Third Participant In Maryland Real Estate Escrow Account Ripoff Goes Down; Scam Left Title Insurance Underwriter Holding The Bag, Cleaning Up The Mess

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

• Stephen J. Troese, Sr., age 72, of Davidsonville, Maryland, pleaded guilty [] to wire fraud arising from a scheme to defraud lenders and a title insurance company of at least $937,183. The government contends the loss is between $2.5 million and $7 million. The exact amount of the loss will be determined at sentencing.(1)

For the entire U.S. Attorney press release, see Owner of Title Companies Pleads Guilty in Mortgage Fraud Scheme.

(1) For earlier posts on the recent guilty pleas of two other participants in this ripoff, see:

• Title Agency Owner Nailed For Attempt To Cover Escrow Shortage By Refinancing Home, Failing To Pay Off Existing Mtgs, Applying Proceeds To Shortfall,



• Phony Bank Reconciliations Dupe Title Insurer In Effort To Cover Up $3M R/E Escrow Shortage; Underwriter Left With $1.7M Tab For Unpaid Loan Payoffs.

Nevada AG Pinches Suspected Vacant Home Hijacker On Charges Of Obtaining Money Under False Pretenses, Theft, Burglary

From the Office of the Nevada Attorney General:

• The Office of the Nevada Attorney General announced the arrest of Steven Patrick Nohrden, 36, of Las Vegas, on two counts of burglary, two counts of theft, and two counts of obtaining money under false pretenses.



• The criminal complaint alleges that Nohrden operated a property rental scam in Las Vegas by identifying and gaining access to certain vacant homes in the Las Vegas area and - without the knowledge or consent of the true home owners – falsely claimed that he was authorized to rent those homes to unsuspecting renters.



• Relying upon Nohrden’s alleged misrepresentations, individuals then moved into these homes and made rent payments to Nohrden. The true home owners eventually discovered that these individuals were living in their home without their consent, bringing the scam to light.

For the Nevada AG press release, see Nevada Attorney General Announces Arrest Of Steven Patrick Nohrden In Property Rental Scam.

FHA Targets 'Scratch-And-Dent' Investors In Effort To Unload Discounted Federally Insured Home Loans In Default; Some Have Dubious 'Subprime' Past

Bloomberg reports:

• [T]he Federal Housing Administration is auctioning thousands of defaulted mortgages at prices marked down by as much as 65 percent. If the pilot works as planned, the government mortgage insurer will cut its losses by avoiding foreclosures while giving borrowers a better chance of remaining in their homes.



• “This pilot program is a potential win-win-win,” Acting FHA Commissioner Carol Galante said in an e-mail.



• Still, as the program joins other small-scale government housing initiatives, it illustrates the challenges policy makers face as they try to revive the housing market. So far, investors in the loans are scratch-and-dent specialists who buy less-than-perfect debt and try to squeeze a profit out of it.



• In the long run, they might have little interest in continuing to work to keep troubled borrowers from losing their homes. In some cases, the investors are the same people who originated subprime loans in the run-up to the 2008 credit collapse or later ran afoul of regulators.

***

• Borrower advocates say they are troubled by the participation of companies whose principals were subprime lenders or who have drawn scrutiny from regulators in the past. The FHA program “is a way to continue to line the pockets of the predators who created this mortgage crisis,” said Bruce Marks, chief executive officer of the Neighborhood Assistance Corporation of America, a Boston-based non-profit that aids and counsels troubled borrowers.
  
  Consent Order
  
  
• One of the four firms that have bought notes through the program is Bethesda, Maryland-based MCM Capital LLC. MCM Capital employs Steven Trowern, a former director of Dynamic Capital Mortgage Inc. in Brookline, Massachusetts.



• According to a 2009 consent order and state officials, Dynamic was found to have falsified loan documents and misled borrowers. Without admitting wrongdoing, Trowern signed an agreement that he wouldn’t own or manage a mortgage company in the state for three years.

For more, see Vulture Investors Buy Discounted FHA Loans.

Florida Appeals Court: Defect In Stipulation Agreement Left Judge Without Jurisdiction To Summarily Enter Foreclosure Judgment Upon Subsequent Default

A Florida appeals court recently ruled that a trial judge improperly overstepped his bounds and exceeded his jurisdiction(1) by summarily entering a foreclosure judgment on a property owner who, after entering a stipulation agreement with the lender in an effort to cure an earlier default, subsequently found himself unable to make the payments on the stipulation agreement.

According to the appeals court, the basis for their reversal was simply the fact that the stipulation did not include a provision authorizing the trial court to summarily enter a final judgment of foreclosure upon a default.(2)

For the ruling, see Sarhan v. H & H Investors, Inc., No. 3D10-3394 (Fla. App. 3d DCA, October 19, 2011).

(1) See generally:

• The Florida Bar Journal: Enforcement of Settlements: A Jurisdictional Perspective, for a discussion on the jurisdictional issues that arise when reopening a case for the purpose of enforcing a settlement which "have troubled the courts of Florida and vexed litigants and their attorneys for decades."



• The Florida Bar Journal: Florida’s Third Species of Jurisdiction, for a discussion on the confusion that has arisen in the Florida courts over the years over what exactly is meant by the term “jurisdiction.”

(2) From the court ruling:

• When a trial court approves a settlement agreement by order and retains jurisdiction to enforce its terms, the trial court’s continuing jurisdiction to enforce the terms of the settlement agreement is circumscribed by the terms of the agreement. See Paulucci v. Gen. Dynamics Corp., 842 So. 2d 797, 803 (Fla. 2003).
  
