Closing Agent Gets 35 Months In $777K Ponzi-Style Escrow Ripoff; Feds Credit 'Katrina' For Foiling Scam; Restitution To Title Underwriter Ordered

In New Orleans, Louisiana, The Times Picayune reports:

• Hubert Ellzey Jr. secretly bilked clients out of $777,000 before Hurricane Katrina put an end to his scheme. When the storm hit Aug. 29, 2005, all real estate closings in the New Orleans area halted for a time, upsetting the Metairie title agent's practice of converting clients' mortgage money to his personal use then covering the misappropriation with money from future mortgage payments.(1) As a result, he pleaded guilty Sept. 23 to wire fraud, and U.S. District Judge Eldon Fallon sentenced him Thursday to almost three years in prison. Ellzey, 68, worked nine years as an independent agent for Commonwealth Land Title Insurance Co.

***

• "The scheme was discovered when, after Hurricane Katrina hit New Orleans ... all closings came to a halt and Ellzey was unable to cover some of the funds converted to his own use and to close the pending mortgages," said a statement from the U.S. attorney's office. [... Judge Eldon] Fallon [...] sentenced Ellzey to 35 months in prison, followed by three years' probation. He also ordered restitution to Commonwealth.

For the story, see Metairie title agent imprisoned for $777,000 wire fraud.

(1) Go here for a description of the mechanics of the swindle on the six specific deals involved in this prosecution.

Iowa Attorney Faces Charges Of Illegally Dipping Into Trust Account Cash Intended For Clients' Real Estate Transactions

In Des Moines, Iowa, The Des Moines Register reports:

• A Des Moines attorney has been accused of theft in a real estate fraud investigation. Kristine Corcoran Frye, 51, faces two counts of first-degree theft for allegedly pocketing some $30,000 in one real estate transaction and $58,000 in another one.

***

• Randall Archer of Archer Construction Inc., one of the victims listed on a Des Moines police report, gave Frye a $40,000 cashier's check from Bankers Trust on Jan. 12, 2009, police said. The check was made payable to Kristine Corcoran Frye's trust account. Police said only $10,000 of the total amount owed on the West Des Moines property was paid. The police report says, "Suspect took the remaining $30,000 from the victim and at no time did the suspect repay the victim or pay the debts she was suppose to in the first place." Archer allegedly had to make up for the missing money by taking it out of his own pocket.

***

• The other alleged victim is Edward Jones Mortgage of Minneapolis. Police said in a report the company was working with Frye to refinance a home [...] last February. Some $115,000 was placed in Frye's trust fund so the deal could go forward, according to Detective Tarry Pote. But Edward Jones Mortgage received just a little over $15,000. Two weeks later Edward Jones received just over $50,000. Together, the two amounts were still short of what was needed."They contacted (Frye) and said that that was not the right amount," Pote said. "She told them to wire back the amount that was sent and she would send them the correct amount." Pote said Frye tried again, but the amount was still some $58,000 shy of the mark required for refinancing and the amount she was given.(1)

Source: Lawyer faces theft charges in real estate fraud case.

(1) If an Iowa attorney screws you out of money or property through dishonest conduct, contact the Iowa Client Security Commission for information on the qualifications to recover some or all of your losses from their fund. Their fund reimburses clients of lawyers who have misappropriated or lost a client's money. According to their website, the purpose of the fund is to prevent defalcations by members of the Iowa bar, and insofar as practicable, to provide for the indemnification by the profession for losses caused to the public by the dishonest conduct of members of the bar of this state. The claim form to be used to apply for compensation from the Commission may be downloaded here: In Rich Text Format; In PDF Format.

For other states and Canada, see:

• Directory Of Lawyers' Funds For Client Protection (courtesy of the American Bar Association);
• Check the USA Client Protection Funds Map;
• Check the Canada Client Protection Funds Map.

