Saturday, January 30, 2010

Cracked Slab, Leaky Air Duct Create Havoc, Health Problems For Family In New Condo; Floor Damage, Mold Problems Lead To $184K Award Against Builder

In Clinton, Massachusetts, the Worcester Telegram & Gazette reports:
  • The crack running through the slab foundation of a Woodlands condominium owned by Michael T. and Nancy J. Vanasse stretches from the bedroom of their two young sons through two bathrooms — where it results in cracked floor tiles — and probably continues under a hardwood floor beyond that. They aren’t sure, and the couple are done with ripping up the Ledgewood Way unit they spent $375,000 on in 2006.

  • They already have been told they need to spend $90,000 or so to replace the duct and heating system, thought to be responsible for the excessive water vapor that forms in the condo, resulting in home damage and respiratory problems to Mr. Vanasse and the boys, ages 3 and 23 months.

  • In April, the Vanasses were awarded $184,056 in a Worcester Superior Court civil case against Albro Clinton Inc. and Tall Pines Realty Corp., both owned by Woodlands developer Alfred C. Bafaro of Clinton. But they have yet to see a nickel from the award, which was determined by two arbitrators from the court. “The claimants’ condominium has elevated humidity, abnormal condensation, and outbreaks of mold,” the April 20 decision states. “There were clear deviations from the building code and plans regarding the construction of the concrete slab and grading.”(1)

For more, see Woodlands condo owner still owed damages from suit.

(1) Reportedly, the arbitrators said their decision was based on test results from engineers and a mycologist that found that the leaking duct introduces excessive humidity into the condo, and it should be sealed, abandoned, or re-routed. The ducts, visible through a vent in the floor of the children’s bedroom, are built right into the concrete slab under the unit, and it would be an enormous job to rip them out. The arbitrators also determined that Albro breached its warranty, although it allowed that some attempts were made to correct the problem, and failed to follow through on its promise to install a dehumidifying system, the story states. The couple were told that one solution would be to keep windows open at all times, something they found ridiculous — especially in the winter with an infant and a toddler at home.

The dispute is reportedly the latest in ongoing problems at the 493-unit partially developed complex. Last month, a local building inspector issued a stop work order at Woodlands until questions about ownership and possible zoning violations are resolved, according to the story. Meanwhile, officials from various boards plan to meet with residents, Mr. Bafaro and representatives of Clinton Savings Bank, which took back a large chunk of undeveloped Woodlands property at a foreclosure auction in July.

Mold Infestation Leaves Vacant Condo Units In Foreclosure Uninhabitable; Create Health Concerns For Residents In Surrounding Apartments

In Land O' Lakes, Florida, WTVT-TV Channel 13 reports:
  • When two condo units at Glendale Villas in Land O' Lakes went into foreclosure, neighbors were understandably concerned about their own property values. That was last spring. Now, people who live close to units 3 and 4C say property values are the least of their concerns. "This is people's health. These are people's lives, how do you put a price on that," said Andrew Holsinger. The problem is that both units are covered, floor to ceiling, in mold.

  • "These particular units in this association are the worst I've ever seen," said Kathy Bramhall, who manages the complex for a company called Condominium Associates. "The units are uninhabitable and would cause respiratory problems for anyone living in a surrounding unit."

  • Not long after the units went into foreclosure, there was a sewage leak. That in turn caused the mold to start growing out of control. After numerous complaints, the Pasco County Health Department sent an inspector, and the county ordered that the sewage be cleaned up. [...] Code enforcement officers are legally prohibited from entering private property, and as a result, they are powerless to do anything to force the former property owner or the bank that will soon own the units to clean up the mold.

For the story, see With foreclosure, concern over mold.

Prominent Attorney Feels Financial Squeeze After Being Hit With F'closure, IRS Tax Liens; Faces Suspension For "Inappropriately Borrowing" Client Cash

In Louisville, Kentucky, the Courier Journal reports:
  • David Friedman, who won major court victories for the American Civil Liberties Union of Kentucky as its volunteer general counsel for 25 years, including a Ten Commandments case before the U.S. Supreme Court, has left the organization and been ousted from his law firm after being accused of keeping money owed to two clients. The Kentucky Bar Association filed a motion Dec. 7 to temporarily suspend Friedman, 57, from practicing law.

***

  • According to court records and interviews, Friedman withheld, for eight months last year, portions of about $116,000 he owed clients who had won a whistleblower case against the Metropolitan Sewer District. He paid them in full only after they threatened to prosecute and alerted other partners at Friedman's law firm, according to one of the clients, Ray Barber, a former MSD inspector.

  • In an interview, Friedman's lawyer, Peter Ostermiller, did not dispute that account. Responding to a request for an interview, Friedman issued a statement this week apologizing to his clients, his former law partners and family and friends, saying he has “sought to make amends for what occurred.”

  • On Nov. 6, Friedman was “disassociated” from the Louisville firm — then known as Fernandez Friedman Haynes & Kohn — based on “allegations that would bring the firm into disrepute,” said Allan Cobb, its outside counsel. No criminal charges have been filed.

  • Court records showed that Friedman and his wife were sued for foreclosure on their Crescent Hill home in 2007 and again in May 2009 for failing to repay loans. Both cases were later resolved. The IRS also placed liens on the home in 2007 and 2008 totaling $180,021 that are still pending. Barber said in an interview that Friedman eventually told him that he faced foreclosure. “I told him if he needed the money, I would have lent it to him,” said Barber, who now is a farmer in Michigan. “I thought the world of David.”(1)

  • In his statement, Friedman said he regretted “any pain or problems” he caused Barber and fellow plaintiff Sarah Lynn Cunningham, a former MSD engineer. Ostermiller noted the clients have been reimbursed in full and no other complaints against Friedman have emerged. He also said the incident should be weighed against Friedman's contributions as a lawyer, including his “defense of people who nobody else would defend.”(2)

For more, see Civil liberties lawyer David Friedman accused of keeping cash owed to clients.

(1) According to the story, ACLU supporters — and Friedman's legal adversaries — said they were stunned by the allegations. Suzy Post, a past director of the organization, said she was saddened. “He is such a sterling guy.” Bill Stone, a longtime ACLU member and former city law director, said he was “surprised and disappointed. It will be a serious setback if he's not fighting religious liberty cases.” Francis Manion, senior counsel for the conservative American Center for Law and Justice, which frequently battles the ACLU, said, “I have never known David to be anything but an honorable, highly professional and skilled attorney.” State Rep. Tom Riner of Louisville, a Baptist minister, once said of him: “I just wish we had a couple of Christian lawyers like David Friedman,” and U.S. District Judge John G. Heyburn II called him “an exceptional advocate for his causes and clients.”

Friedman, who reportedly has argued more than 40 cases before the 6th U.S. Circuit Court of Appeals, won his biggest triumph in 2005 when he persuaded the U.S. Supreme Court that Ten Commandments displays in two Kentucky courthouses illegally crossed the line separating church and state, according to the story.

(2) A recent California story in The Fresno Bee [see Valley lawyers turn to crime in tough times] noted that the the bad economy may be driving some attorneys to "temporarily borrow" client escrow money, only to later find that the can't pay it all back:

  • Attorneys who steal from clients often start off by "borrowing" money from their clients' trust accounts. They put a little bit of the money back, but not all. After a while, they end up being unable to repay, said Andrew Kaufman, a professor of legal ethics at Harvard Law School. [Carol] Langford[, a San Francisco lawyer who defends lawyers before the California State Bar Court in disbarment cases,] said lawyers often are in denial. They believe they can pay the money back. "Probably 65% to 75% of the time, they're wrong," she said.

Newlyweds Say Mold, Bacteria Drove Them From Recently-Purchased New Home; Pending Foreclosure Could Jeopardize Hubby's Job

In Gloucester County, New Jersey, The Phialdelphia Inquirer reports:
  • After a honeymoon in Mexico, Danielle and David Beety returned to their dream home, a $407,000 yellow stucco on a cul-de-sac in Gloucester County. Their future seemed golden. "We were on cloud nine," said Danielle Beety, a first-grade teacher who also coached high school field hockey. "Everything was going completely great," added David Beety, a mortgage loan originator. That lasted two weeks.

