Court Orders Partial Disgorgement Of Legal Fees Where Attorney Fails To List Prior Filing In Client's Subsequent Bankruptcy Petition

In a recent ruling by a U.S. Bankruptcy Court in Alexandria Virginia, a bankruptcy attorney was ordered to pay back some of his $1,500 in legal fees after screwing up a bankruptcy petition filed on behalf of a client. The matter occurred in the context of a homeowner first approaching the attorney at the "eleventh hour" to file a bankruptcy petition to stave off a foreclosure sale, the attorney filing two petitions with the court within a two month period, the client being somewhat negligent in providing all the required information, and some apparently non-egregious but nevertheless sloppy handling of the matter by counsel.

For the ruling, see In re: OhPark, Case No. 10-10194-SSM (Bankr. E.D. Va. Alexandria Div., May 12, 2010).

(1) The following excerpt is taken from the ruling:

• As the U.S. Trustee correctly points out, it is improper for an attorney to fail to list a debtor's prior bankruptcy filing on the bankruptcy petition. The omission of a previous filing is particularly troublesome because the disclosure is important to many aspects of the administration of a bankruptcy case. A previous filing may determine whether a debtor is eligible for a discharge in a subsequent case. See §§ 727(a)(8), (9), 1328(f)(1), (2), Bankruptcy Code. It also determines whether the automatic stay is subject to early termination or even arises at all. Id. § 362(c)(3), (4). Moreover, disclosure of a prior filing assists the clerk's office in assigning the new case to the same judge as a previous case.

• This court has previously held that "where the petition and schedules filed on behalf of the debtor contain discrepancies, omissions, and inaccuracies, fee disgorgement is appropriate under § 329." In re De Molina, No. 09-14158 (Bankr. E.D. Va. Dec. 15, 2009) (citing In re Nickerson, No. 08-35234, 2009 WL 1587160 (Bankr. N.D. Ohio, April 16, 2009)).

• This is true whether the mistakes in the documents were intentional or inadvertent, although the amount of fees to be disgorged will obviously vary depending on the seriousness of the omission or error and the efforts made by the attorney to verify the accuracy of the documents. Here Mr. Eisner clearly filed a petition that contained a material inaccuracy. Although he was the attorney who filed the prior petition for the debtor, he failed to list the prior filing on the petition in the second case. Even if there was some copy of the petition floating around his office that listed the prior filing, an attorney who files documents electronically with the court is responsible for ensuring that the electronically-filed version conforms to the paper original and is accurate. Because Mr. Eisner was at the very least negligent in filing a petition that failed to disclose the debtor's prior filing, the court concludes that disgorgement of some portion of the fees he was paid is appropriate.

• Were it not that the debtor was also materially at fault in failing to provide Mr. Eisner with the information needed to complete the schedules and statement of financial affairs, the court would be inclined to order disgorgement of the entire fee. And certainly, having failed once to receive the information that would enable timely schedules to be prepared, a cautious attorney might have been concerned that the client had no real intent to follow through and was simply seeking to invoke the automatic stay for the purposes of delay, and for that reason would not have taken the second case without some reasonable assurance that timely schedules could be filed in the second case.

• In any event, taking into account that schedules were never prepared in either case, and that the sole document (the petition) that counsel did prepare contained a material inaccuracy that was wholly within the attorney's power to prevent, the court concludes that $500.00 is the maximum fee that is reasonable. Accordingly, counsel will be required to disgorge the remaining $1,000.00 of the fee he received.

Attorney Convicted Of Advising Client To Transfer Home, Land Out Of Their Names Prior To Filing Bankruptcy In Attempt To Screw Creditors

In Huntington, West Virginia, The West Virginia Record reports:

• A Putnam County attorney has been found guilty of committing fraud in a former client's bankruptcy case. Following a two-day trial in U.S. District Court, Patrick B. Anderson was convicted on April 29 on one count each of bankruptcy fraud, and fraudulent transfer and concealment of assets.

***

• During trial, prosecutors presented evidence that Anderson in February 2007 advised Herman and Peggy Matney of Poca to transfer the mobile home and one acre of property they owned on Harmons Branch Road out of their names before filing bankruptcy to conceal their ownership interest from their creditors.

• On April 30, 2007, Anderson filed a deed at the Putnam County Clerk's Office transferring the property to the Matney's daughter, Melissa Davis.The next day, Anderson filed a Chapter 7 petition in U. S. Bankruptcy Court. Records show not only did Anderson fail to disclose the transfer, but also list any real property they owned.

• In a letter dated May 2,2007, Peggy Matney alerted the U.S. Trustee's Office to incorrect information contained in the petition. In her letter, she averred that the erroneous information was all Anderson's doing, and it was not their intention to have the petition with the incorrect information filed.(1)

For the story, see Putnam attorney convicted for bankruptcy fraud.

(1) The clients in this case may be well advised to request that the court order the attorney to disgorge himself of any legal fees pocketed for his services, and if he can't pay it, file an Application For Relief with The West Virginia State Bar's Lawyers Fund for Client Protection for possible reimbursement.

Homeless Shelter Housing Hundreds Each Night & Facing Foreclosure Files Civil Rights Suit Against City Of Atlanta, Two Civic Groups

In Atlanta, Georgia, the Atlanta Journal Constitution reports:

• Leaders of an Atlanta homeless shelter fighting foreclosure announced during a Thursday rally they filed a complaint against the city and two civic groups, accusing them of violating their clients' civil rights. Civil rights advocates, residents and other supporters joined hands and surrounded the Metro Atlanta Task Force for the Homeless Peachtree-Pine shelter, vowing to keep the center open.

