NH Couple Score TILA Victory; Convincing Testimony Establishes Bank Failure To Provide Rescission Rights Notice In Mortgage Refinance Transaction

A U.S. Bankruptcy Court in New Hampshire recently found that Wells Fargo Bank violated the Federal Truth in Lending Act (TILA") on a refinancing loan it made to Nashua couple Mary Beth Sousa and her husband, William Sousa, Jr. where it failed prove that it provided the couple with two copies of notices of their right to rescind the mortgage transaction, thereby extending the period for rescission beyond the standard 3-day period. The court found that the couple properly rescinded the loan within the extended time period.

Notable in this case was, despite the fact that evidence was introduced in the case that the notice of right to cancel, signed by them, that contained an acknowledgment of receipt of the two copies, was given to them at the closing, the Sousas were able to rebut this evidence offering nothing more than their own testimony which, according to the court, "was consistent, persuasive, and was based on their specific recollections." The court also stated that the Sousas "convincingly testified that they left the closing with no paperwork and were never provided any, even after making several requests."

The following excerpt relates to the testimony of the sole witness called at trial by Wells Fargo, the attorney who handled the loan closing:

• Since the presumption was rebutted, Wells Fargo must prove its compliance with TILA disclosures. Wells Fargo called one witness, attorney Ragab. Ragab had no specific recollection of the closing or his dealings with the Sousas. Thus, he could not testify as to what occurred on the day of closing nor during his subsequent communications with the Sousas. Instead, Ragab's testimony was limited to the routine office procedures and practices at the Ginn Firm.
  
  The Court does not question Ragab's sincerity in recalling the practices of his former employer. Nonetheless, at the Sousas' closing, enough errors were made to suggest that, at least at this particular closing, office procedures may not have been followed due to a desire to correct errors in the documents.
  
  Wells Fargo argues that the closing errors have no relationship to the question of whether the TILA disclosures were produced. It is true that failing to revise a HUD-1, for example, cannot directly lead the Court to conclude that Wells Fargo did not provide two copies of the notice of right to cancel. But those errors make the Sousas' account much less unimaginable, as it was characterized by Wells Fargo. In fact Wells Fargo describes the scenario, i.e., where copies of the closing packet were never provided, where the Sousas never discussed the situation with family and friends, and where the Sousas never requested the copies either in writing or orally from Wells Fargo, as simply "unbelievable."
  
  The Court strongly disagrees. Ragab testified that, at the time of closing, he had worked at the Ginn firm for ten months and he had conducted approximately twenty-five closings a month. Considering the high volume of work and the noted errors at the Sousas' closing, the possibility of the Ginn Firm inadvertently failing to provide borrowers copies of their closing packet is hardly unimaginable. Furthermore, the Sousas started making their regular mortgage payments after the closing. Hence, it appears that after a month of trying to obtain their copies, they started making their mortgage payments and moved on with their lives. Though the Sousas could have been more zealous in pursuing the documents, their account is certainly plausible.

For the ruling, see In re Sousa, Bk. No. 06-11398-JMD, Adv. No. 07-1215-JMD (Bankr. D. NH, March 14, 2011).

Representing the Sousa was attorney Peter S. Wright, Jr., of the now-former Franklin Pierce Law Center (known now as the University of New Hampshire School of Law), Concord, New Hampshire.

Harmon Law Offices PC argued the case for Wells Fargo.

Use Of Undated Allonge May Sink Mortgage Lender's Claim In Homeowner's Bankruptcy Case; Vermont Judge Says Bank Must Have Standing On Filing Date

A U.S Bankruptcy Court in Vermont recently denied a mortgage lender's motion for summary judgment in an adversary proceeding brought against it by debtor/homeowner Barry Alton Parker, in which Parker claimed that the bank lacked standing to enforce the mortgage note against him.

The bank tripped itself up in this case by using an undated allonge to the mortgage note. The court interpreted Vermont law as requiring a creditor to have standing on the date the bankruptcy case is commenced, and that a defect in standing at that time cannot be cured, thereby making the date the allonge was endorsed as the critical date in determining whether the bank has standing enforce the note and file a proof of claim.

The court concluded its ruling by saying that unless the parties present undisputed evidence showing the date the allonge was executed, it will set a trial date to determine whether the bank had standing to file the proof of claim.(1)

For the ruling, see In re Parker, Case No. 09-10186, Adversary Proceeding No. 09-1022 (Bankr. D. Vt. March 18, 2011).

(1) The relevant excerpt of the ruling follows:

• This raises the question of when the allonge was endorsed, as the allonge endorsed by Mr. Brown is not dated. The Bank argues that the timing of the endorsement is immaterial to the question of whether the Bank is the holder of the Note because regardless of when the Note was endorsed, it is now endorsed and in the Bank's possession. See In re Wilson, 442 B.R. 10, 15, 2010 Bankr. LEXIS 4252, * 9-11 (Bankr. D. Mass. Nov. 29, 2010).
  
  However, under relevant Vermont jurisprudence pertaining to foreclosure actions, "[i]n order to enforce a mortgage note, a plaintiff must show that it was the holder of the note at the time the Complaint was filed." U.S. Bank Nat'l Assoc. as Trustee for RASC 2005 AHL1 v. Kimball, No. 6-1-09 Gicv (Vt. Super. Ct. Oct. 27, 2009) (Joseph, J.) (on appeal) (citing In re Gilpin, No. 09-10696 (Bankr. D. Vt. Oct. 7, 2009)) (emphasis added); see also In re Foreclosure Cases, 521 F.Supp.2d 650, 653 (S.D. Ohio 2007) ("[t]o show standing . . . the plaintiff must show that it is the holder of the note and the mortgage at the time the complaint was filed"); In re Hwang, 396 B.R. 757 (Bankr. C.D. Cal. 2008), reversed on other grounds, 438 B.R. 661 (C.D. Cal. 2010); U.S. Bank Nat'l Assoc. v. White, 880 N.Y.S.2d 227 (Table), 2009 N.Y. Slip Op. 50100(U) (N.Y. Super. Ct. Jan. 23, 2009).
  
  Another recent Vermont case addressed the "propositions that a party must have standing at the outset of litigation, and that a defect in standing at that time cannot be cured," Deutsche Bank Nat'l Trust Co. v. Parisella, No. S0758-09, 2010 Vt. Super. LEXIS 59, *5 (Vt. Super. Ct. Oct. 25, 2010) (Toor, J.). There, the state court took great pains to thoroughly articulate the requirements of both constitutional and prudential standing, and concluded that "a plaintiff seeking foreclosure lacks standing unless it can show it was entitled to enforce the mortgage at the time it filed its complaint for foreclosure." Id. at *6-10.
  
  Notably, the Vermont Rule of Civil Procedure governing foreclosure proceedings likewise imposes this requirement:
  
  The plaintiff shall attach to the complaint copies of the original note and mortgage deed and proof of ownership thereof, including copies of all original endorsements and assignments of the note and mortgage deed. The plaintiff shall plead in its complaint that the originals are in the possession and control of the plaintiff or that the plaintiff is otherwise entitled to enforce the mortgage note pursuant to the Uniform Commercial Code.
  
  Vt. R. Civ. P. 80.1(b)(1).
  
  Here, the document the creditor has filed to enforce its rights is a proof of claim, rather than a complaint or motion, and the seminal date for analysis and allowance of a proof of claim, including the question of standing, is the date the bankruptcy case was commenced. See Official Form 10. Therefore, the critical inquiry is whether the Bank was the holder of the Note as of the date of Debtor's bankruptcy filing. Since the date the Note was endorsed is a material fact essential to the determination of whether the Bank is entitled to judgment as a matter of law, and since the record of undisputed material facts does not include any information about the date of the endorsement, the Court cannot adjudicate this issue on summary judgment.
  
  For the reasons set forth above, the Bank's motion for summary judgment is denied. Unless the parties present undisputed evidence showing the date the allonge was executed, the Court will set a trial date to determine whether the Bank had standing to file the proof of claim.

__________________

A notable piece of trivia here is that the U.S. Bank Nat'l Assoc. v. White case cited above is an example of the 'handiwork' belonging to Kings County (Brooklyn), New York Supreme Court Justice Arthur M. Schack that continues to 'permeate' the court rulings in this area of law around the country.