  • Suddenly, Danielle Beety was stricken with severe throat pain and developed flulike symptoms. Her baffled doctors ordered myriad tests. Three times they admitted her to Thomas Jefferson University Hospital in Philadelphia. She required two operations to remove a 5-centimeter abscess inside her neck. "It was like living a live episode of House," David Beety said, referring to the Fox TV show in which the eccentric Dr. House diagnoses mystery illnesses. Each time Danielle Beety returned to their home [...], her fever returned. Her neck would stiffen with such pain she would cry out when she moved.

  • Their house emerged as a suspect when they received an urgent phone call from an environmental engineer who did air and wipe testing in their leaky basement. Michael Stocknoff, owner of A&M Engineering Services in Cherry Hill, reported that he had found elevated levels of mold and gram-negative bacteria - a resistant group of superbugs that can cause respiratory and other ailments. He said they should grab their dog and move out immediately. Doctors seconded the advice.

  • That was nearly a year ago. The couple moved in with Danielle Beety's parents, leaving all their belongings behind. Her health quickly improved, but now the couple struggle to pay mounting bills and to replace their possessions.(1)

For the rest of the story, see Newlyweds chased from their home by mold, bacteria.

(1) Reportedly, the Beetys received notice last week from PHH Mortgage/Charles Schwab that foreclosure on their vacant house would begin next month. David Beety said that could jeopardize his license and job, under new regulations on lenders, plunging them into deeper debt.

Bank Gives Dozens Of Families The Boot From Recently-Foreclosed Motel Loaded w/ Code Violations; Failure To Repair Left Premises Unsafe For Occupancy

In Fulton County, Georgia, MyFoxAtlanta reports:
  • Dozens of families searched for a new place to live [last week] after they were told to move out of their motel rooms on short notice. [...] The Moseley Motel on Fulton Industrial Boulevard was taken over by a California bank after the owner went into foreclosure. But nothing was done to fix the long list of problems which meant dozens of families living at the motel were forced to move.

***

  • Fulton County's Code Enforcement and Health and Human Services were at the motel [last week] to try and help about 125 people, several dozen families relocate. Officials said the motel went into disrepair years ago and several months ago was foreclosed on. The bank which took over the property apparently never fixed any of the problems. "There are a number of code, health and fire code violations. The accumulation of those makes occupancy unsafe at this particular hotel," said Code enforcement administrator Tony Phillips. [...] Fulton County officials said the bank managing the motel is from California and may have jumped the gun in telling the residents to get out so quickly, but still they are going to have to go.

For the story, see Residents at Fulton Motel Told to Leave.

English Regulators Put Heat On British Barristers Suspected Of Mortgage Fraud, Real Estate Scams

In London, England, Financial Times reports:
  • More than 100 law firms suspected of mortgage fraud were investigated last year as part of a crackdown on rogue solicitors. New figures show that last year the Solicitors Regulation Authority, which supervises 113,000 solicitors, completed 106 investigations into firms where there was suspected misconduct in relation to mortgages or property. Of these 106, 22 firms have been closed down, 24 cases have been referred to the police for investigation, and 30 cases have been referred by the SRA to the Solicitors Disciplinary Tribunal, which has the power to strike off solicitors. There are other investigations continuing. The action is estimated to have saved lenders more than £15m.

  • There has been concern about rising levels of property fraud with the SRA’s own figures showing an increase in reports of suspected property fraud involving solicitors up from 85 cases in 2005 to 400 in 2009. In the past, property fraudsters have used corrupt or incompetent solicitors to help them carry out property fraud. [...] Detective Superintendent Robert Wishart, of the City of London Police, national lead force for fraud investigation, said: "We are committed to working closely with the SRA during 2010 and beyond to target corrupt solicitors who we believe are a significant enabler of property fraud.”

Source: Law firms probed over mortgage fraud.

Oregon Regulator Imposes Crackdown On Unlicensed Home Repair Handymen; State Fines Cash-Strapped Homeowner $600 For Soliciting Work On Craigslist

In North Bend, Oregon, The Register Guard reports:
  • Unemployed paper-mill worker Mark Driscoll said he was just trying to pay his bills when he started doing handyman work more than a year ago. Driscoll, a North Bend resident, said he was unaware the state of Oregon requires people who do any kind of construction work for pay, including handyman-type fix-it jobs or minor remodeling, to have a state contractor’s license.

  • So when Driscoll, who did not have a contractor’s license, solicited work via the Internet on the advertising site craigslist, state construction regulators noticed him and fined him $600 for violating state law. The recession has pushed many Oregonians besides Driscoll to try and make ends meet by hiring themselves out, unlicensed, to fix fences, clean gutters, paint houses and perform other handyman tasks.

  • Their rising numbers and the ease of advertising on the Internet has prompted a crackdown by the state Construction Contractors Board. State regulators have issued record numbers of penalties to people like Driscoll.

  • Facing bankruptcy and possible foreclosure on his home, Driscoll said a fine is the last thing he and other unemployed people need as they struggle in the recession. “They are fining people $600 who can least afford it,” Driscoll said. “This is unbelievable. They are throwing people over the edge.”

For more, see A license to repair (In a tough economy, some handymen run afoul of state rules).

Another Foreclosed Homeowner Suspected In Murder-Suicide; Bodies Found In Burning Home Hours Before Eviction Proceedings

In Henrico County, Virginia, the Richmond Times Dispatch reports:
  • A father, mother and son found shot to death in their burning Henrico County home last week were scheduled hours later to undergo eviction proceedings in district court. The state medical examiner's office said [...] that Virginia A. and Robert L. Ware and their adult son, Ashton, each died Friday of a single gunshot wound inside their home [...]. A search warrant filed in Henrico Circuit Court indicates that investigators are searching for evidence of murder and arson in the case, although the medical examiner's office said yesterday that Virginia Ware, 44, died from a self-inflicted gunshot wound.

***

  • [C]ourt documents show the Wares were scheduled to be in court Friday at 10 a.m. to answer to eviction proceedings being brought by Deutsche Bank National Trust. The Ware family property [...] was sold at a foreclosure auction Dec. 2 because of defaulting on a $98,000 loan. Court records show that the home sold for $102,000. A notice to vacate the property within five days was posted on the front door of the family's home New Year's Eve by a Henrico sheriff's deputy.

For the story, see Three bodies in Henrico fire ruled a murder-suicide.

Friday, January 29, 2010

Rhode Island State Cops Probe Allegations Of Lawyers w/ Sticky Fingers; Bag Two Suspected Of Swiping Client Cash, At Least Seven Others In Crosshairs

In Providence, Rhode Island, The Providence Journal reports:
  • Disbarred lawyer Robert D. Natal has been arrested by the police and charged with 11 felony counts for misappropriating $1,136,013 from real-estate transactions.(1) He is the second disbarred lawyer within a week to be charged with misappropriating clients’ money.

  • Todd M. Amaral, a correctional officer at the Adult Correctional Institutions who lost his license to practice law last October, was charged on Jan. 16 with two counts of unlawful appropriation and two counts of forgery. The total in his case was just over $50,000. According to the Supreme Court’s disciplinary counsel, David D. Curtin, Amaral eventually repaid the money owed to the clients, but not until Curtin’s office began investigating the alleged thefts.

***

  • Lt. John Lemont, head of the Financial Crimes Unit of the state police, said Monday that there are at least seven other attorneys under investigation for theft of client money, ranging in amounts of $60,000 to $300,000, but that the cases often take a long time to probe because of all the paperwork involved.(2)

For more, see State police: Ex-lawyer took clients’ money.

(1) According to the story, the criminal charges against Natal, who owned Security Title and Escrow Co. Inc., allege that he received funds from real estate closings and failed to remit them to the sellers or to pay off mortgages, taxes, sewer fees and title insurance premiums. They also allege that in one case involving a client he had worked with for nine years, he pocketed a $24,900 deposit for a piece of real estate the client wanted to buy. In another case, he allegedly bounced a $286,076 check to an estate. Reportedly, Natal was so strapped for cash that he hit up his mother-in-law for a $185,000 loan to him and his wife, the proceeds of which were obtained from a reverse mortgage on the mother-in-law's home.