  In this case, the parties agreed in their stipulation to modify the terms of the note and mortgage. The stipulation did not include a provision authorizing the trial court to summarily enter a final judgment of foreclosure upon a default. In so doing, the trial court exceeded the jurisdiction it reserved for itself in the order of dismissal. Compare Zimmerman v. Olympus Fid. Trust, LLC, 847 So. 2d 1101, 1102 n.2 (Fla. 4th DCA 2003) (“Although the settlement agreement provided that the Zimmermans . . . ‘agree[d]’ to waive any defenses to the foreclosure of the mortgage, . . . [t]he agreement fell short of providing that if the payments were not made when due, a final judgment of foreclosure could be entered against the Zimmermans.”), with BAC Int’l Credit Corp. v. Macia, 626 So. 2d 1037, 1038 (Fla. 3d DCA 1993) (finding the settlement should have been enforced in accordance with its terms, which “provided that if the payments were not made when due, an agreed final judgment of foreclosure would be entered against the borrowers”).
  
  Reversed and remanded for further proceedings.

Arizona Regulators Seize Insolvent Underwriter; Downfall Atttributed To Insuring Too Many Crappy Home Mortgages That Ended In Foreclosure

In Phoenix, Arizona, The Associated Press reports:

• Insurance regulators in Arizona have seized the main subsidiary of private mortgage insurer PMI Group, which will begin paying claims at just 50%. The seizure follows heavy losses at PMI since the housing market bubble burst.



• Two months ago, state regulators ordered the Arizona-based subsidiary, PMI Mortgage Insurance Co., to stop selling new policies after it came under scrutiny because it didn't have enough money on hand to meet the requirements of regulations in that state.



• A statement on PMI's website says a court order, signed by an Arizona Superior Court judge on Thursday, gives Arizona's Department of Insurance full possession and control of the subsidiary. Beginning Monday, PMI says claims will be paid at just 50%, in lieu of a moratorium on claim payments. Meanwhile, PMI said it will "continue to support our customers' ongoing policy servicing needs, and loss mitigation programs."



• Private mortgage insurance protects lenders and investors from losses if a homeowner defaults and the lender doesn't recoup costs through foreclosure. The insurance costs the borrower a monthly fee, typically a set percentage of the total mortgage loan.



• Like other mortgage insurers, PMI has been able to sell profitable policies in recent years, but the gains from those sales hasn't outpaced losses from policies sold before the housing market collapsed. As flagging home prices have strapped borrowers, the company has had to pay more claims.

For more, see Ariz. regulators seize PMI Mortgage Insurance Co.

HUD Continues Battle Against Landlord Housing Discrimination Against Families With Children

From various press releases from the U.S. Department of Housing and Urban Development:

• HUD CHARGES NEW YORK REAL ESTATE COMPANY AND SALESPERSON WITH DISCRIMINATING AGAINST FAMILIES WITH CHILDREN (Online advertisement stated preference for childless renters):
  
  HUD brings the charge on behalf of the National Fair Housing Alliance (NFHA), alleging that the advertisements that stated “Looking For: Mature couple or single with no children” were evidence of an effort to exclude children from housing. (lawsuit here);



• HUD CHARGES DALLAS-AREA PROPERTY OWNER WITH DISCRIMINATING AGAINST FAMILIES WITH CHILDREN:
  
  HUD brings the charges on behalf of two families who lived at Creek Point Apartments, alleging that Creek Point’s ban on children playing outside without supervision discriminated against the families and forced them to move out. One of the families was fined for violating the rule, and management charged both families substantial move out fees. (lawsuit here);



• HUD CHARGES MASSACHUSETTS LANDLORD WITH DISCRIMINATING AGAINST FAMILIES WITH CHILDREN (Springfield landlord cited lead paint as basis for denying apartment to families with children):
  
  [A] Springfield, Massachusetts landlord[,] [is charged] with violating the Fair Housing Act for allegedly refusing to rent or show an apartment to families with children because he claimed he did not have certification that the apartment was free of lead-based paint. (lawsuit here);



• HUD CHARGES PENNSYLVANIA LANDLORD WITH DISCRIMINATING AGAINST FAMILIES WITH CHILDREN:
  
  Breckenridge Plaza, Inc., and Morris Zelikovsky were charged with making discriminatory statements, including in advertisements on craigslist.org, indicating a preference against families with children, offering different rental terms and conditions to families with children, and discouraging families with children from applying for housing.

Walls Beginning To Close In On Title Insurance Industry After Recent Massachusetts High Court Foreclosure Rulings?

A recent article on Amvona shines light on the apparent reluctance of many in the title insurance industry to discuss the implications of the recent ruling by the Massachusetts Supreme Judicial Court in Bevilacqua v. Rodriguez, a ruling earlier this year by the same court in U.S. Bank National Association v. Ibanez, and a case currently before the court in Eaton v. Fannie Mae and Green Tree Servicing, LLC [go here for the lower court ruling currently on appeal).

One might conclude after reading this article that the title insurers and their agents are beginning to feel the walls closing in on them for writing all the title policies on the crappy foreclosure titles in the past,(1) and may be in a position that they're all forced to keep issuing them because, in this economy, they need the cash flow to stay above water.

For the article, see Houston, we've got a problem - Bevilacqua.

Thanks to Deontos for the heads-up on the article.

(1) For more on the crappy title problem in connection with improperly foreclosed homes, see:

• Daily Finance: Why the Foreclosure Mess Settlement Proposal Can't Fix the Damage,
• Naked Capitalism: On the Clouded Title Mess and the Difficulties of Cleaning It Up.

Citi To Cough Up $285M To Resolve Charges In Alleged Mortgage-Backed, "Dog$#!t" Paper Peddling Racket; Some Call Settlement A Bull$#!t Deal

The New York Post reports:

• Citigroup really stepped in it this time. The bank was forced to shell out $285 million in a settlement linked to the sale of 2007 vintage mortgage bonds one unnamed Citi trader described as “dogsh-t,” according to a lawsuit filed by the Securities and Exchange Commission.