• "We have to save this building," Anita Beaty, the task force's executive director, said during the protest. "This building is our emergency respite and home." The complaint, filed May 6, accuses the city of discriminatory practices that violate federal fair housing rules. It asks the U.S. Department of Housing and Urban Development to withhold about $20 million in federal housing and community development funds. Peachtree-Pine houses hundreds of people each night.

Source: Homeless shelter announces civil rights complaint during rally.

Massachusetts AG Hammers Three Landlords In Separate Cases For Using Craigslist To Publish Discriminatory "No Section 8" Rental Ads

From the Office of the Massachusetts Attorney General:

• AG Coakley Obtains Judgment Against Fall River Landlord and Tenant for Alleged Posting of Discriminatory Housing Advertisement on Craigslist (Judgment part of statewide investigation into reports of discriminatory Internet advertising),

• AG Coakley Obtains Consent Judgment Against Revere Landlord for Alleged Posting of Discriminatory Housing Advertisement on Craigslist,

• AG Coakley Obtains Judgment Against Hyde Park Landlord for Alleged Posting of Discriminatory Housing Advertisement on Craigslist.

In each case, the landlord allegedly placed an advertisement on Craigslist listing a residential unit for rent but stating “no Section 8,” referring to a Federal housing program that provides rent subsidies for low-income tenants. The Massachusetts Anti-Discrimination Act prohibits real estate companies, agents, landlords and others involved in property rentals, from discriminating against people who use state or federal housing subsidies to pay for all or a portion of their rent, according to the Massacusetts AG's press releases.

Since taking office in January 2007, Attorney General Coakley’s office has obtained judgments in 86 housing discrimination cases brought against landlords, property managers, and/or real estate companies. In October, 2009, the Attorney General’s Office reached 20 settlements and filed six complaints against landlords and real estate agents across the Commonwealth accused of violating state anti-discrimination laws on Craigslist.

Income Tax Hit Bites Some Underwater Homeowners

The Wall Street Journal reports:

• [Homeowner] Maxine McDaniel has a message for Americans considering walking away from an unaffordable mortgage: Beware of taxes. Though not every homeowner who's underwater on a mortgage need worry, many are finding that a foreclosure or other form of housing loss can lead to a big tax obligation.

***

• In many of those instances, say Treasury officials, homeowners used mortgage money to fund everything from tuition and medical bills to vacations and cars and even the down payment on a second home or investment property. That debt, however, isn't eligible for exemption. Sometimes the tax bills are so high that people can't afford to pay. In such a situation, the IRS will allow taxpayers to apply for an installment-payment plan.

• Some homeowners can avoid the taxes completely if they can prove insolvency, in which the total value of debt exceeds total assets. But even that could leave some owing taxes. IRS rules stipulate that a taxpayer can escape taxes up to the extent of insolvency, meaning that if one's liabilities are $500,000 and assets are $300,000, the $200,000 difference is the extent of the insolvency. But if the person has $250,000 in debt canceled, then $50,000 is taxable income.(1)

For more, see A Surprise Tax Hit on Foreclosures (For People Who Lose or Walk Away From Their Homes, A Big Tax Bill May Loom).

(1) The following information from the Internal Revenue Service may come in handy in determining how much income tax may be owed to the Feds, and more importantly, whether a homeowner can qualify for one of the law's exceptions from taxation (ie. exception for taxpayers for acquisition or home improvement debt forgiven on their principal residence if the balance of their loan was $2 million or less, insolvency exception, & bankruptcy exception are the three most common) that will allow him/her to dodge the tax either entirely, or at least partially:

• IRS Tax Tip 2010-44: Ten Facts about Mortgage Debt Forgiveness,
• IRS Publication 4681: Canceled Debts, Foreclosures, Reposessions and Abandonments,
• IRS Information Release IR-2008-17: Mortgage Workouts, Now Tax-Free for Many Homeowners; Claim Relief on Newly-Revised IRS Form,
• The Mortgage Forgiveness Debt Relief Act and Debt Cancellation,
• IRS Form 982: The amount of debt forgiven must be reported on this form and must be attached to your tax return.

Homeowners finding themselves owing Federal income tax and having no cash to pay it may want to check out one of the following two separate approaches the IRS offers for dealing with the delinquent taxes:

• IRS Offer-In-Compromise - see IRS Form 656, & IRS Form 656-B (46 pages of Instructions - 1.6 MB), & go here for more on IRS Offers-In-Compromise; and
• Payment Plans, Installment Agreements - see IRS Form 9465).

Homeowner Sues Lender For Foreclosing On Home After Saying Sale Was Postponed

In Charleston, West Virginia, The West Virginia Record reports:

• A Rivesville couple is suing Wells Fargo and Federal Home Loan Mortgage Corporation after they claim the defendants have proceeded to foreclose their home, despite their ability to make payments. Alan and Sandra Rosenberger purchased their home in 1994 and their home mortgage loan eventually was transferred to the defendant, according to a complaint filed April 20 in Kanawha Circuit Court.

• The Rosenbergers claim in early 2009 Wells Fargo offered a loan modification and they accepted the modification. They claim they still struggled to make payments and Wells Fargo would call their home four and five times each day to demand payment. On Jan. 5, Mr. Rosenberger contacted Wells Fargo about another loan modification and was accepted.