(2) Could it be that the "giant sucking sound" I'm starting to hear is the money draining out of the Lawyers' Funds For Client Protection maintained by the state bar associations across the country? As I've noted on numerous occasions, these funds have been established to reimburse clients who have suffered a loss due to the dishonest conduct of an attorney. The sums of client money that a number of attorneys around the country are allegedly ripping off must have the officials at the state bar associations administering these funds "running around with their hair on fire." In one recent post, I noted a recent story in which the senior counsel for the State Bar of California's Client Security Fund commented that the glut of discipline cases involving loan modification ripoffs committed by California attorneys is "really sort of impacting the bar and the fund specifically." See Calif. State Bar Probers Have Hands Full With Loan Mod Ripoff Complaints; 1200 Probes Pending; Attorney Scams Begin To Drain Client Security Fund.

Some Foreclosed & Short Selling Homeowners Find Themselves Still "On The Hook" For Deficiencies

In Miami, Florida, Bloomberg reports:
  • When John King stopped making payments on his home in Coral Gables, Florida, two years ago, he assumed the foreclosure ended his mortgage contract, he said. Last month, a Miami-Dade County court gave collectors permission to pursue him for $44,000 stemming from the default.

  • King is among a rising number of borrowers who are learning that they can be on the hook for years after losing their homes. Amid a crisis that stripped $6.4 trillion, or 28 percent, from the value of U.S. residential real estate since the 2006 peak, lenders are exercising their rights to pursue unpaid mortgage balances. To get their money, they can seize wages, tap bank accounts and put liens on other assets held by debtors.(1)

***

  • It’s not just foreclosures that can trigger debt collections. Short sales also may lead to deficiency judgments years after former homeowners have moved on, according to [Ben] Hillard, [an] attorney in Largo. [...] “Banks are being very careful to preserve their rights, either outright in the short sale agreement or by using vague language that leaves that door open,” Hillard said. About 90 percent of people who do a short sale think they areoff the hook.”

  • That was the case when two of his clients, Brigitte and John Howard, sold their home in New Port Richey, Florida, almost two years ago without using a lawyer to check the bank’s short sale agreement. “We got a call out of the blue saying we owed $20,000,” said Brigitte Howard, 45. “It was a shock. There was no mention in the short-sale contract that the bank might come after us for the difference.”

For the story, see Lenders Pursue Mortgage Payoffs Long After Homeowners Default.

(1) According to the story, in Florida, courts give mortgage holders as long as five years to seek a deficiency judgment and, if granted, up to 20 years to collect. Usually, they have the option of renewing the judgment if it’s not paid off within 20 years. About a third of U.S. states, including California and Arizona, prohibit collection efforts on primary residences after foreclosure. In some cases, homeowners waive that protection if they refinance. Most states allow collection on unpaid home equity loans.

The story states that the Federal Deposit Insurance Corp., which tracks the amount banks collect after defaulted loans were written off, has reported that these mortgage recoveries rose 48 percent to a record $1.01 billion in the first nine months of last year compared with the year-earlier period. Recoveries on defaulted home-equity loans almost doubled to $392 million, the FDIC data shows. Reportedly, these figures don’t include money retrieved by trusts overseeing mortgage-backed securities, such as the one that holds the loan on King’s former home, or efforts by distressed- asset funds and companies that buy bad loans to profit from collection rights. Such judgments usually tack on court fees, fines and interest.

Foreclosure Rescue Operator Admits To Unauthorized Practice Of Law; Agrees To Refund Pocketed Upfront Fees, Dodges Civil Penalties

The Ohio Supreme Court recently approved a consent decree in which upfront fee foreclosure rescue operator American Foreclosure Specialists, L.L.C. admitted "that it engaged in the unauthorized practice of law by drafting and preparing a court pleading and providing it to one of its customers with instructions to file the same with the court," agreed to refund the $995 fee it clipped from a homeowner/couple, and promised to never engage in the unauthorized practice law again in the State of Ohio.(1)

For the court's ruling, see Ohio State Bar Assn. v. Am. Foreclosure Specialists, L.L.C., Slip Opinion No. 2010-Ohio-148 (January 27, 2010).

(1) American Foreclosure Specialists, L.L.C. dodged the imposition of any civil penalties because, according to the court:
  • it fully and completely cooperated in the investigation of the complaint and admitted engaging in the unauthorized practice of law,
  • only one instance of the unauthorized practice of law was committed,
  • it had never previously been charged with the unauthorized practice of law, and
  • it agreed to fully refund the fee it pocketed.

County Backs Down On Imposing Deed Recording Taxes On Debt Forgiveness In Short Sale Transactions After State AG Weighs In

In Anne Arundel County, Maryland, The Baltimore Sun reports:
  • Anne Arundel County said it will no longer tax short sales on more than a home's purchase price, reacting to an opinion from the Maryland attorney general's office Wednesday that the practice isn't supported by state law. Richard Drain, the county comptroller, said Anne Arundel will collect recordation tax on the sales price, rather than the sales price plus any debt forgiven by the lender. Drain said five homes were taxed at the higher amount, and the money - less than $4,000 total - would be refunded.

***

  • The American Land Title Association wasn't aware of any other community in the country taxing short sales on forgiven debt. But the attorney general's opinion noted that Washington state had begun doing so and then reversed course a year ago. Closer to home, Montgomery County said this month that it had intended to start but decided to hold off to seek legal guidance.(1)

For the story, see Anne Arundel backs down on taxing short sales (State attorney general's office opinion leads to reversal).

(1) According to the story, Bonnie A. Kirkland, the assistant attorney general who wrote the newly issued opinion, said that debt forgiveness is a separate transaction from the sale. Recordation tax is charged on the balance owed on a mortgage when lenders accept the deed to a property in lieu of foreclosing. But in a short sale, the buyer is a third party who has nothing to do with the debt, Kirkland said.

Thursday, January 28, 2010

Michigan Man Found Guilty Of Using Rubber Checks To Make Court-Mandated Payments In Connection With Earlier Deed Theft Conviction

In Detroit, Michigan, the Detroit Free Press reports:
  • A Grosse Pointe Woods man who used bad checks to pay $26,000 in property taxes as part of a sentencing agreement in a real estate fraud case was found guilty Tuesday in Wayne County Circuit Court of check fraud. A jury found John Matouk guilty of four counts of writing checks with nonsufficient funds over $500, a 2-year felony, and three counts of check, no account, a 2-year felony. A count of tampering with evidence was dismissed at preliminary examination.

  • Matouk pleaded guilty in October to defrauding an elderly couple in a real estate scheme [see Michigan Man Cops Plea In Alleged Home Theft From Elderly Couple]. Before his sentencing, he was required to pay $26,000 in real estate taxes and the outstanding balance on a $650,000 loan. At his sentencing in November, he told Wayne County Circuit Judge Gregory Bill that he paid the taxes. It was discovered later after the checks bounced that he had used bad checks.

For the story, see Man guilty of check fraud in $26,000 debt.

Foreclosure Rescue Operator, Closing Attorney Found Jointly Liable For $690K+ In Bogus Sale Leaseback, Equity Stripping Ripoff

A federal bankruptcy court in New Jersey recently ruled in favor of a homeowner/couple who were screwed over for over $100,000 in home equity by a foreclosure rescue operator in a bogus sale leaseback, equity stripping scam. In addition to holding the operator liable for damages to the tune of $116,791.49 for the amount of stripped equity (to be tripled to $350,374 pursuant to the New Jersey Consumer Fraud Act, N.J. STAT. ANN §56:8-1, et seq., plus other damages, costs and homeowner's attorney fees(1)), the court also made the attorney acting as the closing agent equally liable for those damages for his role in the fraud.

