Ohio AG Says Two Calif. Loan Modification Outfits Bilked Homeowners, Failed To Deliver Services In Separate Suits; Scores $81K+ Judgment Against 3rd

From the Office of the Ohio Attorney General:

• Ohio Attorney General Richard Cordray this week named United Law Group, Inc. (ULG), a California law firm founded by California attorney Sean Alan Rutledge, in a lawsuit for bilking Ohioans who faced foreclosure out of thousands of dollars.(1) The lawsuit alleges that the law firm promised foreclosure rescue and legal services to save homes and collected upfront fees but failed to deliver. In at least one instance a consumer was forced into foreclosure. ULG’s attorneys are not licensed to practice law in Ohio and never filed any court documents or provided legal representation on behalf of their clients.

***

• In a separate action [], Cordray filed a lawsuit against Guardian Services Group, also based in California, for promising foreclosure rescue services to Ohioans, accepting upfront fees and never delivering. The suit, filed in Montgomery County Common Pleas Court, accuses the company of charging consumers thousands of dollars and refusing to provide refunds even though the services were never provided.

***

• In early January, Cordray secured a judgment of $81,894 against Michael Brotherton, who operated Financial Emergency, Inc., a rescue business in Greene County. The judgment, filed in the Common Pleas Court of Greene County, stemmed from a lawsuit filed in June charging Brotherton with promising to negotiate debt settlements and loan modifications, collecting upfront fees for up to $1,269 and then failing to deliver. The court ordered full reimbursement to the five victims named in the case.

For the Ohio AG press release, see Cordray Sues two California Rescue Operations for Scamming Ohioans Facing Foreclosure.

For the lawsuits, see:

• State of Ohio v. United Law Group, Inc.,
• State of Ohio v. G Services Group LLC.,
• $81,894 Judgment - State of Ohio v. Brotherton.

(1) According to the press release, in November 2009, the State Bar Court of California ruled that ULG founder Sean Alan Rutledge was to be involuntarily enrolled as an inactive member of the State Bar of California for his conduct, which was found by the court to pose “a substantial threat of harm to his clients or the public.”

Brooklyn Developer Accused Of Selling Condos & Failing To Provide Deeds To Buyers Says Rabbi Deceased For 15 Years "Blessed" Deal

In Brooklyn, New York, the Daily News reports:

• The rebbe made him do it. A Brooklyn developer accused of fleecing dozens of Hasidic families in a massive subprime mortgage fraud scheme took cover behind a divine defense on Tuesday. Eliyahu Ezagui's lawyer told jurors his client received "a blessing" from the late Rabbi Menachem Schneerson to build affordable housing for the Lubavitcher community in Crown Heights.

• "It was a mitzvah to him, a Hebrew word that means a good deed and an obligation," defense lawyer Susan Necheles said in her opening statement in Brooklyn Federal Court. Schneerson is considered by some followers to be their Messiah, and thousands of Hasidim from all over still make a pilgrimage to his grave site 15 years after his death.

• Assistant U.S. Attorney William Schaeffer said Ezagui was nothing but a crook who scammed $2.6 million from condominium buyers and more than $10 million from banks. "Family after family who trusted the defendant are fighting against foreclosure of the homes they bought from him," Schaeffer told the jury.

• Prosecutors built a criminal case against Ezagui after the Daily News revealed in 2008 how he allegedly conned buyers into purchasing condos, then refused to hand over the deeds when the construction was completed. Instead, Ezagui allegedly gave the deeds to family members - including his wife, father and mother - who applied for mortgages on condos the victims thought they owned.(1)

For the story, see Apartment scam developer Eliyahu Ezagui says rebbe backed him.

(1) See Builder flees & 40 Hasidic families face eviction in Brooklyn swindle.

Connecticut AG Fires Warning Shot At Lawyers, Lenders, Real Estate Agents Using Sleazy Tactics To Illegally Drive Tenants From Foreclosed Homes

In Hartford, Connecticut, the Hartford Courant reports:

• New state and federal laws passed last year are supposed to protect renters in foreclosed properties from getting tossed out with little or no notice. But the state attorney general and legal aid lawyers said Monday there is strong evidence that those laws are being violated — and hundreds, perhaps thousands, of tenants have been pressured to leave sooner than legally required. Attorney General Richard Blumenthal said he has sent warnings to 30 law firms, real estate agencies, banks and loan servicers — urging them to follow the law or face further legal action.(1)

***

• The federal law [the Protecting Tenants At Foreclosure Act] gives tenants 90 days to move out of a foreclosed property or until the end of their lease, whichever is later. The tenants must be current on their rent. A state law, also passed last year, gives those doing the foreclosing the option of offering $2,000 or double the security deposit to the tenant to move out sooner, the so-called "cash for keys" program.

For more, see Blumenthal: Laws Protecting Tenants Are Violated.

See also:

• Connecticut AG press release, see Attorney General Warns Law Firms, Banks and Real Estate Companies To Stop Illegal Evictions,
• New Haven Independent: Blumenthal Puts Bankers, Lawyers On Notice.

(1) In coordination with legal assistance attorneys, Blumenthal has sent cease-and-desist letters to at least 30 companies that may have engaged in eviction practices that violate the Protecting Tenants At Foreclosure Act, his press release states. Blumenthal is notifying the companies of their legal obligations and requesting that they follow this federal law. Blumenthal was joined at a press conference this week by legal aid lawyers from New Haven Legal Assistance Association, Greater Hartford Legal Aid, Legal Assistance Resource Center of Connecticut, Connecticut Legal Services and Statewide Legal Services, as well as tenants who have faced unlawful evictions.

For a copy of the statute, see Protecting Tenants at Foreclosure Act of 2009.

Oregon Regulator Issues C&D Order, $250K Fine Against Foreclosure Rescue Operator For Alleged Securities Violations Tied To Sale Leasebacks

From the Oregon Department of Consumer and Business Services:

• The Oregon Department of Consumer and Business Services (DCBS) issued a cease-and-desist order and assessed $250,000 in fines against Anthony "Tony" Schwartz and two businesses he controlled for selling interests in foreclosed homes he seized in a complex foreclosure rescue scheme.

• Schwartz, who owned REI Exchange, LLC and TMG Ventures, Inc. in the Portland area, raised nearly $850,000 by convincing buyers to purchase fractional interests in real estate ―land trusts from the sale of homes seized from owners unable to repay their loans. Schwartz, who was not licensed to sell securities, falsely represented that the unusual, unsecured investments were safe. In addition to the fines, Schwartz is prohibited from raising capital, formally or informally, from other individuals for use or investment on their behalf.

***

• Under a series of complex legal documents, Schwartz lent money to struggling homeowners – some facing imminent foreclosure. In exchange for the home’s title, Schwartz made payments on behalf of the homeowner but would take the home when the homeowner failed to repay the loan. Schwartz claimed the right to seize and sell a house and then pocket – in some cases – significant equity.(1)

For the DCBS press release, see State sanctions promoter of "foreclosure rescue" scheme (Tony Schwartz promised to help distressed homeowners, then illegally sold interests in homes).

(1) According to the story, the Oregon Mortgage Rescue Fraud Protection Act of 2008 protects homeowners from such foreclosure rescue schemes by requiring those who purchase a homeowner’s equity in order to avoid foreclosure to ensure the homeowner has the ability to buy back the home and entitling the homeowner to a share of the proceeds if the home is resold quickly. Schwartz’s activities reportedly occurred before the law took effect.