2nd Mortgage Lien Stripping Still Viable In "Chapter 20" Bankruptcy Cases???

In an apparently unsettled area of law, a recent ruling from a U.S. Bankruptcy Court in Michigan addressed the appropriateness of a debtor having two bankruptcy cases pending at the same time where a so-called "Chapter 20" bankruptcy(1) is involved (where a homeowner first files a chapter 7 to relieve himself of unsecured debts, followed by a Chapter 13 to "lien strip" a completely underwater second mortgage lien from his home in order to save it from foreclosure - ie. Ch.7 + Ch.13 = "Ch.20").

The relevant excerpt from the ruling follows (bold text is my emphasis):

• There are cases, not mentioned in Debtor's brief (Docket # 16), holding that there is a per se rule that a bankruptcy debtor may not have two bankruptcy cases pending at the same time. These cases purportedly state the "majority view," and at least one of these cases is directly on point with this case. See, e.g., In re Sidebottom, 430 F.3d 893, 898-99 (7th Cir. 2005); In re Lord, 295 B.R. 16, 18-21 (E.D.N.Y. 2003); Turner v. Citizens National Bank of Hammond (In re Turner), 207 B.R. 373, 378-79 (B.A.P. 2d Cir. 1997). (Of these cases, In re Lord is directly on point.)
  
  But the Court is persuaded by contrary cases, including Grimes v. United States (In re Grimes), 117 B.R. 531, 533-37 (B.A.P. 9th Cir. 1990) and In re Ragsdale, 315 B.R. 691, 693-94 (Bankr. E.D. Mich. 2004), that the better view is that such a per se rule is not correct, at least in the specific circumstances of this case.(2)
  
  Those specific circumstances are: a Chapter 7 debtor obtains a discharge in his Chapter 7 case, but then, while that case remains open only for the Chapter 7 Trustee to investigate and possibly administer assets of the Chapter 7 estate, the debtor files a new bankruptcy case under Chapter 13, in an effort to treat the first and second mortgages on his residence through a Chapter 13 plan and a lien-strip action, and thereby save his residence from foreclosure.

I don't know what to make of this ruling - maybe it's nothing, but I'm sure there's someone out there who can figure out a way to make a big deal out of it.

For the ruling, see In re Smith, No. 11-45460 (Bankr. E.D. Mich., Southern Div. March 15, 2011).

(1) See generally:

• Is There Really a “Chapter 20” Bankruptcy? How Can it Help Me, Especially After the Big Change in the Law?
• Chapter 20: San Diego Bankruptcy Court allows Lien Stripping in Chapter 13 after Chapter 7.

(2) See also, In re Bollerud, No. 08-12177 (Bankr. S.D. Cal. 2009), where a U.S. Bankruptcy Court in San Diego, California OK'd a so-called "Chapter 20" in a 2nd mortgage lien stripping case where the debtor sought only to void the lien on the home without also seeking a discharge of the underlying debt.

Hapless Homeowner Scores Win As Lawyers Drop Legal Claims Against House In Probe Into Bid Rigging Of Baltimore Tax Lien Sale & Related Fee Gouging

In Baltimore, Maryland, Investigative Voice reports:

• Lawyers who admitted to gaming local tax lien auctions have dropped legal claims against the home of a city resident who has been fighting to keep it for nearly 12 years.

• Shortly after Investigative Voice revealed that DeLaurentis Reiff & Turer, a firm that is cooperating with federal authorities in their probe of rigged tax lien auctions, had filed claims against the home of Forest Park resident Reginald Lee related to a tax lien bought at auction, the firm notified Lee they are dropping their claim. The firm had been seeking $10,600 for legal fees and interest to redeem his property and avert foreclosure.

• The latest development marks an unexpected about-face for the firm that asked a Baltimore City circuit judge to compel Lee to pay $8,000 in fees, plus interest in excess of a $2,300 unpaid tax debt. The fee included photocopying, Internet searches, and even a telephone call to discuss the case.

• Documents reviewed by Investigative Voice showed that the firm had successfully won court orders compelling seven other city homeowners to pay nearly $30,000 in legal fees alone related to tax lien cases.

For more, see ABOUT FACE — Lawyers cooperating with feds dismiss claim against beleaguered city homeowner (Twelve-Year Battle Comes To Favorable End For Northwest Balto Resident Regonald Lee).

Parade Of Suspects Copping Guilty Pleas In Foreclosure Sale Bid Rigging Racket Continues As Sacramento Feds Notch Sixth Score In Ongoing Probe

In Sacramento, California, The Record reports:

• A San Joaquin County investor pleaded guilty Friday in federal court to charges he illegally rigged bids with others at home foreclosure auctions in Stockton, the U.S. Attorney's Office in Sacramento reported. Gregory L. Jackson is the sixth defendant so far to plead guilty in the federal probe. He faces a federal prison sentence and $1 million in fines under terms of the negotiated plea deal.

• In the scheme, the group of real estate speculators agreed not to compete with a selected bidder, who won the property at a noncompetitive price. They next held a private auction, officials said. In the private auction, each would bid the amount he or she was willing to pay above the public auction sale price. The price difference between the two auctions resulted in illegal gain, officials said. The group then divided that profit among themselves, prosecutors said. Jackson admitted to participating in the scheme between March and October 2009.

• The other conspirators who have pleaded guilty are Anthony B. Ghio, Theodore B. Hutz, Yama Marifat, Richard W. Northcutt and John R. Vanzetti.(1)

Source: Guilty plea in home auction rigging.

Go here for other posts & links on bid rigging at foreclosure and other real estate-related auctions.

(1) Anyone with information concerning bid rigging or fraud related to real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-436-6660, visit www.justice.gov/atr/contact/newcase.htm, the United States Attorney’s Office for the Eastern District of California at 916-554-2700 or the FBI’s Sacramento Division at 916-481-9110.

Servicer Who Victimized Homeowner With Illegal Lockout Mysteriously Moves To Vacate Foreclosure, Release Mortgage, Return Keys To Now-Vandalized Home

In Jacksonville, Florida, First Coast News reports:

• In 2008, Kimberly Clark was behind on the mortgage of her duplex that she rents out, but not in foreclosure. Her mortgage debacle since has been a roller coaster that many times has not made a lot of sense. "I was behind about 30 days, but I made a payment Oct. 15 and about two weeks after that they came and put the locks on the door," she said.

• Five months after the bank locked her out, on February 2009, Clark was served with a foreclosure lawsuit. She protested the foreclosure filing as a mistake, she said, but March 2010 the lender won a final judgment in court.

• But in December 2010, nine months after winning its judgment there was a strange turn in the case: For an unexplained reason, the lender filed a motion to vacate the judgment and dismiss the foreclosure lawsuit. Then, on Feb. 4 the bank filed a court document releasing the mortgage on the property in question.

• And perhaps strangest of all, today an attorney gave Clark the keys to the property. "No one gave me a specific reason," she said. But returning the keys to Clark has presented her with a new problem.

• The duplex rental has been vacant so long both units have been vandalized, she said. The air conditioning units and some of the plumbing fixtures are gone, and there is graffiti on the walls. "At this point, I will have a contractor assess the property, what value has been lost and go from there," she said.

For more, see Jacksonville Woman Gets Keys Back after Confusing Foreclosure.

"Oxycontin Made Me Do It!" Says Lawyer As He Cops Plea To Ripping Off $865K From Clients' Escrow Funds From Real Estate Closings

In Bridgeport, Connecticut, the Connecticut Post reports:

• A Stratford lawyer is facing up to 10 years in prison after pleading guilty Friday to stealing more than $800,000 from nearly a dozen clients. John M. Rodia, of Minerva Street, Derby, pleaded guilty before Superior Court Judge George Thim to six counts of first-degree larceny and five counts of third-degree larceny.