According to this story in the New Jersey Law Journal, the sale-leaseback agreement also contained excessive late fees barred by HOSA, resulting in statutory damages of $293,836, an amount that includes the $240,875 awarded under TILA and HOEPA, plus punitive damages. The judge added $46,000 for the operator's breach of his agreement to pay that sum for the homeowner in the Chapter 13 proceeding. When added to the $350,374 noted above, the damages total up to to $690,210.(2)

The following summary of the case is taken from the Introduction appearing at the beginning of the written decision:(3)

  • Plaintiffs accuse the Defendants of defrauding them through a mortgage foreclosure rescue scam. On the eve of a sheriff's foreclosure sale, Plaintiffs deeded their house worth over $800,000 to Defendant Cleveland with an option to buy it back at $650,000. Cleveland took out a new mortgage, paid off Plaintiffs' old mortgage and pocketed over $100,000. He subsequently defaulted on his mortgage and the new lender commenced a second foreclosure action.

  • This mortgage rescue scam is fraudulent and is an unconscionable commercial practice in violation of New Jersey's Consumer Fraud Act. Furthermore, the sale/leaseback is, in reality, a financing transaction subject to the Truth In Lending Act ("TILA") as amended by the Home Ownership and Equity Protection Act ("HOEPA") as well as the New Jersey Home Ownership Security Act of 2002 ("HOSA"). Since Defendant Cleveland failed to comply with each of these consumer protection statutes, he is liable for the remedies allowed thereunder.

  • Defendant Gahwyler, an attorney at law, violated certain ethical obligations and conspired with Cleveland in his wrongdoings. Gahwyler is jointly liable for all damages and statutory remedies.(4)(5)

Representing the homeowner/debtors in this case was attorney Gabriel H. Halpern, Esq., of the law firm PinilisHalpern LLP.

For the court's findings of fact, its discussion of the aforementioned legal issues raised in this case, and its conclusion, see In re O'Brien (aka O'Brien v. Cleveland), Case No. 03-17448, Adversary Proceeding Case No. 08-1676; (USBC, D. N.J., January 22, 2010).

See also, New Jersey Law Journal: Real Estate Lawyer Liable for Damages for Role in Client's Mortgage Scam.

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

(1) According to the New Jersey Law Journal article, the homeowners' attorney Gabriel H. Halpern, of PinilisHalpern in Morristown, N.J., has already filed an application for $33,932 in legal fees and asked U.S. Bankruptcy Judge Raymond Lyons Jr. to multiply the amount by three, for an enhanced fee of $101,797. (Requesting that a "risk multiplier" be applied to a legal fee calculation as is being reported in this story is not uncommon in contingency fee cases brought under state law). This amount, if approved by the judge, will be added to the total damages to be borne by the foreclosure rescue operator and the closing attorney.

(2) The foreclosure operator and the closing attorney may also be slammed with punitive damages as well.

(3) In addition to the issues of law set forth in the Introduction to the case, the court also addressed the following issues:

  • Common law fraud under New Jersey law: "The New Jersey Supreme Court has defined fraud as follows: The five elements of common-law fraud are: (1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages. Gennari v. Weichert Co. Realtors, 691 A.2d 350, 367 (N.J. 1997) (citation omitted)."

  • Equitable Mortgage: "In order for TILA, HOEPA or HOSA to apply, the Plaintiffs must first establish that the sale and lease-back transaction constitutes consumer credit. They attempt to do so by categorizing the transaction as an equitable mortgage. New Jersey courts of equity have long recognized the doctrine of equitable mortgage [...]. Rutherford Nat. Bank v. H.R. Bogle & Co., 169 A. 180, 182 (N.J. Ch. 1933); [...]."

  • Doctrine of Unclean Hands: The court refused to apply this doctrine against the screwed-over homeowner, who may have engaged in somewhat questionable conduct himself ("A successful unclean hands defense to an injunction proceeding requires a showing by defendant that plaintiff's conduct is inequitable and that it involves the subject matter of the plaintiff's claim." Ciba-Geigy Corp. v. Bolar Pharm. Co., 747 F.2d 844, 855 (1984)).

  • Attorney Malpractice: "Under certain circumstances, an attorney may be liable to a non-client. Petrillo v. Bachenberg, 655 A.2d 1354, 1357 (N.J. 1995) (typically courts limit a lawyer's duty to situations where the lawyer should have foreseen that the third party would rely on the lawyer's work). An attorney also has an ethical obligation to refrain from participating in an illegal or fraudulent transaction. In re Labendz, 471 A.2d 21, 21 (N.J. 1984)."

  • Conspiracy: "Under New Jersey law an attorney may be liable for damages if he assists a client in violating a law or committing a wrongful act. Banco Popular N. Am. v. Gandi, 876 A.2d 253, 263 (N.J. 2005)."

(4) According to the New Jersey Law Journal article, closing attorney Gahwyler faces possible discipline as a result of the case, and is currently facing another civil lawsuit involving a similar scam:

  • The judiciary Web site shows he is charged, in a bankruptcy/foreclosure case, with violating Rule of Professional Conduct 8.4(c), for conduct involving fraud or deceit. The grievance date is listed as June 8, 2008, 12 days after [U.S. Bankruptcy Judge Raymond Lyons] wrote to the U.S. Attorney's Office to report "what may involve violation of the criminal laws of the United States," copying the letter to the Office of Attorney Ethics and the Passaic County prosecutor, as well as to Gahwyler, Cleveland and the O'Briens.

  • Gahwyler, who apparently has closed his law office and could not be reached for comment, is also a defendant in a similar suit, Acerra v. Gahwyler, MON-L- 4579-08, referred to in Lyons' opinion. Edward Hanratty, who represents the plaintiffs in that case, filed the complaint in 2008, but says he only succeeded in serving the "very elusive" Gahwyler in early January. Hanratty plans to move for summary judgment based on Lyons' opinion and testimony from Cleveland's deposition, taken last fall.

(5) To the extent the victimized homeowners can't collect any money on its judgment from the attorney, they might consider filing a claim with the New Jersey Lawyers' Fund for Client Protection, which was established to reimburse clients who have suffered a loss due to dishonest conduct of a member of the New Jersey Bar. According to the Fund's website, for loss claims that are determined to be eligible for a reimbursement there currently is a limit of $400,000 per claimant for claims arising after January 1, 2007 and an aggregate maximum for claims against a single attorney of $1,500,000. Lower per claimant maximums apply to claims arising prior to January 1, 2007, its website states.

A similar recovery fund in Minnesota (Minnesota Department of Commerce's Real Estate Education, Research and Recovery Fund) established to reimburse clients who have suffered a loss due to dishonest conduct of a licensed real estate broker or salesperson, or a licensed closing agent, recently agreed to pay $116,972 to an 87-year-old woman who was cheated out of the equity in her home of 50 years in a similar scam. See State Recovery Fund To Cough Up $116K+ To Compensate Elderly Victim Of Bogus Sale Leaseback Equity Stripping Scam Involving Licensed Real Estate Agent.

For similar funds established to reimburse clients who have suffered a loss due to the dishonest conduct of attorneys in other states and Canada, see:

Maps available courtesy of The National Client Protection Organization, Inc.

Texas Woman Sold Home Out From Under Grandmother, Pocketing Bulk Of Sale Proceeds, Says Suit; Constructive Trust Sought For Value Of Home

In Jefferson County, Texas, The Southeast Texas Record reports:
  • A Groves woman claims her granddaughter sold her home without her knowledge and only gave her $6,000 from the $148,000 transaction. Lenora Fawcett filed a lawsuit in Jefferson County District Court against Stephen and Kimberly Young.

  • Fawcett claims she built a house on property belonging to her daughter and son-in-law, Deborah and Donald Avery, in 1999. According to the complaint, Fawcett paid for the house with cash proceeds from a stock sale and moved into the new home on Memorial Day 2000. A year later, Donald Avery died and left his entire estate to his wife, the suit states.

  • In turn, Deborah Avery deeded the property to Fawcett's granddaughter, Kimberly Young, and her husband, Stephen Young. Although Avery deeded the property to the Youngs, Fawcett says she continued to live in the home with no problems until April 2009 when she fell and became hospitalized. After she was discharged, Fawcett spent four weeks in rehabilitation in a nursing home. According to the complaint, Fawcett then decided to temporarily live with her daughter, Deborah Avery, in Port Arthur. "While recovering, her belongings were removed from her house without her knowledge or consent and placed in a storage POD," the suit states.

