Giant California Public Employees Pension Plan Feeling Backlash For Its Role In Predatory Equity Real Estate Investments

The Wall Street Journal reports:

• Calpers(1) took a hit last year when its investment in Manhattan's Peter Cooper Village and Stuyvesant Town apartment complex collapsed. But Stuyvesant Town wasn't the huge pension fund's only foray into real-estate investments that involved ousting low-rent tenants. The California Public Employees' Retirement System has partnered with firms that have bought and converted rent-regulated buildings in East Palo Alto, Calif., and in other New York City neighborhoods, including Harlem and Manhattan's Upper East Side.

• Some deals have led to losses; at least one has paid off. But whatever the investment result, the conversion of low-rent properties to market-rent apartments—and ejection of some tenants in the process—is raising concerns within and beyond Calpers about its role in these deals.(2)

***

• Calpers, which manages about $200 billion in retirees' money and other benefits for public employees, prides itself on taking a leadership role in promoting socially responsible investing. Some detractors say deals that involve ousting tenants conflicts with that mission.

For more, see Backlash Hits Calpers Property Deals.

(1) The California Public Employees' Retirement System (CalPERS) is an agency in the California executive branch that manages pension and health benefits for more than 1.6 million California public employees, retirees, and their families.

(2) According to the story, in these types of real-estate deals, which detractors call "predatory equity," investors borrow funds to buy the buildings and then try to make money by getting the buildings to operate more profitably, primarily by raising rents. Rent-regulated units generally can be raised to the market rate after a tenant moves out, as long as the landlord makes sufficient improvements to the apartment. But waiting for apartments to become vacant may not be profitable for investors who do these types of deals, given interest due on the money borrowed to buy the building. Tenants in rent regulated apartments typically are automatically entitled to renewal leases upon the expiration of their current leases, which means that, as long as they are making their rent payments, they can remain in possession of their units indefinitely. So owners often try to move out a number of tenants quickly, for example by trying to identify tenants occupying the apartments illegally.

Tenants often maintain they resided legally and were harassed or intimidated by new owners in hopes of getting them to leave voluntarily. Other times, owners have looked for possible ambiguities in rent-control laws that might justify a rent increase, tenants say. Sometimes, lower-income and non-English-speaking tenants are reluctant to challenge these abrupt increases in court, say affordable-housing advocates.

Concerns Raised That Overleveraged, Deteriorating Residential NYC Buildings In F'closure Will Wind Up In Hands Of Speculators, Inexperienced Operators

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

• As tens of overleveraged apartment complexes slide toward foreclosure, fears are mounting that the new owners won't be any better than the ones they replace. Even those with the best of intentions may simply be too inexperienced or burdened by debt to fix up their buildings. Worries also abound that the new owners will drive out existing tenants in the hopes of jacking up rents to increase cash flow.

• Nearly 115,000 city apartments are in overleveraged buildings, according to Rafael Cestero, commissioner of the city Department of Housing, Preservation and Development. While that is less than 5% of the 2.5 million in total rental units, Mr. Cestero insists it is crucial that those properties wind up in responsible hands. If they are left to deteriorate, he warns that they “can bring down an entire city block, an entire neighborhood.”

• Affordable housing advocates are increasingly concerned about such a scenario. “I think we are starting to see the second wave of speculators come into the market,” says Dina Levy, director of the Urban Homesteading Assistance Board.

For more, see Distressed properties' bad bounce (New owners may be no better than the old) (may require subscription; if no subscription, go here, then click link for the story).

Oakland Judge Gives Lender The Boot In Unlawful Detainer Action After Foreclosure; Says Ambiguous Eviction Notice = No Notice

In Oakland, California, BeyondChron reports:

• In a direct challenge to bank evictions of tenants across the state, Tenants Together is urging renters to contest foreclosure evictions. Pointing to a new ruling from an Alameda County Superior Court judge, Tenants Together argues that most post-foreclosure eviction notices issued to tenants are invalid under California law.

***

• A tenant in Oakland did exactly that. With assistance from the nonprofit East Bay Community Law Center, and in particular EBCLC attorney Jaime Arnone Modica, the tenant filed a motion to dismiss (called a demurrer) against an eviction lawsuit (called an unlawful detainer) commenced by Aurora Loan Services LLC. The tenant argued that the notice to quit was uncertain and confusing because it referenced several time frames and failed to unambiguously terminate tenancy at a particular time.(1) The court agreed. On February 9, 2010, Judge Frank Roesch dismissed the case without leave to amend, meaning that the action terminated conclusively in favor of the tenant.

For more, see Judge Throws Out Bank Eviction (Calls into Question Validity of Evictions Across California).

(1) Reportedly, Marc Janowitz, the EBCLC staff attorney who argued the case before Judge Roesch, praised the ruling, noting that "an unclear eviction notice is an invalid eviction notice. It is not the tenant's job to figure out what the landlord is trying to tell them to do. We see a lot of these confusing notices after foreclosures. In my opinion, they are invalid, and apparently, the Court agreed."

Reportedly, after acquiring property through foreclosure, banks routinely serve a single notice upon all occupants of the property, reciting various timeframes, legal rights and requirements that apply differently depending on the type of occupant. Banks typically do not perform due diligence to determine whether the occupant resides as a tenant or former homeowner at the property, instead serving confusing notices designed to cover all possible situations.

According to the story, tenant advocates point out that California law encourages this gamesmanship by banks and their lawyers because tenants are afraid of the possible credit impacts of contesting these evictions in court. Under current law, unless the tenant wins within 60 days of the filing of the case, the bank's eviction action, even if totally invalid, can end up as part of the tenant's credit history, making it harder for tenants to find rental housing in the future, the story states.

Foreclosing Lenders Continue Giving Tenants The Boot In Violation Of Federal Law

CNNMoney reports:

• Renting a home that is going through foreclosure? If so, don't be fooled: Lenders can't kick you out; they have to honor the terms of your lease.(1) Of course, that doesn't mean that some lenders' representatives aren't trying to scare people away.

***

• [T]enant advocacy groups charge that lender representatives, including some unscrupulous real estate agents, have been preying on tenants' ignorance. They pressure renters by sending them misleading letters that drive some out. One letter sent out by a Texas law firm stated, "This letter constitutes formal and final demand that you vacate the premises within three days [emphasis ours] of the date this letter is delivered." Worse, the message threatens legal costs if tenants don't comply. With that facing them, many fold their tents. "The average person wouldn't know the law has changed," said Robert Doggett, an attorney for Texas RioGrande Legal Aid. "People assume they have to leave."

***

• [M]any [foreclosing lenders] often contract with outside companies -- law firms and real estate brokers -- to handle the [eviction] workload. And in some cases it may be those contractors who are overstepping the bounds, without the banks' knowledge, according to Gabe Treves, program director at California advocacy group Tenants Together. "The realtors see tenants as a roadblock to their commission," he said, "so they bully and mislead them into signing away their rights to say in their homes."

For more, see Your landlord got foreclosed. Do you have to go?

For national news coverage on tenants being bullied out of their homes after foreclosure, see Renters Can Stay Until Their Lease Is Up.

(1) Under the Protecting Tenants at Foreclosure Act, which Congress passed last May, tenants are usually eligible to stay after the property has been foreclosed as long as they have a valid lease and are paying their rent regularly. Even renters on a month-to-month lease get 90 days to leave.

Tenants Across The Country Feel Effect Of Landlords Facing Foreclosure

ABC News reports:

• As landlords find themselves owing more than their properties are worth, some have simply walked away, leaving garbage to pile up. Others have disappeared into bankruptcy, with unpaid utility bills. Some have tried to reduce their losses by neglecting basic maintenance. "There are 100,000 apartments teetering on the edge" in New York City alone, said Harold Shultz, senior fellow at the Citizens Housing and Planning Council. "And depending upon the way various winds blow, they could fall over."

• Across the country, multifamily mortgages covering 340,000 apartment units and worth an estimated $28.8 billion were delinquent or in foreclosure at the end of 2009 — more than 18 times the sum from two years earlier — according to Real Capital Analytics.

***

• In Chandler, Ariz., [...] the story is similar. The Phoenix suburb was home to some of the 25 properties that Bethany Holdings Group LLC abandoned in California, Arizona, Texas and Colorado. Trash began piling up on the properties; the pools were covered with green scum. If the city hadn't stepped in, the water would have stopped running, said Daniel Anderson, the city's senior code inspector.