• The settlement follows allegations by the SEC charging that Citi tailor-made a $1 billion pool of toxic mortgages, handpicked to blow up after the bank unloaded it to an unsuspecting client.



• Citi’s hefty penalty marks the biggest since Goldman Sachs shelled out a whopping $550 million a year and a half ago to settle allegations that it mislead investors in originating toxic mortgage securities.



• “Investors were not informed that Citigroup had decided to bet against them and had helped choose the assets that would determine who won or lost,” Robert Khuzami, enforcement director at the SEC, said in a statement.



• A second bank, Credit Suisse, agreed to pay $2.5 million for its role in arranging the structured residential mortgage offering.



• According to the SEC, Citi pocketed $160 million from arranging the debt. The CDO debt, known as Class V Funding 111, which was sold to 15 investors, lost almost all of its value within months.



• At one point, the SEC suit states, an unnamed Citi trader referred to the CDO offering as “dogsh-t” and “possibly the best short ever.”(1)



• Citi has settled the charges without admitting or denying any wrongdoing. The SEC also sued former Citi banker Brian Stoker(2) while another former Credit Suisse banker, Samir Bhatt, agreed to pay $50,000 and serve a six-month suspension from working as an investment advisor.(3)

Editor's Note: Apparently, there is more than meets the eye in this settlement as it is viewed with some disdain in some quarters.(4)

Source: Citi fined $285M for selling dog$#!t paper.

See also, Securities and Exchange Commission press release: Citigroup to Pay $285 Million to Settle SEC Charges for Misleading Investors About CDO Tied to Housing Market (Former Citigroup Employee Separately Charged for His Role in Structuring Transaction).

(1) See U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc. (paragraph 58):

• [O]ne experienced CDO trader characterized the portfolio as "a collection of dogsh!t" and "possibly the best short EVER!" An experienced CDO collateral manager commented, "the portfolio is horrible."

(2) See SEC Complaint Against Brian H. Stoker.

(3) Order in the Matter of Credit Suisse Alternative Capital, Credit Suisse Asset Management and Samir H. Bhatt.

(4) See:

• ProPublica: Did Citi Get a Sweet Deal? Bank Claims SEC Settlement on One CDO Clears It on All Others,
• Reuters: Is the SEC colluding with banks on CDO prosecutions?
• Firedoglake: SEC Doing Collusion Deals With Big Banks over Dodgy CDO Deals?

Nevada Supreme Court Orders Sanctions On Banksters For Conduct In Violation Of State Foreclosure Mediation Law

The Las Vegas Sun reports:

• While the constitutionality of the state's foreclosure mediation law is being challenged, the Nevada Supreme Court has ruled that penalties should be imposed on two lending companies that failed to follow those rules.



• The court said Washoe District Judge Patrick Flanagan should determine the appropriate sanctions against Wells Fargo Bank and First American Loanstar-MERS for their conduct in two separate cases.



• In 2009, the Legislature, responding to a wave of foreclosures, enacted a law setting up a system for lenders and homeowners to meet to see if some compromise might be worked out to avoid a foreclosure. From September 2009 until June 30, 2011 there were 12,556 mediation meetings.



• But in another case before the Supreme Court, Wells Fargo is challenging the validity of the foreclosure mediation law, saying it is taking real property without just compensation.



• In the two cases decided Wednesday, the court ruled that in both instances the lending companies failed to bring to the mediation sessions certified copies of the mortgage note and appraisals of the property as required by law. The court overturned both decisions of Flanagan, who issued foreclosure certificates after the unsuccessful mediations.

***

• Wells Fargo has appealed to the Supreme Court. In its opening brief, the bank says the ruling by Flanagan "is a taking of real property and other private property for a public use without any compensation, much less just compensation, which violates the Taking Clauses of the U.S. and Nevada Constitutions."

For the story, see State Supreme Court orders banks be sanctioned for not following foreclosure mediation.

Loan Servicers To Think Twice About Filing Faulty Foreclosure Docs In Nevada As Potential Felony Charges Could Loom Under New State Law Now In Effect

Housing Wire reports:

• Many mortgage servicers stopped initiating foreclosures in Nevada because of a new law, which carried threats of criminal penalties for faulty filings.



• Assembly Bill 284 took effect Oct. 1, making it a felony if a mortgage servicer or trustee made false representations concerning a title. There also will be a $5,000 fine assessed if fraud, such as robo-signing, is detected. The new law requires servicers to provide a new affidavit that provides the amount due on the mortgage, who is in possession of the note and who has the authority to foreclose.

For more, see Potential felony charges make servicers pause Nevada foreclosures.

Mass. High Court Ruling Voiding Title To Property Bought At Faulty Foreclosure Also Leaves Four Condo Homebuyers (& Their Title Insurers) Holding Bag

The following excerpts in The Boston Globe on the recent Massachusetts Supreme Judicial Court ruling in Bevilacqua v. Rodriguez, an Ibanez follow-up case dealing with the rights of a purchaser at an invalid foreclosure sale indicates that, in addition to the foreclosure buyer (real estate developer Francis J. Bevilacqua) ending up with a void title to property, there may be four other subsequent bona fide purchasers of the subject property who have apparently also been left holding the bag:

• The court’s decision could have major repercussions because it raises the specter that anyone else who purchased foreclosed homes with questionable paperwork may not actually own those properties. The court did not address who does own the Haverhill property, if not Bevilacqua.

***

• Already the court’s ruling implicates others beyond Bevilacqua, as he subsequently built and sold four condos on the property, so that it would appear the buyers of those condos likely do not own their homes.

Source: SJC puts foreclosure sales in doubt.