NJ Law Seeks To End Illegal "Bulldozing" Of Tenants Out Of Foreclosed Homes; F'closure Purchasers Now Required To Inform Renters Of Right To Stay Put

In Trenton, New Jersey, The Philadelphia Inquirer reports:

• A bill passed by the New Jersey Legislature [last week] would give tenants living in foreclosed buildings a better understanding of their rights. Part of a push by Public Advocate Ronald Chen's office, the bill requires that when a property is sold at a foreclosure sale, the buyer must notify tenants of their right to stay in their homes and explain to whom they should pay rent. The bill, which goes to the governor's desk, also makes lenders responsible for maintaining a property between the time a foreclosure filing is made and the sale. New Jersey law does not allow tenants to be evicted simply because of foreclosure.(1)

Source: Bill to aid tenants in foreclosed buildings passes.

(1) According to a recent story in The Star Ledger [see Tenants take fall for unpaid mortgages], there was an apparent urgent need for this law in New Jersey:

• "Realtors, lenders and property managers are all taking advantage of the fact that tenants don't know their rights," said state Public Advocate Ronald K. Chen, whose office handled complaints from more than 200 tenants, [...] who said they were unfairly treated in foreclosure cases last year. "It's all over the state. Realtors seem to be the biggest offenders in the suburbs and rural areas, and lenders, lawyers and management companies" are misinforming tenants in the cities, Chen said. "When we challenge them, they claim they didn't know they were violating tenants' rights. That is inexcusable."

• In a Housing and Urban Development survey last year, 2,000 New Jersey adults said they were homeless because they had been forced from their apartments. While some, no doubt, had been evicted legally for nonpayment, the HUD survey concluded foreclosure-based evictions accounted for much of the 70 percent increase in the number of homeless former renters.

• "A lot of homeless people are being shoved out of their buildings, and it is even worse for new immigrants who may have trouble with English and don't have leases," said Victor Salvo, director of Newark NOW, [a] storefront nonprofit referral agency [...]. "They feel they have no choice but to leave."

***

• Most tenants [in New Jersey] don't know that, unless the new owner of their building is moving in, they not only can stay but can renew their leases. In New Jersey -- which, Chen says, has the strongest tenant-protection laws in the country -- new owners can evict only with cause, such as nonpayment. No lease? Tenants are still protected under whatever arrangement they had before the property changed hands. When a property reverts to the lender, any responsibility for tenants' security deposits is conveyed with the property, Chen says. If the apartment is sold, the deposit liability passes on to the new owner. Chen adds: "We know there are people out there still telling tenants -- wrongly -- to sue the former owner."

Indiana Man Faces Forgery, Theft Charges For Allegedly Renting HUD-Owned Homes To Would-Be Tenants; Used Craigslist To Reel In Unwitting Renters

In Indianapolis, Indiana, WRTV-TV Channel 6 reports:

• A man was charged with multiple counts of forgery and theft in a real estate scam that investigators said ensnared several victims in Marion and Hamilton counties. Indianapolis police Sgt. Matt Mount said Richard Swoveland, 38, used online postings of homes for sale on the Department of Housing and Urban Development Web site and listed them on Craigslist.com as homes for rent. Using the e-mail alias of aldrichrentals@gmail.com and the name David Aldrich, authorities said Swoveland met and "leased" homes to several people who responded to postings.

• "During the meeting at the homes, the suspect would use a HUD master key to open the front door and allow the victims to view and tour the homes," Mount said. Victims signed month-to-month leases with the suspect and paid him a deposit and the first month's rent, police said. "The victims later discovered the homes they agreed to lease were HUD owned and were for sale, not rent," Mount said.

• Swoveland was being held in the Hamilton County Jail in connection with similar charges there. Police think there are likely more victims in the Indianapolis area and, perhaps, in other Indiana counties.

Source: Several Residents Duped By Real Estate Scam (Police: Man Used HUD Master Key To Open Homes).