• The defendant advised they would postpone foreclosure on the Rosenberger's home, according to the suit. The Rosenbergers claim Wells Fargo continued with the foreclosure anyway. They claim Wells Fargo owed a duty to them to exercise reasonable care and provide accurate information about the status of the loan account and breached its duty. The Rosenbergers are seeking actual damages and civil penalties.

Source: Rivesville couple sues for mortgage firms for breach of contract, negligence.

Massachusetts AG Settles w/ Real Estate Brokerage For Allegedly Using Deceptive Notices To Bully Tenants Out Of Homes In Illegal Foreclosure Evictions

In Boston, Massachusetts, South Coast Today reports:

• A Fairhaven real estate firm must pay thousands of dollars in penalties after Attorney General Martha Coakley busted an alleged foreclosure scheme that involved attempts to force tenants out of their homes. RE/MAX Classic of Fairhaven and real estate broker Simone Schettino must provide relief and preventive measures to ensure their future compliance with state and federal consumer protection laws after reaching a settlement with Coakley's office. RE/MAX Classic did not immediately return a phone call Wednesday.

• According to Coakley's office, last spring, housing advocates unearthed a company notice given to New Bedford residents that threatened to change the locks on the property if those who lived there did not call the broker within 24 hours — a move that is illegal. The housing advocates provided Coakley's office with the document.

• Soon thereafter, similar notices sent by Schettino to Roxbury residents who were living in a foreclosed property were found by a housing and tenants' rights organization in Jamaica Plain, the Attorney General's Office said. Those notices also threatened to remove all property of the residents if the agent was not contacted.

• It is illegal to deliver notices or communicate statements to residents if the notices contain unfair or deceptive statements or threaten an illegal act. Under law, tenants with a valid lease are permitted to continue living in a foreclosed property for the term of the lease and both landlords or their brokers cannot alter the lease terms, Coakley's office said.

• Now, RE/MAX Classic must pay $2,500 up front, while another $7,500 penalty hovers over the firm should it not comply with conditions of the settlement, according to the attorney general. South Coastal Counties Legal Services(1) will receive $1,000 of the payment, while Local Consumer Aid Fund will receive $1,500. The company must also provide six free seminars that are open to the public and will provide information highlighting tenants and homeowners' rights in cases where their homes and properties face foreclosure.

Source: Real estate firm fined for foreclosure scheme.

For the Massachusetts AG press release, see AG Coakley Reaches Settlements with Real Estate Company and Broker for Serving Alleged Deceptive and Threatening Notices to Tenants of Foreclosed Properties.

(1) South Coastal Counties Legal Services is a non-profit corporation which provides free civil legal services to low-income and elderly residents in Barnstable, Bristol, Dukes, Nantucket, and Plymouth Counties, and the towns of Avon and Stoughton.

FTC Adds Forensic Mortgage Loan Audit Scams To Its Watch List Of Foreclosure Rescue Rackets

The Federal Trade Commission recently announced:

• Fraudulent foreclosure “rescue” professionals use half-truths and outright lies to sell services that promise relief to homeowners in distress. According to the Federal Trade Commission (FTC), the nation’s consumer protection agency, the latest foreclosure rescue scam to exploit financially strapped homeowners pitches forensic mortgage loan audits.

• In exchange for an upfront fee of several hundred dollars, so-called forensic loan auditors, mortgage loan auditors, or foreclosure prevention auditors backed by forensic attorneys offer to review your mortgage loan documents to determine whether your lender complied with state and federal mortgage lending laws. The “auditors” say you can use the audit report to avoid foreclosure, accelerate the loan modification process, reduce your loan principal, or even cancel your loan.

For more, see Forensic Mortgage Loan Audit Scams: A New Twist on Foreclosure Rescue Fraud.

Brooklyn Judge Strikes Again; Dismisses Foreclosure With Prejudice Where Assignment Of Mortgage Fails To Transfer Title To Promissory Note

In Brooklyn, New York, State Supreme Court Justice Arthur M. Schack has, in a recent ruling, added to the list of foreclosing lenders he has booted from his courtroom for filing lawsuits without having legal standing to do so.(1) According to Justice Schack:

• The instant June 16, 2009 assignment [of mortgage] from MERS, as nominee for FREMONT, to U.S. BANK is a nullity, because MERS, as nominee for FREMONT, did not assign the note, but only assigned "said Mortgage, and the full benefit of all the powers and of all the covenants and Provisions therein contained and the said Assignor hereby grants and conveys until the said Assignee, the Assignors beneficial interest under the Mortgage."

In addition, he cited upstate New York foreclosure mill operator Steven J. Baum, P.C. for an apparent conflict of interest in that it appears to be in violation of 22 NYCRR § 1200.0 (Rules of Professional Conduct, effective April 1, 2009) Rule 1.7, "Conflict of Interest: Current Clients." According to the court ruling, the Baum firm represents both MORTGAGE ELECTRONIC REGISTRATION SYSTEMS [MERS], as nominee for FREMONT INVESTMENT AND LOAN [FREMONT], the ineffective assignor of the instant mortgage, and plaintiff U.S. BANK, the ineffective assignee of the instant mortgage.

For Justice Schack's ruling, see U.S. Bank, N.A. v Emmanuel, 2010 NY Slip Op 50819 (NYS Supreme Court, Kings County, May 11, 2010).