***

  • Fawcett wants the court to impose a constructive trust on the proceeds of the sale of property for the value of her home. She is also seeking actual and exemplary damages, interest, attorneys' fees, costs and other relief to which she may be entitled.

For the story, see Groves woman claims granddaughter withheld proceeds from home sale.

BofA At Center Of Another Screw-Up; Central Florida Couple Faces Foreclosure Despite Having Proof That All Mortgage Payments Were Made

In Central Florida, WSOC-TV Channel 9 reports:
  • Roger Wilsford and Teresa Stamey are about to lose their mobile home to foreclosure. Wilsford said he'd been paying his monthly payments of $762 to mortgage company Taylor, Bean and Whitaker, but last August it went into bankruptcy and he didn't know it. "Still, you know, I'd get a bill from Taylor, Bean and Whitaker ["TBW"], so I'd still send my payments,” Wilsford said. For three months, he said, he sent them payments until his daughter, Megan, saw online that TBW was bankrupt.

  • Then Wilsford got a notice from Bank of America Home Loans saying it had taken over his loan. He started sending payments to them, but later Bank of America told him he was nearly $2,300 behind on his mortgage. Megan, who handles Wilsford's financial affairs, said she can't get Bank of America to accept the TBW cancelled checks as proof he made the three payments. "The only thing he could tell me is he wasn't the only one that this has happened to, there was several other people," she said. Action 9 asked Bank of America about Wilsford's claim. A spokeswoman said she'd check into it.

  • Meanwhile, Better Business Bureau president Tom Bartholomy said as the economy causes more mortgage companies to go bankrupt, homeowners could have trouble getting credit for all their payments. "We've had people had to petition bankruptcy courts to get it done," Bartholomy said. Wilsford said he may have to do that or lose his home to foreclosure.

Source: Action 9: Mortgage Company’s Bankruptcy Causes Problem For Homeowner.

Wednesday, January 27, 2010

Miami Judge Forces "Reverse Foreclosure" On Foot-Dragging Lender; Court Grants HOA's Request To "Strong-Arm" Bank Into Taking Title To Home

In Miami, Florida, the South Florida Business Journal reports:
  • Attorneys for the Keys Gate Homeowners Association in Homestead have won a legal victory in a case that could set a precedent for banks that drag their feet in taking title to homes facing foreclosure. The Association Law Group of Miami won the case on behalf of the Keys Gate HOA using what it calls a reverse foreclosure, designed to speed up the process of awarding a property to a bank, thus making the bank liable for fees and maintenance, even if the property is vacant.

  • Based on the reverse foreclosure procedure, Miami Dade Circuit Judge Jerald Bagley awarded title of a home in the Keys Gate development to HSBC Bank on Jan. 12. The home had fallen into foreclosure in 2007. Since then, the home remained in limbo, owned and maintained by the association, but with an HSBC foreclosure action pending for more than two-and-a-half years.

  • "ALG's reverse foreclosure procedure will finally help associations force banks to take title to financially upside down units much faster than ever before,” ALG attorney Ben Solomon said in a news release. As part of the reverse foreclosure, Keys Gate waived its rights to the property and, as the current unit owner, waived its right to public sale.

  • The motion was granted and the clerk of court issued a certificate of title the same day, transferring ownership of the property to the bank. The certificate of title then triggered HSBC Bank's requirement to pay its share of past due assessments, legal fees, court costs and all assessments going forward. “This new legal strategy saved Keys Gate a minimum of eight months or more of bad debt write-offs because the association did not have to wait for the bank to get a foreclosure judgment, schedule a foreclosure sale and sell the property at public auction,” the law firm said in the news release.

  • The practice of banks holding up foreclosure proceedings is not uncommon and has a huge financial impact on associations that must write off month after month of bad debt until the home is taken off its hands.

Source: Miami judge grants reverse foreclosure.

See also: Miami Beach Commissioner Jerry Libbin Applauds 'Reverse Foreclosure' Ruling, Renews Call for State Lawmakers to Enact Comprehensive Foreclosure Reforms:

  • Miami Beach City Commissioner Jerry Libbin (www.jerrylibbin.com) today applauded the "reverse foreclosure" ruling by a Miami-Dade Circuit judge that forced a bank to take title from a homeowner association (HOA) of a property that had not been paying its assessments.

Lien Stripping Bankruptcy Court Trial Between Homeowner & 2nd Mortgage Lienholder A Battle Of "Dueling Appraisers"

A recent bankruptcy court case decided in Northern California provides an illustration of how a trial involving an attempt by a homeowner/debtor to free her home from the encumbrance of a 2nd mortgage lien boils down simply to whether her appraiser's valuation of the home is more persuasive than the one obtained by the 2nd mortgage holder.

In this case, the total debt owed by the homeowner/debtor on her 1st mortgage and unpaid real estate taxes was $550,000. In addition, her home was encumbered by a 2nd mortgage lien which, under current law, can be avoided if she can prove that the loan secured by it is completely underwater. In other words, if the home is worth less than $550,000 (the balance owed on the 1st mortgage and unpaid taxes - ie. the debt having priority over the 2nd mortgage), the 2nd mortgage would be completely underwater and thereby, subject to the bankruptcy law's lien stripping rules. (In that case, the lien would be voided from the home and the outstanding balance owed on the debt secured thereby would be treated as an unsecured debt, which could then be either entirely or partially wiped out, or discharged, by the judge in a Chapter 13 bankruptcy proceeding).

Conversely, if the home is worth anything more than $550,000, the 2nd mortgage would not be completely underwater. In that case, the homeowner would be unable to relieve her home from the lien of that mortgage (which means that any court-approved plan to pay creditors in a Chapter 13 proceeding would have to satisfy the 2nd mortgage in full).

In this case, not surprisingly, the homeowner obtained a $525,000 appraisal for the home while the 2nd mortgage lienholder had it valued for $590,000. Interestingly, the bankruptcy judge rejected the valuations reached by both appraisals; however, he considered the factors addressed in each one to reach his own determination as to what the home was worth.

For the judge's conclusion on the value of the home, and his ruling on whether the 2nd mortgage should be stripped from the debtor's home, see In re Alizotis (Memorandum Decision On Motion To Value And Avoid Lien), Case No. 09-33061DM, (Bankr. N.D. Cal., January 20, 2010).

Foreclosing Lenders Failing To Comply With City Foreclosure Ordinance To Be Clipped $2K & Prohibited From Recording Foreclosure Deeds

In Providence, Rhode Island, The Providence Journal reports:
  • The City Council has approved a $2,000 fine for banks or lenders that fail to follow the city’s new foreclosure ordinance, which requires that lenders attempt to renegotiate mortgages with homeowners before filing a deed of foreclosure with the city. The fine was among a number of amendments that received final approval from the council Thursday.

***

  • The first local law of its kind in the state, it encourages lenders to try to modify a mortgage so that a homeowner can remain in his or her home. A similar one has since been adopted by the City of Cranston. [...] As it is written, the “foreclosure mediation ordinance” requires a meeting between lenders and homeowners prior to foreclosure. 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.

  • But the city has found that failure to comply with the ordinance can lead to breaking the chain of title, which affects the value of the property and creates problems for the purchaser.(1)

For the story, see Council OKs fine for disregarding foreclosure law.

(1) The main problem for the purchaser is that the title to foreclosed property will be muddled up, which will affect its value, and the ability to obtain financing and title insurance for future buyers. An example of muddling up the title to homes going through the foreclosure process is the mess currently going on in Massachusetts involving the apparently faulty titles to homes that have been foreclosed over the last several years throughout the entire state due to the screw-ups of the foreclosing lenders and their attorneys in the foreclosure process. See:

In addition, in the following excerpt from a June 24, 2009 story in the South Florida Daily Business Review (see Judge grapples with her discovery of 15,000 unserved foreclosure cases), Miami-Dade Judge Jennifer D. Bailey similarly alluded to possible future title problems to homes going through the foreclosure process when the screw-ups relate to the failure to properly serve the homeowners with the foreclosure lawsuit (ie. the summons and complaint) when the foreclosing entity initiates the legal action:

  • “It all starts with service. If people don’t get served, all we’re doing is buying ourselves a bunch of title cases in six years,” the judge said [my emphasis added; not in the original].