***

• In East Palo Alto, Calif., creditors are in the process of foreclosing on more than half of the city's rental units. Maintenance, repairs and security suffered at the 1,800 apartments until the city and court-appointed receiver David Wald stepped in, said Wald.

For more, see Decaying Apartments Symptom of Housing Crisis (Mortgage crisis brings creeping decay to middle-class apartment buildings from Calif to NY).

300+ C. Florida Condo Residents Face The Boot Over Unpaid Electric Bill As Delinquent Unit Owners Facing Foreclosure Stiff HOA On Maintenance Fees

In Orange County, Florida, WFTV-TV Channel 9 reports:

• More than 300 Orange County residents could be forced out of their condos again because of unpaid power bills. WFTV reported two weeks ago that Progress Energy shut off power to the Blossom Park condos [...]. Management officials told WFTV they've been trying to pay the bill, but say they can't catch up because so many homeowners have skipped out on paying their homeowners’ association (HOA) fees.

***

• Residents were in the same bind two weeks ago and called WFTV. Some feel like the complex managers are mismanaging the money being paid by owners. WFTV went to the office Monday and management said they paid Progress Energy $30,000 to get the utilities turned back on before and worked out a payment plan. But managements says it hasn’t been able to stick to it. Management blames owners and says 30 percent are in foreclosure.

For more, see Power May Get Cut At Condo Complex Again.

Fight Between Alleged Slumlord Facing Foreclosure & Bank Over Collection Of Rent Payments Leaves Milwaukee Tenants Caught In The Middle

In Milwaukee, Wisconsin, WITI-TV Channel 6 reports:

• A foreclosure faux pas and the link to a notorious landlord. Some east side renters say they're caught up in someone else's financial woes, and caught up in a rent paying run around. One apartment with two places to send the rent check. That's the dilemma some on Milwaukee's east side is facing. Some aren't even sure if they'll be living in their rental the next day.

• About a dozen live inside an east side apartment complex. For some it's home, for Laura Burmester it's been uneasy living. She was given a notice threatening eviction February 9th. "It's just really frustrating...just constantly nervous like when you get a phone call what's going to happen next...always have paid our rent in full."

• The problem is she's not sure who to send the rent to. January 28th a letter from Waterstone Bank says they're the owner of the mortgage of the building she lives in. The property is in the process of foreclosure and to send payment to a management company called Milwaukee Investment Realty. About two weeks later she says she got a letter of apology from the previous landlord. It read sorry for the recent confusion, but to pay them. "It's just become a headache now, and everyone's looking for money and we don't know where to send it."

• What was clear was the threat of eviction from her landlord listed as Tim. When the tenants called the number the name they got was Tim Brophy. In several legal documents Tim Brophy is called a defendant, he's also called one of Milwaukee's most notorious slumlords. Cited over and over again for city violations. He's been the subject of FOX6 Investigations.

For the story, see Milwaukee renters caught in crossfire of battle between notorious slumlord and the bank.

Unpaid Bill Leads To Water Shutoff In Rented Home; Archaic Law Prohibits City From Accepting Tenant's Payment Towards Delinquent Landlord's Account

In Syracuse, New York, The Post Standard reports:

• Syracuse resident Freddie Wells would like to pay a water bill for his landlord, who owes $210, Wells said. It would be worth scraping together the extra money if it meant he could stay in the [] home he has rented for five years, Wells said. But the Syracuse Water Department — which shut off Wells’ water Monday — says a tenant can’t pay the water bill after service has been shut off. Only the property owner can. Today, Wells can’t brush his teeth, bathe, or do his dishes at home. “I don’t want to move,” Wells said. “It’s a very nice house.”

• The city law office is trying to help renters like Wells keep their water, said Corporation Counsel Juanita Perez Williams. New legislation her office is working on would allow tenants to make water payments to the city in lieu of paying rent to their landlords, she said.

For more, see Syracuse may let tenants use rent to pay landlords' delinquent water bills (if link expires, try here).

Hedge Fund Operator Sues Loan Servicer To Jam Foreclosure Action On $3B Mortgage Secured By 11,000-Unit NYC Apartment Complex

In New York City, The Wall Street Journal reports:

• Hedge-fund investor David Tepper has stepped into the battle over the fate of Peter Cooper Village and Stuyvesant Town, the giant New York City apartment complex involved in one of the largest commercial-real-estate failures. Earlier this week, Mr. Tepper, who runs hedge-fund firm Appaloosa Management, filed a complaint seeking to hold up the foreclosure action launched by the so-called special servicer representing investors who own the $3 billion first mortgage on the property. That mortgage was packaged into commercial mortgage-backed securities that were sold to various investors such as Mr. Tepper's firm.

• In court papers filed with a federal court in New York, Appaloosa alleges that the servicer, CW Capital, has "irreconcilable conflicts of interest" because it owns some of the junior commercial mortgage-backed security, or CMBS, debt, among other alleged conflicts.

***

• Mr. Tepper, who says he owns more than $750 million of the CMBS debt, is among the largest investors in the debt. [...] Mr. Tepper's lawsuit is a sign the imbroglio over the future of Stuyvesant Town figures to become even more heated.

***

• In the lawsuit, Appaloosa says CW Capital shouldn't have moved to foreclose on the complex while earning fees. The complaint says a foreclosure could cost as much as $200 million in transfer taxes, which would be paid by the investors who own the CMBS bonds. Those expenses could have been avoided had the property gone into bankruptcy, the suit says. "The key is, the servicer has to practice its fiduciary duty" to CMBS investors, Mr. Tepper said. "Why did they go into foreclosure? Why are they taking all these excess costs?"

For the story, see Tepper Enters Contest Over Apartment Complex (requires paid subscription; if no subscription, try here, then click link for the story).

See also: The New York Observer: 'Tranche Warfare' Finally Breaks Out at Stuy Town as Billionaire Hedge Funder Goes to Court:

• [Mr. Tepper's] Appaloosa said in court papers that it bought a giant $750 million of the mortgage, a substantial piece of which was junior tranches, which would be among the earliest to be wiped out if the property is sold for less than the $3 billion initial price tag on the mortgage. "CWCapital has recklessly and imprudently exposed the Appaloosa Intervenors—and other Certificateholders—to wholly avoidable losses, risks, and injuries," the filing said.

Go here for Appaloosa's Memorandum of Law on its Motion to Intervene in the Stuyvesant Town foreclosure action.

Soured Contract For Deed Deal Leaves Illinois Homeowner Out On The Street, Despite Having Never Missed A House Payment

In Knoxville, Illinois, The Register Mail reports:

• The big green house has been purchased by a mortgage company, even though [Amanda] Schwabe kept up her contract for deed payments faithfully for 31 months. Even though she paid homeowners insurance, the property taxes and even replaced a boiler.

• Schwabe’s story is a cautionary tale for those who buy and sell homes through the contract for deed process. “I don’t know what I’m going to do,” Schwabe said. “I’m not necessarily looking for help. I just want to warn other people who get into contract-for-deed situations. They have to be careful.”

• Schwabe moved into the big green home at the end of June 2006, taking over the deed-for-contract arrangement of a co-worker. She signed a new contract with Jim Morgan, the home owner, on Aug. 16, 2006, promising to pay $720 a month for a year, at which time she would take over the mortgage of $67,000 at 9 percent interest. In essence, after a year, owner Jim Morgan’s name would come off the deed and Schwabe would assume full responsibility for the purchase of the home. The transaction was overseen by an attorney John Blake. Crucially, the deed-for-contract arrangement was not filed with the Knox County Courthouse. Schwabe and Morgan insist Blake said he would file the transaction.

***

• In February of 2009, Morgan was forced to declare bankruptcy. Since the mortgage company didn’t recognize Schwabe as having a claim on the house, it was foreclosed.

***

• The cost to Schwabe? She paid on the house for 31 months — 13 at $720 per month and another 18 at $705 per month. That’s a grand total of $22,050. She also paid insurance bills totaling $3,534 and $1,018 in taxes. Throw in the $4,500 for a new boiler and Schwabe poured $31,102 into the big green house. “The moral of the story?” Schwabe rhetorically asked. “Don’t do deed-for-contract unless you can get a lawyer. And make sure the mortgage company knows about it. Don’t trust that they will have your best interests at heart.”

For the story, see Contract-for-deed deal leaves family homeless.