Mortgage Voided As Lender Fails To Make Inquiries Of Persons In Possession; Unrecorded Rights Of Occupants Take Priority Over Lender's Recorded Lien

In the United Kingdom, Lexology.com reports on a British court case involving the application of the bona fide purchaser doctrine in which a mortgage lender found itself left holding the bag due to its failure to inquire into the rights and equities of persons in possession of a home who were not the record owners/borrowers before making a secured loan to the latter:

• A lender that does not make enquiries of persons known to be in occupation of a property runs the risk that such persons' interests in the property, if any, may override that of the lender.

• This was the position in HSBC Bank Plc v Dyche & Anor. The Dyches bought Mrs Dyche's parents' property for £25,000 (which was less than its market value) with the benefit of a loan from Lloyds Bank for £17,000. The reason for the transaction was to avoid the property being sold by Mrs Dyche's father's trustee in bankruptcy. The parents continued to reside in the property as their home and paid the loan sum, plus interest to the Dyches so that the Lloyds' mortgage was redeemed.

• Contrary to the agreement between the parties, the property was not transferred back to the parents following payment but, following her divorce, was transferred into Mrs Dyche's sole name. She took out a loan with HSBC providing HSBC with a forged assured shorthold tenancy agreement showing her father as tenant. Mrs Dyche became bankrupt and HSBC sought possession of the property.

• The court dismissed HSBC's claim holding that the Dyches had held the property on constructive trust for the parents and that Mrs Dyche's father (the surviving parent) was solely beneficially entitled to the property. His interest overrode HSBC's interest as he was in actual occupation throughout. He was entitled to a transfer of the property to him free of the mortgage.

• Things to Consider: Lender's solicitors [ie. attorneys] should make enquiry of any one known to be in occupation of a property. As per the CML Handbook, a signed deed or form of consent to the lender's interest taking priority should be obtained from any occupier aged 17 or over who is not a party to the mortgage. Failure to make such enquiry here meant HSBC assumed the risk of the tenancy agreement turning out to be forged, so losing their security.

Source: Make enquiries of occupiers (requires subscription; if no subscription, go here - then click link for the story).

For some of the U.S. case law on this issue, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.

For some of the basics on the bona fide purchaser doctrine, see The Bona Fide Purchaser for Value of a Legal Estate Without Notice.

Delaware AG Levels 21-Count Indictment Against Alleged Foreclosure Rescue Racket Using "Divine" Cover In Sale Leaseback, Equity Stripping Ripoff

In Dover, Delaware, ConsumerAffairs.com reports:

• Master Builders for Christ and Vision Builders Christian Center, along with three of its principals, have been charged in a 21-count indictment in Delaware, on charges of running a massive mortgage rescue scam. Warrants have been issued for the arrest of Jamaar Manlove, Larry Manlove, and Rhonda Manlove, and racketeering liens have been placed on their assets. Delaware Attorney General Beau Biden says the case is believed to be one of the largest mortgage rescue fraud indictments in the state's history.(1)

• The indictment alleges that Jamaar Manlove ran a criminal enterprise involving theft, money laundering, and forgery in which he preyed on vulnerable homeowners who faced imminent foreclosure. In these scams, struggling homeowners are convinced to sell their homes to third parties to avoid foreclosure, based on the false promise that they can repurchase their homes through a complex sale/lease-back arrangement when their financial situations improve.(2) In reality, this never happens. Instead, these schemes impose huge hidden fees that take thousands of dollars of equity away from homeowners, and they ultimately lose their homes, unable to obtain financing to repurchase their home.

For the story, see Church Groups Indicted in Delaware Mortgage Rescue Scheme (Largest foreclosure rescue scam in state history, attorney general says).

See also, The News Journal: Pastors accused in mortgage scheme (Middletown couple face charges in rescue scam).

(1) According to a story in The News Journal, the Web site for the church features pictures of the smiling Manloves, professions of faith and descriptions of the church's mission to be "a trailblazer in the world of business and government" whose "message of faith will heal the broken hearted, preach wealth to the poor. ..." The About Us section of the Web site states, "Our integrity is above reproach, and we overcome all life's challenges by maximizing every circumstance and obstacle that we would encounter."

(2) Reportedly, prosecutors have so far identified four victims in the criminal case, plus a fifth victim in a separate but related civil action, with an estimated loss of about $280,000. The Attorney General's Office believes more may have been victimized, and the losses will rise as the investigation proceeds.

Closing Attorney Gets Back-To-Back Boot From State Bars; Accused Of Misappropriating $500K+ Of Client Cash In Rhode Island, $350K+ In Bay State

In Providence, Rhode Island, The Providence Journal reports:

• A Needham, Mass., lawyer is the latest attorney to be disbarred by the Rhode Island Supreme Court for allegedly mishandling a mortgage refinancing. The high court on Jan. 19 barred David L. Spector from practicing in the state for allegedly misappropriating more than $500,000 that was supposed to be paid to banks in connection with four refinancings, including one for a Westerly resident, Doris Krakow, according to according to David D. Curtin, the high court’s disciplinary counsel.(1)

***

• Spector was disbarred in Massachusetts on Jan. 22. His Massachusetts law license was temporarily suspended in March 2009 after three clients complained that he had wrongfully converted $350,525 to his own use instead of paying off lenders. The specifics of the Massachusetts cases have not been publicly disclosed.

For the story, see Attorney disbarred in mortgage payment case.

(1) Spector pocketed $150,369 from ING Bank that should have been forwarded to Washington Mutual Bank to pay off an existing mortgage for Krakow, Curtin reportedly said. As a result, Krakow is now struggling with two mortgages for her Westerly home, but is negotiating with her title insurance company to cover the money Spector allegedly took, Curtin reportedly said. Spector, who consented to disbarment, has not been criminally charged, Curtin said, but Krakow has filed a complaint with the Rhode Island State Police, the story states.

State police charged two disbarred lawyers in the past two weeks with misappropriating money from real estate transactions. Robert D. Natal faces 11 felony counts for mishandling $1.1 million. Todd M. Amaral, a correctional officer at the Adult Correctional Institutions who lost his license to practice law last October, too, was charged with two counts of unlawful appropriation and two counts of forgery. See Rhode Island State Cops Probe Allegations Of Lawyers w/ Sticky Fingers; Bag Two Suspected Of Swiping Client Cash, At Least Seven Others In Crosshairs.

Six Face 82-Count Indictment In Alleged Long Island "Pay Stub Factory" Mortgage Scam; Racket Scored $6M In Fraudulently Obtained Loans On 21 Homes: DA

In Suffolk County, New York, Newsday reports:

• A Brentwood woman ran a "pay-stub factory" to help real estate officers and a Mastic Beach woman steal nearly $6 million in a mortgage fraud scheme involving 21 properties, Suffolk prosecutors said [last week]. Irma Tocco, 60, generated hundreds of fake pay stubs and W-2 income-tax forms for straw buyers, who used the phony documents to obtain loans, prosecutors said.

For more, see Brentwood woman helped real estate firms steal $6M (requires paid subscription).

See also, Long Island Press: DA: 6 Stole $6M in Suffolk Mortgage Fraud Scheme.