California AG Begins Putting Squeeze On BofA In Probe Into Suspected Peddling Of Crappy Mortgage-Backed Securities

The Los Angeles Times reports:

• Investigators with the state attorney general's office have subpoenaed Bank of America Corp. in connection with the sale and marketing of troubled mortgage-backed securities to California investors, according to a person familiar with the probe.



• The state is trying to determine whether the bank and its Countrywide Financial subsidiary sold investments backed by risky mortgages to institutional and private investors in California under false pretenses, according to the person, who was not authorized to speak publicly and requested confidentiality.



• The subpoenas, which were served Tuesday, come as talks continue for a broad foreclosure settlement by a coalition of state attorneys general and federal agencies. California walked away from those discussions with major banks more than two weeks ago, saying what the banks were offering was not enough and the state would pursue its own investigations.

For more, see California reportedly subpoenas BofA over toxic securities (California is trying to determine whether BofA and its Countrywide Financial subsidiary sold investments backed by risky mortgages to investors in California under false pretenses, a source says).

Pennsylvania Lawsuit Says Securitization Process Waives Bankster Foreclosure Rights; Homeowner Seeks Damages Recovery, Invalidation Of Mortgage Loan

In Pittsburgh, Pennsylvania, the Pittsburgh Post Gazette reports:

• The millions of mortgages that were bundled into giant investment pools and traded like stocks shouldn't be subject to foreclosure, according to an unusual lawsuit filed Wednesday.



• That's because when banks chose to turn mortgages into investment products, they gave up the right to take the house, attorney Luke Lucas argues.



• His lawsuit in U.S. District Court focuses on one Plum man's mortgage. But if its theory were accepted by courts, it would have huge implications for the entire mortgage market.

***

• The lawsuit alleges violations of multiple federal laws. It seeks cancellation of Mr. Schott's debt, repayment of interest paid times three and damages including punitive damages. The lawsuit names Bank of America, several of its subsidiaries and the Bank of New York Mellon as defendants. BNY Mellon became the trustee for the REMIC, it said.

For more, see Plum man files suit over home foreclosure.

Thousands In Central Florida Pushed Into Foreclosure Over Rampant 'Force Placed Insurance' Fraud? Homeowner Advocate: Bankster Scam Is Running Rampant

In Hernando Beach, Florida, Fox Channel 13 reports:

• Thousands of people in Hernando County are being forced into foreclosure because of what banks call "force placed insurance." But some homeowners and their advocates call it fraud, and they are fighting back.



• At issue is homeowner's insurance. If a homeowner doesn't pay it, the bank will buy insurance and bill the homeowner. In Hernando County, where sinkholes are rampant, insurance rates have skyrocketed.



• It has left people like Joyce Wogan vulnerable. Wogan pays her mortgage on time every month, but she just got an ominous letter from the bank. . It read in part "....your current flood insurance doesn't meet the minimum required amount. We've purchased temporary insurance to protect our investment in the property."



• Here's the problem: Wogan's annual insurance premium went from rough $1,500.00 a year to more than $7,000.00. Wogan's attorney calls it a case of fraud.



• "This fraud is running rampant," Mark Stopa said. He accused Wogan's bank and others of buying insurance policies at hugely inflated prices as a way to improve profits. He said often the insurance companies are associated with the banks.(1)

For more, see Forced insurance leading to foreclosure.

(1) For more on the banksters' force placed insurance racket, see:

• Ties to Insurers Could Land Mortgage Servicers in More Trouble (When banks buy insurance on the homes of borrowers whose policies have lapsed, they get a great deal. Just not for the homeowners and investors who have to pay for it),
• Losses from Force-Placed Insurance Are Beginning to Rankle Investors,
• New Questions about Banks' Force-Placed Insurance Deals (QBE, carrier used by Wells Fargo and SunTrust, avoids oversight through 'surplus lines' structure),
• South Florida Homeowners Seek Class Action Status In Lawsuit Tagging Loan Servicer Over Dubious, Force-Placed Insurance 'Gravy Train',
• The Continuing Force-Placed Insurance Squeeze,
• Loan Servicers' Force-Placed Insurance Racket Targeted By State AG Settlement Offer,
• BofA's Force-Placed Insurance Unit Hid Foreclosure Information, Say E-Mails Released By Hacker Group,
• GAO Review request in connection with the USA v. Fairbanks litigation. Exhibit T (see page 2), Exhibit U, and Exhibit V will show that HUD-OIG and, therefore, the FTC, US Attorney General's Office, etc. knew about force placed insurance, alleged kickbacks, etc. at least as far back as 2003 (courtesy of GetDShirtz.com).

GA Cops Pinch 'Sovereign Citizen' In 'Paper Terrorism' Case; Suspect Allegedly Targeted Government Officials w/ 'Maritime Liens' Filed Against Homes

In Fannin County, Georgia, WSB-TV Channel 2 reports:

• A north Georgia man is under arrest, accused of threatening several public officials through what law enforcement officers call "paper terrorism." Agents with the Georgia Bureau of Investigation said Robert Eugene Stephens filed fraudulent liens against his victims. "If you have an issue with wanting a new credit card, something as simple as that or a loan, or you want to sell your property your house, then you're gonna have a problem," GBI spokesman John Bankhead said.



• According to arrest warrants, Stephens went to the Fannin County Courthouse in Blue Ridge in September and filed the fraudulent documents against the personal properties of Georgia's Speaker of the House, the Fannin County Clerk of Court, a Superior Court Judge and her secretary, the Fannin County Tax Commissioner and two others. "It can be a nightmare to straighten out and so when it came to our attention our agents went out and obtained the arrest warrants," Bankhead added.



• Agents arrested Stephens at his home in Mineral Bluff, seizing additional documents and his computer. He's facing a total of 12 counts, including the intimidation and obstruction of court officers.