• Senior Assistant State's Attorney Robert Brennan said the 47-year-old Rodia, a former State Police trooper, faces up to 10 years in prison when he is sentenced May 12. Brennan said Rodia stole a total of $865,341 from 11 clients. He has not paid any restitution and is not expected to.(1)

• According to police, in early 2009 they began receiving complaints that Rodia had been stealing clients' funds he had been entrusted with. Police said one local man claimed he had hired Rodia to handle the sale of his parents' home and Rodia kept $186,000 from the sale of the home and stuck the victim with the closing costs.

• A couple hired Rodia to handle the refinancing of their Prospect home. But they claim he kept the money from the new mortgage and they nearly lost their home, police said.

• Police said a Stamford man hired Rodia to handle the refinancing of the mortgage on his condominium, but Rodia kept the $360,000 to pay off the old mortgage. As a result, the condo is currently in foreclosure, police said.

• A 63-year-old woman, who was injured in a car crash in Fairfield, hired Rodia in 2006 to represent her in a lawsuit against the other driver. But police said the woman later learned that Rodia had settled the suit for $2,500 and kept the money.

• When confronted, police said Rodia admitted to the thefts, blaming his crimes on an addiction to Oxycontin, which he claimed he developed as a result of a series of back surgeries from a crash while he was a trooper. He claims he developed a $1,000-a-day addiction to the powerful painkiller. But sources said Rodia also lavished expensive gifts, including a car on his girlfriend.

• Rodia is a 1986 graduate of the University of New Haven and a 1998 graduate of Columbia University Law School. He served as a Trumbull police office from 1986 to 1988, after which he joined the state police. Rodia served as a state trooper until December 1996.

Source: Lawyer pleads guilty to stealing $865,000.

(1) To the extent the victimized clients can't collect any money from this lowlife attorney, they might consider pursuing a claim with the Connecticut Client Security Fund, which is a fund established by the rules of the Connecticut Superior Court to provide reimbursement to individuals who have lost money or property as a result of the dishonest conduct of an attorney practicing law in the State of Connecticut, in the course of the attorney-client relationship. The fund provides a remedy for clients who are unable to obtain reimbursement for their loss from any other source. Go here to obtain a copy of form JD-GC-15 - "Application for Reimbursement - Client Security Fund" (PDF).

For similar "attorney ripoff reimbursement funds" that cover the financial mess created by the dishonest conduct of lawyers licensed in other states and Canada, see:

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

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

Home Equity Loan Made In Violation Of Texas Homestead Law Declared Void; Lender's Assignee & Post-F'closure Sale Mortgage Lender Left Holding The Bag

The following facts are taken from a recent ruling from a U.S. Bankruptcy Court in Fort Worth, Texas:

• A certain Mrs. Kimberly Arnold, together with her late husband Mr. Arnold, purchased a home in Haslet, Texas in 2004, paying all cash for the property.

• Approximately a year and a half later, Mr. Arnold passed away.

• Following the death of Mr. Arnold, Mrs. Arnold experienced financial difficulties.

• At some point thereafter, Arnold sought the assistance of Sam Taylor (" attorney Taylor"), an attorney, on a criminal matter unrelated to this case. Taylor unwisely suggested Arnold contact Neal Matthew Quigley ("Quigley") for help with her financial situation.

• Quigley, an apparent lowlife, is described by the judge in his ruling as "a crook, a scoundrel, a rapscallion, a chiseler."

• Quigley agreed to give Arnold a home equity loan in the amount of $50,000, secured by the then-mortgage free Property, with the understanding that Arnold would sell the Property to repay her obligation. Arnold signed a promissory note (the "Arnold Note") for $50,000 and executed a deed of trust (the "Arnold Deed of Trust") with respect to the Property in favor of Quigley on or about November 26, 2007. The Arnold Deed of Trust appointed Mark A. Rodriguez as trustee.

• The Arnold Note called for a maturation date of May 26, 2008, and called for a one lump sum payment due on that date. The Arnold Note also specified that non-judicial foreclosure would occur in the event of default. Arnold never received a copy of the final loan application (or even filled one out), nor did the Arnold Note state that the loan was an extension of credit under section 50(a)(6) of article XVI of the Texas Constitution.

• A loan modification agreement was subsequently executed extending the due date on the Arnold Note to January 10, 2009.

• On July 14, 2008, and unbeknownst to Mrs. Arnold, Quigley substituted attorney Taylor in place of Rodriguez as substitute trustee for the Arnold Deed of Trust. Quigley then assigned the Arnold Note to Moon Shadow Investments ("Moon Shadow") on September 15, 2008, and Moon Shadow recorded the assignment on September 22, 2008. Mrs. Arnold had no knowledge of the Assignment at that time.

• On October 7, 2008 (a full three months before the due date on the loan, as extended by the aforementioned loan modification agreement), after Mrs. Arnold had entered into a contract for the sale of the home with third party, Jon Ireland, Quigley foreclosed on the Property and took title to the premises.

• Though attorney Taylor was now listed as substitute trustee of the Arnold Deed of Trust, Quigley executed the substitute trustee's deed (the "Substitute Trustee's Deed") conveying the Property to himself.

• Ireland (Mrs. Arnold's would-be buyer) discovered the Foreclosure only after he checked the real property records and found that the Property was now listed under Quigley's name instead of Mrs. Arnold's. Mrs. Arnold never received any notice of default or foreclosure from Quigley and knew nothing of the Foreclosure.

• In December of 2008, Quigley contacted DLB, a company owned and operated by Safir with operations based in Arizona, to obtain a loan. Quigley told Safir that he had free and clear property and was seeking a large loan. Quigley sent Safir pictures of the Property, as well as documents suggesting that a tenant named "Melissa Poornich" lived there and paid monthly rent.

• In January of 2009, Safir came to Texas to see the Property. When Quigley and Safir visited the Property, Arnold answered the door and Quigley introduced her to Safir as "Kimberly Arnold." Quigley then falsely introduced Safir as his insurance agent, something Safir did not deny. Mrs. Arnold became uncomfortable when Quigley and Safir started taking pictures of the Property, and told them they had to leave.

• Safir loaned Quigley approximately $124,000 secured by the Property. Quigley executed a deed of trust and a promissory note in favor of DLB. The DLB Deed of Trust was recorded in the Tarrant County Deed Records.

• DLB also purchased a title insurance policy issued by Lawyers Title Insurance Corporation in the amount of $120,000. The policy was dated February 5, 2009, and listed Quigley as holding title to the Property.

• When neither Moon Shadow nor DLB received payment on their respective promissory notes, they began foreclosure proceedings against the Property, though neither actually foreclosed. Meanwhile, on March 16, 2009, Plaintiffs instituted a state court action against Quigley seeking a declaration that, as to Quigley, Mrs. Arnold held superior title to the Property.

• Quigley filed for bankruptcy on June 2, 2009. On June 23, 2009, Plaintiffs filed their Motion to Lift Stay to Conclude a Pending Civil Action, or Alternatively, Request for Adequate Protection in Quigley's bankruptcy case, in which they asked the court to, among other things, permit them to proceed with the state court action. The court held a hearing on the Lift Stay Motion on July 23, 2009, at which the parties agreed to remove the state court action to the bankruptcy court.

An adversary proceeding in the bankruptcy court followed in which the judge was compelled to sort out the following claims and defenses of the parties:

1. Mrs. Arnold and Jon Ireland took the position that the Arnold Note and the Arnold Deed of Trust were executed in violation of article XVI of the Texas Constitution, and are therefore void.
2. Moon Shadow seeks to enforce Quigley's assignment of the Arnold Note and the Arnold Deed of Trust, arguing that Moon Shadow is a good faith purchaser for value and therefore owns the obligation under the Arnold Note.
3. DLB argues that it stands as a bona fide purchaser for value with a superior interest in the Property as a result of the DLB Note and the DLB Deed of Trust.
4. Quigley asserts a counterclaim against DLB, arguing that the DLB Note and the DLB Deed of Trust were usurious under the TEXAS BUSINESS AND COMMERCE CODE and the TEXAS FINANCE CODE, in that DLB attempted to collect money from Quigley in excess of the allowable statutory interest rate.
5. Quigley also asserts a counterclaim against Arnold, arguing that he is entitled to repayment of the $50,000 he lent Arnold plus interest, costs, and attorney's fees, or in the alternative, a minimum $50,000 claim against Arnold and/or the Property.