State Consumer Fraud Act Yields Triple Damages Award For Homeowners In Bogus Sale Leaseback Equity Stripping Racket

A ruling by a Federal bankruptcy court in New Jersey recently awarded at least $690,000 in damages against a foreclosure rescue operator who peddled a sale leaseback arrangement to a financially strapped homeowner/couple purportedly intended to save them from the loss of their home. (The attorney who handled the closing in this ripoff also found himself sucked into the financial quicksand).

Included in the award were the damages attributable to the foreclosure rescue operator's violation of the New Jersey Consumer Fraud Act (the "CFA"), which allows for a tripling of the actual damages suffered by the victim.(1) The court's application of this statute to the equity stripping ripoff, in which the amount of stripped equity was $116,791.49, resulted in a total damage award for violation of this statute of $350,374.47.

The operator attemped to dodge liability under the CFA by claiming that the victims, by reason of their advanced education, business experience, etc. were sophisticated people, knew what they were doing when they did business with him, and were not misled, deceived, or defrauded in any way. The court addressed this point in the following excerpt (bold text is my emphasis, not in original):

• Defendant Cleveland argues that the CFA does not apply in this case because the O'Briens are sophisticated and "were not misled in any capacity." He claims that "no such deception, fraud or falsity occurred." There is no statutory exception for sophisticated consumers. Even the most sophisticated consumers are entitled to the protections of the CFA.

• Additionally, the terms — unconscionable commercial practice, deception, fraud and false promise — are used disjunctively so it is conceivable that a commercial practice might not be fraudulent or deceptive but would, nevertheless, be unconscionable. State v. Hudson Furniture Co., 398 A.2d 900, 902 (N.J. Super. Ct. App. Div. 1979). In fact, the New Jersey legislature amended the CFA in 1971 to add "unconscionable commercial practice" to the prohibited acts evidencing a more expansive reach than fraud alone. 1971 N.J. Laws, ch. 247. "Violation of the act can be shown even though a consumer has not in fact been misled or deceived. It is not necessary to show actual deceit or a fraudulent act; any unconscionable commercial practice is prohibited." Skeer v. EMK Motors, Inc., 455 A.2d 508, 511 (N.J. Super. Ct. App. Div. 1982); Truex v. Ocean Dodge, Inc., 529 A.2d 1017, 1020 (N.J. Super. Ct. App. Div. 1987).

For the ruling, 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) Use of a state's consumer fraud / unfair business practices laws is not new when seeking redress against the peddlers of these bogus sale leaseback schemes. See, for example:

• Hogan & Hartson Wins $3.3 Million Verdict in Pre-Foreclosure Scam Case: After a week-long trial in the District of Columbia Superior Court, an eight-person jury found that the defendants defrauded the plaintiff Maria Wilson and wrongfully took her home for a tiny fraction of its value. The jury also found that the defendants' scheme, in which they approach homeowners facing foreclosure and offer to help them "keep" their homes through a fraudulent sale-leaseback transaction, violated the D.C. Consumer Protection Procedures Act. The jury awarded Wilson compensatory damages of $60,000, and assessed punitive damages totaling $3.3 million against the three defendants. For the factual background on this case, see Appellate Brief: Wilson v. Modern Management, et al. (available online courtesy of Legal Aid Society of the District of Columbia).

• District Announces Agreement With Title Settlement Company in Mortgage Rescue Scam: Closing agent in the Metropolitan Money Store sale leaseback fiasco that targeted "high-home equity" homeowners facing foreclosure settles for $575,000 with the District of Columbia Attorney General's Office in a lawsuit alleging, among other things, violations of the D.C. Consumer Protection Procedures Act. Go here for the District’s lawsuit.

• D.C. Appeals Case Provides Roadmap For Obtaining Triple Damages Plus Punitives Against Foreclosure Rescue, Equity Stripper: The court found that operator had committed multiple violations of the District of Columbia Consumer Protection Procedures Act, D.C. Code §§ 28-3901 et seq. and awarded treble and punitive damages to the estate of Hattie Smith (who the trial judge described as a "frail, elderly and vulnerable widow") who lost $148,175.41 equity in her home. The treble damage calculation on that amount yielded an actual award of $315,026.23, which represented a multiplier of three minus a credit of $129,500 from other settling defendants.

• Alleged Sale Leaseback, Foreclosure Rescue Scammers To Pay $110K & Restore Title To Property Acquired From Unwitting Homeowners Seeking Help: Howard County, Maryland consumer protection officials use laws prohibiting unfair deceptive trade practices to obtain $110K settlement plus restoration of title to homes in victims' names on behalf of the estate of Betty J. Bullock, who was 63 and legally blind at the time she signed the mortgage papers, and Griselda Mason, then 68. Bullock died in October 2008 of a stroke, before the case settled.

• Foreclosure Rescue Operator To Cough Up $690K+ To Resolve Arizona AG Civil Charges In Alleged Sale Leaseback Equity Stripping Scam: Operator accused of violating, among other laws, the Arizona Consumer Fraud Act, settles with Arizona Attorney General's Office.

• Arizona Foreclosure Rescue Operator Ordered To Pay $1.2M In Home Sale, Leaseback Program: A Phoenix company and its owner were court-ordered to pay $1.2 million in restitution and penalties for violating the Arizona Consumer Fraud Act in a lawsuit brought by the Arizona Attorney General's Office.

• Washington AG Scores Big Win In Bogus Equity Stripping, Land Trust/Sale Leasebacks & Surplus Ripoffs; Foreclosure Rescue Operator Tagged For $4.2M: A Judge ordered a notorious foreclosure rescue scammer to pay more than $3.2 million to victims he wronged plus $179,000 in penalties for violating the State of Washington's Consumer Protection Act.

• Appeals Court Reverses $3M+ Jury Award To Equity Stripping Victims; Homeowners Forced To "Settle" For Triple Damages Under State Consumer Fraud Act: The Colorado Court of Appeals reversed a $3+ million jury verdict (which included $1.5 million in punitive damages) in favor of a Colorado couple who were victimized in a sale leaseback, equity stripping foreclosure rescue scam. In its ruling, the appellate court found that the damages awarded by the jury on six separate claims were duplicative. Accordingly, the court let stand only one of the awards and disallowed the remainder. That award, in the amount of $247,000 representing actual damages against those participating in the foreclosure rescue scam for violation of the Colorado Consumer Protection Act (CCPA), §6-1-101, et seq., was then tripled (for clear and convincing evidence of the existence of bad faith conduct on the part of the scammers) pursuant to §6-1-113 of the CCPA. Consequently, the final award to the aggrieved homeowners was limited to $741,000.

• Foreclosure Rescue Operator Ordered To Return Homes To A Dozen Victims: In a 2005 Nebraska Supreme Court decision, two Omaha area foreclosure rescue operators were ordered to restore title to the homes of a dozen homeowners who the operators fraudulently induced into signing over their home titles, or reimburse them for their damages. In addition, the operators were also ordered to pay approximately $378,000 in attorneys' fees to the lawyers for the victimized homeowners for violations of the Nebraska Consumer Protection Act. For the court ruling, see Eicher v. Mid America Financial Investment Corp., 270 Neb. 370, 702 N.W.2d 792 (2005) (made available online by Findlaw.com - may require free registration ).

For a 50-State Report on Unfair and Deceptive Acts and Practices Statutes: see National Consumer Law Center: CONSUMER PROTECTION IN THE STATES.