Underwater Home Sellers Cautioned To Keep Their Eyes Open For Fine Print In Lenders' Approval Packages When Seeking Short Sales

In Central Florida, a recent story in The Tampa Tribune serves as a cautionary admonition to underwater homeowners looking to go the short sale route in an attempt to unload their homes (and their related mortgage obligation(s)):

• Lenders are increasingly adding language to the [short sale] approval package, reserving the right to pursue the deficiency later - that is, the difference between what you owed on the house and what it sold for. Some homeowners, so anxious to get out of a pending foreclosure, skip right over that part of the letter. Some understand but opt to take their chances, betting they won't hear from the lender again. For some lucky buyers, this has been the case - so far. They've sold their home as a short sale, moved on, and haven't had any problems. But other lenders require the seller to agree upfront to pay back a set amount.

***

• Lenders don't always go after short sale homeowners. But in Florida, lenders can wait up to five years to file for a court judgment to make the borrower pay. After the judgment is granted, the lender has 20 years to collect the cash. This is particularly frightening because lenders could wait until the debtor is back on their feet to act. The homeowner could recover financially only to discover years later that they owe the bank tens of thousands of dollars.(1)

For more, see Read the fine print in a short sale.

(1) If the lender intentionally drags its feet in bringing action with the view of waiting for the debtor to get back on his/her feet before it attempts to recover its debt, the "foot-dragging" lender may be found to have "slept on its rights" and, consequently, leave itself vulnerable to a laches defense. See:

Winter v. Allstate Mortg. Corp., 303 So. 2d 399 (Fla. Ct. App, 3rd Dist. 1974):

• Of course, a party ordinarily has twenty years in which to enforce a judgment in Florida. However, when undue delays are exercised without sufficient reason, it has been held that equitable defenes may be raised which may cut off the right to satisfy a judgment. Orr v. Allen-Hanford, Inc., Fla.1946, 158 Fla. 34, 27 So.2d 823; Blackburn v. Venice Inlet Co., Fla.1949, 38 So.2d 43.

Blackburn v. Venice Inlet Co., Fla.1949, 38 So.2d 43:

• In the case of Orr v. Allen-Hanford, Inc., 158 Fla. 34, 27 So.2d 823, we held that a creditor may satisfy his judgment within twenty years, but when undue delays are exercised without sufficient reasons shown therefor, equitable defenses become available that may cut off the right to satisfy the judgment.

Indiana AG File Civil Suit Against Notorious Alleged California Loan Modification Racket

In Allen County, Indiana, The Fort Wayne Journal Gazette reports:

• Indiana Attorney General Greg Zoeller sued a California mortgage relief company, alleging violation of Indiana’s deceptive consumer sales act. The lawsuit, filed this month in Allen Superior Court, is not the only one pending against Home Relief Services LLC, which is facing more legal troubles in California, including felony charges, according to court records.(1)

• Zoeller sued the company, as well as its legal affiliate, The Diener Law Firm, on behalf of both Allen and Elkhart county residents, according to court documents. The attorney general is asking a judge to enjoin the company from continuing to violate Indiana’s consumer protection laws, as well as order it to pay restitution.

For more, see Foreclosure aid firm sued by state for alleged breach.

(1) According to the story, California officials filed a similar lawsuit against the company, alleging Home Relief Services and its agents persuaded homeowners to stop dealing directly with their mortgage lenders and charged $4,000 in upfront fees with a promise of mortgage modification, according to the California attorney general’s Web site. In addition, Christopher Lee Diener, Stefano Joseph Marrero and Terrence Green Sr., all named as defendants in the Indiana lawsuit because of their involvement with the company, have been charged in Orange County, Calif., with 98 felonies alleging grand theft by false pretense and conspiracy to commit grand theft by false pretense, according to court documents, the story states.

Northern NJ Attorney Charged w/ Misleading Client Of Lien Status On Real Estate Purchase Encumbered By Three Mortgages, Misusing Cash In Trust Account

In Bergen County, New Jersey, The Record reports:

• An Englewood attorney has been charged with theft and forgery, accused of misrepresenting the legal status of a development property in which he allegedly encouraged a client to invest $245,000, authorities said []. Gordon Allen Washington, 50, was served with a complaint [] charging him with forgery, theft by deception, theft by failure to make required disposition. He was released on his own recognizance.

• Washington, who goes by his middle name, encouraged a Bergenfield woman to invest $245,000 in a Jersey City redevelopment project [...] in Jersey City in 2006, said John L. Molinelli, the Bergen County prosecutor. Molinelli said Washington knowingly misinformed the client, Shirley McDougald, telling her in writing that the property was “unencumbered” when in fact there were three existing mortgages on it. Washington also is accused of misusing more than $45,000 of McDougald’s money, which he was holding in an attorney trust account.

For the story, see Englewood attorney charged with theft, forgery.

FDCPA Suit Seeking Class Action Status Shines Light On Alleged "Assignment Manufacturing" Practices By Lenders, Servicers, Others In F'closure Actions

A recent Federal lawsuit filed in Miami, Florida alleging violations of the Fair Debt Collection Practices Act (FDCPA) describes some of the practices allegedly engaged in by lenders, servicers, their employees, and others involving the manufacturing of assignments of mortgage that are then used when bringing foreclosure actions against homeowners who have fallen behind on their house payments.

For more, see All Aboard!!! Class Action Against Deutsche Bank National Trust Company, U.S. Bank National Association, Lender Processing Services, Inc. and DOCX, LLC.

Wells Fargo, BofA Stiffed Homeowners On Permanent Loan Modification Promises, Say Suits Seeking Class Action Status

In Boston, Massachusetts, The Boston Globe reports:

• Two lawsuits filed [] in US District Court in Boston claim Wells Fargo and Bank of America have not followed federal rules for mortgage loan modifications, leaving some homeowners stuck in foreclosure “limbo.’’

• According to one of the lawsuits, Wells Fargo Bank North America did not honor agreements with Wilfredo and Odalid Bosque of Leominster and Germano DePina of Roxbury that would have made their temporary loan modifications permanent through the US Treasury’s Home Affordable Modification Program. In a second suit, Patricia Johnson of Salem alleged Bank of America Corp. did not abide by a similar arrangement that was intended to reduce her mortgage payments.

• “When a large financial institution promises to modify an eligible loan to prevent foreclosure, homeowners who live up to their end of the bargain expect that promise to be kept,’’ lawyer Gary Klein wrote in the complaints.(1) [...] The suits said both banks received $1,000 for every successful loan modification through the federal program. According to the suits, if the homeowners made three successive payments under temporarily modified loan terms, it would trigger a second stage “in which the homeowner is offered a permanent modification.’’ [...] Klein said he would ask a judge to give the lawsuits class-action status.

For the story, see Banks violated mortgage rules, lawsuits allege (Plaintiffs say they’re stuck in loan-modification limbo).

In a related story, see ProPublica: Chase and Other Servicers Leave Many in Loan Mod Limbo; Treasury Threatens Penalties.

For the lawsuits, see:

• Bosque et al. v. Wells Fargo Bank, N.A.,
• Johnson v. BAC Home Loans Servicing, LP.

(1) Co-counsel in the Bosque case are: National Consumer Law Center, Boston, and Neighborhood Legal Services, Lawrence, MA.

Wells Fargo Sells Home Out From Under Borrower, Despite No Late Payments On Loan Modification, Says Boston Homeowner

In Boston, Massachusetts, the Boston Herald reports:

• Roberta Frugoli thought she had a deal to modify her mortgage and avoid foreclosure, but the Carver woman claims Wells Fargo auctioned off her home anyway. “My head is still spinning,” the 54-year-old divorced mother of three said. “I got a call from the bank at work saying they (seized) my house and I said, ‘You can’t do this, I had all the paperwork in.’” Frugoli is one of four Massachusetts homeowners suing Wells Fargo or Bank of America over lenders’ alleged failure to comply with the federal Home Affordable Modification Program.

***

• Frugoli, who owns a cleaning company, thought she worked out a pact to reduce her mortgage bill by $1,000 to $1,400 a month. But even though lawyer Josef Culik says he submitted all paperwork, Wells Fargo reclaimed title to the woman’s home last month via a foreclosure auction. “Something went terribly wrong,” said Culik, who plans to sue the bank [] to block his client’s eviction. “When someone is being evaluated for (HAMP), foreclosure activity is supposed to be suspended.”