• "In this case it was pretty clear that this was a violation of the law what he did," said Bankhead. "When they interviewed him he was pretty wrapped up in this 'sovereign citizen' issue, and you couldn't convince him otherwise."



• Stephens also filed court paperwork calling himself a "sovereign citizen." The group typically espouses anti-government philosophies and files documents that can be time consuming and frustrating to combat.



• Bankhead said Stephens referred to his paperwork as "maritime liens." "What they do they come up with their own version, based on this maritime lien, which is an actual Coast Guard lien for ships. They feel a person is 90 percent water, so that's some relationship to a vessel. So they feel they can use this maritime lien to file liens against public officials," Bankhead said.



• Agents said it may sound ridiculous, but the liens and other bogus paperwork filed by "sovereign citizens" can cause real problems. They're usually designed to bog down court systems and frustrate the law enforcement and public officials they target.

For more, see Police arrest, accuse man of "paper terrorism"

Title Agency Owner Nailed For Attempt To Cover Escrow Shortage By Refinancing Home, Failing To Pay Off Existing Mtgs, Applying Proceeds To Shortfall

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

• James Kevin Hughes, age 53, of Crownsville, Maryland pleaded guilty [] to wire fraud arising from a scheme to defraud lenders and a title insurance company of approximately $3.1 million. A co-defendant is scheduled for trial on November 7, 2011.

***

• According to his plea agreement, Hughes was a part-owner, President, and oversaw the day-to-day activities of Troese/Hughes, a title company in Greenbelt, Maryland, that performed title searches, provided title insurance, and conducted settlements. Hughes was also a signatory on the escrow account. Troese/Hughes had an agency agreement with Chicago Title that enabled Troese/Hughes to provide title insurance, which meant that Chicago Title was liable for title defects to homeowners and lenders.



• Troese/Hughes shared an escrow account with another title company, Troese Title Services. Although Hughes was unaware of the fact that the escrow account was shared, he was aware that there were shortages in the account. Sometime in 2006, Troese/Hughes opened a new escrow account, and the escrow accountant, Brenda Lukenich, a co-defendant who previously pleaded guilty, “assigned” a $1 million escrow shortage to the new Troese/Hughes escrow account.



• In approximately 2006, the real estate industry started to slow. As business slowed down, it became the policy of Troese/Hughes to check with Lukenich as to when mortgage pay-off checks could be sent out, so that she could confirm that there were sufficient funds in the escrow account to cover the check. At this time, the mortgage payoff checks were stored in Federal Express envelopes under the credenza in Hughes’s office.



• Hughes made efforts to fill the escrow shortage at Troese/Hughes by re-financing his own home twice and not paying off the prior mortgage, causing a loss of over $1 million to Chicago Title.



• In addition, after an employee of Troese/Hughes re-financed his home, Hughes caused the prior mortgage on that home to not be paid off so that the money could be used to fill the escrow shortage, causing a loss to Chicago Title of approximately $217,000.

For the entire U.S. Attorney press release, see Title Company Owner and President Pleads Guilty In $3.1 Million Mortgage Fraud Scheme.

California Regulator Issues C&D Order Against Operator Allegedly Running Illegal Upfront Fee Loan Modification Scam

California Watch reports:

• The [California] state Department of Real Estate issued a desist-and-refrain order against a Los Angeles man accused of running an illegal loan modification business, as boom times continue for mortgage scams.



• Last year, California Watch reported that George Bolanos was targeting Latino homeowners in Southern California with offers to help avoid foreclosure for an illegal advance fee. Bolanos advertised on Spanish-language radio and sometimes refused to give his last name to clients.



• A state investigation prompted by the story documented six cases in which Bolanos charged money up front for loan modifications, which is banned in California to protect consumers. The desist-and-refrain order bars Bolanos from running any kind of real estate business because he is not licensed.

For more, see State targets mortgage scams, but problems persist.

Rhode Island AG Scores TRO In Effort To Shut Down Alleged Loan Modification Racket Accused Of Clipping Homeowners With Upfront Fees For Phony Promises

From the Office of the Rhode Island Attorney General:

• Attorney General Peter F. Kilmartin announced the Office sought and received a temporary restraining order shutting down East Coast Fidelity, LLC, aka Fidelity Corp., and the company’s manager Janice McCarthy, citing the company in violation of the state’s Deceptive Trade Practices Act and the Mortgage Foreclosure Consultant Regulation Act.



• East Coast Fidelity, with a business address of 10 Dorrance Street, Providence, advertised and marketed itself to homeowners across the country as a loan modification and foreclosure rescue services provider.

***

• “The law is clear in Rhode Island that the soliciting of upfront fees for loan modifications or other types of foreclosure relief, is absolutely prohibited,” said Attorney General. “As a result of these unconscionable and unscrupulous actions, homeowners, who are already desperate to save their homes are put in danger of imminent and irreparable harm. These types of scam artists are devoid of conscience in their deceptions and must be shut down.”



• The Office began to investigate the company after receiving multiple consumer complaints from several states, including New York, North Carolina, and Kentucky that the company required upfront fees for mortgage modification and foreclosure services in violation of the Mortgage Foreclosure Consultant Regulation Act.



• Several weeks or months after signing a contract and paying the upfront fees, consumers complained of not receiving the promised services and in most cases could not get a refund from the company.

For the Rhode Island AG press release, see Attorney General Kilmartin Shuts Down Fraudulent Mortgage Modification Company.

Mechanics Liens In NYS: Easy To Create, A Bitch To Enforce Or Defend

In New York City, attorney Victor M. Metsch writes in Thomson Reuters News & Insight:

• Your sub-contractor client has not been paid for work, labor and materials on a real estate construction job. She sends you copies of the sub-contract, a summary of the work done and the invoices. She asks you to prepare and file a mechanic’s lien.