Focus Shifts To Special Servicer As Overleveraged Landlord Of 11,000 Unit NYC Apartment Complex Readies To "Mail In The Keys"

In New York City, Crain's New York Business reports:

• In the coming weeks, control of Stuyvesant Town/Peter Cooper Village will pass from one of New York's most glamorous and powerful real estate families to a company that most people have never heard of, a major player in an industry that few even know exists. [...] Stepping into the breach will be CW Capital, a special servicer. Such companies work out troubled-property loans to salvage whatever it can for lenders.

***

• CW Capital will need all of its skills to sort out the wreckage left by the implosion of the largest single residential real estate purchase in history. Lenders who have lost billions of dollars as the property's value shriveled by more than half are jockeying to reclaim what's left of their doomed investments. Meanwhile, prospective buyers are circling, tenants are demanding that services be maintained and that they get a seat in the negotiations, and politicians are vowing to protect the complex's rent-regulated status. “Figuring out the future [of Stuy Town] won't be a simple process, and it won't necessarily be a fast process,” says Dan Garodnick, a City Council member who lives in the complex.(1)

For more, see Picking up pieces at Stuyvesant Town (Special servicer will lead the lenders).

(1) According to the story, one problem facing the servicer is dealing with the affected scores of investors around the world who now find themselves trapped in a giant maze of often competing interests. Like most big real estate deals of the boom years, the debt that helped finance the $5.4 billion Stuy Town deal was reportedly diced up and sold to a variety of investors, each with different rights, depending on the risk incurred.

A touchier problem will be figuring out how much rent can be charged and what rebates are due tenants, following last year's court ruling that the former landlord had illegally jacked up rents on roughly 4,000 units, the story states (see Walls Closing In On Beleaguered Owners Of 11,000 Unit NYC Apartment Complex As State High Court Hammers Landlord For Illegal Rent Increases).

Go here for other posts on the Stuyvesant Town / Peter Cooper Village predatory equity implosion.

NYC Judge: "Rubber Stamp" Method Out-Of-Bounds When Granting Judgment To Zombie Debt Buyers Against Unwitting Consumers; Calls Racket "A Game Of Odds"

In a 2007 court ruling, New York City Civil Court Judge Philip S. Straniere expresses a concern with the growing number of creditors appearing before him seeking judgments against consumers who have allegedly defaulted on credit card debt, and who have failed to make an appearance during the proceedings.

In denying judgment to a creditor in one case, Judge Straniere provides a thorough examination of the procedure that should be applied by judges in New York (and possibly outside New York as well) when scrutinizing creditors in the determination of whether or not to grant judgments on account of the allegedly delinquent debts. His examination may be useful to those consumers (and the attorneys who represent them) being sued by creditors (especially those who are less-than-affectionately referred to as "zombie debt buyers") in attempts to thwart their efforts.(1)

Straniere begins his ruling by providing the following background [all bold text is my emphasis, not in the original; text broken up and enumerated for ease of reading; all citations omitted]:

• Over the past several years this Court has received a plethora of confirmation of arbitration award petitions. These special proceedings commenced by a variety of creditors or their assignees seek judgments validating previously issued arbitration awards against parties who allegedly defaulted on credit card debt payments. In most of these cases the respondents have failed to answer.

• It is almost never apparent, from the filings, (1) what type of process was effectuated on the debtor to notify them of the arbitration proceedings, (2) whether the debtor participated at all in the underlying arbitration, (3) what evidence, if any, the arbitrator considered, (4) what claims the arbitrator ruled upon, and (5) what figures the arbitrator used in calculating each award.

• While the modern day creditor seeks no pound of flesh as did Shakespeare's Shylock in the "Merchant of Venice," the judiciary continues to provide an important role in safeguarding consumer rights and in overseeing the fairness of the debt collection process. As such, this Court does not consider its function to merely rubber stamp confirmation of arbitration petitions.

• A trial court does not have a "mandatory, ministerial duty to grant motion[s] for default judgment on every properly verified complaint on which there has been default; [the] court retains [the] discretionary obligation to determine whether [the] applicant has met th[eir] burden of stating [a] prima facie cause of action," and the same is true for arbitration confirmations pursuant to CPLR Article 75.

• Specifically, "an arbitration award may be confirmed upon nonappearance of the respondent only when the petitioner makes a prima facie showing with admissible evidence that the award is entitled to confirmation." If petitioner fails to establish a prima facie case the confirmation petition must be denied.

• Despite the absence of objections by most of the defaulting respondents, in the interest of justice, this Court chooses to analyze the prima facie showing of each of the petitioners' applications. As a result of such undertaking, the Court often discovers fatal procedural and substantive defects inherent within the petitions.

• The Court is aware of how the market for the sale of debt currently works, where large sums of defaulted debt are purchased, by a small number of firms, for between .04 and .06 cents on the dollar. The incentive therefore, for the firm purchasing the debt, is to herd these cases into arbitration and churn out papers seeking their confirmation as quickly as possible. The entire industry is a game of odds, and in the end as long as enough awards are confirmed to make up for the initial sale and costs of operation the purchase is deemed a successful business venture.

• However, during this process mistakes are made, mistakes that may seriously impact consumers and their credit. The petition at bar is a specimen replete with such defects and the Court takes this opportunity to analyze the filing in detail, in hopes to persuade creditors, not simply to take more care in dotting their "i"s and crossing their "t"s in their filings, but to assure a minimum level of due process to the respondents.

• Why is this debt sold for such a cheap price? Certainly part of the reason is the poor prospects of payment these creditors expect from the defaulting individuals given their past delinquent payment history, while another part is undoubtably to avoid additional costs associated with debt collection. Further yet, is the simple fact that the proof required to obtain a judgment in the creditor's favor is lacking, usually as a result of poor record keeping on the part of the creditor.

• This decision reviews applicable New York cases on confirmation of arbitration awards, and provides additional principles to guide the process. In doing so, it is expected that judicial economy will be served, and more importantly, that the rights, particularly due process, of all parties will be adequately addressed and protected.(2)

For the specific facts of this case, Judge Starniere's examination of the applicable Federal and state law, and his application of the law to the facts in this case, see MBNA Am. Bank, N.A. v Nelson, 2007 NY Slip Op 51200(U), 15 Misc 3d 1148(A) (Civ. Ct. City of New York, Richmond Cty. 2007).

Go here for other posts on zombie debt.

(1) Keep in mind that once a creditor obtains a judgment against a consumer, the recording of the judgment will usually operate to create a lien against any real estate owned by the alleged debtor, and which could result in a forced sale of the property (subject to applicable homestead exemptions under state and Federal bankruptcy law). See Ohio Woman Concerned Over Claim Of Lien On Home For "Zombie" Debt That's Not Hers. For those without real estate, the judgment creditor can still go after wages, bank accounts, and other assets (again, subject to any applicable exemptions under state or Federal bankruptcy law).

(2) Attempts at tightening up the law in this area are being made. See NYC Lawmakers Move To Toughen Regs On Debt Scavengers Buying Up, Filing Lawsuits To Collect "Zombie Debt"

For a post regarding the use of "sewer service" in connection with the filing of lawsuits by zombie debt buyers, see 35 Law Firms Named In Suit Seeking To Void 100,000+ Money Judgments; 20+ Add'l Firms Currently In NY AG's Crosshairs In Ongoing "Sewer Service" Probe.