• Boston lawyer Gary Klein filed a separate lawsuit [] against Wells Fargo on behalf of two other Hub homeowners.(1) Klein, who also sued Bank of America on behalf of a Salem homeowner,(2) claims the lenders gave his clients three-month “trial” modifications, but failed to make changes permanent. “The servicers don’t appear to be acting in good faith,” said Klein, who’s won some $100 million in foreclosure-related settlements from banks. "They’ve told the government that they’re going to be modifying mortgages, but they aren’t doing it.”(3)

For the story, see Woman loses home while in talks on loan changes (when the link expires, try here).

For follow-up story, see WCVB-TV Channel 5: Woman Sues Big Banks To Save Foreclosed Home:

• Frugoli and her attorney have filed suit in Brockton Superior Court against Wells Fargo. "The banks agreed to evaluate any homeowner for a loan modification before they considered foreclosure. That's a prerequisite to foreclosure under the making home affordable program," attorney Josef Culik said. Frugoli claims that did not happen in her case and now she's asking a judge to cancel the foreclosure sale of her home. The judge said he would hear from both sides in two weeks.

(1) See Bosque et al. v. Wells Fargo Bank, N.A.

(2) See Johnson v. BAC Home Loans Servicing, LP.

(3) In a related story, see The Boston Globe: Banks violated mortgage rules, lawsuits allege (Plaintiffs say they’re stuck in loan-modification limbo).

Couple Loses Home To Foreclosure Despite Being Current On Loan Modification Payments; Media Intervention May Cause Lender To Reverse Action

In Colorado Springs, Colorado, KXRM-TV Channel 21 reports:

• A Colorado Springs family has their house auctioned off from under them. But they may get to stay in their home now that FOX21 News is asking questions. The family bought the home near the Air Force Academy in 2005. Then last year the man lost his job and the family fell behind on their mortgage. They were able to get on a payment program through the mortgage company and had been keeping up the payments ever since. Then last week they were told their house had been sold at auction.

***

• When [Tammy and Flavio] Bugarin[] asked why the home had been foreclosed when they had been keeping up on the payment plan Wells Fargo didn’t have an answer. "Wells Fargo showed absolutely no paperwork that we were on a program," Flavio said. But after FOX21 News called Wells Fargo, officials said they would rescind the foreclosure sale and get the Bugarins on another payment plan.

For more, see Mortgage mess hits Springs family.

In a related story, see ProPublica: Chase and Other Servicers Leave Many in Loan Mod Limbo; Treasury Threatens Penalties.

Mass. High Court To Hear Ibanez? Court Ruling Shined Light On Foreclosure Screw-Ups That Left Title To Thousands Of Bay State Homes In Legal Limbo

Massachusetts attorney Richard D. Vetstein writes in The Boston Globe's Boston Real Estate Now blog:

• For those of you following the controversial U.S. Bank v. Ibanez case,(1) which invalidated potentially thousands of foreclosures across the state, both sides last week asked the Massachusetts Supreme Judicial Court to take the case — as I originally predicted. The SJC’s acceptance of the case would cut months to years off the normal appellate process. This would be great news for everyone eagerly awaiting a final decision.

***

• The SJC should decide whether to take the case within 30 days or so, and I predict they will take it on. However, I still think the SJC will ultimately affirm Judge Long’s ruling against foreclosing lenders, a bad decision from a title and conveyancing standpoint in my view. Meanwhile, in the aftermath of Ibanez, some lenders are re-doing foreclosures and some are just waiting it out.

• Most title insurance companies are unwilling to touch an Ibanez afflicted property with a ten foot pole. Many folks find themselves in a tough predicament. I recently assisted a buyer of a foreclosed property who was initially rejected by two title insurers. We fortunately convinced one title company to insure over an Ibanez issue, so the client could close. But I have another client who is stuck, and we’re trying to track down the original owner of the property to obtain a deed. It’s a tough situation all around.

Source: Ibanez foreclosure case possibly heading to Massachusetts high court.

For Justice Keith C. Long's pair of rulings in this case, see:

• U.S. Bank v. Ibanez #1,
• U.S. Bank v. Ibanez #2.

For earlier post on this story, see Lenders' Problem "Entirely Of Their Own Making" Says Judge In Affirming Earlier Ruling That Puts Title To Foreclosed Massachusetts Homes Into Question.

Fla. High Court Creates Safeguards In Foreclosure Process By Requiring Loan Ownership Verification By Lenders Before Filing Suits, Mandating Mediation

In Central Florida, The Tampa Tribune reports:

• The Florida Supreme Court continues to make it more difficult for lenders to foreclose in the Sunshine State. The court says lenders are now required to verify they own loans before they file a foreclosure lawsuit. And, according to the court order, lenders can no longer charge the homeowner for that investigation. This follows the court's order in late December that requires lenders to offer owners of primary residences a chance to negotiate with a third-party mediator before moving forward with foreclosure.

***

• Lenders sometimes have a difficult time coming up with the original note to prove they have the authority to foreclose. This is because loans were often bundled and sold as securities. In some cases, the notes are stored in warehouses or get lost in the shuffle.

For more, see Court makes it more difficult for lenders to foreclose.

The Sloppiness Of The Assembly Line, Foreclosure Mill Attorneys Continues

In Central Florida, a recent column in the Sarasota Herald Tribune comments on some of the sloppy paperwork being churned out and filed in court by assembly line, foreclosure mill law firms, and the judges letting them get away with it:

• [T]here's much evidence, as the Florida Bar has confirmed, that some bulk-rate foreclosure firms are seriously cutting corners. And why not? They can usually file sloppy documents with unverified and false claims and get away with it, because most foreclosures are not contested. Usually, nobody even skims through the documents. A recent court ruling says judges don't need to. The checking is up to homeowners.

• That has led to filings so ridiculous that I thought anti-foreclosure lawyer April Charney was kidding when she e-mailed a recent find from Lee County. It is a template, a fill-in-the-blanks foreclosure document, that foreclosure-mill lawyers filed in court as a real one, with almost nothing filled in.

• But though law office employees or contractors apparently forgot, or didn't bother, to fill in names of key parties in that foreclosure, some ironic truth was left in there, Charney says. Where there should be names of the investment company that allegedly held the mortgages or transferred it to another company, the court document lists "Bogus Assignee" and "Bad Bene" (beneficiary, it seems).(1)

• "It's a cruel joke," says Charney, a Legal Aid lawyer who has been teaching foreclosure seminars for area lawyers and judges. "We are finding these all over the country." Such flagrantly self-identifying bogus documents are only a bit more obvious and extreme than routine ones that often have equally shaky and unproven mortgage assignment claims, Charney says.

• "It really is kind of pathetic," she says, and it shows why judges should be angry, and why more struggling homeowners should get legal help.

For the story, see Bogus foreclosure claim not isolated.

(1) For examples of mortgage assignments that literally list the name of the assignor or assignee as "BOGUS" or "BOGUS ASSIGNEE FOR INTERVENING ASMTS, see:

• The Whole Country is BOGUS – Fabricated Mortgage Assignments All Over the Country,
• ENOUGH IS ENOUGH! Docx Assignment of Mortgage – Bogus Assignee for Intervening Asmts ALL OVER THE PUBLIC RECORDS!

For those who are interested, drop me a line at homeequitytheft@yahoo.com and I can forward you copies of several bogus assignments that were recorded in public records that were kindly provided to me by a reader of the blog - be sure and put "BOGUS ASSIGNMENTS" in the subject line.

2nd Defendant Cops Plea In Bridgeport Short Sale Flipping Scam; Allegedly Duped Lenders Into Accepting Less Than Full Payment On Underwater Loans

From the Office of the U.S. Attorney (Bridgeport, Connecticut):

• Nora R. Dannehy, United States Attorney for the District of Connecticut, announced that ANNA McELANEY, 38, a licensed real estate agent residing in Norwalk, pleaded guilty [...] to one count of bank fraud stemming from her involvement in a “short sale” mortgage fraud scheme.

***

• According to court documents and statements made in court, McELANEY worked with Sergio Natera, also a real estate agent, to defraud Regions Bank, which held two mortgages on a residential property in Bridgeport. On December 5, 2007, McELANEY, who was a listing agent for the property, received an offer to purchase the property for a price of $132,500. However, McELANEY and Natera subsequently directed communications to Regions Bank that the highest offer to purchase the property was for $102,375 by BOS Asset Management, LLC, an entity that Natera controlled. The bank agreed to a short sale of the property for the lower price, and released its mortgages on the property.