(1) For links to over 30 of Justice Schack's court rulings in which he bounced unprepared foreclosing lenders and their lawyers out of his courtroom for sloppy an/or non-existent paperwork, see Brooklyn Trial Judge Nixes "Rubber Stamp Method" Of Adjudicating Foreclosures; Lenders, Lawyers Lacking Legal Standing To Bring Actions Get Bounced.

Go here for other posts on Justice Schack.

Implied Duty Of Good Faith, Fair Dealing & The Collection Of Deficiency Judgments In Foreclosure Actions

Lexology reports:

• It is fairly well-settled that a bank who breaches the implied duty of good faith and fair dealing may be barred from collecting its deficiency judgment in a foreclosure action. See de Jong v. Leitchfield Deposit Bank, 254 S.W.3d 817, 823 (Ky. App. 2007) (quoting Farmers Bank and Trust Co. v. Willmott Hardwoods, Inc., 171 S.W.3d 4, 11 (Ky. 2005)).

• Yet, in Harvest Homebuilders LLC v. Commonwealth Bank and Trust Company, 2008-CA-001897 (01/29/2010), the Kentucky Court of Appeals affirmed a judgment of the Oldham Circuit Court awarding Commonwealth Bank a deficiency judgment against the borrower and an individual guarantor. The Court held that the trial court did not err by awarding the deficiency judgment as the record clearly established that the bank did not breach the implied covenant of good faith and fair dealing imposed in every contract, which “impose[s] on the parties … a duty to do everything necessary to carry” out the contract.

For more, see Must a bank forgo its right of deficiency if it refuses to release its obligors who want to pursue a short sale during a foreclosure action? No. (requires paid subscription; if no subscription, TRY HERE - then click link for the story.)

More On Central Florida Foreclosure Mill Operation

In Fort Lauderdale, Florida, The National Law Journal recently ran a story on the state attorney general's investigation into Tampa-based Florida Default Law Group, one of the nation's largest foreclosure mill law firm operators over allegations it "appears to be fabricating and/or presenting false and misleading documents in foreclosure cases," according to the AG's Economic Crimes Division in Fort Lauderdale, which is leading the investigation. A couple of tidbits from the story:

• Florida Default has paid for improper filings. In October 2008, U.S. Bankruptcy Judge John Olson fined Florida Default $95,130 for "repeated misrepresentations" to the court. The firm had submitted documents claiming that Fort Lauderdale homeowner Fazlul Haque owed his lender, Wells Fargo, $2,114 in prepayment penalties even though the mortgage, while in arrears, was still on its books. Olson realized the fee was illegal since Haque had yet to pay off the delinquent loan. "The notion that the debtor paid off his loan in full to the creditor is absurd," Olson wrote. "It is utterly perplexing to me how the creditor or its law firm could or did assert such claim." In a recent interview with the Daily Business Review, Olson attributed the misrepresentations to "sloppiness" by the foreclosure firm rather than fraud.

• In 2004, the Florida Bar reprimanded Florida Default president [Michael J.] Echevarria [see Conditional Guilty Plea For Consent Judgment] for not properly supervising lawyers at his prior firm, Echevarria & Associates, according to the Florida Bar. Among the issues in the case, a lawyer at his firm notarized foreclosure-related documents without reviewing the foreclosure files despite signing affidavits affirming he had done so.

For the story, see Law Firm Probed Over 'False' Documents Filed in Foreclosure Cases (Fla. AG's office has received dozens of homeowner complaints about questionable court documents filed by firm's lawyers, according to a source).

BofA "Despicable" With Approach To Loan Mods & Foreclosures, Say Frustrated Customers; Lender Calls Class Action Suit A Series Of "Sob Stories"

In Las Vegas, Nevada, KTNV-TV Channel 13 reports:

• Nearly 100 angry homeowners took to the streets Monday, protesting what they call unfair treatment by Bank of America, the nation's biggest bank. They marched from a local law office to the federal courthouse, to show the judge that they mean business. Nevada leads the nation in foreclosures and Bank of America holds more of our mortgages than any other lender. Action News regularly field phone calls and emails from frustrated customers who call Bank of America despicable when it comes to loan modifications and foreclosures. The customer service they describe as slow, lazy and downright incompetent.

***

• Those are the words of average Nevada homeowners facing foreclosure. They're so fed up, they've filed a class action lawsuit against Bank of America. They call their lender's conduct fraudulent, malicious and egregiously in bad faith. [...] Bank of America is trying to get it thrown out, calling the case a series of "sob stories." Their lawyers warn if the case goes forward, it'll be the "tip of the iceberg" and "floodgates will open" across the country.

For more, see Contact 13 investigates Bank of America.

BofA's "Property Preservation" Contractor Accused Of Stiffing Subs Around The Country Out Of Tens Of Thousand$; Lender Says It's Not Their Problem

In Denver, Colorado, CBS4 reports:

• It sounded like the ideal business during a recession -- fixing up foreclosed homes for banks. But contractors in Colorado and around the country say they have been bilked. They asked CBS4 investigator Rick Sallinger to look into the company that's supposed to be paying them for their work.

• The contractors say they're struggling just to stay afloat now. The work they perform is called "property preservation." When a bank forecloses on a home they hire people to lock it up then later fix it up to be sold. Each home has a story, but sometimes not the story one would expect.