Ind. Homeowner Seeks Class Action Status In Suit Alleging Lender Declined Loan Mod Request W/out Giving Written Reason; 3rd Suit Filed By Chicago Firm

In Hammond, Indiana, the Northwest Indiana Times reports:

• As the Obama Administration tries to heal the sickly housing market by pressing lenders to modify loans for struggling homeowners, a Gary couple is taking their personal mortgage fight with GMAC into Hammond federal court. A lawsuit filed [last week] seeks class-action status for borrowers who sought loan modifications from GMAC but were denied the modifications without being given a written reason for the denial.

• The suit seeks an injunction against GMAC as well as attorney fees and damages from the economically bruised lender. [Consumer rights and class action] Chicago lawyer Daniel Edelman filed the lawsuit on behalf of Robert and Brenda Cole, of Gary's Miller neighborhood. Edelman said the Coles took out a "predatory" loan through the now-defunct Ameriquest. The couple suffered through a "last minute" interest rate hike and bogus fees, Edelman said. Edelman said the loan was later taken over by the mortgage arm of Detroit-based GMAC, a lending firm that has now taken three federal bailouts. In June 2008, the Coles applied through GMAC for a loanmodification. GMAC never responded to the request, the suit claims. "A request for (modification) is an application for credit and needs to be appropriately treated as such," Edelman said. [...] The Cole suit is one of three modification-denial suits Edelman has filed in midwestern federal courts.

• Lenders should expect a trend toward this kind of litigation, said Louis Pizante, an expert in real estate law compliance and CEO of the California-based Mavent Inc.(1)

For the story, see Gary couple sues GMAC over loan (Expert thinks suit could be start of trend; GM credit arm denied modification with no written reason).

For the lawsuit, see Cole v. GMAC Mortgage, LLC.

(1) According to the story, Pizante pointed toward a December directive issued by the Federal Reserve Board explicitly stating that, under the Equal Credit Opportunity Act, lenders must issue "adverse action notices" to borrowers when a modification request is declined. Damages for these sorts of suits are capped at $10,000, and class-action damages can't go above $500,000, Pizante said. But federal law provides for attorney fees in these cases, Pizante said. The right of the consumer's attorney to recover his/her legal fees from the lender, through a court order, in the event of a successful lawsuit is generally recognized as the element in these types of cases that "puts the teeth" into the law.

For the Federal Reserve Board directive, see CA 09-13: Mortgage Loan Modifications and Regulation B's Adverse Action.

Federal Judge, IRS Put Kibosh On Wells Fargo Sale Leaseback Scheme; Bank Took Improper $115M Tax Deductions On Deals Lacking Economic Substance: Court

USA Today reported last week on another way that a sale leaseback transaction can be employed in an abusive manner. Were it not for the Federal judge slamming the door shut on this attemped scam by recharacterizing the transactions as an attempt to buy tax deductions in exchange for an upfront fee, the victims of this type of sale leaseback ripoff would have been the American taxpayers. The failed "evil-doer" in this case - none other than the somewhat less-than-beloved alleged "ghetto loans" peddler, Wells Fargo:

• Wells Fargo has lost a lawsuit over more than $115 million in tax deductions based on complex transactions that a Court of Federal Claims ruling said lacked "economic substance." In a ruling issued Friday, the court sharply criticized the large, California-based bank's use of 26 sale and lease transactions with public transit agencies and other tax-exempt entities in 2002.

• The transactions involved assets such as rail cars, locomotives, buses or telecommunications equipment the agencies sold, then leased back from Wells Fargo. The agencies got fees from the deals, and the bank got the opportunity to seek tax deductions on the assets. But the court ruled the bank wasn't entitled to the deductions because the transactions didn't give Wells Fargo the "burdens and benefits" of true ownership.(1)

***

• If the court approved the transactions, "the big losers would be the Internal Revenue Service, deprived of millions in taxes rightfully due from a financial giant, and the taxpaying public, forced to bear the burden of the taxes avoided by Wells Fargo," the judge wrote.