• On June 9, 2008, Natera, through BOS Asset Management, sold the property for $132,500 to the original bidder on the property, and Natera and McELANEY retained the difference in the two sale prices. [...] Natera pleaded guilty to one count of bank fraud on February 11, 2010. He awaits sentencing.

For the U.S. Attorney press release, see Another Connecticut Real Estate Agent Admits Defrauding Bank In Short Sale Mortgage Fraud Scheme.

For earlier post on the indictment in this case, see CT Feds Indict Two In Alleged "Short Sale" Flipping Scam Using Straw Buyers To Dupe Lenders Into Accepting Less Than Full Payment On Underwater Loans.

Albany-Area Title Agent Admits To Pocketing $125K In Closing Cash Intended To Satisfy Existing Mortgages In Real Estate Transactions

In Albany, New York, The Business Review reports:

• The owner of a title company in Clifton Park, N.Y., will spend three to nine years in prison after pleading guilty to stealing $125,000 that should have been used to pay off her clients’ old mortgages. Susan Laverne, 64, pleaded guilty on Feb. 10 to one count of second-degree grand larceny, a felony. Laverne initially was charged in September 2009 with three counts of second-degree larceny in connection with the transactions. Laverne, who also goes by Susan Zenner, owned and operated the now-defunct JTR Abstract, a title and settlement company [...]. The charges stemmed from a few house closings in Albany County that were handled by Zenner, said Christopher Baynes, assistant district attorney and chief of the financial crimes unit for the Albany County district attorney’s office. Most of the deals involved mortgage refinancing. [...] The scam caught up with her in December 2008, when clients from Bethlehem learned that their old $125,000 loan was never paid off.(1)

For more, see Title company owner pleads guilty to grand larceny.

(1) Reportedly, Laverne faces separate charges of grand larceny and criminal possession of a forged instrument for allegedly conspiring with a Saratoga Springs couple to steal $2.3 million from mortgage lenders. Law enforcement officials said Laverne allegedly helped Stephen Sutliff and his wife, Nickole Sutliff, fraudulently obtain multiple mortgages for homes on the same day, the story states.

Las Vegas Man Indicted By State AG On Allegations Of Offering Bogus Loan Modifications; Faces Theft, Felony Charges

In Las Vegas, Nevada, the Las Vegas Sun reports:

• A 50-year-old Henderson man was indicted [] on four felony counts of theft and one felony count of forgery in connection with the operation of DB Financial Services, a foreclosure rescue business located in Henderson, Nevada Attorney General Catherine Cortez Masto said. Jeffery Tye Brown was accused of misleading customers into believing that, for a fee, he would guarantee resolution of a victim’s pending mortgage foreclosure.(1)

For more, see Henderson man indicted for alleged foreclosure rescue scams.

(1) Reportedly, The indictment alleges that between December 2007 and February 2008, Brown contacted victims whose homes were going into foreclosure and obtained advance payments of $999 for foreclosure rescue services that he never performed. He failed to give refunds despite promising them in his contracts and advertising, the story atates. He also allegedly forged documents to the state Mortgage Lending Division to cover up the criminal activity. Shortly after execution of a search warrant on the DB Financial offices in 2008 by the task force, Brown reportedly fled the country. He has been extradited back to this country from the Philippines, where he was hiding to evade authorities, according to the story.

California AG To Financially Distressed Homeowners: Steer Clear Of Forensic Loan Audit Ripoffs

From the Office of the California Attorney General:

• Attorney General Edmund G. Brown Jr. [] joined the California Department of Real Estate (DRE) and the State Bar of California in warning Californians to avoid forensic loan audits, the loan-modification industry's latest "phony foreclosure-relief service," in which homeowners pay up-front fees for a forensic review of their lender's practices, but are provided no actual foreclosure relief.

• "Forensic loan audits are yet another phony foreclosure-relief service hawked by loan-modification consultants trying to cash in on the desperation of homeowners facing foreclosure," Brown said. "The foreclosure-relief industry continues to be long on promises, but short on results." Individuals and businesses who offer forensic loan audits use inflated and misleading claims to convince homeowners to pay up-front fees for services that produce no actual foreclosure relief.

• Homeowners are encouraged to pay for an audit of their mortgage loan file to determine their lender's compliance with state and federal mortgage-lending laws. This audit is pitched to homeowners as a tool they can use to gain leverage and speed up the loan-modification process.

For the rest of the California AG press release, see Brown Warns Homeowners to Avoid Forensic Loan Audits.

Another Rubber-Stamped Foreclosure Judgment Gets The Boot From Appeals Court; Trial Judge Fails To Apply Binding Precedent To Standing-Lacking Lender

The Court of Appeals for the First Appellate District of Ohio recently ruled (footnotes omitted, my emphasis added):

• Defendants-appellants Jamie and Gary Gindele appeal the summary judgment entered for plaintiff-appellee Bank of New York on its foreclosure complaint. On appeal, the Gindeles argue that Bank of New York did not acquire its interest until after the foreclosure complaint had been filed, and that under our holding in Wells Fargo Bank, N.A. v. Byrd,(1) Bank of New York’s complaint should have been dismissed without prejudice. We agree.

• In Byrd, we held that “in a foreclosure action, a bank that was not the mortgagee when suit was filed cannot cure its lack of standing by subsequently obtaining an interest in the mortgage.” [...] A thorough review of the record reveals that the sole indication of its interest as mortgagee is an after-acquired assignment; and the bank failed to produce any evidence in the trial court affirmatively establishing a preexisting interest.

***

• We likewise reject Bank of New York’s argument that the real party in interest when the lawsuit was filed was later joined by the Gindeles. We are convinced that the later joinder of the real party in interest could not have cured the Bank of New York’s lack of standing when it filed its foreclosure complaint.

***

• In a foreclosure action, absent understandable mistake or circumstances where the identity of a party is difficult or impossible to ascertain, a bank that was not the mortgagee when suit was filed cannot cure its lack of standing by subsequently obtaining an interest in the mortgage. Bank of New York failed to establish an enforceable interest that existed at the time it filed suit, and it has not alleged or proved understandable mistake or that the identity of the proper party was not readily ascertainable. Bank of New York’s complaint in foreclosure should have been dismissed without prejudice under Byrd.

For the entire ruling, see Bank of New York v. Gindele, 2010-Ohio-542 (2/19/2010).

(1) 178 Ohio App.3d 285, 2008-Ohio-4603, 897 N.E.2d 722.

Central Florida Judge Voids Foreclosure Sale, Allowing Homeowner Victimized By Sewer Service To Recover Title To Home

In Sarasota, Florida, the Sarasota Herald Tribune reports:

• William Berta could be among the most findable people in the world. The 70-year-old has lived in his Sarasota home for decades. He runs a business on 12th Street, has a pilot's license, collects Veterans Affairs benefits, and recently got a traffic ticket here. His home has cars in the driveway, the water and power are on, and he says his two dogs bark at anyone who knocks on the door of the home he shares with his son.

• Yet the bank foreclosing on his five-acre property told a judge that Berta had abandoned the home, could not be found and might even be dead. That declaration allowed Wells Fargo Bank to take possession of Berta's home in December without him ever knowing that a foreclosure case had been filed, and he had no chance to raise a defense. "They didn't want to find me," Berta said. "They tried to use their knowledge of the law to steal my house."

• As foreclosures continue to overwhelm the court system, there is a growing concern that sloppy and careless work in foreclosure cases is making Berta's experience a common one. The kicker in Berta's case: A process server had no trouble serving him with eviction papers after taking the deed to his property, right at the home the bank previously said he had abandoned. Berta immediately called an attorney. Sarasota attorney Martin Burzynski, whose firm now represents Berta, said his firm is seeing cases that he considers "borderline fraud."(1)

For more, see An abrupt eviction, narrowly averted.

For more on the "sewer service" problem, see: MFY Legal Services: Justice Disserved (documents problem of improper service of process in debt collection lawsuits that have led to judgments entered against unknowing victims).

(1) Reportedly, Berta's attorney found a number of problems with the foreclosure action, the biggest was that the firm only tried to serve him once, at his home, at 3:30 p.m. on a Monday in June. In addition, the bank's attorney filed an affidavit that stated they could not determine Berta's:

• Social Security number (which would be on the original mortgage papers),
• marital status (a simple public records search shows his divorce), or
• whether he owned vehicles or boats (state records clearly show he owns two cars, a boat and a plane).