***

• Contractors like [Ricardo & Venita] Curcurella have to put up their own money to maintain and fix up the homes to be sold. They document their work with photos then get reimbursed. "At first it was as simple as bookkeeping," Ricardo Curcurella said.

• Most of their business at the start came through a company acting as a middle man. It's now called Nomad Preservation Service. Nomad received payment from the Bank of America to preserve the homes. But the Curcurellas still haven't been paid all of their money. In fact, CBS4 found subcontractors around the country who claim Nomad owes them tens of thousands of dollars each. In the Cucurella's case, at least $40,000. "It's caused great financial hardship. We ourselves have been at the brink of eviction, which is kind of ironic," Ricardo said.

***

• They are not alone. "We would change the door lock, disable the deadbolt," Mike Elder said. Elder is another of the Colorado contractors who did work for Nomad. He figures he secured or fixed up 1,000 homes with $25,000 of his own money. "It's been hard based on the income of this house. I bought a new house, moved, got married. I was questioning whether I was going to lose my home," Elder said.

• The primary owner of Momad is "Sam" Hussein Farouk Elhaje. CBS4 found he has a criminal record that includes robbery. Elder said he received a threatening phone message from him when he tried to recover the money he says he is owed. "Really, I can fly to Colorado if you actually want to f---ing meet me. But all these threats and b.s. you are throwing around you can give this to you and whoever you want to. I'll beat the living f--- out of you b-----!" Elhaje told Elder. "I was shocked at first then I was quite happy because then I can report a threat," Elder said.

• CBS4 repeatedly tried to reach Nomad and Elhaje through phone calls and also through e-mails. While contractors say they have not been paid, Elhaje has been busy obtaining expensive cars, according to those CBS4 talked to -- cars like a Viper, Lamborghini, Hummer and two Corvettes. In the end, it could be up to the courts. The Cucurellas and others have taken legal action against Elhaje and Nomad.

***

• It doesn't sound like help is on the way. Bank of America Field Services wrote CBS4 that it "has met its financial obligations to Nomad. We expect our vendors to fulfill any obligations they have to their subcontractors.' CBS4 spoke to one man who says he is owed $200,000. Lawyers suing Elhaje and Nomad say he recently failed to show up for depositions.(1)

Source: Contractors Say They've Been Bilked By Company.

(1) The story is silent as to whether the subcontractors are slapping BofA with mechanics liens on the properties for the work they're performing, and the payments therefor that they're being stiffed on.

Massachusetts AG Obtains Indictment Of Attorney Accused Of Using Forged Mortgage Assignments In Attempt To Hijack Payoff Proceeds In R/E Closings

From the Office of the Massachusetts Attorney General:

• A Marblehead attorney has been indicted by a statewide Grand Jury for allegedly attempting to retrieve over $1.3 million dollars in mortgage funds in connection with a sophisticated mortgage fraud scheme. Leon Gelfgatt, age 49, allegedly used false documents to create the appearance that mortgages on several Massachusetts properties which were scheduled for impending sale had been transferred to a fake company created by Gelfgatt. Gelfgatt allegedly did this in order to obtain the payoff funds sent by real estate closing attorneys when the properties were sold.(1)

For the Massachusetts AG press release, see Marblehead Attorney Indicted in Connection with Orchestrating Multi-Million Dollar Forged Mortgage Assignment Scheme.

(1) According to authorities, between August and November of 2009, Gelfgatt allegedly identified and targeted fourteen high-end properties which were scheduled for an imminent sale. Gelfgatt then recorded seventeen forged mortgage assignments at the Registries of Deeds in Suffolk, Norfolk, and Middlesex Counties. These false mortgage assignments appeared to transfer the mortgage from the correct mortgage company to either Baylor Holdings, Ltd., or Puren Ventures, Inc., which were inactive corporations being offered for sale on the Internet. Gelfgatt created an elaborate system of email addresses, phone numbers, and electronic fax numbers to give the impression that these were functioning and legitimate businesses.

Gelfgatt then waited for attorneys responsible for clearing the title to the properties to reach out to these sham companies to request a “payoff statement”. A payoff statement is a document used by mortgage companies to state the precise amount necessary to pay a mortgage in full. Authorities allege that on two occasions Gelfgatt, in the guise of Baylor Holdings, Ltd., allegedly provided these closing attorneys with false payoff statements. The payoff statements instructed the closing attorneys to overnight the funds required to pay off the mortgages to an office address in Boston. Gelfgatt was arrested after he attempted to retrieve these payoff funds.

Lender Allegedly OK'd Loan Modification, Then Carried Out Foreclosure Sale Anyway, Says West Virginia Homeowner In Lawsuit

In Charleston, West Virginia, The West Virginia Record reports:

• A Cross Lanes man is suing Countrywide Home Loans, Bac Home Loans Servicing and Federal National Mortgage Association after he claims the companies participated in predatory lending and loan servicer abuse that resulted in the wrongful foreclosure of his home.

• Bradford Corder purchased a home in September 2002 for $185,000, according to a complaint filed April 13 in Kanawha Circuit Court. Following a divorce, Corder submitted loan modification information to the defendants in January 2010 and was informed on March 11 that he had been approved, according to the suit. Corder claims he spoke with the defendants on March 16 and was told foreclosure on his home was postponed until the loan modification package was provided to the defendants, but on March 17 the defendants proceeded with the foreclosure anyway.

• As a result, Corder as suffered economic loss, property loss, considerable stress, worry and fear, according to the suit. Corder is seeking actual damages and appropriate civil penalties. He is being represented by Daniel F. Hedges.