National Major Media Outlet Shines Light On Allegations Of BofA's Seizures Of Wrong Homes

In New Bedford, Massachusetts, ABC News reports:
  • Some 2.8 million homeowners faced the threat of foreclosure last year, but it wasn't supposed to happen to Charlie and Maria Cordoso. In 2005, the New Bedford, Mass. couple paid in full -- in cash -- for a house in Springville, Fla., and rented it out with plans eventually to use the home as a retirement getaway. They said they were shocked to learn earlier this month that Bank of America had locked them out and removed their clothing and furniture from the property.

***

  • The Cordosos, Portuguese immigrants who are in their 50s, are now suing Bank of America for allegedly seizing the wrong home, and they're not alone: Two other homeowners, one earlier this month in Texas and another last October in Kentucky, also have filed lawsuits alleging that Bank of America attempted to foreclose on their homes even though the bank did not own or service mortgages for the properties.(1)

  • Bank of America has yet to file a response to the Cordosos' claim and to the Texas claim, in which the homeowner alleges that the bank cut power to his property during the faulty foreclosure, leaving it reeking of fish, which were stored in his refrigerator and freezer. (The homeowner had left 75 pounds of fish at the home after a successful fishing trip to Alaska, according to the lawsuit.) [...] The bank believes that the Texas and Kentucky cases, however, "have no merit," [a BofA spokesperson] said, and the bank blames others for the errors.

For more, see No Mortgage, Still Foreclosed? Bank of America Sued for Seizing Wrong Homes (In the Last Four Months, Three Homeowners Have Sued Bank of America for Mistakenly Foreclosing on Their Homes).

(1) For the Texas story, see The Galveston Daily News: Lawsuit accuses bank of seizing wrong house; for the Kentucky story, see Floyd County Times: Man sues after bank takes wrong house.

Tuesday, January 26, 2010

Non-Profit Law Firm Extracts Unwitting Illinois Couple Out Of Sale Leaseback Foreclosure Rescue Mess; Effort Restores Homeowners' Equity, Foils Ripoff

In Round Lake Beach, Illinois, the Lake County News Sun reports:
  • Denied refinancing from their bank and running out of money, a local couple was desperate to lower their mortgage payments. Concerned about providing for their four children and keeping their house, Kevin and Heather Funk turned to a mortgage broker for help. Unfortunately, the mortgage broker almost succeeded in evicting them from the house Kevin grew up in. Thanks to nonprofit law firm Prairie State Legal Services, the Funks were able to retain the deed to their house. "We are seeing more and more of these cases as people in trouble seek out a quick fix," said Larry Smith, managing attorney of the PSLS office in Waukegan.

***

  • The Funks wanted to take advantage of low mortgage interest rates and refinance their 15-year mortgage to a 30-year plan. However, their bank denied their loan request because they had filed Chapter 7 bankruptcy. They selected a mortgage broker from the Yellow Pages, and he assured them that he could help. He kept the Funks waiting for several weeks while promising he would find a lender.

  • "He had us backed into a corner and we were behind on our payment because he told us not to pay the bank. He came up with his plan to steal our home," Heather said. The lender, whose name was not released for legal reasons, suggested that his father purchase the home and the Funks could pay him back. They agreed to this. However, the lender's father was not making the loan payments, even though the Funks were paying him.

  • They received a foreclosure notice, at which point "big time red flags and some bells and whistles" went off and the Funks contacted PSLS. The Funks came close to being evicted, but their mortgage and equity were restored, Smith said.

For the story, see Nonprofit firm battles mortgage fraud (Round Lake Beach family pulled back from brink) (if link expires, try here).

Disbarred Lawyer, Two Others Charged With Grand Theft By False Pretense, Conspiracy For Allegedly Screwing 400+ Struggling Homeowners In Loan Mod Scam

In Orange County, California, The National Law Journal reports:
  • An ex-lawyer in Irvine, Calif., has been arrested on charges of defrauding more than 400 victims in a $1.25 million loan modification scam targeting struggling homeowners. According to the Orange County, Calif., district attorney's office, Christopher Lee Diener, 42, along with two business partners, defrauded homeowners by promising loan modification services in exchange for advance payments. The trio allegedly told customers that they would guarantee their loan modifications, negotiate lower rates with lenders, reduce the principal on their mortgages and have lenders forgive second mortgages or late fees.

  • The accused, who were neighbors, operated under the names Home Relief Services LLC, U.S. Loan Mod Processing, HRS Communications, The Diener Law Firm and Diener Law Group, according to the district attorney's office. Diener allegedly served as the attorney in the scheme. Also arrested was one of Diener's business partners, Terrence Green Sr. Diener and Green are each being held on $1.5 million bond and are expected to be arraigned on Tuesday in Santa Ana, Calif. Each faces one count of conspiracy to commit grand theft and 97 counts of grand theft by false pretense -- both felonies. They face a state prison sentence of up to 70 years. A $1.5 million warrant has been issued for the arrest of the other business partner, Stefano Joseph Marrero.

  • Diener lost his license to practice law in October after the State Bar of California found that his conduct posed "a substantial threat of harm to his clients or the public." California Attorney General Jerry Brown has filed a civil suit against all three defendants.(1)

Source: Former Attorney, Business Partners Charged in Loan Modification Scam.

For the Orange County District Attorney press release, see Lawyer And Business Partnet Arrested On Charges Of Defrauding Over 400 Homeowners In $1.25 Million Loan Modification Scam (A warrant has been issued for a third co-defendant in this case).

(1) According to the Orange County DA's press release on this case, Diener and Green are being held on $1.5 million bail each and, before posting bond, must prove the money is from a legal and legitimate source. This case has been a collaborative effort between the Orange County District Attorney’s Office, the State Bar of California, the Department of Real Estate, and the California Attorney General’s Office.

Calif. State Bar Probers Have Hands Full With Loan Mod Ripoff Complaints; 1200 Probes Pending; Attorney Scams Begin To Drain Client Security Fund

In Northern California, The Fresno Bee reports:
  • [A]mid the real estate free-fall and shady loan-modification programs that sprang from it, some lawyers saw an easy way to make money. The State Bar is investigating more than 300 California lawyers involved in loan-modification rip-offs. Typically, homeowners facing foreclosure complain that they paid attorneys who then did nothing to help them keep their homes.

  • The loss to the public from loan-modification cases is in the millions of dollars, State Bar officials say. Most of the attorneys under investigation are from Southern California, but many of the victims live in the central San Joaquin Valley, enticed by loan-modification companies that advertised on the Internet. "It's the most disturbing thing I've seen in the legal profession practicing for more than half a century," said Howard Miller, president of the California State Bar.

***

  • The State Bar is investigating 1,200 loan-modification cases. As of mid-January, it had resignations from 13 lawyers, and three trials were pending at the State Bar Court, [one Bar investigator] said. Settlements have been reached with lawyers in five cases to accept discipline, he said. There was hope that loan-modification complaints would dwindle when Gov. Arnold Schwarzenegger signed legislation in October that prohibits lawyers from taking advance payments from homeowners. But complaints from people keep coming. "My answering machine is full every day," [the Bar investigator] said.

***

  • The glut of discipline cases involving loan modifications is "really sort of impacting the bar and the fund specifically," said Lori Meloch, senior counsel for the Client Security Fund.(1) Miller, the State Bar president, said his office is aggressively pursuing cases against lawyers. What has occurred is a "violation of every responsibility that lawyers owe their clients," he said. "This is a tough economy for lawyers, as it is a very tough economy for everyone," he said. But when it comes to the actions of lawyers who prey on clients, Miller said, "there's no excuse or explanation."

For more, see Valley lawyers turn to crime in tough times.

(1) The California State Bar's Client Security Fund compensates people who have been victims of acts of theft by a California attorney. According to the story, in 2008, the Client Security Fund paid more than $4.6 million on 479 claims. A client can receive up to $100,000 in compensation, the story states. The fund is supported by fees from lawyers. It typically takes about a year for a client to be compensated by the bar for a lawyer's theft, but this year, the wait could be longer, the story states.