• Seems simple enough - take a standard pre-prepared form, fill in the blanks and file the lien. Nothing to it! Of course, that was the easy part. Identifying possible defenses to a mechanic’s lien [under New York law] goes far beyond the narrow confines of the [New York State] Lien Law. And defending the lien, if challenged, may give you—and your client—angina.



• How can anything that, at the outset, seemed so uncomplicated, become so complex, time-consuming and expensive from both a prosecution and defense vantage point? Let’s take a look at some recent [New York] decisions that sustained, vacated or otherwise adjudicated mechanic’s liens.
  
  A CHALLENGE TO ENFORCE OR DEFEND
  
  
• Once a mechanic’s lien is filed, an action to foreclose must be commenced before the time limit to do so expires. Then, if the property owner defends, the real action begins.

For more, see Mechanics’ liens: Easy to file and a challenge to enforce or defend.

Las Vegas Woman Cops Plea For Role In Scheme To Hijack Control Of HOA To Dispense Financial Favors To Selected Attorneys, Contractors

From the U.S. Department of Justice:

• A Las Vegas woman pleaded guilty [] for her role in a scheme to fraudulently gain control of condominium homeowners’ associations (HOA) in the Las Vegas area so that the HOAs would direct business to a certain law firm and construction company, announced [several federal and state law enforcement officials].



• Angela Esparza, 24, pleaded guilty [...] to one count of conspiracy to commit mail and wire fraud. Esparza is the fifth person to plead guilty in connection with the scheme to defraud HOAs in the Las Vegas area.



• Esparza admitted that from approximately July 2006 until February 2009, she participated in a scheme to control various HOA boards of directors so that the HOA boards would award the handling of construction-related lawsuits and remedial construction contracts to a law firm and construction company designated by Esparza’s co-conspirators.

For the USDOJ press release, see Fifth Guilty Plea in Connection with Scheme to Fraudulently Control Condominium Homeowners' Associations.

Strip Shows, Sex Peddling, Drug Sales, Gang Activity Put Foreclosed Homes Left Vacant, Unsecured By Reckless Loan Servicers To 'Lowest & Worst Use'

In Jamaica, Queens, The New York Times reports:

• The boarded-up homes that changed the face of Jamaica, Queens, in recent years were bad enough, the flotsam of the record wave of housing foreclosures that roared through the streets like nowhere else in New York City.



• But those vacant homes are now recalled almost fondly. For nature, as the saying goes, abhors a vacuum, and so do criminals. The police and neighbors say those vacant homes are filling with drug dealers, addicts, prostitutes, gang members, squatters and copper thieves.



• “They’re becoming a magnet for criminal activity,” said Deputy Inspector Miltiadis Marmara, the commanding officer of the 113th Precinct in South Jamaica. “They hang out in these abandoned homes that may be foreclosed, or the owners walked away.” He added, “Every day we respond to something to that effect.”



• The police do not keep statistics specifically on crime rates involving foreclosed homes. But Inspector Marmara said his officers had seen a rise both in vacant homes and in crimes occurring in those homes — like theft of copper pipes for scrap, which has spiked in the last year.



• It is not uncommon for a team of officers to research property records for an address — in hope of tracking down an owner to make a complaint — only to find another foreclosure, he said. People who live on these blocks said criminals flocked to newly vacant homes that were taken in foreclosure.



• “You see them smoking their drugs in the driveway at night,” said a community activist who spoke only on the condition of anonymity, for fear of retaliation. “They have parties. If the cops come, they run. During the day, they’re quiet as a church mouse.”



• Councilman James Sanders Jr., who represents a nearby Queens district, said the problem was growing. “And why wouldn’t it happen?” he said.



• “We’re seeing activities where people are having strip shows in these homes.” Jamaica’s councilman, Leroy G. Comrie Jr., said: “I just drove by a house we boarded up, and it’s open again and there are squatters living there. It fell into foreclosure because the developer ran out of money.”

For more, see Foreclosures Empty Homes, and Criminals Fill Them Up.

Lawsuit: Operators Of Bogus Real Estate Investment Seminar Used Participant Questionaire To Get, Use Property ID Info To Score Forged Mortgage Loans

In Orange County, California, Courthouse News Service reports:

• California couple say they were victimized by operators of a "real estate seminar" who had them fill out forms describing real estate they owned, then used the information to "brazenly forge" their names and get "a fraudulent $245,000 loan" secured by their property.



• Gerald and Marilyn Hays sued a long list of defendants - 12 people and seven corporations(1) - in a racketeering complaint in Orange County Court. The Hays say the scammers "marketed a 'real estate seminar'" that supposedly would teach "the topic of purchasing properties at a short sale and reselling the properties at a profit."



• The complaint continues: "In fact, and unknown to attendees, the 'seminars' were a method used by defendants to advance their fraudulent scheme.



• At the seminars, guests were asked to fill out questionnaires seeking the identification of real estate that they owned. Defendants' fraudulent purpose in seeking such information was to obtain title and other data concerning the third party's properties.



• Defendants thereafter used that data in their fraudulent schemes; fraudulently obtaining title insurance for the fraudulent transactions in order to inter alia sell the fraudulently obtained properties to third parties that they in fact did not own; and fraudulently placing 'loans' on unencumbered property that defendants did not own without the true owners' consent."

For more, see Couple Call Real Estate 'Seminar' a Scam.

For the lawsuit, see Hays v. Shallup, et al.

Thanks to Deontos for the heads-up on this story.

(1) According to the story, the individual defendants are John Shallup, George G. Grachen and his daughter Katie Grachen, Pete Rossell, Robert Yann, Salem Abbadi, Joyce Kim, James A. Santan, Kaffi Botehsazan, Joanna G. Martinez, Edward Park and Aladdin Alsarairah. The corporate defendants are Financial and Real Estate Services Inc., Above Board Real Estate Solutions, Jo Cal Investments, United Escrow Co., Orange Coast Title Company of Southern California, Bency 26 LLC, and Merchants Bonding Company.