Source: Cross Lanes man sues Countrywide, others for wrongful foreclosure.

Couple Forced To Pay Twice For Home Construction Bills After Contractor Pockets Their Payments & Stiffs Subs, Building Material Suppliers

In South Lake Tahoe, California, KGO-TV Channel 7 reports:

• If you ever have to hire a contractor, you could end up paying twice for the same bill. It's happening to more and more people. [...] Images of the devastating Angora Fire in South Lake Tahoe are still etched in the minds of Howard and Joann Manning. The fire destroyed their home three years ago, but they're still living with the consequences today.

***

• The couple decided to rebuild their home and in December 2008, the home was completed. They made their final payment to HR Construction and owner Jack Aleshire that month. But then, the Mannings life took an abrupt turn.

• Within days, Meeks Lumber contacted them demanding money. So did Doug Bolton's Floor Show and Ponderosa Glass. In all, the couple heard from six subcontractors that HR Construction hired to either work on or supply materials for their home. All six said Jack Aleshire of HR Construction left town without paying them. All six held the Mannings responsible for making those payments and all six placed liens on the Manning home.

***

• [T]here are things you can do to protect yourself. Pay with a two party check made out to both the contractor and subcontractor -- that way you know the subcontractor will get paid. Ask the contractor for a lien release.(1) That releases you from all liens; by law the contractor has to give it to you if you request it. It's something the Mannings are only learning about now.(2)

For the story, see Couple's home in jeopardy due to contractor.

(1) Lien releases should also be obtained from all subcontractors and suppliers, as well as from the general contractor.

(2) According to the story, the California Contractors State License Board received 648 complaints in the 2006-2007 fiscal year about contractors not paying their subcontractors. That number increased more than 3.5 times in the last fiscal year, the story states.

CBS' 60 Minutes On Underwater Homeowners & Strategic Defaults

eCreditDaily reports:

• 60 Minutes [last night] put the national spotlight on strategic defaults, or homeowners walking away from “underwater” mortgages and into foreclosure, despite being able to make their payments. In a segment that aired [last night], Morley Safer interviewed homeowners mired in negative equity, a spreading “epidemic” for an estimated 11 million homeowners.

For more, see Foreclosures & Walking Away: 60 Minutes Eyes an ‘Epidemic’.

For the CBS 60 Minutes' piece, see Mortgages: Walking Away (or for the 60 Minutes' transcript, see Strategic Default: Walking Away from Mortgages (60 Minutes: A Million Have Walked Away; Trend Could Undermine the Fragile Economic Recovery).

Arizona AG Shuts Down Foreclosure Help Outfit That Allegedly Promised To Buy Clients' Defaulted Loans From Lenders, Then Re-Work Payment Terms

In Scottsdale, Arizona, KPHO-TV Channel 5 reports:

• State regulators have shut down a mortgage rescue company that CBS 5 investigators exposed one week ago. [... Homer] Becker and thousands of other homeowners said they handed over $1,595 each to Guardian [Group], which was supposed to buy their homes from the bank and then sell them back to the homeowners at a reduced price.(1) However, dozens of Guardian clients told CBS 5 that the company just took their money.

***

• Last week CBS 5 exposed some complaints against Guardian Group. When CBS 5 reporters showed up at the company's Scottsdale office to ask questions, the receptionist ran out the back door. A sign hung on the entrance said the office was closed due to technical difficulties. But a cease and desist order issued Thursday by state regulators means Guardian is effectively out of business.

For the story, see Company Shuts Down After CBS 5 Investigation (Guardian Group Accused Of Operating As Unlicensed Mortgage Broker).

(1) 5 Investigates discovered that the plan was laid out in a power point presentation the company sent to desperate homeowners. Go here for Guardian's Principal Reduction Presentation.

Flood Of Foreclosure Fraud Complaints Overwhelms DA's Office; Financially Strapped Victims Told To Prosecute Cases Themselves By Filing Civil Suits

In Riverside County, California, The Press Enterprise reports:

• A nonprofit organization representing 23 faith congregations in Riverside and San Bernardino counties demonstrated Friday, calling for county government to give higher priority to fighting foreclosure fraud with prosecutions and education. [...] Speaking for the grassroots organization, called Inland Congregations United for Change, Tim Lucas, a member of St. Catherine of Alexandria Church in Riverside, said they are asking the district attorney's office, the assessors office and the board of supervisors for help.

***

• Lucas complained that the district attorney's real estate unit does not have enough staff to handle its workload. Also Lucas complained that the district attorney has told the group that the majority of foreclosure fraud complaints should be prosecuted as civil rather than criminal cases. He said that would require victims, many of which are of modest means, to hire lawyers.(1)

• In response to the criticism, Ryan Hightower, spokesman for the Riverside County district attorney, said "We work with the resources we have and make the most of them." He said real estate fraud already is a high priority for the office and every complaint is evaluated on an individual basis for possible criminal prosecution. There are 350 cases in some stage of investigation or prosecution, Hightower said.

For the story, see Group demands action on foreclosure scams (DEMONSTRATION: The Riverside County DA's office says fraud is a high priority and is investigating 350 cases).