For the story, see Wells Fargo loses tax case on dubious sale-leaseback deals.

For the court ruling, see Wells Fargo & Co. v. U.S. (Tax Refund Suit; Sale In/Lease Out (SILO) Tax Shelters; Depreciation and Interest Deductions; Substance Over Form Doctrine; Genuine Indebtedness; Economic Substance).

(1) In his ruling, Judge Thomas C. Wheeler made this observation in recharacterizing the alleged sale leaseback transactions involved in this racket involving "phantom payments" that purportedly circulated back and forth between the lessor (Wells Fargo) and the lessees, which took place in 2002:

• Although well disguised in a sea of paper and complexity, the SILO [sale in/lease out] transactions essentially amount to Wells Fargo’s purchase of tax benefits for a fee from a tax-exempt entity that cannot use the deductions. The transactions are designed to minimize risk and assure a desired outcome to Wells Fargo, regardless of how the value of the property may fluctuate during the term of the transactions. Indeed, nothing of any substance changes in the tax exempt entity’s operation and ownership of the assets. The only money that changes hands is Wells Fargo’s up-front fee to the tax-exempt entity, and Wells Fargo’s payments to those who have participated in or created the intricate agreements. The equity and debt “loop” transactions simply are offsetting accounting entries not involving actual payments, or pools of money eventually returned to the original holder. If the Court were to approve of these SILO schemes, the big losers would be the Internal Revenue Service (“IRS”), deprived of millions in taxes rightfully due from a financial giant, and the taxpaying public, forced to bear the burden of the taxes avoided by Wells Fargo.

2nd Mortgage Holders Accused Of Illegal Arm-Twisting By Squeezing "Off-Closing Statement" Cash From Agents, Buyers When Approving Short Sale Payoffs

CNBC Real Estate Reporter Diana Olick reports:

• Just as regulators, lawmakers and all forms of financial oversight boards are talking about new regulations to guard against mortgage fraud and another mortgage meltdown, there appears to be yet a new mortgage fraud out there today, allegedly perpetuated by agents of, yes, the big banks. I was first alerted to this by Jeremy Brandt, the CEO of several companies that bring short sale agents, investors and sellers together.

***

• [H]ere's what's not legal and what's apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale. When I say "on the side," I mean in cash, off the HUD settlement statements, so the first lien holder doesn't see it. "They are pretty clear and pretty upfront about the fact that if the first lender knows they are getting paid, the first lender will kill the short sale," says Brandt. "So these second lenders are asking for the payments off the closing documents, off the HUD statement, usually in a cashiers check prior to closing. Once they receive that payment, they will allow the short sale to go through, which according to RESPA laws and the lawyers that we have spoken to on the topic is not legal." I told RESPA specialist Brian Sullivan over at HUD about all this and he replied, "That's a red flag!" Clearly illegal.

• Brandt told me he's heard from at least 200 agents that they've had these requests made by representatives of Citi Mortgage , JP Morgan Chase , Bank of America and other large banks. Most agents wouldn't go on the record with me, for fear of retribution by the banks with whom they have to work every day. But one agent, Kayte Gentry, of Keller Williams Integrity First Realty, was brave enough to blow the whistle.

For the rest of the story, see Big Banks Accused of Short Sale Fraud.

Fair Housing Attorney Welcomes, Encourages Feds In Effort To Pursue Alleged "Ghetto Loans" Peddlers Engaging In "Reverse Redlining"

The New York Times reports on the recent decision by the U.S. Justice Department to increase its focus on discrimination in the area of home loan originations. The following excerpt describes the efforts of one Washington, D.C. civil rights attorney who is currently pursing a large, high profile lender accused of reverse redlining in originating home mortgages on behalf of two cities:

• John Relman, a housing lawyer, said there was plenty of evidence that some banks violated fair housing laws during the subprime boom. Mr. Relman has helped the Cities of Baltimore and Memphis sue Wells Fargo over the costs taxpayers incurred because of foreclosures. As part of those lawsuits, he obtained affidavits from former Wells Fargo loan officers who said the bank had systematically singled out minority borrowers for high-interest, high-fee mortgages, bypassing its own underwriting rules. The State of Illinois has also sued the bank.