Illinois AG Slams Outfits, Individuals In Three Seperate Suits Alleging Operation Of Upfront Fee Loan Modification, Debt Settlement Scams

From the Office of the Illinois Attorney General:

• Attorney General Lisa Madigan [] filed lawsuits against three Chicago area companies for fraudulent mortgage rescue and debt settlement schemes that cheated consumers out of large thousands of dollars.(1)



• Madigan filed the lawsuits [] in Cook County Circuit Court, alleging the three companies took large upfront fees from consumers with a promise to help them obtain a loan modification on their mortgage or to reduce their mounting debt, when in fact, little or no work was performed on the consumers’ behalf.



• “These companies are nothing more than scam operations, illegally charging consumers upfront fees but doing no work to help modify their loan or negotiate with creditors,” Attorney General Madigan said. “They scammed families out of thousands of dollars while putting people deeper in debt and at higher risk for foreclosure.”

For the entire Illinois AG press release, see Madigan Files Three Lawsuits Against Chicago Area Mortgage, Debt Settlement Scams.

(1) According to the press release, the Attorney General filed suit against Debt Care Financial Group Inc., in Chicago, and its president Malgorzata Baran, and Starlex Financial Consulting LLC and Flagship Mortgage Corporation, in Deerfield, and employees Jeffrey M. Entratter and Neil Borland. Madigan also filed suit against E.A.C. Financial LLC, based in Chicago, and its owners Everett D. Pope and Colbi Andry.

California Appeals Court Affirms 46-Year Prison Sentence For Sale Leaseback Peddler Who Ran Purported Federal Land Grant Home-Saving Racket

A California Court of Appeals recently affirmed a 46-year prison sentence(1) for William Jeffrey Hutchings for running a racket where he peddled a phony sale leaseback land grant program targeting homeowners in or near foreclosure in the San Diego area.(2)

In addition to clipping financially strapped homeowners for a one-time $10,000 upfront fee, he also pocketed the homeowners rent on the leaseback arrangement without paying the mortgages, allowing the homes to be foreclosed and the victims to get booted out of their homes.

While the 46-year prison imposition is the result of a laundry list of minor sentences made to run consecutively, the trial court, in a possible show of mercy, avoided a 'piling-on' effect by staying or ordering concurrent some of the sentencing terms and dismissing one of the sentence enhancements in the interest of justice.

For the court ruling, see People v. Hutchings, No. D057451 (Cal. App. 4th Dist, Div. 1, October 18, 2011).

(1) A jury convicted William Jeffrey Hutchings of one count of conspiracy to commit grand theft (Pen. Code, §182, subd. (a)(1)); 65 counts of grand theft (§ 487, subd. (a)); 41 counts of deceitful practices by a mortgage foreclosure consultant (Civ. Code, § 2945.4); and 56 counts of rent skimming (Civ. Code, §§ 890, 892).

The jury also found true the special allegations that Hutchings took funds and property of another with the value exceeding $100,000 (§ 1203.045, subd. (a)), the aggregate losses from all the charges exceeded $150,000 (§ 12022.6, subd. (a)(2)), and the charges involved a taking in excess of $500,000, through a pattern of fraud and embezzlement (§ 186.11, subd. (a)(2)).

(2) The following excerpt from the ruling briefly describes the phony Federal land grant racket run by Hutchings:

• Beginning in 2006, Hutchings commenced a purported federal land grant program promising to save homeowners facing foreclosure from losing their homes. He promoted the program with the following assertions: (1) the United States agreed to honor the land grants issued by the governments of Spain and Mexico in 1848 in the Treaty of Hidalgo, through which the United States acquired California as a territory; (2) when California became a state in 1850, it issued patents to the land owners to protect their respective titles in real property under federal and California law; (3) because the land and the structure upon the land were separate entities, a homeowner facing foreclosure could defeat the mortgage by (a) placing the land back under federal control in a "federal land grant program" mimicking the Treaty of Hidalgo and (b) waiting four to seven years, at which time the house would revert to the title holder free and clear of any mortgage when the bank wrote off the loan or the statute of limitations expired.
  
  Hutchings and/or his representatives provided manuals and seminar presentations assuring homeowners the land grant was superior to any other forms of title and prohibited the bank from enforcing its loan, trespassing on the property, initiating eviction proceedings, or taking any action to defeat the homeowner's possession of the house permanently affixed to the land.

Harvard Law Students At Center Of Another Foreclosure Fight On Behalf Of Massachusetts Homeowner Before State High Court

From Harvard Law School News:

• Just two months after landing a major victory in the Massachusetts Supreme Judicial Court on behalf of homeowners fighting eviction, the Harvard Legal Aid Bureau (HLAB) was back before the high court last week seeking more protections for people with homes in foreclosure. The court’s decision, expected to come down in several months, could lead to greater accountability for lenders trying to foreclose.



• Sam Levine ’12, president of the HLAB’s Foreclosure Task Force, argued before the high court that a bank or other entity seeking to foreclose on a house can’t do so unless it holds both the mortgage and the promissory note underlying the debt.



• In this case, Green Tree Servicing conducted a foreclosure sale on the home of a Boston woman even though it was owed no debt and held nothing more than the assignment of a mortgage securing a loan that the woman received from a bank. The case, Eaton v. Fannie Mae and Green Tree Servicing, LLC [go here for the lower court ruling currently on appeal], is being closely watched by observers and analysts of the foreclosure crisis nationwide.