(1) It's not uncommon for authorities to claim that such incidents are "civil cases," suggesting the victim would need to file a civil lawsuit against the scammer to seek a remedy. California case law has clearly addressed the notion that some scammers have that they can insulate themselves from prosecution by using terms and conditions contained in legitimate-looking business contracts to screw over consumers. The rule in California is cited in, among other cases, People v. Frankfort, (1952) 114 Cal.App.2d 680, 700; 251 P.2d 401 (case law links are found at Findlaw.com - may require free registration):

• The simple answer to this argument is that "The People prosecuting for a crime committed in relation to a contract are not parties to the contract and are not bound by it. They are at liberty in such a prosecution to show the true nature of the transaction." (People v. Chait, 69 Cal.App.2d 503, 519 [159 P.2d 445]; People v. McEntyre, 32 Cal.App.2d Supp. 752, 760 [84 P.2d 560]; People v. Jones, 61 Cal.App.2d 608, 620 [143 P.2d 726]; People v. Pierce, supra, p. 605.)

In People v. Jones, 61 Cal.App.2d 608, 620 [143 P.2d 726], a California appellate court made this observation:

• Defendant argues that the deal with each "seller" was a civil transaction; [...] Cloaked in the draperies of his corporation and pretending to act in its behalf, he boldly approached his unsuspecting victims.

***

• Although each deal in its incipiency bore the color and trappings of a normal, civil contract, yet when subjected to a postmortem it exhaled the stench and disclosed the carcass of a fraud. (People v. Epstein, 118 Cal.App. 7, 10 [4 P.2d 555].) There appears no sign of good faith at any turn. Each taking and appropriation was a grand theft. The use of the corporate name and the promises made in accomplishing his purpose were a camouflage of such common variety that no excess of genius was required to discern the fraud. Parol evidence of all that occurred was admissible to show the intention of defendant. (People v. Robinson, 107 Cal.App. 211, 221 [290 P. 470].)

Convicted Loan Modification Scammer Buys His Way Out Of Jail Time By Coughing Up $10K+ In Victim Restitution Prior To Sentencing

From the Office of the Nevada Attorney General:

• Attorney General Catherine Cortez Masto announced [] the sentencing of William Vargas in connection with his involvement with a mortgage foreclosure rescue company, Federal Housing Aid, whose operation included a call center in the Philippines.

• District Court Judge Michael Villani sentenced Vargas to a year in the Clark County Detention Center, but suspended the sentence pursuant to a plea agreement. Vargas was allowed to enter a plea to a gross misdemeanor charge of attempted theft but was required to pay half of the restitution owed prior to sentencing. Vargas is required to pay total restitution of $21,000 to the victims of his crime.(1)

For the Nevada AG press release, see Defendant Sentenced In Mortgage Rescue Scam Operated From The Philippines.

(1) According to the press release, Vargas would contact homeowners facing foreclosure and offer to stop the foreclosure proceeding and save their credit. The victims entered into an agreement to pay an up front fee ranging from $700.00 to $1,500.00 as compensation for effecting a solution to the foreclosure. Once these fees were forwarded to Federal Housing Aid, no further action was taken. The homeowners, some of whom were over the age of 60, were never provided with assistance in resolving their problems and, in fact, ended up losing their homes.

Indiana AG Files Suit Against Alleged Foreclosure Assistance Racket Accused Of Taking Over Financially Distressed Homes & Failing To Pay The Mortgage

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

• The state has filed suit against a man in the wake of numerous complaints about foreclosure rescue programs. [...] Investigators said Daniel Shrader worked as an agent for at least 10 such companies, including Northstar Homes, Orion, Great Homes LLC, Prizm Partners, Regal Partners and the Oakbay Group, along with a website offering foreclosure help, indy-housebuyers.com.

• According to the complaint, Shrader and the companies took over homes but failed to pay the mortgage, and failed to follow state rules on providing services that would help people save their homes from foreclosure. [...] A Hamilton County judge on Friday ordered Shrader to a pay delinquent mortgage payment for one of his customers. He then had to be chased down by a state investigator waiting to serve him with a lawsuit seeking an injunction against his business practices.

For the story, see State Reports Rash Of Foreclosure Rescue Complaints (Suit Filed Against Agent For 10 Companies).

For story update, see State Seeks Injunction Against Foreclosure Rescue Rep (State: Man Didn't Live Up To Assistance Promises).

Lender Exercises Setoff Rights To Drain Cash From Unwitting Couple's Bank Account

In Atlanta, Georgia, Next Student Student Loan Blog reports:

• An Atlanta couple has found themselves with their savings wiped out after their bank, Wells Fargo, cleared out their checking account in order to pay a piece of what bank officials maintain is an outstanding student loan (“Suddenly, Bank Account Was Gone,” The Atlanta Journal-Constitution, May 1, 2010).

• After Hope and Matt Hughes had problems trying to make a purchase with their debit card last month, they discovered that Wells Fargo had cleaned them out, withdrawing $4,059.82 — everything they had — from their checking account. They were also hit with $385 in overdraft fees for debit-card purchases they had made on the day their checking account was emptied.

• Wells Fargo appropriated the funds under its right of “setoff,” a prerogative held by most banks that allows a bank to take money from a customer’s savings or checking account in order to pay off any other account — a home mortgage, credit cards, student loans — that the customer holds with the bank that’s overdue.

For more on a bank’s license to help itself to your money, see Wells Fargo Empties Customer’s Checking Account to Pay Delinquent Student Loan.