But based on that abandonment affidavit, a judge gave Wells Fargo a summary judgment against Berta, according to the story. The quick case meant the bank's attorney spent as little time and money as possible on a foreclosure case, as compared to when a homeowner puts up a vigorous legal fight, the story states. Most notably, the affidavit allowed the firm to skip local rules that would have required them to meet with Berta, because the property is homesteaded.

The judge set aside the foreclosure sale without a typical hearing, awarded Berta attorney's fees, and has left the bank with having to start over again, the story states.

State Regulator Orders Shut Down Of Five S. Florida Loan Modification Outfits On Charges Of Pocketing Illegal Upfront Fees, Operating Without License

In South Florida, the Sun Sentinel reports:

• State regulators took the first step Thursday in what they said will be an ongoing effort against unlawful mortgage modifiers, ordering several South Florida operations to immediately stop doing business. The Florida Office of Financial Regulation cited five companies Thursday morning: Foreclosure Solution Specialists Inc., of Tamarac; the Federal Housing Assistance Program, west of Fort Lauderdale; Liberty Home Solutions, of West Palm Beach; Keep Living in Your Home, of Boca Raton; and Saving Your Home, of Miami. They were alleged to have violated two state laws by taking money upfront for mortgage modifications and by not being licensed to perform those services.

For more, see State cracks down on five South Florida home loan rescue companies (Mortgage modifiers allegedly violated new rules).

Feds Apprehend Fugitive Title Insurance Agent Suspected In $500K Escrow Swindle; Failed To Satisfy Existing Mortages, Record Deeds In R/E Transactions

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

• Daniel E. Fink Jr., age 43, of Baltimore, who owned and operated Homemaxx Title & Escrow LLC (Homemaxx), a title company that conducted residential real estate closings with offices in Middle River and Parkville, Maryland, was arrested in Palm Beach, Florida [] and had his initial appearance in federal court in Florida []. Fink was a fugitive since March 26, 2009 when a federal grand jury in Baltimore returned an indictment charging him with wire fraud and money laundering in connection with a scheme to defraud lenders and homeowners of over $500,000.

***

• Fink [allegedly] caused Homemaxx to fail to pay outstanding first mortgages on real estate transactions or to record deeds in the real estate records of local and state governments. Fink allegedly transferred substantial amounts of money from a Homemaxx escrow account into other Homemaxx accounts, as well as to accounts not associated with Homemaxx, and used the money intended to be disbursed pursuant to real estate closing documents for personal expenditures unrelated to real estate transactions. In connection with a particular real estate refinancing transaction by one of his customers, Fink allegedly diverted funds from the escrow account and then used the proceeds to purchase a new 2004 CLK Mercedes.

• As a result of this scheme, Fink is alleged to have defrauded lenders and homeowners of more than $500,000, and to have used $93,228 of the criminal proceeds for money laundering. The indictment seeks the forfeiture of $593,228.

For the U.S. Attorney press release, see Title Company Owner Arrested on Mortgage Fraud And Money Laundering Charges (Was a Fugitive for Almost a Year).

Bona Fide Purchaser Status Not Available To Lender For Failure To Inquire Into Continued Possession By Ex-Homeowner In Equity Stripping Scam

A 2009 case ruled upon by a Federal court in Chicago, Illinois dealt with the following facts:

• Homeowner Davis was facing foreclosure and entered into a transaction with a foreclosure rescue operator in which the homeowner unwittingly conveyed full, unconditional title to the operator, and received $18,000 upon consummation of the transaction, a transaction that Davis believed to be a mortgage refinancing.

• Davis retained possession of his home, and pursuant to a contemporaneously executed contract for deed, agreed to pay the operator $ 1,223.51 per month, with the option to repurchase his home in one year.

• At the end of the year, Davis, unable to purchase the home back, received an extension of the contract for another year.

• Before the end of the second year, Davis began having trouble making the monthly payments. At this point (and probably on the advice of legal counsel, who undoubtedly informed him that he unwittingly conveyed full title to the operator two years earlier, although the ruling is silent on this fact), Davis (or someone on his behalf) takes a stroll over to the Cook County Recorder of Deeds and records a "Notice of Equitable Mortgage and Affidavit of Interest" setting forth his claim to the sole legal title to the property.

• Approximately three months later, the operator sells the home to a third party for $345,000, who financed the purchase with a mortgage loan from an institutional lender.

• Davis subsequently files a lawsuit to recharacterize his unwitting transfer to the operator as an equitable mortage, and to void both the operator's sale to the third party, and the mortgage obtained from the institutional lender to finance the third party's $345,000 purchase.

• The lender claimed that its mortgage has priority over any interest or equity Davis could establish in the home because it (the lender) acquired its mortgage interest as a bona fide purchaser, without having any actual knowledge of either (a) Davis' earlier dealings with the foreclosure rescue operator, or (b) Davis' continued possession in the home.

In this ruling, the court was asked to decide on the narrow issue of whether the institutional lender acquired its mortgage interest in the home as a bona fide purchaser, or whether its interest is subject to (and inferior to) any right or equity that Davis can establish in the premises.

The court decided that the institutional lender was not a bona fide purchaser and, accordingly, is subject to any right or equity in the home that Davis can estabilsh.

While alluding to the fact that Davis had recorded a "Notice of Equitable Mortgage" with the county Recorder of Deeds, the court relied primarily on the fact that the lender had constructive notice of Davis' possible rights or equities in the home by reason of his continued possession in the home. (It found this to be the case despite the fact that the lender may have lacked actual knowledge of the facts that led up to the home's sale to the third party.)

More specifically, the court ruled that Davis' visible, open, exclusive and unambiguous possession of the property, under Illinois law, imposes on the lender a duty to inquire into the nature of any rights or equities Davis may claim in the premises, and charges the lender with that knowledge when it fails to make said inquiry.

For the longer version of ths post, which includes the judge's recitation of the relevant Illinois law, and links to the court ruling and some of the relevant court filings, see Lender's Failure To Inquire Into Possession Disqualifies It For Bona Fide Purchaser Protection In Suit To Undo Foreclosure Rescue Sale Leaseback Scam.

Representing the homeowner is John S. Elson, Lead Attorney, Northwestern University School Of Law, Legal Clinic, Chicago , IL. foreclosure rescue sale leaseback

Foreclosure Rescue Operators Try To Dodge Liability For Alleged Sale Leaseback, Equity Stripping Scam, Despite Binding Settlement Agreements

A recent court ruling by the District of Columbia Court of Appeals describes an attempt made by a couple of notorious D.C.-area foreclosure rescue operators(1) to wiggle their way out of out-of-court settlement agreements that they entered into with several equity stripping victims. The agreements were originally entered into after the victims brought suit against them.(2)

For the facts of the case, and the court's ruling, see Dyer v. Bilaal, 983 A.2d 349; 2009 D.C. App. LEXIS 573 (D.C. Ct. of App. 2009).

(1) Dennis Dyer, Vincent Abell, Modern Management Company, Marta Bertola, and other defendants.

(2) Six homeowners brought suit against the operators alleging fraud and other torts as well as violations of state and federal lending laws and consumer protection laws. The homeowners were allegedly offered bogus sale leasebacks arrangements that purported to help save their homes from foreclosure. Instead of merely signing loan documents in connection with what the homeowners thought was a mortgage refinance, they unwittingly transferred title to their homes for a fraction of their value and became tenants. See this CBS Evening News Report interviewing two of the victims of this foreclosure rescue scam.

In an unrelated case, a jury verdict of more than $3 million had been returned against three of the defendants in an almost identical suit brought by the same lawyers who were representing the plaintiffs in this case. See Wilson v. Abell, et al., Docket No. 04-7270 (D.C. Super. Ct., jury verdict March 27, 2007); a decsription of the facts in this case can be found in Appellate Brief: Wilson v. Modern Management, et al. (available online courtesy of Legal Aid Society of the District of Columbia). See also: Media Coverage Not New For D.C.-Area Foreclosure Rescue Operator.

Bankruptcy Court OKs Home Mortgage Cramdown For NC Homeowner, Despite Congress' Failure To Change Law

Despite Congress' recent failed attempts to change the Federal bankruptcy law that restricts cramdowns of mortgages secured by a Debtor's residence in a Chapter 13 bankruptcy proceeding, such cramdowns are apparently already permissible in certain cases, and has been for quite some time, based on my reading of a recent ruling by a North Carolina bankruptcy court.