For those ripped off by dishonest attorneys in other states and Canada, see:

Maps available courtesy of The National Client Protection Organization, Inc.

Landlord To Deed Over Title To 11,000 Rental Units As Attempt To Restructure $4.4B Debt On $1.8B Complex Fails; Equity Held By Pensions Appears Doomed

In New York City, The Wall Street Journal reports:
  • A group led by Tishman Speyer Properties has decided to give up the sprawling Peter Cooper Village and Stuyvesant Town apartment complex in Manhattan to its creditors in the collapse of one of the most high-profile deals of the real-estate boom. The decision comes after the venture between Tishman and BlackRock Inc. defaulted on the $4.4 billion debt used to help finance the deal. The venture acquired the 56-building, 11,000-unit property for $5.4 billion in 2006—the most ever paid for a single residential property in the U.S. The venture had been struggling for months to restructure the debt but capitulated facing a massive debt load and a weak New York City economy that has undercut rents and demand for high-priced apartments.(1)

***

  • By some accounts, Stuyvesant Town is only valued at $1.8 billion now, less than half the purchase price. By that measure, all the equity investors—including the California Public Employees' Retirement System, a Florida pension fund and the Church of England—and many of the debtholders, including Government of Singapore Investment Corp., or GIC, and Hartford Financial Services Group, are in danger of seeing most, if not all, of their investments wiped out.(2)

For more, see Tishman Venture Gives Up Stuyvesant Project (High-Profile Purchase of Manhattan Complex Collapses Under Debt Mountain).

(1) According to the story, the property's owners signaled they would be unable to reach a deal with lenders and instead decided to allow creditors to proceed with what amounts to an orderly deed-in-lieu of foreclosure, which means a borrower voluntarily gives the property back to lenders to avoid a foreclosure proceeding.

(2) According to this story, Calpers, the giant California public employees’ pension fund which bought a $500 million stake in the property, has written off its investment. So has Calsters, a California pension fund that invested $100 million, as has a Florida pension fund that put $250 million into the deal.

Monday, January 25, 2010

Nevada AG Bags 3 In Alleged Upfront Fee Foreclosure Rescue Scam; Outfit Accused Of Clouding Title To Homes w/ Bogus Liens To Impede F'closure Process

In Las Vegas, Nevada, the Las Vegas Sun reports:
  • Three men have been indicted on theft charges in an alleged foreclosure rescue scam that bilked people out of thousands of dollars to modify loans, the state Attorney General’s office announced [...]. Jason Todd Wilhite, Ronald Quilang and Benjamin Moraleda allegedly operated a document preparation and loan modification business called Rescorp between June 2008 and January 2009 in Las Vegas. Rescorp charged between $1,200 and $2,200 “for loan modification and document preparation services and misled customers by falsely claiming that their services would prevent foreclosures on their homes and/or that they would obtain loan modifications,” according to a statement released by Nevada Attorney General Catherine Cortez Masto.(1)

***

  • Prosecutors claim the services were never performed, but they also say customers were further defrauded when the men had them sign false documents that gave the men liens on the victims’ homes. Cortez Masto’s office said the documents, which were bogus promissory notes, falsely claimed loans had been made on the properties when in fact no loans had been made. This process allegedly was used to “cloud the title to the home and prevent the legitimate lenders from foreclosing on the victims’ properties.”

For the story, see 3 indicted in alleged foreclosure rescue scam.

For the Nevada AG press release, see Attorney General announces Indictments In Foreclosure Rescue Scam.

(1) Reportedly, Wilhite and Quilang were indicted on three counts of theft by obtaining money in excess of $2,500 by material misrepresentation in violation of state statutes; Moraleda was indicted on four counts of theft by obtaining money in excess of $2,500 by material misrepresentation in violation of state statutes.

"Repeat Offender" Foreclosure Rescue Operator Gets 22 Years For Scamming Homeowners Facing Foreclosure, Banks Out Of $5M

In Orlando, Florida, the Orlando Sentinel reports:
  • Convicted once before in New York of mortgage fraud, Garry Martin moved to Orlando to bilk homeowners and banks out of more than $5 million in recent years, according to the U.S. Attorney's Office. On Friday, U.S. District Judge Anne C. Conway sent Martin, 36, to federal prison until 2032 and ordered the real estate broker to pay more than $1 million to his victims, U.S. Attorney's spokesman Steve Cole said.

***

  • Martin had been convicted in 2006 for similar crimes and prohibited from dealing in real estate. But he obtained a real estate sales agent license and a real estate broker's license upon moving to Central Florida. He created Antigua Housing and Management Inc., Antigua Abstract LLC and several other companies on South Semoran Boulevard. "Through Antigua H&M, Martin obtained money from people facing foreclosure by promising that Antigua would bring their past mortgages current through refinancing and forward their payments to their lenders," a report states on his sentencing. "He then used the foreclosure payments himself and did not pay the banks."

For the story, see 2nd conviction for mortgage fraud gets Orlando man 22 years in federal prison.

Connecticut Man Cops Plea To Peddling Bogus "Accountant Letters" Used In Mtg. Fraud Scam To Obtain "Liars' Loans" From Lenders On Behalf Of Homebuyers

From the Office of the U.S. Attorney (Hartford, Connecticut):
  • Nora R. Dannehy, United States Attorney for the District of Connecticut, today announced that JOSE I. FLORES, 50, of Fairfield Avenue, Stamford, waived his right to indictment and pleaded guilty yesterday, January 20, before United States District Judge Christopher F. Droney in Hartford to one count of conspiracy to commit wire fraud stemming from his participation in a mortgage fraud scheme.

  • In pleading guilty, FLORES, an accountant, admitted that from approximately 2004 to 2008, he conspired with others to defraud mortgage lenders by causing so-called “accountant letters,” which contained materially false information about the loan applicant, to be submitted to lending institutions on behalf of applicants for residential real estate mortgages.(1)

For the U.S Attorney press release, see Stamford Accountant Admits Involvement In Conspiracy To Defraud Mortgage Lenders.

(1) According to court documents and statements made in court, FLORES, who did business as a tax preparer and accountant under the name Harvard Financial Services in Stamford, was approached by the owner of a real estate and mortgage broker in Stamford to create fraudulent accountant letters. Under a mortgage program offered at the time by certain mortgage lenders, mortgage applicants could apply for a so-called “stated income loan,” which did not require income verification [ie. liars' loans]. Through this program, lenders required a letter from the applicant’s accountant or tax preparer verifying, among other things, the applicant’s employment status, particularly for applicants claiming to be self-employed. FLORES agreed to write accountant letters containing false information for the owner of the mortgage brokerage and its loan officers knowing that the letters would be used in connection with loan applications to mortgage lenders. Over the period of several years, FLORES was paid up to $100 per letter by the mortgage brokerage to provide numerous false accountant letters.

Recession Drives Uptick In Cheating, Stealing By Lawyers, Say Calif. Bar Officials; Some Fail To Pay Back Cash "Borrowed" From Client Trust Accounts

In Northern California, The Fresno Bee reports:
  • The recession has driven an increasing number of California lawyers to cheat and steal, say State Bar officials, who expect to discipline or expel hundreds of them in coming months. Financial pressures are behind the increase in lawyer wrongdoing, they say. Complaints are coming from clients who say their lawyers illegally withheld settlement money or charged them for work they didn't do -- especially those who promised help modifying mortgages.

  • This recession has been especially hard on lawyers, said Carol Langford, a San Francisco lawyer who defends lawyers before the California State Bar Court in disbarment cases. [...] Langford said she has seen an uptick in lawyers mishandling client trust funds.

  • Lawyers are required to keep funds in separate accounts for clients. They're supposed to turn over money to a client if a case settles. Attorneys who steal from clients often start off by "borrowing" money from their clients' trust accounts. They put a little bit of the money back, but not all. After a while, they end up being unable to repay, said Andrew Kaufman, a professor of legal ethics at Harvard Law School.