Indiana AG Targets Now-Defunct California Company In Alleged Upfront Fee Loan Modification Scam

In South Bend, Indiana, the South Bend Tribune reports:

• [I]ndiana Attorney General Greg Zoeller has filed a lawsuit [...] against [USA Mortgage Aid Inc.], a purported business that Zoeller says has swindled hundreds of Indiana residents out of hard earned money. Zoeller was in South Bend [] to file the suit in the St. Joseph County clerk's office and also to urge residents to beware of likewise scams.

• Since the foreclosure crisis, many businesses have popped up, touting themselves as "mortgage rescue," companies," Zoeller said. The M.O. is usually the same: money up front, help later. [...] Zoeller said [] USA Mortgage Aid Inc. violated several state consumer protection laws by demanding the money and by not being properly bonded. The attorney general's office also accuses the company of misrepresenting its positions and lying to consumers about having in-depth industry knowledge. [...] According to the California secretary of state website, USA Mortgage Aid, based in Irving, Ca., is now a dissolved company.

For the story, see Indiana attorney general files lawsuit against purported foreclosure aid company (Mishawaka man reports losing $1,700).

For the Indiana AG press release, see Action taken to curb foreclosure scams.

Maryland AG Moves To Halt "Free Rent" Investment Racket That Resulted In 100+ Tenants Being Bounced Out Of Homes

In Baltimore, Maryland, The Baltimore Sun reports:

• The Maryland attorney general's office moved Thursday to halt an alleged pyramid scheme by a Gambrills company and its owner, who are accused of bilking about 500 people out of hundreds of thousands of dollars by promising commissions, free rent and cars in exchange for recruiting more investors.(1) The plan started to fall apart when rent checks bounced and the investors were evicted. More than 115 people paid several thousand dollars into the company for an apartment, and most have been tossed out, according to authorities.

***

• Among those allegedly duped [...] were Helen Martin, a 59-year-old social worker, and her two daughters who together lost more than $11,000, including scholarship money and savings. They said they were lured by the promise of better housing, and they felt assured by testimonials from a network of friends and family.

For more, see 'Free rent' pyramid scheme ordered to halt operations (More than 115 people evicted).

For the Maryland AG press release, see Securities Division Orders Halt to "Free Rent" Pyramid Scheme, and go here for the AG's cease and desist order.

(1) The Maryland Attorney General's office says the people were allegedly scammed out of hundreds of thousands of dollars in a pyramid scheme that included promises of a year's free rent in exchange for upfront payments toward a supposed business venture. The securities division of the attorney general's office issued a cease-and-desist order against Diversified Marketing Consultants Inc., its owner, Lamondes D. "Monte" Williams of Clinton, and related companies Digital-Zone Electronics Warehouse and Mainline Properties LLC., the story states. The division contends the operation raised more than $800,000. Williams was reportedly convicted in 2005 of running a similar scheme. According to the story, his most recent troubles triggered a probation violation hearing scheduled for Friday in Prince George's County Circuit Court, according to court records. In the previous case, he was reportedly sentenced to five years in prison and three years of probation and ordered to pay $146,000 in restitution.

Ohio AG Cautions Consumers Against Racket Targeting Payday Loan Customers For Debt Collection Ambush

From the Office of the Ohio Attorney General:

• In a new twist on an old scam, con artists are now targeting recipients of payday loans using debt collection tactics. Attorney General Richard Cordray [] warned Ohioans to verify callers and money owed before paying out to debt collectors.

• “My office recently received notice that con artists are posing as debt collectors attempting to collect on payday loans in Ohio,” said Cordray. “The ploy is dangerous because scammers aim to catch consumers off-guard by calling out of the blue and demanding repayment. Even if the consumer has not borrowed money, the natural instinct for some will be to respond to this ambush by paying a debt that they do not owe. In this situation it is absolutely imperative that consumers ask for a letter stating the debt owed and then verify the source. Under no circumstance should consumers rush to make payment or give out any personal information including banking and credit card information.”

For the entire Ohio AG's press release, see Legitimate Debt Collector or Con Artist?

NJ Appeals Court: NY Lawyer Unlicensed In NJ Representing Homeowners In Settling F'closure Cases Subject To NJ Jurisdiction In Legal Malpractice Suit

The New Jersey Law Journal reports:

• A New York lawyer who represented clients in a New Jersey real estate case [involving the representation of a couple who she knew to be New Jersey residents, for the purpose of settling pending or impending foreclosure actions in a New Jersey court for New Jersey properties] without crossing the Hudson is nonetheless subject to New Jersey's jurisdiction in a legal malpractice suit, a state appeals court said [].

• Overturning a judge below who "relied almost exclusively on the absence of credible evidence of defendant's physical presence in New Jersey," the Appellate Division said personal jurisdiction was warranted because the lawyer was hired to stop a pending New Jersey foreclosure action, pertaining to four properties in the state, which provided sufficient minimum contacts.

• What's more, subjecting the defendant to jurisdiction in New Jersey is reasonable because the minimal inconvenience she will experience is outweighed by the state's substantial interest in regulating the unauthorized practice of law within its borders, the court said in Halley v. Myatt, A-1378-09 (N.J. App. Div. May 3, 2010).(1)

For more, see N.J. Malpractice Suit Can Proceed Against Lawyer Who Did Work From New York.

(1) Reportedly, the couple was represented by Leena Khandwala, a clinical teaching fellow at the Seton Hall University School of Law, Center for Social Justice, a pro bono and clinical program designed to give its law students hands-on experience while providing pro bono legal services for economically disadvantaged residents in the region.