See also, Justice Disserved, a 2008 report by MFY Legal Services (a nonprofit provider of free legal services in New York) that documents statistics of victims of improper service who had judgments unknowingly entered against them, often to devastating effect.

Family Cops Pleas For Roles In Tax, Bankruptcy Fraud Scam For Hiding Profits, Property Interests In Connection With Hundreds Of Flipped Foreclosures

From the Office of the U.S. Attorney (Greenbelt, Maryland):

• Minh-Vu Hoang, age 59, of Bethesda, Maryland, pleaded guilty [...] to conspiracy to defraud the Internal Revenue Service and the U.S. Bankruptcy Trustee in connection with a scheme to conceal millions in profits earned from the purchase and sale of foreclosure properties.(1)

***

• According to Hoang’s plea agreement, Minh-Vu Hoang, her husband and other family members purchased property at foreclosure auctions beginning in 1999, and resold some of the properties at a profit. Hoang and others deposited and withdrew money from an escrow account for the purchase and sale of properties, and transferred money from the escrow account to business entities they controlled in order to conceal Hoang’s financial interests in the properties. From 2000 to 2005, Hoang and others purchased and sold hundreds of foreclosure properties using the names of their agents or business entities to conceal their involvement in the purchase and sale of the properties, and thereby avoid taxes.

• On May 10, 2005, Minh-Vu Hoang filed for a voluntary petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Maryland. On May 27, 2005, Minh-Vu Hoang filed several false schedules and a false Statement of Financial Affairs with the Bankruptcy Court, in support of her petition. In her Schedules, Minh-Vu Hoang reported a financial interest in only six properties, knowing that she had an interest in other properties, and further reported income in 2003 and 2004 of only $96,000 each year, knowing that her income for those years was substantially higher. She also failed to report her interest in various bank accounts.

For the rest of the press release, see Leader Pleads Guilty in Family Scheme to Conceal Millions in Profits from the Purchase and Sale of Foreclosed Properties (Concealed from IRS Millions of Dollars of Profits Made from “Flipping” Hundreds of Properties Bought at Foreclosure Auctions).

(1) Minh-Vu Hoang's husband and other family members also copped pleas for their roles in the fraud, according to the U.S. Attorney press release.

Blind Victim Of Sale Leaseback, Equity Stripping Scam Peddled As A Refinance Now Faces The Boot, Despite "Successful" Civil Prosecution By Illinois AG

In Chicago, Illinois, the Chicago Sun Times reports:

• There's no question that Coleamer Hodges was scammed out of her South Side home. In a 2006 complaint, the Illinois attorney general office used Hodges' tragic situation to illustrate the unlawful business practices at the core of home rescue fraud, in which companies claim to help residents stay in their homes but then actually sell the homes to third parties.

• Platinum Investment Group, Advantage Mortgage Consulting, Christopher Bidigare, Suellen Carpenter and First Chicago Real Estate Group were found by a Cook County judge to have "engaged in conduct that violates the Consumer Fraud Act." Hodges, 43, had turned to Platinum for help refinancing her mortgage. Representatives picked her up, served her lunch and, although Hodges is blind, had her sign paperwork that she was told was for a refinancing deal.

• "A couple of months later, I got a surprise,'' she said. She got a bill for $1,300, which was actually for rent if she wanted to stay in the home because Hodges' home had been transferred to a straw buyer.

• All of the entities and individuals who were involved in the transaction are now barred from acting as "distressed property" consultants. They were also ordered to pay Hodges $50,000 in restitution. But that hasn't helped Hodges. The guilty parties filed for bankruptcy -- and Hodges' $70,000 in home equity is gone. Wells Fargo, the bank that serviced the fraudulent deal, is now demanding to take possession of the property.(1)

***

• "We were able to successfully prosecute and put these people out of business, but that is not good enough," said [Illinois Attorney General spokesperson Natalie] Bauer. "The issue today is that Ms. Hodges is in a devastating condition and needs help. Wells Fargo needs to step up and do the right thing."

For more, see Victim of scammers now battling bank.

(1) The fact that Ms. Hodges was blind when she was tricked into signing the deed and leaseback agreement (which was reportedly represented to her to be a "refinance" of her home) could make the conveyance void ab initio, in which case, the deed, any subsequent cionveyances, and the current mortgage encumbering the home securing the loan used to finance the swindle would be considered nullities. See:

• Unwinding An Abusive Or Fraudulent Real Estate Transaction? Determining If The Deed Is Void, Or Merely Voidable;
• More On Void & Voidable Deeds, & Unwinding Deed & Refinancing Scams.

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Alternatively, assuming the deed was not void, but merely voidable, Ms. Hodges continued possession of her home throughout the course of being screwed over by the foreclosure rescue peddler could help her establish a viable claim against the current mortgage holder of the loan that was obtained to pull off this scam.

Illinois case law appears to make clear that her open and visible possession of the home places the lender financing the scam on notice of any rights or equities she may be able to establish. See Life Savings & Loan Association v. Bryant, 125 Ill. App. 3d 1012, 81 Ill. Dec. 577, 467 N.E.2d 277 (1st Dist. 1984) (case available on request, drop me a line at HomeEquityTheft@yahoo.com, don't forget to put case name in subject line):

• Illinois courts have uniformly held that the actual occupation of land is equivalent to the recording of the instrument under which the occupant claims interest in the property. (Bullard v. Turner (1934), 357 Ill. 279, 192 N.E. 223; Beals v. Cryer (1981), 99 Ill. App. 3d 842, 426 N.E.2d 253). The open and visible possession of land by the equitable owner is sufficient to charge a mortgagee with notice of the rights of such owner, and the mortgagee will take subject to the rights of the person in possession. Williams v. Spitzer (1903), 203 Ill. 505, 68 N.E. 49. [my emphasis added; not in original]

***********************

The issue of whether the retention of possession by the grantor of property after it is conveyed constitutes notice of the grantor of his or her interest in the property, and to those claiming under the grantee, under Illinois law is addressed in Fidelity Trust & Savings Bank v. Williams (1936), 285 Ill. App. 131, 1 N.E.2d 739:

• The rule of law which seems to control in a like situation is that the retention of possession by the grantor of the property conveyed is notice of his or her interest in the property, and to those claiming under the grantee, and such rule is laid down in the case of Ford v. Marcall, 107 Ill. 136, wherein the court said: "The law is, as this court has declared in White v. White, 89 Ill. 460, that when the grantor of real estate remains in possession, all persons acquiring title from the grantee are chargeable with notice of all the claims of the grantor."

• This rule was followed and approved in the case of Ronan v. Bluhm, 173 Ill. 277, where the court said: "It is proper we should remark, in answer to the discussion upon the point, that as it is conceded by all parties that the said Thomas Ronan did not deliver possession of the premises in question to the grantee, Carbine, but remained in the open and exclusive occupancy thereof, appellee, Bluhm, is deemed, as matter of law, to have taken the conveyance from Carbine with full notice of all the rights and equities of said Ronan in the premises. Illinois Central Railroad Co. v. McCullough, 59 Ill. 166; White v. White, 89 id. 460; Ford v. Marcall, 107 id. 136." It is to be noted from what the court said in this opinion that Bluhm was deemed as a matter of law to have taken the conveyance from Carbine, the grantee of Ronan, with full notice as to all the rights and equities of Ronan in the premises.