  • Langford said lawyers often are in denial. They believe they can pay the money back. "Probably 65% to 75% of the time, they're wrong," she said. An attorney in Fresno County who misappropriated more than $180,000 from seven clients is an example of what can happen. Timothy Raymond Gelegan said he thought he would reimburse his clients. "That's how I was rationalizing it -- that it was going to be paid in full," he said, when asked recently about what led to his disbarment in March 2009.

  • Gelegan said he was having family problems and alcohol issues, as well as depression. He stopped practicing in 2007 and reported himself to the bar. The bar sought disbarment, and Gelegan stipulated to 12 acts of misconduct and misappropriation of funds from the seven clients. He made restitution of more than $108,000 to two of the clients. The others received more than $94,000 from the bar's Client Security Fund that compensates people who have been victims of acts of theft by an attorney.(1)

For the story, see Valley lawyers turn to crime in tough times.

(1) According to the story, in 2008, the California State Bar's Client Security Fund paid more than $4.6 million on 479 claims. A client can receive up to $100,000 in compensation, the story states. The fund is supported by fees from lawyers licensed in California. It typically takes about a year for a client to be compensated by the bar for a lawyer's theft. This year the wait could be longer.

For Client Security Funds that are intended to soften the blow for those ripped off by dishonest attorneys in other states and Canada, see:

Maps available courtesy of The National Client Protection Organization, Inc.

Sunday, January 24, 2010

More Confusion Surrounds Short Sales As Maryland Municipality Clips Consumers For Additional Recording Taxes On Forgiven Debt

In Anne Arundel County, Maryland, The Baltimore Sun reports:
  • The real estate industry is up in arms about an Anne Arundel County decision to collect taxes on certain types of home sales based not on what the buyers paid, but on what the sellers owed on their mortgages as the deal was struck. What's at issue are short sales, which are homes that change hands for less - sometimes far less - than the balance due on the loans. The county policy may be unique in the country, according to the American Land Title Association, which represents companies involved with home sale settlements.

***

  • Anne Arundel County said it is charging its recordation tax of $3.50 for every $500 on the sales price plus any forgiven debt.(1) If the lender has indicated that it will go after the seller for the remainder owed, then the county will tax just the contract price, as it does with regular home sales. Richard Drain, the Anne Arundel County controller, said it isn't a new policy and the county is simply following state law. [...] Drain said the county's attorneys agreed last week that forgiven short-sale debt is taxable.

***

  • A complicating factor is that it is often unclear at the settlement table what lenders will do about unpaid debt. They frequently don't issue the sort of documentation the county wants as proof that they will seek repayment from the borrower - a promissory note, for instance - but also don't formally let the borrower off the hook. "They say, 'I'll allow the sale to occur,' but they reserve the right to chase the seller for the deficiency," said Andrew Levy, executive vice president and general counsel for Capitol Title Insurance Agency in Crofton.

  • Drain said the county would accept taxes on the fair market value instead, but only if the parties provide proof, such as a recent appraisal, along with a hardship letter from the seller to show financial difficulty.

For the story, see Arundel tax move angers real estate industry (County taxing forgiven debt in short sales).

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

(1) This confusion regarding charging recording taxes/documentary stamps in short sale transactions is not unique to Anne Arundel County, Maryland. At one time, the State of Florida operated with the same belief that debt forgiveness should be considered in the recording tax calculation, as evidenced by this informal letter issued by an employee of the Florida Department of Revenue. To their credit, the Florida DOR subsequently receded from this position by clearly stating, among other things, that:

  • The cancellation of all or a portion of the remaining amount of debt after receipt of the proceeds remaining from the purchase price is not part of the taxable consideration in a short sale transaction since the seller’s debt to the lender was incurred in a prior, unrelated transaction.

See Florida Department of Revenue Technical Assistance Advisement No. 09B4-001 Documentary Stamp Tax – "Short Sales" of Florida Real Property, Section 201.02(1), F.S.

Boulder Man Offered Chance To "Buy Down" Sentence After Copping Plea To Bilking 79-Year Old Employee Out Of $400K+; Victim Left w/ $195K Loan On Home

In Boulder, Colorado, the Boulder Daily Camera reports:
  • The former president of Boulder-based used-car business CarFind USA could spend up to nine years in prison after pleading guilty Wednesday to convincing a 79-year-old employee to loan him more than $300,000 for car payments, vacations and real estate purchases. Larry J. Abrams, 47, of Superior, was scheduled to go to trial next week on felony charges of theft of an at-risk adult, but he instead pleaded guilty in Boulder County District Court to felony theft and criminal attempt to commit theft.

  • He's scheduled to be sentenced April 30 to anywhere from probation to nine years in prison, and he must pay back as much as $403,700 to Dorothy Mannes. "We want to encourage Mr. Abrams to pay back as much as possible before the sentencing," Deputy District Attorney Michael Foote told the judge Wednesday. "Our sentencing recommendation will depend on how much he pays back."

***

  • Foote said prosecutors allowed Abrams to take a deal because it could help Mannes, who is on a fixed income, get more of her money back more quickly. "She is in a desperate situation -- she needs money, and she needs it as quickly as possible," Foote said.

  • Mannes reported Abrams to the Consumer Division of the Boulder County District Attorney's Office on Sept. 3 for not paying back numerous loans, including one for $195,804 in July 2005. In that case, Abrams asked Mannes to place a new mortgage on her home and sign the proceeds over to him, according to the [arrest warrant] affidavit.

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  • On June 29, 2006, Abrams bought a home [...] in unincorporated Boulder County for $235,000. He then sold that property to Mannes a week later for $325,000 and had her sign a deed to turn the property back over to Abrams. "No appreciable improvements are believed to have been made to justify the higher price," according to the affidavit. [...] Mannes, who worked for Abrams at CarFind USA, has been drawing from her retirement to stave off foreclosure on the home she lives in, the affidavit said.

For the story, see Boulder businessman could go to prison for bilking elderly employee (Larry Abrams must pay back more than $400,000).

Florida Homeowner Faces Financial Ruin As City Seeks To Enforce $27K+ "Parking Ticket"

In North Port, Florida, the Sarasota Herald Tribune reports:
  • The used car was a blessing, a gift from her church to help Diane Pearson, a single mother with three children and a long commute to work. And after receiving the 1998 Mercury from her church, Pearson found her drive to Sarasota a bit less stressful. But Pearson lives in North Port, a city that has targeted citizens for violating rules regulating everything from how often you mow your grass to the cars in your driveway.

  • North Port took Pearson to court this month over fines of more than $27,000 for keeping her old car in the driveway without a license plate. If the city wins its case, Pearson could be facing bankruptcy. "It's been a nightmare," said Pearson, 49, who works two jobs to stay afloat as she raises three teenagers. Pearson is one of dozens of North Port residents caught in the city's crackdown on code violations.(1) Officials promised to ease up last year, following complaints that the get-tough approach was too heavy-handed in a community slammed by the recession.

For more, see North Port code net snags another.

(1) A November, 2009 Sarasota Hearld Tribune story reports on another incident where the City of North Port attempts to force the sale of a house to pay $45,500 in city fines that began accruing years ago after a homeowner put up a canopy tent without a $30 permit. The homeowner reportedly also had code violations on a second property that stem from roofing work and enclosing a lanai without permits. Combined, North Port said the homeowner owed $123,000 in fines. For this story, see Code violation fight may cost woman her home.

The City of Northport offered to settle the $123,000 in fines for about $25,000.

West Virginia AG Obtains $214K In Refunds For Consumers In Connection With Alleged Debt Settlement Ripoffs

In Charleston, West Virginia, The West Virginia Record reports:
  • Attorney General Darrell McGraw's office has announced it has reached settlements with three debt relief companies.The settlements, according to a press release from McGraw's office, equal $214,000 in refunds for 226 state consumers. The companies are Clear Financial Solutions of Orlando, Fla., and its owner, Chris Rubini; Financial Freedom of America, Inc. of Dallas, Texas; and Financial Solutions Legal Center, of West Palm Beach, Fla. The three companies also agreed to discontinue providing debt relief services in West Virginia in the future.

For more, see McGraw reaches settlements with three debt relief companies.