Mrs. Arnold's Texas Homestead Claim:

For the reasons set forth in specific detail in the ruling, the court found that Mrs. Arnold met the burden of proving that the property qualified as her homestead, and therefore the Texas homestead law applied to her $50,000 loan transaction with Quigley.

The court then found (for the reasons set forth in specific detail in the ruling) that the loan made to her by Quigley was made in violation of a slew of provisions of the Texas homestead law (article XVI, section 50(a)(6) of the Texas Constitution). Among the consequences of these violations is the forfeiture of all principal and interest owing under the promissory note.

Moon Shadow's Claim:

Moon Shadow asserted that it is a good faith purchaser for value with respect to the Arnold Note, and therefore owns any obligations due under it. The court found that because Quigley was not authorized to make home equity loans pursuant to Paragraph P of article XVI, section 50(a)(6), Moon Shadow, as assignee of the Arnold Note likewise forfeits all principal and interest due that may have been due.

The court also pointed out that because the Arnold Note was void as to Quigley anyway, Moon Shadow, as assignee, could not have greater rights under the Arnold Note than did Quigley. The court added that this would be the case even if Moon Shadow could otherwise satisfy the requirements for bona fide purchaser status.

DLB's Claim:

The court found that, because attorney Taylor (the substitute Trustee) did not himself sign the Substitute Trustee's Deed by which Quigley purportedly took title after the foreclosure sale of Mrs. Arnold's home, said deed was found to be a forgery. There was no evidence indicating that Quigley had any authorization to sign said deed. Consequently, said Substitute Trustee's Deed, as well as DLB's subsequently-acquired interest as mortgagee in the property were void, and DLB was precluded from acquiring the status of bona fide purchaser. The court pointed out that a person cannot obtain bona fide purchaser status under Texas law when one of the links in the chain of title is a forgery.

The court then added that even if there was no forgery, the foreclosure by Quigley was nevertheless void because the Texas Constitution does not allow foreclosure of a deed of trust securing a home equity loan other than by court order. See TEX. CONST., art. XVI, § 50(a)(6)(D). Quigley improperly foreclosed on Mrs. Arnold through the non-judicial foreclosure process.

As if that wasn't enough, the judge then went on to say that, even if it was okay to use a non-judicial foreclosure in this case, the foreclosure of Mrs. Arnold's home failed to satisfy the requirements for a valid non-judicial foreclosure. Quigley provided no notice to Mrs. Arnold as required by section 51.002 of the TEXAS PROPERTY CODE, and foreclosed three months before the Arnold Note became due.

Quigley also assigned the Arnold Note and the Arnold Deed of Trust to Moon Shadow prior to the Foreclosure (an assignment of record, and thus of which DLB — and Lawyers Title — had constructive notice), and therefore, according to the court, had no right to foreclose on the Property under any circumstances anyway.

Quigley's Claims:

As for Quigley's claim that DLB violated Texas usury laws, Quigley was incarcerated on the date of the Hearing, and did not testify. The record contains no evidence that the DLB Note and the DLB Deed of Trust violated any such laws. Quigley's usury counterclaim therefore fails.

Conclusion:

Based on the full discussion and analysis set forth in the ruling, the court concluded:

1. Quigley and Moon Shadow forfeited all principal and interest due under the Arnold Note;
2. the Arnold Note and the Arnold Deed of Trust are void;
3. DLB is not a bona fide purchaser for value with a superior interest in the Property; and
4. Quigley's counterclaims are without merit.

For the ruling, see In re Quigley, Case No. 09-43357-DML, Adversary No. 09-04317-DML (Bankr. N.D. Tex., Fort Worth Div., March 16, 2011).

Six Mortgage Servicers Agree To Special Master Oversight In New Jersey Foreclosure Actions

Bloomberg reports:

• Bank of America Corp. and five other mortgage servicers agreed to the appointment of a special master to examine foreclosure procedures in New Jersey, a court- appointed lawyer said [].

• A blanket suspension of foreclosures in New Jersey isn’t necessary in light of the settlement, which subjects the banks to a performance review for a year, the lawyer, Edward Dauber, said in a letter to Superior Court Judge Mary Jacobson, posted on the court’s website. Dauber’s law firm, Newark, New Jersey- based Greenberg Dauber Epstein & Tucker, was appointed to present arguments supporting a foreclosure suspension.

For more, see BofA, Other Banks Agree to Special Master for Foreclosures in New Jersey.

See also The Star Ledger: Court appointee to review tens of thousands of N.J. home foreclosures:

• The settlement comes four months after Chief Justice Stuart Rabner issued a three-part order to combat rogue foreclosure filings, citing a staggering increase in foreclosure cases and concerns judges had inadvertently "rubber stamped" foreclosures that had inadequate or incorrect paperwork.

BofA Tagged w/ Racketeering Suit For Allegedly Screwing Over Hoosier Homeowners In Foreclosure Using Robosigner Docs; Action Seeks Class Action Status

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

• Bank of America is in the bull's-eye of a proposed class-action lawsuit filed in Marion County. The complaint accused the bank of racketeering mortgage documents in order to crank out mass foreclosures, 6News' Rafael Sanchez reported.

• Judy Canada of Indianapolis said she's a victim and a plaintiff named in the lawsuit. Canada lived in a condo at 5506 Greenview Drive for more than 15 years. When the economy took a downturn, her finances changed and she fell behind on her payments for several months.
  "I spent a year trying to save my condo not knowing they were working on a foreclosure," said Canada.

• Canada said that she was working on a deal with the bank when she agreed to give up her deed, move and get $3,000 to relocate. Despite those plans, she said her home was put up for a sheriff's sale last year. Canada said she believes filing the lawsuit will get the bank's attention. "Treat us like we are human beings, not numbers and pieces of paper," Canada said. A Bank of America spokeswoman declined to comment on the lawsuit. "It is our policy not to comment on pending litigation," the spokeswoman said.

• Irwin Levin, a lawyer with Cohen & Malad, filed the complaint in Indianapolis on Thursday. "The legal system was used to abuse the very people who allowed them to make the money," Levin said. Levin explained that these kinds of cases are complex because they involve a tangled web of banks, investors and service providers. "They had to suck homeowners into the system: food for their machine that would get them money. In the end, they cast these homeowners aside," Levin said.

For more, see Lawsuit Accuses Bank Of Foreclosure Fraud (Lawsuit: Fraud, 'Robo-Signers' Used To Process Foreclosures).

State AG Settlement Proposal Won't Fix Crappy, Uninsurable Real Estate Titles Created By Mtg. Servicing Racket When Fraudulently Processing F'closures

In a recent story on AOL's Daily Finance, attorney Abigail Field discusses how the foreclosure settlement proposed by the state attorneys general won't come close to rectifying the problems relating to the clouded real estate titles that were created by the mortgage loan servicing racket through their use of fraudulent practices when processing foreclosure actions:

The Enormous Clouded Title Problem:

• But the settlement doesn't go nearly far enough to save the housing market. In fact, it can't go far enough, because it can't address one of the most confounding problems the banks have created: the millions of properties nationwide that now have "clouded" titles.
  
  To put it plainly: Because of these bad titles, property owners can't prove they own the properties they think they bought, and banks can't prove the had the right to sell them.
  
  Even though it's impossible to know how many properties are affected, I have confidence in saying millions nationally for the following reasons:
  
• More than 1 million foreclosures have been completed since 2005; nearly 200,000 were completed in the third quarter of 2010 alone.


• Foreclosures involving securitized mortgages seem to be flawed as a rule, not the exception.


• Even when foreclosures may have been otherwise valid, the practices of foreclosure attorneys have clouded titles.


• The problems are ongoing. More flawed foreclosures are completed every day.


• The clouded title problem extends well beyond foreclosures. Both MERS, the electronic database that holds more than half the mortgages nationally, and possible securitization failures could have damaged the titles of the properties even though the borrowers are current on their mortgages.

The Solid Effects of Clouded Titles:

• You can't sell real estate when you can't establish that you own it -- banks won't loan money for purchasers to buy the property. That's because the bank wants to be sure that if it forecloses, it will get good title to the property. (Yes, this issue practically oozes irony.) That's why banks won't approve a mortgage for a property if a title insurance company won't insure its title. And title insurance companies won't do that if they know the title is clouded.
  