The ruling is somewhat technical in nature, but essentially revolves around the following:

• The applicable provisions of the Bankruptcy Code (ie. sections 506(a) and 1322(b)(2)) provide a mechanism for modifying the rights of a holder of a secured claim by bifurcating the secured creditor's claim into secured and unsecured portions if the amount of the claim exceeds the value of the collateral securing the claim;

• However, under section 1322(b)(2), some secured claims are protected against modification. Specifically, section 1322(b)(2) excludes from modification "a claim secured only by a security interest in real property that is the debtor's principal residence." [bold text emphasis mine, not in the statute];

• Under the terms of the deed of trust in this case, the Debtor was to include in her monthly payment principal and interest plus an additional sum to cover the payment of "Escrow Items" consisting of taxes and special assessments, leasehold payments or ground rents, and insurance premiums; and

• The lender's loan documents required the borrower to pledge the escrow funds as "additional security" for the principal and interest due under the promissory note and deed of trust.

In this case, the bankruptcy court, relying on the legal analysis by a Federal appeals court in In re Ennis, 558 F.3d 343 (4th Cir. 2009), found that the deed of trust was not "a claim secured only by a security interest in real property [...]" as set forth in section 1322(b)(2) - it was a claim secured by both:

• a security interest in real property, and
• a security interest in the funds sitting in the escrow account which, under North Carolina law, was found by the court to constitute personal property.

On the basis that the security for the deed of trust was not limited only to an interest in real property, but also included personal property in the form of the escrow funds sitting in the escrow account, the court ruled that the anti-modification clause was inapplicable and, accordingly, the Debtor was permitted to modify (ie. cram down) her home loan.(1)

For the ruling, see In re: Bradsher, Case No. 09-80942, USBC M.D. N.C., Durham Division (February 16, 2010).

(1) For those (like me) who were unaware that a mortgage cramdown was possible in a case involving a deed of trust or mortgage secured by the Debtor's residence, this case illustrates the importance of reading every single word contained in both the:

• the statute (the ruling in this case turns on the presence of the words "only" and "real property" in the anti-cramdown rule in section 1322(b)(2) of the Bankruptcy Code), and
• the mortgage/deed of trust (the pledging of the escrow funds as "additional collateral" rendered the anti-cramdown rule inapplicable since, under North Carolina law, said funds were found by the court to constitute "personal property").

For those of you looking to cram down the mortgages/deeds of trust secured by your "underwater" homes, a review of your mortgage/deed of trust paperwork may be called for (and hope that any escrow funds paid with the principal and interest are pledged as additional collateral for the loan, as they were in this case).

Further, for those homeowners looking to modify their home loans, it may be a good idea to make sure the escrow account is pledged as additional collateral for the loan (if it isn't already). This way, if (or when) the modification doesn't work out, you may have the option to file a Chapter 13 bankruptcy, and then possibly cram down (ie. write down) the loan as part of your payment plan - provided the escrow funds constitute personal property under the applicable state law (and, if you have a 2nd mortgage on the home that is completely underwater, you can also avail yourself of the "lien stripping" statute found elsewhere in the Federal Bankruptcy Code). Go here for More On Lien Stripping Of Wholly Unsecured 2nd Mortgages Encumbering Underwater Homes In Chapter 13 Bankruptcy Proceedings.

Finally, keep in mind that the anti-modification (anti-cramdown) law only impacts homeowners with first mortgages secured by their residence. Investors with first mortgages on their investment property can, and have always been able to, cram down those mortgages.

Brooklyn Jury Convicts Condo Developer Of Failing To Deliver Title To Buyers, Then Using Deeds As Collateral To Pocket Proceeds From Subsequent Loans

In Brooklyn, New York, the Daily News reports:

• A ambitious [sic] Brooklyn developer was found guilty Tuesday of stealing more than $18 million from dozens of Hasidic families and several banks in a massive subprime mortgage scam. Eliyahu Ezagui, 39, preyed on his fellow congregants, sold them condominiums but never gave them the deeds when construction was finished. Instead, he gave the deeds to family members - including his wife, father and mother. He then used the deeds to take out mortgages on 53 apartments he didn't own and pocketed the money.

***

• Because Ezagui didn't make payments on the illicit mortgages to lending banks, the condo owners are facing foreclosure proceedings and eviction in a separate civil court proceedings. "Now that the fraud has been established, I expect that the (civil) court will recognize the mortgages as fraudulent and cancel them," said [lawyer for many of the defrauded condo buyers, Robert] Tolchin.(1)

For the story, see Brooklyn developer Eliyahu Ezagui found guilty of stealing $18M from Hasidic families.

(1) Despite the successful criminal prosecution in this case, the burden remains with the victimized condo buyers to initiate civil lawsuits to void/set aside/cancel any subsequent title transfers and lien encumbrances to recover title to their homes. In this case, if the victims can establish that the scams were pulled off by way of forged documents, the subsequent deed transfers and mortgages would likely be found void (as opposed to voidable) and subject to cancellation by a civil court.

In the event scams similar to this one are pulled off by duping the victims into unwittingly signing the deeds, mortgages, etc., those transfers and mortgages could be found to be voidable (as opposed to void), in which case, those interests could still be subject cancellation, provided the subsequent grantees and mortgagees are found to have had either actual or constructive notice of the victims' outstanding rights and equities. In that case, they [the subsequent grantees and mortgagees] would not be considered bona fide purchasers/encumbrancers entitled to the protection of the state recording statutes. Arguably, in this case, the victims' possession of the premises at the time the subsequent deeds and mortgages were made could constitute notice to the world of their interests in the condos. See Phelan v. Brady, 119 N.Y. 587; 23 N.E. 1109 (NY 1890):

• Actual possession of real estate is sufficient notice to a person proposing to take a mortgage on the property, and to all the world of the existence of any right which the person in possession is able to establish. [citations omitted].

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

Co-Ringleaders In S. California Sale Leaseback Racket Get 15, 10 Years For $12M+ Equity Stripping Ripoff Of Homeowners Seeking Foreclosure Rescue

In Los Angeles, California, Southern California Public Radio KPCC 89.3 FM reports:

• Five participants in a massive fraud scheme were sentenced [] in Los Angeles to one to 15 years in federal prison. The defendants were found guilty of conning homeowners facing foreclosure out of millions of dollars in equity. U.S. District Judge George H. King saved the harshest sentence — and words — for co-defendant Edward Seung Ok, a 43-year-old former resident of Huntington Beach, who was sentenced to 15 years in prison. Ok "is more culpable than all the other defendants'' and "falls far short in the full acceptance of responsibility,'' King said.

• According to prosecutors, Ok and ringleader Martha Rodriguez masterminded the con targeting more than 100 homeowners throughout the Southland who were seeking to avoid foreclosure. By telling the homeowners they could stave off foreclosure with short-term loans and refinancing, she and those working with her skimmed off more than $12 million in equity, Assistant U.S. Attorney Gregory A. Lesser said.

• Although the homeowners were promised the process would allow them to keep their homes, they ended up losing title. In reality, new loans were obtained through the use of "straw buyers'' who lenders were led to believe were real buyers. The new loans were used to buy the homes from the owners by paying off the balance on their existing mortgages, and the ring would pocket the remaining money.

• The banks that funded the new mortgages also lost money when the straw buyers didn't make the loan payments, and the new loans went into default. King sentenced the 38-year-old Rodriguez to 10 years in prison. [...] Under her plea deal, Rodriguez also agreed to forfeit her interest in five homes, a truck and about $900,000 in cash seized by the government, according to the U.S. Attorney's Office.(1)

Source: 5 sentenced to prison for fraud scheme that targeted homeowners.

For the U.S. Attorney (Los Angeles) press release, see Five Who Targeted Homeowners In Default Sentenced To Federal Prison In $13 Million Mortgage Fraud Case (O.C. Man Gets 15 Years for Fraud, Refusal to Account for Off-Shore Money).

(1) Also sentenced were:

• Maria G. Juarez, 38, of Diamond Bar, who received three years in federal prison;
• Vladimir Stefanovic, 38, of Lancaster, who was sentenced to a year and a half behind bars; and
• Cynthia Valenzuela, a 27-year-old Downey resident who worked for Rodriguez as an escrow officer, who was sentenced to a year and day in prison.