• Wells Fargo has denied any wrongdoing. Last week, a judge dismissed Baltimore’s lawsuit, saying there were too many other causes of the damage to inner-city neighborhoods to blame the bank. Mr. Relman said the city intended to file a new complaint that focused more narrowly on recouping costs associated with specific properties.

• But it is much easier for the federal government to sue banks like Wells Fargo. Mr. Relman said he hoped the Justice Department decided to join the cases. “Not only would we welcome them; we encourage them to get involved,” Mr. Relman said. “It’s long overdue.”

Source: Justice Dept. Fights Bias in Lending.

Fight Against Rent Skimming Condo Investors Advances As Recent Florida Court Ruling Permits Blanket Receivership W/out Need To File Foreclosure Action

In Miami, Florida, the South Florida Business Journal reports:

• South Florida businesses and attorneys are developing new tools for homeowner associations struggling with unpaid fees and foreclosures. The latest developments are a legal precedent that allows associations to collect rents immediately when a landlord fails to pay association fees, and a property management company that advances loans to struggling condos with no risk attached.

• Attorney Stuart Zoberg, of Katzman Garfinkel Rosenbaum, won a ruling for his client, Nirvana Condominium Association in Miami, allowing it to collect rents for unpaid fees as soon as a landlord unit owner falls behind. It’s an evolution of the limited “blanket receivership” tool that took hold in local courts last year, where receivers can collect rents directly when a unit is in foreclosure. But, in the new ruling, associations are not required to wait for a foreclosure action.

Source: New tools arrive for struggling homeowner associations.

California Bumps Up Homestead Exemption Protection For Homeowners Against Forced Sale By Judgment Creditors

In California, the Sierra Sun reports on, among others, the following change in California law:

• Assembly Bill 1046 [Section 2] increases homestead exemptions for homeowners across the board by $25,000 each, so the exemption for a single person is now $75,000, for a married couple it is $100,000 and for the disabled and the elderly, it is $175,000. That is the amount of equity in your home you can protect from creditors.

Source: New laws for the new year.

Feds To Scrutinize Lenders For Evidence Of "Ghetto Loans" Peddling, Reverse Redlining In Home Loan Originations

Reuters reports:

• The U.S. Justice Department has set up a new unit to pursue home lending discrimination and already has more than three dozen cases pending, a senior department official said on Thursday. The unit will target "unscrupulous" mortgage brokers and so-called redlining cases in which lenders charge more or refuse to loan money in certain areas like poorer neighborhoods or to lower income individuals, said Thomas Perez, assistant attorney general for the department's civil rights division.

• Also under scrutiny will be lenders who targeted certain products to minority communities which have led to "unprecedented numbers of foreclosures and the resulting disinvestment and blight," he said in prepared remarks to the Rainbow PUSH Coalition's annual Wall Street conference.

• In Maryland only 18 percent of white homeowners had subprime loans while 54 percent of African Americans and 47 percent of Hispanics had subprime loans, he said. Perez said that there are already 38 fair lending investigations pending and that in addition to focusing on bad loan acts in the past, there are signs already that lenders are turning their attention to loan modifications.

• "All too many homeowners in distress are getting solicitations for help with offers that sound too good to be true, because they are," Perez said. Such cases would fall under the Fair Housing Act and Equal Credit Opportunity Act.

Source: US Justice Dept boosting loan discrimination focus.

Residents In 26-Story Landmark Miami Condo Face Boot Over Condemnation Order Due To Rotten Windows; Cost To Replace Could Force Some Into Foreclosure

In Miami, Florida, The Miami Herald reports:

• Shortly before the Christmas holidays, residents of Miami's landmark Palm Bay Towers condo -- a bastion of privilege where the monthly maintenance fee exceeds most folks' mortgage payment -- found a letter taped to their doors outlining what one unit owner later called 'extremely unpleasant' news: The city had condemned the building. Water and power would be cut Jan. 3, and the building would be torn down.