  A few months ago, the Massachusetts Supreme Judicial Court issued its Ibanez decision, which made it clear that the banks' foreclosure practices -- and indeed, the standard securitization deal -- violated longstanding basic Massachusetts real estate law, and thus, many completed Massachusetts foreclosures were invalid. The foreclosing banks, which had either since sold the properties or still "owned" them, had no right to foreclose, and therefore had never owned those properties. So who owns them now? Well, the fact that it's a question is the very definition of "clouded title."
  
  Since it has been a couple of months since the Ibanez decision, I called a couple of large title insurance companies in the Boston area to see how title insurance for improperly foreclosed properties is being handled. To bypass talking points and smooth-talking spokespeople, I called insurance sales agents, representing myself as someone contemplating purchasing a Massachusetts foreclosure. Because I didn't say I was a member of the media, I'm not going to name the companies. But the conversations confirmed my thesis.
  
  One agent called improperly foreclosed homes in Massachusetts "uninsurable." Another explained that the problem underscored in the Ibanez case has been around for years, and that any title company would need to look at foreclosures dating at least until the late 1970s, when securitization became more common, to make sure no improper foreclosure had happened in all those years. And some properties, she noted, had been foreclosed on multiple times.
  
  That agent did note that the problem was worst for properties improperly foreclosed on in recent years that were still bank-owned. Those properties were truly uninsurable. That's because the bank couldn't make a claim on the title insurance policy it had purchased when making the original loan, since it was the entity that clouded the title. Indeed, honoring that policy would be like letting a arsonist collect on fire insurance. Thus much of the current bank-owned inventory in Massachusetts is largely uninsurable and thus unsellable. No settlement with the servicers is going to solve that problem. And it's a national problem, not a Massachusetts one.

For more, see Why the Foreclosure Mess Settlement Proposal Can't Fix the Damage.

Wisconsin Appeals Court: Legal Notice Published In Wrong Newspaper Sinks Foreclosure Judgment

The following facts are taken from a recent ruling by a Wisconsin state appeals court:

• Mortgage lender files a foreclosure action against homeowner;

• The home subject to the foreclosure action is located in Waukesha County, Wisconsin;

• Process server can't find homeowners to serve lawsuit, so lender serves the lawsuit by publication of a legal notice in a local newspaper;

• For reasons not explained, lender publishes the notice of the foreclosure action in a newspaper of general circulation in neighboring Milwaukee County, and not in Waukesha County (the home's location which was the homeowners' last known address);

• Trial court ultimately enters an order for judgment and judgment of foreclosure and sale in the amount of $373,068.12 against homeowners;

• Homeowners file a motion to vacate the judgment of foreclosure, arguing that the judgment was void due to the court's lack of jurisdiction resulting from the failure of service of process;

• Trial court denies motion, and the foreclosing mortgage lender ultimately takes title to the home at the subsequent foreclosure sale;

• Homeowner files an appeal.

On appeal, District II of the Wisconsin Court of Appeals reversed the trial court's order denying the homeowners motion and remanded the case back to the lower court with direction to vacate the default judgment. The court stated that the legal notice is to be published in a newspaper "likely to give notice in the area or to the person affected," as required by WISCONSIN STAT. §985.02. The court found that, based on the evidence presented, publishing the notice in the Milwaukee County newspaper when the property being foreclosed and homeowners' last known address was in Waukesha County did not comply with the requirements of the statute.(1)

For the ruling, see PHH Mortgage Corporation v. Mattfeld, No. 2010AP612 (Wis. App, Dist. II, March 16, 2011).

(1) In reaching its conclusion, the three-judge Wisconsin appellate panel stated, in relevant part:

• WISCONSIN STAT. § 806.07(1)(d) allows relief from a judgment or order if a "judgment is void." A judgment is void for purposes of §806.07 when the court rendering it lacked subject matter or personal jurisdiction. Richards v. First Union Secs., 2006 WI 55, ¶15, 290 Wis.2d 620, 714 N.W.2d 913. A court gains jurisdiction over the parties only by valid personal and substituted service. See WIS. STAT. § 801.04; see also Span v. Span, 52 Wis.2d 786, 789, 191 N.W.2d 209 (1971). Wisconsin compels strict compliance with the rules of statutory service, even though the consequences may appear to be harsh. Useni v. Boudron, 2003 WI App 98, ¶13, 264 Wis.2d 783, 662 N.W.2d 672.
  
  When a motion to reopen involves a question of proper service, the burden of proof is on the party seeking, pursuant to WIS. STAT. §806.07, to set aside or vacate a default judgment. See Richards, 290 Wis.2d 620, ¶27. The evidence necessary to set aside a default judgment is evidence sufficient to allow a court to determine that the circuit court's findings of fact were contrary to the great weight and clear preponderance of the credible evidence. Id.

***

• The Mattfelds contend both that PHH Mortgage did not exercise reasonable diligence in serving them personally and that PHH Mortgage failed to comply with WIS. STAT. ch. 985 when it published the summons. Based on our review of the record, we conclude that the Mattfelds have demonstrated that the circuit court's finding as to compliance with ch. 985 is contrary to the great weight of the evidence.
  
  WISCONSIN STAT. § 985.02 governs "[m]ethod of notification." It provides in relevant part that "[e]xcept as otherwise provided by law, a legal notice shall be published in a newspaper likely to give notice in the area or to the person affected." (Emphasis added.) Proof of publication is required by WIS. STAT. § 985.12 in the form of an affidavit of printing "annexed to a copy of the notice clipped from the newspaper, and specifying the date of each insertion." See § 985.12(1). Here, the affidavit of printing indicates that The Daily Reporter "is a public newspaper of general circulation, printed and published daily ... in the City of Milwaukee, in said county." While PHH Mortgage asserted that "The Daily Reporter is the predominant newspaper to publish legal notices in the Milwaukee Metropolitan area," it failed to provide any evidence to that effect. Indeed, a later affidavit submitted by the publisher notes that "The Daily Reporter is a newspaper that is distributed throughout the State of Wisconsin," but also states that it is "a qualified legal newspaper in Milwaukee County, but it is not a qualified legal newspaper in Waukesha County, where the property that is a subject of the action is located." In contrast, PHH Mortgage's proof of publication for notice of the sheriff's foreclosure sale published in the Waukesha Freeman newspaper contains a statement from the billing coordinator for the Waukesha Freeman, "a public newspaper of general circulation, printed and published ... in the City of Waukesha, in Waukesha County, Wisconsin." It is undisputed that at that time of publication the Mattfelds' last known residence was in Menomonee Falls in Waukesha county, and that Scott Mattfeld still resided in Menomonee Falls in October 2008.
  
  While PHH Mortgage asserts that the Mattfelds failed to provide argument or authority as to why The Daily Reporter would not have given notice to the Mattfelds, the undisputed record as it stood at the time of the default judgment failed to establish that publication in a newspaper "printed and published daily ... in the City of Milwaukee, in said county" would have been likely to provide notice to a resident of Menomonee Falls in Waukesha county. Although The Daily Reporter publisher later averred that the newspaper is distributed throughout Wisconsin, the only mention of Waukesha county was that The Daily Reporter was not qualified in that county. This again failed to establish that publication in The Daily Reporter would have been likely to provide notice to a resident of Waukesha county. The circuit court's finding to the contrary was against the great weight of the evidence of record at the time of the Mattfelds' WIS. STAT. §806.07 motion to reopen.

Couple Who Successfully Voided Mortgage Begins Feeling Heat Over Questionble Past; State Officials Say Earlier Incident Foreshadowed Their Legal Path

In Ankeny, Iowa, The Des Moines Register reports:

• The Ankeny couple who used a loophole in Iowa law to pay almost nothing for a home have a history of questionable foreclosures that have raised red flags among state authorities, The Des Moines Register has learned. The Register reported Thursday that Matt and Jamie Danielson put almost no money down on their Ankeny house in 2007, negotiated $50,000 in cash at closing and made just one payment before they fell into foreclosure. Yet they succeeded in voiding their $320,000 mortgage and kept the home despite foreclosure proceedings because Iowa law requires both spouses to sign a mortgage, and Jamie Danielson did not.