• This rule has been passed upon by the courts of this State, and the law is again discussed and approved in the case of Rock Island & Peoria Ry. Co. v. Dimick, 144 Ill. 628. The court in this opinion said: "The law is well settled in this State, as generally elsewhere, when not changed by the recording acts, that open and exclusive possession of lands, under an apparent claim of ownership, is notice to those subsequently dealing with the title of whatever interest the possessor has in the premises, whether the interest be legal or equitable in its nature. Wade on Notice, sec. 273; Davis v. Hopkins, 15 Ill. 519; Truesdale v. Ford, 37 Ill. 210; Smith v. Jackson's Heirs, 76 Ill. 254; Partridge v. Chapman, 81 Ill. 137. It has been held also in this State, that if the grantor remains in possession after conveyance, purchasers from the grantee are affected with notice of the grantor's rights in the land. White v. White, 89 Ill. 460; Ford v. Marcall, 107 id. 136."

• In the case of Porter v. Clark, 23 Ill. App. 567, this rule was also approved, and in discussing the subject matter of the litigation, the court there stated what we regard as pertinent in its application to the instant case. This statement is: "If Porter, knowing as he did that Clark was in possession, had gone to him and inquired as to his rights, he would undoubtedly have been told that the purchase money had not been paid, and that he, Clark, claimed a vendor's lien on the land."

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(Note: The unavailability of bona fide purchaser protection to real estate purchasers and lenders when a seller of real estate remains in continued possession of the premises well after the property is sold has, arguably, been best expressed by the California Supreme Court in Pell v. McElroy, 36 Cal. 268, 1868 Cal. LEXIS 186 (1868). See footnote 2 of this November 15, 2009 post.)

Go here for more on the bona fide purchaser doctrine in Illinois.

For other states, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.

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Additionally, the circumstances surrounding the conveyance of Ms. Hodges home may have enough elements that can allow an Illinois court to recharacterize the deed transfer and contemporaneous leaseback as an equitable mortgage. See:

• Equitable Mortgage Doctrine In Illinois - Part 1;
• Equitable Mortgage Doctrine In Illinois - Part 2;
• Nave v. Heinzmann, 344 Ill. App. 3d 815; 801 N.E.2d 121; (Ill. App. Ct., 5th Dist., 2003);
• Robinson v. Builders Supply & Lumber Co., 223 Ill. App. 3d 1007, 586 N.E.2d 316 (Ill. App. Ct. 1st Dist. 1991);
• Flack v. McClure, 206 Ill. App. 3d 976, 565 N.E.2d 131, 151 Ill. Dec. 860 (Ill. App. Ct., 1st Dist. 1990).

Among the factors the above Illinois courts have considered when deciding on whether or not to recharacterize a sale as an equitable mortgage are:

• existence of an indebtedness,
• close relationship of the parties,
• prior unsuccessful attempts for loans,
• circumstances surrounding the transaction,
• disparity of the situations of the parties,
• lack of legal assistance,
• unusual type of sale,
• inadequacy of consideration,
• the way the consideration was paid,
• retention of written evidence of the debt,
• belief that the debt remains unpaid,
• an agreement to repurchase, and
• continued exercise of ownership privileges and responsibilities by the seller.

(Note: A recent ruling by a New Jersey Federal bankruptcy court recharacterized a similar sale leaseback, equity stripping ripoff as an equitable mortgage. 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))

A recharacterization of the conveyance as an equitable mortgage, coupled with establishing that the current holder of the mortgage was on notice of the scam (and consequently, not a bona fide purchaser) by reason of Ms. Hodges continued possession of the home could ostensibly leave her with rights to her home having priority over the rights of the current mortgage holder.

California Sets New Records For Real Estate License Revocations, Surrenders As Illegal Foreclosure Rescue & Loan Modification Rackets Rage On

The California Department of Real Estate recently announced in a press release:

• The California State Department of Real Estate (DRE), the state department that issues licenses to real estate professionals and protects consumers in real estate transactions, revoked a record number of real estate licenses for cause in 2009. The DRE also accepted another record number of license surrenders from licensees facing disciplinary action. All told, over 775 licensees had their license revoked or simply surrendered their licenses while facing accusations.

***

• The down turn in the real estate market is a big reason disciplinary actions are up. “With so many people struggling to stay in their homes, foreclosure rescue and loan modification scams have risen dramatically,” DRE Commissioner Jeff Davi said. "And what is even more unsettling, a majority of offenders involved in loan modification scams are not even licensed, which limits a consumer’s ability to obtain restitution or verify the legitimacy of a business,” Davi added.

***

• [A] consumer who is defrauded by a licensee and obtains a fraud judgment in civil court, but is unable to collect on the judgment, may be able to receive restitution from the DRE. The DRE administers a recovery account for fraud victims that can pay a victim up to $50,000 for a transaction. The payout from the recovery account is capped at $250,000 for each licensee. Those victims who have been defrauded by unlicensed perpetrators cannot make a claim against the department’s recovery account.(2)

For the press release, see California Department of Real Estate Revokes Record Number of Real Estate Licenses.

(1) In 2009, the DRE initiated over 2,000 investigations involving loan modification complaints, which represents 25% of all cases set-up. The DRE issued over 180 Desist and Refrain orders to nearly 348 different respondents performing loan modification services, ordering them to stop or change their business practices. Of the 348 Desist and Refrain order respondents, approximately 60% were not licensed and ordered to cease licensed activity - which included offering loan modification services. In addition, nearly 100 real estate licensees have been accused of violating the real estate law in connection with loan modification complaints. Many of the completed cases have been referred to law enforcement agencies for criminal prosecution. In order to help inform consumers to stay away from the bad actors, the DRE posts on its website all the recipients of Desist and Refrain orders and Accusations in loan modification complaints along with a copy of the order.

(2) For more on the California Dept. of Real Estate victim's fund, which enables a person who has been defrauded or had trust funds converted by a California licensed real estate broker or salesperson in a transaction requiring that license, and who satisfies specified requirements (California Business and Professions Code Section 10471 et seq.) to recover at least some of his or her actual loss when the licensee has insufficient personal assets to pay for that loss, see:

• Real Estate Recovery Account - General Information (English) (Spanish) (Chinese),
• Real Estate Recovery Account - Instructions to Claimants,
• Real Estate Recovery Account - Links to Other Forms.

Upstate NY Judge Emphasizes Importance Of Scrutinizing Foreclosing Lenders For Proper Standing In Cases Involving Unrepresented Homeowners

In a recent court ruling in Allegany County, New York involving a foreclosure action that was dismissed without prejudice (ie. with a right to refile), and which involved "the usual suspects" (ie. sloppy lender, foreclosure mill law firm, homeowner unrepresented by legal counsel - there was no indication that the homeowner even appeared in the case), Justice Timothy J. Walker discusses the significance of standing and real party in interest in foreclosure litigation and analyzes the applicable law in New York in connection thereto.

He closes with the following excerpt which deserves noting, in which he emphasizes the importance of judges exhibiting the necessary initiative to scrutinize the status of the plaintiffs bringing these foreclosure actions in cases involving homeowners unrepresented by legal counsel:

• Today, with multiple and (and often unrecorded) assignments of mortgage obligations and multiple securitizations often related to the same debt, the courts should carefully scrutinize the status of parties who claim the right to enforce these mortgage obligations.

