosure. Credit agencies had warned that the joint venture, has seen the complex's value collapse by more than half since buying it for $5.4 billion in 2006, would likely default as it burned through reserves during a court battle over whether it could deregulate rents and raise them to market prices as swiftly as planned.

***

• The payment lapse could set in motion a foreclosure process, but many experts said that is unlikely -- at least in the near term, given the anemic real estate market. The property is now valued at $2 billion or less, according to appraisers, so a swift foreclosure would mean lenders could lose even more money.

***

• City Council Speaker Christine Quinn and Councilman Daniel Garodnick, who lives in the complex, said they were concerned about any negative impact on the community.

For more, see Huge NYC apartment complex misses loan payment.

See also, New York Post: StuyTown default worries 25,000 tenants (New York real estate giant Tishman Speyer yesterday missed a $16 million mortgage payment for Stuyvesant Town-Peter Cooper Village, raising questions about the future of the 80-acre property and its 25,000 residents).

Go here for other posts on the Stuyvesant Town / Peter Cooper Village fiasco.

Tenants Bail Out, Liens & Fines Pile Up As Lender Seeks To Wrestle Away Control Of Half-Empty, 242 Unit Complex From Landlord In Foreclosure

In Gainesville, Florida, The Gainseville Sun reports:

• With a Saturday deadline to fix 2-year-old city code violations or face $7 million in fines, In The Pines apartment complex instead faces new violations as the owner and a bank trying to foreclose on the property prepare to battle in court over rent payments and a repair fund.(1)

• The complex has been accruing fines of $31,000 per day since a June 2009 inspection found 31 of 33 buildings were still in noncompliance with violations that include deteriorating external wood staircases, failing roofs and electrical issues dating as far back as December 2007. One building was declared uninhabitable in August 2009 because of a sewage leak. The complex needs an estimated $1.2 million in repairs.

***

• A fall report to the mortgage lender showed that 47 percent of the 242 units were occupied. The city is unlikely to collect its fine on a property that faces 32 liens, mostly from maintenance contractors, and a mortgage bank with first dibs on any assets.

***

• As the lengthy foreclosure process proceeds, the bank is seeking to have the court appoint an independent receiver to manage the properties over concerns about the deteriorating value of In the Pines and that the owner is not accounting for nearly $383,000 in monthly rent payments.

For the story, see Problems mount for apartment complex (In the Pines faces new code violations while a bank tries to foreclose on the property).

(1) Reportedly, First Regional Bank of California filed to foreclose on the complex and three Jacksonville complexes Dec. 2, saying owner Francesco Mileto of Fort Lauderdale was in default on $51 million still owed on the properties. Mileto bought the complexes from a Los Angeles condo conversion developer in November 2008, after the initial violations were found, the story states.

Minnesota Man Gets 13 Months For Ripping Off Alzheimer's Victim & 86 Year Old Man Out Of Tens Of Thousands In Separate Home Repair Scams

In St. Paul, Minnesota, The Star Tribune reports:

• James C. Somers, 57, of Roseville, was given a 13-month stayed sentence by [District Judge Teresa] Warner in October after he admitted swindling two vulnerable St. Paul residents out of tens of thousands of dollars for shabby or nonexistent work on their homes and yards. On Tuesday, he returned to court to ask Warner to impose the sentence rather than serve 10 years on probation. He was given credit for 100 days he has spent in custody.

• According to two criminal complaints, Somers persuaded a St. Paul woman with Alzheimer's disease to write him 11 checks totaling more than $29,000 in the spring and summer of 2008. Only two of the checks had notations that gave some hint as to what they were for -- one for $950 said "tree removal," the other for $1,900 said "garage door."

• He also was accused of swindling an 86-year-old St. Paul man in May out of $25,000 for roof repairs when all he did was spray-paint the roof vents so they appeared new. Somers pleaded guilty in the latter case; the former was dismissed. He must pay restitution to both victims.

Source: Two who preyed on elderly, vulnerable sentenced.

Home Repair Scammer Leaves Elderly California Couple Facing Foreclosure After $170K+ Ripoff

In Sacramento, California, The Scaramento Bee reports:

• The crook and one-time killer who bilked Patsy and Oliver Davis out of $172,000 is going to prison, and the elderly couple have since moved into a rebuilt home built with the muscle of area volunteers. But this isn't a story with a feel-good ending for the Davises. The retirees who found themselves ripped off in a contractor scam say the events of the past 3 1/2 years have turned their golden years into what Patsy Davis, 70, called a "nightmare." [...] She told The Bee on Friday that the couple are facing foreclosure on both their homes and that it looks like they're going to file for bankruptcy.

***

• [Keith Lidell] McGowan swooped in on the Davises in July 2006 after city code inspectors cited them for their dilapidated rental on Nogales Street. They took a quick liking to him, after he gained Patsy Davis' sweet side by calling her "mother" and appealing to their spiritual bent "by reading scripture and praying with them," the probation report said. As for the wreck of a rental that had been torn inside out and down to its studs by a parade of bad tenants, McGowan told the Davises he could fix it up for $25,000.

• Three months into the job, he'd tagged them for $58,000 in costs. By October of 2007, they'd written him 57 checks for $252,650, according to the probation report. [...] The report said that experts who evaluated McGowan's work estimated that he did give the couple about $70,000 worth of value, leaving the final price tag on his rip-off at about $172,000.

For the story, see Con man gets prison; Sacramento couple he bilked face two foreclosures.