• In December, a top official at the Iowa Finance Authority lodged a complaint with Iowa's Division of Banking after Jamie Danielson applied to obtain a mortgage broker's license. The complaint alleges that Jamie Danielson had already racked up $1.43 million in unsecured debt; that she and her husband appeared to profit handsomely from two previous house deals that wound up in foreclosure; and that Jamie Danielson was involved previously in a loan obtained by a relative who got a house for free because the relative's spouse did not sign the mortgage.

• On Thursday at the Register's request, officials at the IFA's Title Guarantee Division released the formal complaint it sent late last year to the banking division. The newspaper contacted the Title Guarantee Division, which provides title insurance for lenders, because it had tried to help Citimortgage in its legal battle with the Danielsons.

• Matthew White, the IFA's deputy director, alleged in the complaint that both Jamie Danielson and her mother had worked for First Horizon, a lender involved in a mortgage with a relative, Troy Hudson. In late 2006, Hudson succeeded in having his mortgage voided and won his house in foreclosure proceedings because his wife, Jodi, had not signed the loan. The loan was prepared by Danielson, the complaint says.

• White and other IFA officials said in interviews Thursday that they believed the Hudson case foreshadowed the legal path that Danielson and her husband followed in the foreclosure on their Ankeny house the next year. "As a loan officer or originator, then or in the future, Jamie Danielson must be held to a higher standard than the normal homebuyer," White wrote in the complaint. "She had specific knowledge of what would happen if she did not sign the mortgage, and still fought to have the mortgage declared void against both of them."

• In the Register's article on Thursday, the Danielsons blamed hasty oversight by their mortgage company for their luck in acquiring the house.

For more, see 'Free house' couple's earlier foreclosures are questioned.

For story update, see Cousin's use of mortgage loophole not disclosed in court (The assistant attorney general who challenged Matt and Jamie Danielson's fight for a free house in court said Friday he was unaware a relative of the Ankeny couple had won a free house previously by using the same legal loophole).

Go here to read the complaint made regarding the Danielsons to the Iowa Division of Banking. This link includes exhibits, including Jamie Danielson's personal bankruptcy filing.

Go here to read the Court of Appeals decision involving Jamie Danielson's cousin, Troy Hudson.

Group Accused Of Using Stolen IDs To Sell Homes Out From Under Unwitting Long Island Owners To Straw Buyers Impersonating Others In Mtg Fraud Ripoff

In Nassau County, New York, WNYW-TV Channel 5 reports:

• After a two-year investigation, authorities have charged 17 people of the largest mortgage fraud and identity theft scheme in Nassau County history, according to Nassau County District Attorney Kathleen Rice. [...] Rice said that her office's investigation, dubbed "Operation: Sweet Deal," uncovered more than 45 independent acts of fraud. Her office filed four indictments charging 17 people with more than 108 crimes for their roles in mortgage fraud and identity theft schemes that stole more than $20 million from homeowners, banks, and the County government.

• James Robert Sweet, 43, of Westbury, and Dwayne Benjamin, 44, of Westbury, and 15 others(1) face charges ranging from enterprise corruption and first-degree grand larceny to money laundering, identity theft and conspiracy. Among those arrested were lawyers, mortgage brokers, real estate brokers, bank employees, an appraiser, a financial consultant and one United States Postal worker. Rice said that Sweet Deal has operated in Nassau County for nearly six years under the leadership of Sweet and Benjamin.

***

• The Nassau County DA said members accused in the group began to branch out into more lucrative thefts by recruiting friends, family members, and co-workers to steal the identities of home buyers and property owners and to impersonate them at the closings.

• Rice said that using these stolen identities, real estate members could impersonate both the home buyer and seller, and keep all of the proceeds of the phony home sale. In using the stolen identity, the real estate group impersonators would secure a real mortgage and then at the closing, another group member would act as the home owner, using a stolen identity of the real home owner.

For more, see Huge Mortgage Fraud and ID Theft Scheme Busted in Nassau County (Real Estate Unit Takes Down Fraud Scheme).

For the Nassau County DA press release, see DA Rice's Real Estate Unit Takes Down Largest Mortgage Fraud & I.D. Theft Scheme in Nassau County History ('Sweet Deal' real estate group stole more than $20M from banks, individuals, and the Nassau County government).

See also, Malverne-West Hempstead Patch: 'Sweet Deal' Costs Homeowners, Banks and County Millions (The Nassau County DA charged 17 people in a scheme that involved mortgage fraud and indentity theft).

(1) The rest of the hit parade follows:

• Stephanie Watkins, 36, Amityville (real estate broker),
• Sophia Welsh, 43, West Babylon (mortgage originator),
• Alfred Gary, 44, Englewood, N.J. (high-end car dealer - allegedly laundered funds),
• Vertus Vielot, 35, Baldwin (allegedly impersonated seller at ID thefts),
• Yves Mathieu, 45, Elmont (allegedly provided fake docs for ID thefts),
• John DiCanio, 37, of Islip Terrace (mortgage originator),
• Carlos Irizarry, 34, of Long Beach (mortgage originator),
• Larinzo Clayton, 45, of Westbury (attorney),
• Ethan Serlin, 40, of Dix Hills (attorney),
• Radamex Velasquez, 34, of Valley Stream (appraiser),
• James Gant, 35, of Brooklyn (alleged straw buyer),
• Allen Woods, 35, of Hempstead (alleged straw buyer),
• Lyshaan Hall, 33, of Brooklyn (tax preparer – allegedly provided fake docs),
• Sonia Panameno, 29, of Mineola (bank employee – allegedly provided fake docs),
• Roxanna Calero, 33, of Brooklyn (bank employee – provided fake docs).

Uptick In Suspect 'Quit Claim' Filings Moves Court Clerk To Issue Deed Theft Warning To County Homeowners

In West Palm Beach, Floida, The Palm Beach Post reports:

• People filing false deeds to take over vacant homes has Palm Beach County's clerk of courts warning owners to keep an eye on their property records the same way they do their credit reports.

• With hundreds of vacant houses countywide - fallout from the real estate boom and bust - Clerk Sharon Bock said her office is investigating an increase in suspect "quit claim" deeds filed on homes which are then rented to unsuspecting tenants or occupied by the scammers themselves.

• A quit claim deed transfers interest in a property to a new recipient, but offers no guarantee of clear title. Although owner signatures are required on the deed, as well as notarization, Bock said advanced computer and copier technology has made forging documents easier. "It's terrible when someone steals your identity, but imagine what it's like when someone steals your home," Bock said. "Some of this isn't just isolated incidents, it's literally criminals with the intent to defraud."

• It can be an expensive muddle for the true home­owner who may have to spend thousands of dollars and months in court to confirm ownership of the property and obtain an eviction.

For more, see Vacant houses open the door to deed scams in Palm Beach County.

Police: Phony Cop Sold Cars He Didn't Own, Hijacked Possession Of Vacant Foreclosed Homes, Clipping Cash From Unwitting Tenants On Subsequent Rentals

In Louisville, Kentucky, WHAS-TV Channel 11 reports:

• June Perry found an ad on Craig’s List back in August that looked promising. Perry needed a car so she went to test drive it, that's when she met Gary Hammond. “I believed every word he said,” Perry said. Perry said she believed Hammond because he told her he was an LMPD homicide detective.

• She gave him close to $2,000 in cash and took the car. Perry says Hammond promised to deliver the title a week later. “That’s what made me trust him,” Perry said. “I thought he was homicide detective and said he would never put his job on the line for $1,750.”

• But that title never came and Perry says Hammond sent her something else instead that sent her straight to the police to file a report. “He sends me a picture of himself full blown naked,” Perry said. Perry says police told her Hammond was never in law enforcement and he didn't even own the car he sold to her.

• Police say just last month Hammond moved from selling cars to renting out houses. Problem is police say he didn't own the houses he was renting out the bank does because the houses are in foreclosure. Police say Hammond broke into two south Louisville homes and told people he was the owner and wanted to rent them out.