***

• The building hasn't been shut down, though it took an emergency court order and the unusual intervention of the City Commission to override, temporarily, the actions of its own chief building official, who declared the ultra-posh tower unsafe under a law typically used to condemn blighted properties.

***

• The feud -- and Miami building official Mariano Fernandez's condemnation order -- centers on the 26-story tower's nine-foot-tall windows, at least some of which are badly deteriorated and unsafe in a hurricane. Because this is no ordinary building, these are not just any windows -- but 1,875 floor-to-ceiling sliding doors and glass panels that constitute the exterior walls of the three-cornered tower, which rises dramatically on massive pylons sunk into Biscayne Bay at Northeast 69th Street.(1)

For more, see Residents of landmark Miami condo building at war over windows.

(1) According to the story, full window replacement is a job that, by some estimates, would cost around $5 million. Because the building has just 72 units, most as big as a house, that reportedly works out to special assessments ranging from $60,000 to $100,000 for each owner -- and even more for some residents who own more than one unit. Although the building was constructed as a private club for a select slice of the city's social elite -- some longtime residents are now elderly or ill, no longer wealthy, and say they would be forced out of their homes or into foreclosure because they cannot afford the assessment, the story states.

Would-Be Renter Stumbles Into Home Hijacking Scam; DA's Fraud Investigator: "These Crooks Are Really Brazen"

In Vallejo, California, the Vallejo Times Herald reports:

• The tip-off, Jennifer Casey said, was when her e-mailed application to rent the Vallejo property was approved within 20 minutes of sending it. "He never asked for a Social Security number, or bank account numbers, but he did ask for references. But that's not enough time to check anything, so I knew it was a scam then," said Casey, a divorced mother of four living in Vallejo. An ad on Craigslist offered the Vallejo house for $800 per month, plus a $200 deposit. It appeared directly above another ad, for the same property, for significantly more. And that's how Krystle Murphy of Vallejo's Krystle Property Management, Inc. said she discovered what appears to be a case of fraud. She still doesn't know if anyone's fallen for it, she said.

***

• "These crooks are really brazen, especially in Vallejo," [Solano County District Attorney's Office real estate fraud investigator Sonny] Ash said. "They keep an eye on the place to make sure it's empty long enough. They change the locks, print up a rental agreement and just rent the place out. It happens everywhere. [...]."

For more, see Property manager, prospective renter foil apparent scam.

Another Homeowner In Foreclosure Faces Premature Boot As Trigger-Happy Lender Changes Locks Before Public Sale

In Columbus, Ohio, The Columbus Dispatch reports:

• After she lost her job more than a year ago, Deborah Stevens knew she would not be able to keep her Galloway home. She didn't know she would be locked out of the home while she still had title or spend seven weeks trying to reclaim her possessions.

***

• This past fall, as foreclosure became imminent, she began moving some belongings to her boyfriend's home in Canal Winchester. She spent more and more time there as she approached the sheriff's sale of her home, scheduled for Friday. On Oct. 20, she mentioned to a Flagstar attorney that she was considering turning off the utilities, because she could no longer afford them. She thought she was doing the bank a favor with the notice, but in fact, it initiated the steps that pushed her from the home.

• Flagstar, based in suburban Detroit, contacted another suburban Detroit company, Wolverine Real Estate Services, which secures foreclosed properties for lenders. On Oct. 30, Wolverine's crew removed the screen from Stevens' dining-room window, jimmied open the window, entered the home and replaced the locks. In addition to a pile of door locks and handles, the workers left a notice pasted to the window: "Attention: entry by unauthorized persons is strictly prohibited." More than a week later, Stevens found her home locked.

For more, see Foreclosure can bring lockout.

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.