St. Louis Real Estate Broker Admits Pocketing Cash By Collecting On Bogus Liens Placed On Property Facing Foreclosure In Equity Stripping Scam

In St. Louis, Missouri, the St. Louis Business Journal reports:

• A St. Louis real estate broker has pleaded guilty to bank fraud in connection with brokering real estate transactions in 2006 and 2007. Randall Penberthy Jr., 40, of St. Charles, operated and controlled several business entities, including Covenant Financial, First Choice Investment and Loan and Midwest Management.

***

• Penberthy recruited investors to buy residential real estate directly from distressed property sellers whose homes were in danger of foreclosure, according to the U.S. attorney’s office. With Penberthy’s assistance, investors would finance the purchases through bank loans, prosecutors said.

• Penberthy would fraudulently place and record a second or third deed of trust on the property, typically in the name of First Choice or some other entity he controlled, in order to make it appear that a legitimate second or third mortgage had been placed against the property, when in fact he knew that no such legitimate second or third mortgage existed, prosecutors said. Bank loan funds were used to pay the sales price of the property as well as to pay off the fraudulent second or third mortgage, according to the U.S. attorney’s office.

Source: St. Louis real estate broker admits bank fraud.

Twin Cities Duo Get 3+ Years In Mortgage Fraud Scam; Targeted Homeowners Facing Foreclosure w/ Sale-Contract For Deed Buyback, Equity Stripping Ripoff

From the Office of the U.S. Attorney (Minneapolis, Minnesota):

• The second of two men from the Twin Cities was sentenced today in federal court in connection with a real estate loan scam aimed at defrauding Associated Bank. In Minneapolis, United States District Court Judge Joan Ericksen sentenced Eric R. Krahnke, age 52, of Andover, to 37 months in prison. On February 3, 2010, Judge Ericksen sentenced Michael I. Striker, age 56, of Minnetonka, to 41 months in prison.

***

• Although the loans(1) at the heart of this case were purportedly for construction rehab projects, Striker admitted he used some loan proceeds for unrelated expenses and debts. Furthermore, many of the properties subject to the loans were not rehab properties at all. Rather, they were homes in which financially distressed families still resided.(2)

For the U.S. Attorney press release, see 2 sentenced for orchestrating residential real estate loan scam.

(1) Accoding to the press release, Associated Bank disbursed more than $4 million in connection to the loans, with Striker receiving at real estate closings in excess of $724,000 in net loan proceeds. Krahnke, on the other hand, received commissions from Associated Bank for originating the loans. In addition, however, he received from Striker 3 percent of the net proceeds relative to each loan.

(2) According to the indictment (see Two Charged In Alleged Foreclosure Rescue Scam Involving $4M+ In Fraudulently Obtained Loans, Say Minnesota Feds):

• The homeowners had conveyed their title to Striker, or businesses that Striker was working with, under a contractual agreement whereby they re-purchased the residence on a contract for deed. At the same time these homeowners thought that Striker was helping them to stay in their homes, Striker was falsely representing to the bank an intention to rehab and re-sell these properties.

Go here for a comparison/contrast between a mortgage and a contract for deed in Minnesota. foreclosure rescue sale leaseback

C. Fla. Man Claims "Adverse Possession" Defense After Arrest On Home Hijacking Charges; Swiped 72 Houses, Rented Out 31 To Unwitting Tenants, Say Cops

In Land O' Lakes, Florida, The Tampa Tribune reports:

• Stephen Thomas Bybel had a business idea that would make him a landlord and line his pockets while sprucing up neighborhoods where homes in foreclosure were left to deteriorate and become targets of vandals. Pasco County sheriff's officials see it another way: He broke into vacant homes, changed the locks and rented out other people's houses. Bybel was arrested at his house Wednesday and was charged with one count of scheming to defraud.

• Reached by telephone after his release from jail, the 48-year-old Bybel maintained he didn't defraud anyone. "I think I'm doing a service to the community." In all, Sheriff Bob White said, Bybel took possession of 72 homes – in the Land O' Lakes and Wesley Chapel areas -- beginning in December and rented out 31 of them.

***

• The investigation into Bybel began when a real estate agent, also a part-time Pasco deputy, was recently trying to show a house that was for sale but discovered the locks had been changed. [...] One of the homes which Bybel has taken over, White said, is owned by another deputy who just started work this week. Apparently, it's a scheme that's being done in Miami and Las Vegas, the sheriff said. In fact, White said, they are investigating another unrelated similar scheme in Pasco.

For more, see Man says he did no wrong by renting out others' homes.

See also:

• The Tampa Tribune: Little-used statute at center of alleged rental scam,
• St. Petersburg Times: Man accused of turning foreclosed homes claimed by 'adverse possession' into Pasco rentals.

(1) Reportedly, Bybel started a company – Real T Solutions Investments, LLC -- and hit the streets of central Pasco searching for vacant homes. He would select some and then by filing a one-paragraph "memorandum of adverse possession" legal notice with the Pasco Clerk of Courts office, he would take possession of such properties, the story states. Bybel would then change the homes' locks, sometimes give them a fresh coat of interior paint and then rent them out.

Montana Man Faces Charges In Connection With Alleged Home Hijacking Scam; Targeted "Foreclosure" Homes, Changed Locks, Filed Phony Paperwork, Say Cops

In Polson, Montana, the Missoulian reports:

• If Lake County authorities are correct, when Brent Arthur Wilson allegedly broke into homes in the Polson area, his intent was not to steal jewelry, artwork or other valuables. No, they say, Wilson intended to steal the house itself. Apparently targeting homes either in foreclosure or about to enter foreclosure, Wilson would allegedly gain entrance, change the locks and file a flurry of bizarre paperwork - including "third-planet-from-the-sun" language in legal descriptions of the properties' locations - with the county clerk and recorder's office.

• The 53-year-old Wilson, who is being held in the Lake County Detention Center on $100,000 bond, was to be arraigned in District Court here Thursday morning. He is charged with three felonies (theft, deceptive practices and tampering with public records or information) and two misdemeanors (criminal mischief and false swearing) in regard to one of the houses in question.

• Lake County Sheriff's Detective Rick Lenz says the investigation continues into other Polson homes on which Wilson allegedly filed similar paperwork, and more charges could be forthcoming. The houses appear to include a home at which Wilson was allegedly living, another on which he was allegedly collecting rent, and one he allegedly attempted to use as collateral for a loan from a Missoula finance company.

• It took a Polson Realtor to unravel much of it. [...]

For more, including how local real estate agent Ed McCurdy unraveled this alleged scam after he had possession of a home he had listed for sale hijacked, see Man accused of stealing at least one Polson area home by breaking in, filing false paperwork.

For story update, see Polson judge orders mental evaluation for man charged with trying to steal house:

• A court-ordered mental health examination is next for Brent Arthur Wilson, whose arraignment in District Court here Thursday morning on charges related to an alleged attempt to steal a $300,000 house didn't get much farther than that.

Homeowner Facing Foreclosure Refuses To Let Bank Take $400K House; Plows Through It With Bulldozer Instead

In Moscow, Ohio, WLWT-TV Channel 5 reports:

• Like many people, Terry Hoskins has had troubles with his bank. But his solution to foreclosure might be unique. Hoskins said he's been in a struggle with the bank over his Clermont County home for almost a decade, a struggle that was coming to an end as the bank began foreclosure proceedings on his $400,000 home.

• Hoskins told News 5's Courtis Fuller that he told the bank that, "I'll tear it down before I let you take it." And that's exactly what Hoskins did. The sprawling country home is now rubble, buried under a coating of snow. Hoskins leveled the home with a bulldozer. Hoskins' business in Amelia is scheduled to go up for auction on March 2. Hoskins told Fuller he's considering leveling that building, too.(1)

Source: Frustrated Owner Bulldozes Home Ahead Of Foreclosure (Man Says Actions Intended To Send Message To Banks).

Go here for a "before & after" slideshow of the Bulldozed Home.

(1) See also, Terry Hoskins demolishes house to stop bank foreclosing and selling it :

• "When I see I owe $160,000 on a home valued at $350,000, and someone decides they want to take it - no, I wasn't going to stand for that, so I took it down," Hoskins said. [...] Hoskins said he had a $170,000 offer from someone to pay off the house, but the bank refused, saying they could get more from selling it in foreclosure. Hoskins told News 5 that he issued the bank an ultimatum: "I'll tear it down before I let you take it." That's exactly what Hoskins did, using a bulldozer.

No word yet as to whether Hoskins faces criminal charges of defrauding a secured creditor.