• Police say he got $1200 from one couple and $1100 from another. The couples thought they were paying security deposits and for rent. Police say Hammond took off and the couples figured out the houses were foreclosures and call Hammond a con artist.

• Hammond is facing impersonating a peace officer, terroristic threatening, burglary, and theft by deception.

Source: Man arrested after allegedly selling cars, renting homes he doesn’t own.

Minnesota AG: Out-Of-State Outfit Masqueraded As Homeowners' Current Lender To Perpetrate Upfront Fee Refinance Ripoff

In Minneapolis, Minnesota, the Star Tribune reports:

• An out-of-state mortgage company is being accused of cheating Minnesota homeowners out of thousands of dollars by masquerading as their current lender. A lawsuit filed Monday in Hennepin County District Court by Attorney General Lori Swanson alleges that Meredian Financial Corp. of Costa, Mesa., Calif., pretended to be homeowners' current mortgage company in order to gain their trust, then collected fees for refinancing services that were not delivered.

For more, see Minn. A.G.: Homeowners were swindled (Mortgage company allegedly told lies to Minnesotans in order to get bogus "rate-lock" fees for refinancings).

For the Minnesota AG press release, see Attorney General Swanson Sues Mortgage Lender For Charging Thousands For Refinancing Services That Were Never Provided.

Wisconsin Appeals Court OKs Home Foreclosure Where Refinanced Mortgage Lacked One Co-Owner's Signature; Says Bank Steps Into Former Lender's Shoes

The State Bar of Wisconsin News reports:

• After the brother defaulted on a separate mortgage loan, the District I Wisconsin Court of Appeals recently applied the doctrine of equitable subrogation to uphold a foreclosure judgment against his sister’s interest in a home they both owned.

• Nora Dallas and Fredie Rogers, brother and sister, obtained a quit-claim deed to their mother’s home. In 2003, both executed a mortgage and mortgage note on the acquired home with Fair Finance Corporation (Fair Finance) so Rogers could buy a different house.

• In 2004, Rogers refinanced with Wachovia Mortgage (Wachovia), formerly known as World Savings Bank. This loan, secured by a mortgage on the home Rogers owned with Dallas, discharged the Fair Finance mortgage. Dallas was not a party to the new loan.

• Then Rogers defaulted on the Wachovia mortgage, and Wachovia brought a foreclosure action against Dallas’s interest. The circuit court granted summary judgment to Wachovia. Dallas appealed, arguing foreclosure was not warranted because she did not sign the Wachovia loan.

• In Wachovia Mortgage v. Dallas, 2010AP1359 (March 15, 2011), the appeals court affirmed the circuit court based on the doctrine of equitable subrogation, ruling that “Wachovia is entitled to foreclose on Dallas’s interest in the house because the encumbrance on that interest was discharged by the [Wachovia] loan.”

• Noting that subrogation is an equitable doctrine invoked to avoid unjust enrichment, Judge Ralph Fine explained that Wachovia “paid the debt for which Dallas was liable.”(1)

For more, see Appeals court applies doctrine of equitable subrogation to uphold foreclosure judgment (Where one party refinances a mortgage loan secured by a home owned by two people, the other party is not immune from foreclosure on the refinanced mortgage).

(1) The Wisconsin appeals court court explained the doctrine of equitable subrogation, and its application, as follows:

• “Subrogation is an equitable doctrine invoked to avoid unjust enrichment, and may properly be applied whenever a person other than a mere volunteer pays a debt which in equity and good conscience should be satisfied by another.” Rock River Lumber Corp. v. Universal Mortgage Corp. of Wisconsin, 82 Wis. 2d 235, 240–241, 262 N.W.2d 114, 116 (1978). Thus, “[e]quitable subrogation is a doctrine whereby one who has paid off another’s mortgage obligation is treated as the owner of that obligation.” Countrywide Home Loans, Inc. v. Schmidt, 2007 WI App 243, ¶1, 306 Wis. 2d 200, 202, 742 N.W.2d 901, 902 (permitting subsequent mortgagee to step into the shoes of an earlier mortgagee to the extent that the subsequent mortgagee satisfied the earlier mortgage).
  
  Further, equitable subrogation does not require that there be a contract between the parties. Rock River Lumber Corp., 82 Wis. 2d at 241–242, 262 N.W.2d at 117 (“The object of subrogation is ‘to do substantial justice independent of form or contract relation between the parties.’”) (quoted source and ellipses omitted). It is thus immaterial that Dallas signed neither the World Savings Bank mortgage note nor the World Savings Bank mortgage because the loan was used to satisfy the Fair Finance mortgage, which Dallas executed and on which she was liable, and because Wachovia, as World Savings’s successor, does not seek any deficiency judgment against her.

***

• Wachovia steps into Fair Finance’s shoes, and there is nothing unfair about this result. See Countrywide Home Loans, Inc., 2007 WI App 243, ¶14, 306 Wis. 2d at 208, 742 N.W.2d at 905 (The “equitable subrogation doctrine [is] one of ‘pure, unmixed equity.’”) (quoted source omitted).

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

Contrast this ruling with the recent court ruling in Deutsche Bank National Trust Co. v. Boswell, 2011-Ohio-673, 2011 Ohio App. LEXIS 589 (Ohio App. 1st Dist., February 16, 2011), where an Ohio state appeals court refused to apply the doctrine of equitable subrogation to aid a lender out of a jam, holding that a mortgagee was not entitled to the benefits of equitable subrogation where the screw-up in making the loan was due to its own negligence. See also:

• Lexology: Recent Ohio decision reinforces negligence exception to doctrine of equitable estoppel (requires subscription; if no subscription, GO HERE, or TRY HERE - then click appropriate link for the story.).
• Secured Lender's Negligent Screw-Up When Failing To Pay Off All Existing Real Estate Liens Gives Unpaid Lienholder Priority Over New Mortgage In Ohio.

In the Wisconsin case, either the lender's negligence was apparently never raised as an issue before the trial court, or it may be that (unlike Ohio law) there is no "negligence exception" to the doctrine of equitable subrogation under Wisconsin law (or if there is, it may not have been applicable to the specific set of facts at issue).

Mass AG Settles Suit With Ex-BofA Loan Officer For Allegedly Exploiting Status As Bank Employee To Run Loan Mod Ripoffs Targeting Strapped Homeowners

In Boston, Massachusetts, the Boston Business Journal reports:

• A former Bank of America Corp. mortgage loan officer accused of tricking distressed homeowners into thinking he was a lawyer will pay $6,250 in restitution as part of a settlement with Massachusetts Attorney General Martha Coakley. Christian Hayes of Danvers entered into the settlement to resolve allegations with the AG’s office.

• “Homeowners who were seeking to save their homes from foreclosure were scammed by a bank employee who used his bank affiliation to gain their trust in seeking to avoid foreclosure,” said Attorney General Martha Coakley. “It is particularly egregious when individuals who are legitimate bank employees exploit this status to take advantage of unsuspecting homeowners.”

• The Attorney General’s complaint alleged that Hayes, through his company Foreclosure Alternatives, demanded up to $1,500 in up-front fees, before negotiating loan modifications to help homeowners avoid foreclosure.

Source: Ex-Bank of America loan officer to pay penalty.

For the Massachusetts AG press release, see Former Bank of America Employee to Pay Restitution for Soliciting Illegal Fees From Distressed Homeowners During Foreclosure Crisis (Loan Officer From Danvers Misrepresented Himself as Attorney; Demanded Illegal Fees in Violation of the Attorney General’s Foreclosure Rescue Regulations).

Connecticut Orders California Loan Modification Peddler To Cease & Desist; Outfit Accused Of Making Offers That Falsely Suggest Affiliation With Bank

From the Office of the Connecticut Attorney General:

• Attorney General George Jepsen is warning consumers that the California companies, Novation Marketing Center and Novation Law Center, are not licensed in Connecticut to provide mortgage loan modification services and are not affiliated with Webster Bank. Jepsen received reports that the companies contacted Webster Bank customers in Connecticut with mortgage modification offers, falsely suggesting an affiliation with the bank.