• For the unrepresented homeowner, the issues of standing and real party in interest status of the foreclosing party are never considered. Without such scrutiny, there is a risk that the courts will give the judicial "seal of approval" to foreclosures against unrepresented homeowners who have little, if any, understanding of these issues, much less the legal significance thereof. To quote my colleague in Kings County, "[a]llowing this case to proceed on behalf of a plaintiff without standing at the commencement of the action would [also] open the door to potential fraud and place in jeopardy the integrity of title to the property to be foreclosed." [my emhasis added; not in original] [Citigroup Global Markets Realty Corp. v. Bowling, 25 Misc 3d 1244; 2009 NY Slip OP 52567U (Kings County, December 18, 2009)].(1)(2)

For the court ruling, see Deutsche Bank Natl. Trust Co. v McRae, 2010 NY Slip Op 20020 [Allegany County, January 25, 2010].

Thanks to both "LL" and to mortgage servicing fraud watchdog Mike Dillon over at GetDShirtz.com for the combined heads-up on this court ruling.

(1) In Citigroup Global Markets Realty Corp. v. Bowling, Kings County (Brooklyn), NY Supreme Court Justice Carolyn E. Demarest dismissed a foreclosure action, without prejudice, where the foreclosing lender screw-ups involved both:

• a failure to properly serve the homeowner (ie. "sewer service" - process server was found to have improperly utilized "nail & mail" method of service), and
• a "standing-lacking" foreclosing entity that initiated the legal action.

(2) An example of "the integrity of title to the property to be foreclosed" being "place[d] in jeopardy" when the foreclosing entity lacks proper authority to foreclose 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:

• Massachusetts Court Ruling Gums Up Resales Of Foreclosed Homes Across State; Title Insurance Unavailable For Clouded Ownership Due To Faulty Paperwork;
• Lenders' Problem "Entirely Of Their Own Making" Says Judge In Affirming Earlier Ruling That Puts Title To Foreclosed Massachusetts Homes Into Question,
• Thousands Of Foreclosures Are Void, Says Massachusetts Class Action Demanding Lenders & Their Lawyers Prove Note Ownership.

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].

See also, Recently Discovered Flaw in Recording System Clouds Titles on Previously Foreclosed Properties.

Closing Lawyers Get Dragged Into NY Deceptive Practices Act Suit Brought By Waitress Stuck With Unaffordable $629K Loan; Judge Refuses To Dismiss Case

In Brooklyn, New York, the New York Law Journal reports:

• A Brooklyn judge has allowed an action to go forward against two attorneys and others who are accused of facilitating a $629,000 mortgage for a waitress who earned less than $25,000 a year. Plaintiff Portia Joseph alleged Brooklyn attorney Adrian A. Ellis, who represented her in connection with the purchase of a house in [Brooklyn], and Rockland County, N.Y., attorney Joseph Kunstlinger, who appeared on behalf of mortgagor Bank of America, encouraged and directed her to execute fraudulent loan documents.

• Faced with a substantial lien and potential foreclosure, Joseph and her mother, Angil Jones, filed claims against Ellis and Kunstlinger, as well as Bank of America, real estate broker Ora Tvilli and Tvilli's company OTN Enterprise, among others. In a decision last week, Supreme Court Justice David I. Schmidt denied in part motions to dismiss by several of the defendants, including the bank's attorney, Kunstlinger.(1)

***

• Reached for comment, Kunstlinger, the principal of the Joseph Kunstlinger Law Firm in Spring Valley, N.Y., said he and Bank of America were among the victims, not the perpetrators, of the alleged fraud. "Our position is that the fraud was pulled on us, not them. It seems pretty funny that we [could be] liable for the fraud they committed," Kunstlinger said, referring to his various co-defendants. "We have almost nothing to do with anything other than the fact that the documents get signed correctly. If there is a trial, we will be completely exonerated."

• Ellis, who represented the plaintiffs at the closing, said his responsibility was to manage the legal issues, not the financial ones. "I never inquire into my client's income," said Ellis, who has not yet responded to a malpractice complaint against him. "If someone is buying a house for $700,000 there's an assumption they can afford the property." Ellis added, "Generally speaking, I don't know how many attorneys ask their clients how much they earn, then do a financial analysis of whether or not they can afford the property."

For more, see Suit Proceeds Against Attorneys Accused of Facilitating Mortgage 'Doomed to Failure'.

For the ruling, see Jones v. OTN Enterprise, 31990/08.

(1) According to Justice Schmidt, "Deception and misrepresentation in home buying, appraising and financing services adversely effect the public at large insofar as the acts inevitably lead to mortgage loans which are doomed to failure and which adversely effect the housing market. Practices such as those alleged by plaintiffs herein are particularly troubling as they are calculated to take advantage of lower income potential first time home buyers who are unfamiliar with the process and are more apt to rely on defendants' sophistication."

Homeowner Takes "Product Liability Approach" To Foreclosure Defense, Accusing Lender Of Peddling Defective Product; Seeks Class Action & Voided Loan

In Central Florida, reporter James Thorner of the St. Petersburg Times blogs:

• This is the first I've heard of this novel foreclosure defense. Largo's Linda Soronen, sued in December by her lender for foreclosure, is counter-suing by claiming her fast-and-easy home loan arranged in 2006 constituted a "dangerous financial product." Taking a page from product liability laws, Soronen argues that Wachovia Bank peddled a defective product when it approved no-documentation home loans for barely qualified borrowers. Those tainted loans, made without reference to a borrower's tax forms and pay stubs, ultimately backfired on the nation's financial system, costing taxpayers hundreds of billions of dollars.

• In 2006, Soronen borrowed $162,000 from World Savings Bank, a California lender known as a top purveyor of no-doc loans. Wachovia bought World Savings in 2006. At the time of the loan, Soronen was a "partially disabled, unemployed 57-year-old nurse with no income." Soronen is seeking class action status and wants her loan voided. She's also seeking $10 million in punitive damages, money that would go to the state.

• I don't know if shoddily-approved mortgages rise to the level of faulty automobile accelerators, lead-based paint or poisoned oysters. But they certainly cost the public a lot more.(1)

Source: Pinellas County foreclosure defendant: Banks sold me defective product.

(1) In another recent story with a somewhat similar story line, a Brooklyn, New York judge is reported to have refused to dismiss a lawsuit against two attorneys, a real estate broker, Bank of America and others who are accused of facilitating a $629,000 mortgage for a waitress who earned less than $25,000 a year. See New York Law Journal: Suit Proceeds Against Attorneys Accused of Facilitating Mortgage 'Doomed to Failure'.

Florida To Become A Non-Judicial Foreclosure State? Yes, If The Shameless Banksters Get Their Way; The Push Has Begun!

The St. Petersburg Times reports:

• If bank[st]ers get their way, Floridians facing foreclosure could be kicked out of their homes in as little as three months. The Florida Bankers Association, the 400-member-strong lenders' lobby, has presented state legislators with a bill to upend decades of Florida law and establish "non-judicial" foreclosures in Florida by July 1.

• What's a non-judicial foreclosure? Banks would accelerate foreclosures against defaulting homeowners by bypassing the courts. Judges would no longer rule on foreclosure cases. Some states — 37 in fact — already grant that fast-track foreclosure authority, including California, Georgia, Alabama and Texas. But Florida, with its plethora of vacation and retiree homes, has always been big on homeowner rights.

***

• The bankers association has titled the bill The Florida Consumer Protection and Homeowner Credit Rehabilitation Act (a .doc file; go here for .html version). Association president Alex Sanchez views the bill as a way to break a foreclosure crisis partly caused by mortgage fraud.(1)

For the rest of the story, see Florida bankers move to dramatically speed up the foreclosure process.