• Jepsen sent a letter to the Newport Beach companies Wednesday demanding they cease and desist from doing business in Connecticut until they are licensed. He also demanded that the companies provide copies of their advertisements, solicitations and consumer disclosures; to identify and describe all affiliations with Connecticut and national lenders and loan servicers; and to identify all the Connecticut consumers for whom Novation provided any debt negotiation services and whether they had obtained a loan modification for the customer.

For the Connecticut AG press release, see Attorney General Demands Unlicensed Company Stop Debt Negotiation Services In Connecticut.

Crackdowns Continue In Effort To Recover Unpaid Real Estate Taxes Stemming From Fraudulent Florida Homestead Claims

In Deltona, Florida, Southwest Volusia News reports:

• Morgan Gilreath, Volusia County Property Appraiser, knows that Florida Homestead Exemption fraud is a problem, in not only Volusia County, but also the entire State of Florida and Gilreath is not standing idly by.

***

• “Over the past four years, our Homestead Compliance Investigative Unit, (HCIU), has accounted for cases bringing in to Volusia County and City governments $14.3 million in back taxes, interest, and penalties where homestead violations occurred.” The HCIU consists of two former fraud/ law enforcement investigators. Gilreath stated that there is a recent vacancy available for a third investigator and hopes to fill it soon.

• There have been cases where in excess of $80,000.00 has been recovered from one property owner while there is a currently unresolved case that could involve in excess of $120,000.00 if resolved against the property owner.

• In Hollywood, Florida, a Hollywood Police Detective who was on loan to the Broward County Property Appraiser’s Office discovered 1,187 cases of homestead fraud in Hollywood alone, in an eight-month period. The net result: $750,000.00 in back taxes collected and $69 million restored to city tax rolls.

For more, see Volusia Homestead Fraud (Volusia County Property Appraiser finds $14.3 million).

(1) Penalties for Homestead Exemption Fraud: Information obtained from the Volusia County Appraisers Office web site discloses the following:

• Florida Statute 196.131(2) provides that “any person who knowingly and willfully gives false information for the purpose of claiming homestead exemption is guilty of a misdemeanor of the first degree, punishable by a term of imprisonment not exceeding 1 year or a fine not exceeding $5,000.00 or both."
  
  Florida Statute 196.161(1)(b) further states that “upon determination by the property appraiser that for any year or years within the prior 10 years a person who was not entitled to a homestead exemption was granted a homestead exemption from ad valorem taxes, it shall be the duty of the property appraiser making such determination to serve upon the owner a notice of intent to record in the public records of the county a notice of tax lien against any property owned by that person in the county, and such property shall be identified in the notice of tax lien. Such property which is situated in this state shall be subject to the taxes exempted thereby, plus a penalty of 50 percent of the unpaid taxes for each year and 15 percent interest per annum.”

Indiana Real Estate Agent Accused Of Running Foreclosure Rescue, Loan Modification Ripoffs Tagged With Emergency License Suspension

In Chesterton, Indiana, the Chesterton Tribune reports:

• Local real estate agent Don Johnson’s license has been suspended, on an emergency basis and for 90 days, by the Indiana Real Estate Commission (IREC), in response to complaints received after Nov. 19, 2010, when the Attorney General’s Office filed a civil suit against him.

***

• On Nov. 19 the Attorney General’s Office filed a 33-count suit against Johnson which accused him of multiple improprieties, among them:
  
  •Engaging in material deception in the course of professional activities.
  
  •Violating the Mortgage Rescue Protection Act and the Credit Services Organization Act by failing to obtain a surety bond, by failing to provide a written statement prior to contracting services, and by failing to provide homeowners written notice of their rights.
  
  •Continuing to practice although “unfit to practice due to professional incompetence,” by failing “to account for and remit funds belonging to (a client) once the loan modification process was unsuccessful.”
  
  •Engaging in material deception, by failing to notify a client, the owner of a property, that the property had been sold at a sheriff’s sale and continuing to collect rental payments from the tenants of the property.
  
  •Engaging in material deception, by “forging a Fifth Third Bank letter.”
  
  •Engaging in material deception, by hiring “contractors to clean out properties to reduce their value, only to have the same contractors re-install the items to make it appear that (Johnson) has made extensive improvements to the property to raise the selling price.”

For the story, see Local man's real estate license suspended for 90 days.

"Human Intervention" Triggers Vacant Home Going Up In Flames, Says State Fire Marshal As Homeowner In Foreclosure Gets Pinched w/ Felony Arson Charge

In Escambia County, Florida, NorthEscambia.com reports:

• A Molino man has been charged with setting fire to his home that was in foreclosure last fall. George Thomas Alexander, 49, is facing a felony arson charge in connection with the fire in the 3500 block of Molino Road on October 6, 2010. He was arrested Monday night by the Florida State Fire Marshal’s Office and released from the Escambia County Jail on $10,000 bond.

• According to Lt. Kevin Fiedor with the State Fire Marshal’s Office, the unoccupied home was in foreclosure and had no power and no gas. He said the fire appeared to have started in the rear of the home.

• “The fire obviously started with human intervention,” Fiedor said. Damage to the brick home was estimated at about $65,000. The Molino, Cantonment, McDavid, Century, Walnut Hill and Beulah stations of Escambia Fire Rescue worked for hours to fully extinguish the blaze.

Source: Molino Man Charged With Arson For Burning Foreclosed Home.

Baltimore Non-Profits To Launch Education Campaign To Help Keep Tenants From Getting Steamrolled Out Of Their Homes Due To Landlord's Foreclosure

In Baltimore, Maryland, The Baltimore Sun reports:

• If you're renting a home, don't assume foreclosure won't affect you. As tenants across the country have discovered the last few years, you can end up with a bank wanting to throw you out if your landlord doesn't keep up with the mortgage payments. Some residents who never missed a rent payment have been caught completely by surprise.

• The Baltimore Homeownership Preservation Coalition and the Public Justice Center are launching a new education campaign to put renters on guard and remind them of their rights if a foreclosing bank starts talking about eviction.

• About 40 percent of Baltimore homes in the foreclosure process are investor-owned, so that does happen all the time. Some landlords get behind because their renters aren't paying, but others simply overextended themselves. "Tenants are often the forgotten and unintended victims of foreclosure," Maryland Attorney General Douglas F. Gansler said in a statement about the campaign.

• The key things to remember: Renters generally have the right to remain in the home for the remainder of their lease, or at least 90 days after receiving a valid notice to vacate if the lease term is shorter. Campaign organizers recommend that renters get legal help -- Public Justice offers it for free -- before accepting any deals to move out early in exchange for cash.

• How can you know if your landlord is in trouble? Open all mail, even if it's just addressed to "occupant," so you don't miss official notices. You can also find out if a foreclosure case is pending in a Maryland court by putting the landlord's name into the court system's look-up site. (In Baltimore, you can also search by the property address.) The public awareness campaign, funded with $30,000 from the Open Society Institute, will include television and radio spots as well as MTA bus ads.

Source: What renters need to know about foreclosure.

Corrupt Mortgage Company Head Cops Plea In Flipping Racket; Agrees To Finger Title Insurance/Closing Agent In Ongoing Prosecution

In Cleveland, Ohio, WKYC-TV Channel 3 reports:

• Cuyahoga County Prosecutor Bill Mason said a grand jury has brought down a 46-count indictment against owner Donna Sherman and her title company, Sherman Title Agency, of Northfield. Sherman, 33, of Middleburg Heights, fraudulently closed $1.4 million in loans from People's Choice Home Loans that enabled others engaged in fraud to purchase 21 houses in Cuyahoga County. Seventeen of the 21 homes fell into either tax or mortgage foreclosure.

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• This scheme was orchestrated by Fred Loewinger, 62, of Strongsville, who was a licensed loan officer and owner of Fast Mortgage, and the owner of MJL Processing, Ltd., Inc. In a recent case, Loewinger and others were charged and sentenced for their involvement in this enterprise. On February 15, Loewinger was sentenced to six years in prison after pleading guilty to engaging in a pattern of corrupt activity along with 25 additional felonies. As part of the plea, Loewinger will testify against Sherman.

For more, see Middleburg Hts woman indicted for theft, mortgage fraud.