Thanks to both 4closureFraud and Foreclosure Hamlet for the combined heads-up on this story.

(1) For the banking industry to propose a new law and use the words "consumer protection" and "homeowner credit rehabilitation" in naming the bill shows that there really is no end to the shamelessness of these characters. Among the so-called "consumer protections" contained in the bill is the obliteration of the Florida Supreme Court's newly endorsed mandatory mediation for lenders and homeowners. The bill provides only for informal meetings between creditors and debtors.

SoCal Loan Modification Operator Facing FTC Civil Charges Now Hit With 165 Criminal Felony Counts By Orange County DA

From the Office of the Orange County, California District Attorney:

• The president of an Irvine loan modification company was arraigned [...] for defrauding and victimizing 165 distressed homeowners out of $177,000 by fraudulently promising to save their homes in exchange for an up-front fee. Kahram Zamani, 37, Laguna Hills, is charged with 165 felony counts of grand theft with sentencing enhancements for aggravated white collar crime for taking more than $100,000.(1)

***

• Zamani is accused of soliciting clients through radio ads. He is accused instructing his employees to make promises to consumers, knowing the promises were false, that the company could obtain a home loan modification or loan forgiveness in exchange for an up-front fee of $995. The defendant is accused of also instructing his employees to make false promises that they could secure low-interest rates on a modified mortgage loan, offer full refunds if a loan could not be modified, and stating that Infinity had a 98 percent success rate in obtaining loan modifications.

For the Orange County DA press release, see Loan Modification Company President Arraigned On Charges Of Defrauding 165 Distressed Homeowners.

(1) Between February 2008 and December 2009, Zamani, a licensed real estate broker, is accused of owning and running Infinity Group Services (Infinity), a loan modification company that targeted distraught homeowners. The company was formerly known as Hope to Homeowners, named to mislead victims into believing it was part of the 2008 program launched by the Bush Administration, “Hope to Homeowners,” which aided struggling families with mortgage payments by refinancing their existing home loan, the DA's press release states.

This case has been a collaborative effort between the Orange County District Attorney’s Office (OCDA), California Department of Real Estate (CDRE), and Federal Trade Commission (FTC). In August 2009, the FTC filed a civil complaint in federal court seeking a temporary restraining order, the freezing of assets, and a preliminary injunction. In November 2009, CDRE filed a formal accusation charging the defendant with violations of real estate law, and has now filed an order against Zamani to desist and refrain from further fraudulent practices.

Extradited Loan Modification Scammer Cops Plea To Pocketing Upfront Fees & Giving Bogus Money-Back Guaranty, Then Failing To Provide Services, Refunds

In Las Vegas, Nevada, KVVU-TV Channel 5 reports:

• A man has pleaded guilty to mortgage fraud for operating a foreclosure rescue scam in Las Vegas. Nevada Attorney General Catherine Cortez Masto announced [...] that Michael Sinclair pleaded guilty to one felony count of mortgage fraud for running the scam under the business name of Federal Housing Aid. Sinclair must pay $60,000 in restitution to the victims of the scam. He was recently extradited from the Philippines, where he fled after learning of the indictment against him, Masto said.

***

• Masto said using a call center located in the Philippines, Sinclair and his business partner, William Vargas, operated a company that claimed to offer loan modification services to help victims avoid foreclosure on their homes. The operation had been in business since February 2007. The two defendants charged the victims between $899 and $1,500 in upfront fees and offered a 100 percent money back guaranty, claiming their company would refund the money if the foreclosure could not be stopped. After paying for services, the defendants failed to provide the services paid for and failed to provide refunds.

For the story, see Man Pleads Guilty In Loan Mod Scam (Las Vegas Company Federal Housing Aid Bilked Customers, AG Says).

For the Nevada AG press release, see Attorney General Announces Guilty Plea In Foreclosure Rescue Scam Operated From The Philippines.

Unlicensed Mortgage Originator Cops Plea To Helping Homeowner Refinance Home, Then Swiping $100K+ In Loan Proceeds Obtained From Closing Agent

From the Office of the Maryland Attorney General:

• Attorney General Douglas F. Gansler announced [...] that David Young Park, 43, the former president of Capital City Financial Group in Ellicott City, entered a plea of guilty to one count of felony theft in Baltimore County Circuit Court.(1)

***

• In June of 2007, Park assisted the victim with the refinance of her home.(2) The victim intended to use the more than $100,000 in equity to purchase a commercial condo for her business. Following settlement, Park obtained the victim’s proceeds from the title company without the victim’s knowledge, deposited them into his escrow account and spent the money on various personal and business expenses over the course of two weeks. When confronted by the victim, Park admitted to having spent all of her money.

For the Maryland AG press release, see Former Mortgage Broker Sentenced for Felony Theft.

(1) Judge John J. Nagel, III sentenced Park to five years in jail with all but 18 months suspended. Park was also ordered to complete five years of supervised probation and make restitution to the victim in the amount of $116,556.

(2) According to the Division of Financial Regulation at the Maryland Department of Labor, Licensing and Regulation, Mr. Park has never been licensed as a mortgage originator and Capital City Financial Group has never been licensed as a mortgage lender.

Closing Agent Cops Plea, Gets Five Years For Using Escrow Funds In Straw Buyer Scheme; Purchased Home That Subsequently Went Into Foreclosure

From the Office of the San Bernardino County, California District Attorney:

• On Wednesday, January 27, 2010, Mojgan Cox, 50, of Alta Loma, pleaded guilty to several felony charges including conspiracy, money laundering, grand theft, and forgery. Cox, also known as "Mona," is a former real estate broker for ReMax Allegiance and owner of Exclusive Escrow Services. She is one of six co-defendants originally charged and arrested by District Attorney Investigators from the San Bernardino County District Attorney's Real Estate Fraud Unit. Mojgan Cox is the third defendant to plead guilty in this matter.

• The case involved laundering money from an escrow trust account into a corporation opened up by her son, Jesse Cox, who is one of the remaining defendants in this case. The money was used to purchase a home in Yucaipa using a "straw buyer," which subsequently went into foreclosure. The defendants had the proceeds from the purchase of that Yucaipa residence transferred back into Exclusive Escrow Services' general account and used for such things as paying the office lease and personal bills. Mojgan Cox pleaded guilty and was sentenced to five years in the California State prison system.

For the San Bernardino County DA press release, see Former Rancho Cucamonga Real Estate Broker Sentenced to Prison.

Connecticut Hubby Faces Charges In Connection With Alleged Forgery Of Wife's Signature On Home Equity Loan

In Litchfield, Connecticut, the Republican American reports:

• A Superior Court judge wants attorneys to resolve the mortgage mess that's at the root of charges that a husband forged his wife's name on a home equity loan. George A. Matos, 42, of [...] Thomaston, appeared [...] in Litchfield Superior Court for a pretrial hearing on charges of conspiracy to commit first-degree forgery and conspiracy to commit criminal impersonation. Judge James P. Ginocchio suggested that solving the financial mess first will push the criminal case forward so it doesn't further harm the victim. "It's important we try to explore many options" to lift the financial burden from Matos' wife, Ginocchio said. "He's going to have to come up with something more creative."

Source: Judge rules in forgery case against husband.

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.