• Levine first began working on the case over a year ago when the homeowner, Henrietta Eaton, who lives in the house with her three grandchildren, became an HLAB client after HLS students in Project No One Leaves knocked on her door to inform her that her home was in foreclosure, and offered to represent her. HLAB won a preliminary injunction in Superior Court in June to stop the foreclosure, but the other side appealed to the state Appeals Court.



• Then, in August, the high court took the unusual move of asserting jurisdiction over the case before the appeals court had ruled.

For more, see HLS students advocate before Mass. high court in closely watched foreclosure case.

Bay State High Court To Foreclosure Fraud Banksters: 'You Can't Give What You Don't Have!" (No Matter How Unwitting Or Lacking In Bad Faith Buyer Is)

Georgetown University Professor of Law Adam J. Levitin writes in Credit Slips:

• The Massachusetts Supreme Judicial Court just handed down a second major mortgage foreclosure ruling, Bevilacqua v. Rodriguez. The case was an Ibanez follow-up dealing with the rights of a purchaser at an invalid foreclosure sale. I thought this was a no brainer case and said so in an amicus brief co-authored with some of the Credit Slips crew.(1)



• As the trial court noted,(2) the foreclosure sale purchaser has to lose otherwise I could actually sell you the Brooklyn Bridge or some other property I don't own.



• What was cool about this case from an academic perspective was that it pitted two heavyweight, Latin-inscribed principles of commercial law against each other: the nemo dat quod non habet principle (you can't give what you don't have) and the bona fide purchaser principle (one who takes in good faith for value and without notice of defect will get legal protection against claims).



• While these are both venerable principles of commercial law, there should have been no question that nemo dat prevails. It is arguably the foundational principle of commercial law: the most one party can transfer to another are the rights it has.



• We have one critical carve-out to that principle, the holder-in-due-course doctrine, but the holder-in-due-course is much like the bona fide purchaser: it only applies if you take in good faith and without notice of defect. And if you're buying at a non-judicial foreclosure sale, you've got notice of possible defect (and one might argue about good faith). It's a little like the problem of finding a bargain when shopping--if it's too good of a deal, it could be a fraudulent transfer.



• And so the Massachusetts Supreme Judicial Court held. If the foreclosure was done improperly, the foreclosing party didn't have title to the property and thus couldn't transfer title to the purchaser. The court didn't dismiss the suit with prejudice, so Mr. Bevilacqua could get the property--if the foreclosure is done right in the first place, but that means starting over again.



• A lot of people think that the ruling in Bevilacqua will kill the REO market. I doubt it. It might make it a bit harder to get title insurance, but the title insurers have to keep issuing titles because they need the cash flow. If there's a widespread problem, they're already insolvent, so why not keep on doing business? There's no tort of deepening insolvency (at least in Delaware).



• As with Ibanez, the Supreme Judicial Court merely upheld very sensible principles that shouldn't be controversial: you need to be the mortgagee to foreclose and you can't sell what you can't deliver.



• What's kind of astounding is that the banks have had the chutzpah to challenge these basic principles of commercial law, as if centuries of commercial law jurisprudence should suddenly bend to their convenience. This is the same sort of arrogance that engendered the creation of MERS and the Article 9 mortgage transfer process.



• There's a third case awaiting decision from the Massachusetts Supreme Judicial Court, Eaton v. Fannie Mae [go here for court docket with links to all briefs] which deals with the question of whether a "naked mortgagee"--a mortgagee that isn't the noteholder--can foreclose. I filed an amicus arguing no way no how, but we'll see how the court rules.(3)

Source: Nemo Dat Trumps Bona Fide Purchaser.

(1) See also, Law Professors To Bay State High Court: "U.S. Bank, N.A., Was No More Capable Of Passing On Good Title To The Rodriguez Property Than A Common Thief".

(2) Bevilacqua v. Rodriguez, MISC 10-427157 (KCL), 2010 WL 3351481 (Mass. Land Ct. Aug. 26, 2010).

(3) See HLS students advocate before Mass. high court in closely watched foreclosure case.

Valuing A Covered Loss Under Title Insurance Policy? Not As Simple As It May Seem

The Alabama Supreme Court recently addressed, without deciding, several somewaht nuanced issues relating to the valuation of a covered loss under a title insurance policy.

The case is probably not of any interest to anyone other than title insurance geeks, although possibly, with all the crappy real estate titles created by fraudulent foreclosures seeping back into the market, homebuyers left holding the bag on recently foreclosed real estate(1) (and their attorneys) may have a bit of interest in the type of hassle they can expect when filing a claim with their title insurer.

For more, see Stewart Title Guaranty Company, v. Shelby Realty Holdings, LLC, No. 1100215 (Ala. October 14, 2011).

(1) See, for example:

• Bay State High Court: Innocent 3rd Party Purchaser At Faulty F'closure Sale Left Holding The Bag; Unwitting Buyer Merely Acquires Mortgage Assignment,
• Lawsuit: 'Set Aside' Of Dubious F'closure Leaves REO-Buying Couple Without Legal Title To Property After Sinking $230K Into Home Bought From Bankster.

Florida Insurer's Roof Inspection Requirement May Leave Some Homeowners Stuck Between Possible Foreclosure Threats & Contractor Ripoffs

In New Port Richey, Florida, The Tampa Tribune reports:

• Roofer Mark Gelling was saddened when he heard about a Pasco family on the verge of losing their home because of a worn out roof. But empathy turned into anger when he saw detailed photos of the roof, which seemed to be in fine shape. So he decided to do something about it.



• "I knew something was wrong," he said. "I went to church on Sunday, and I came home and told the wife, 'I'm going to run by there.' And I drove by and looked and said, 'He definitely doesn't need a roof.' " After inspecting it himself, he said Jeff Zilinski's roof will last about five more years.



• This is after four other contractors Zilinski hired to inspect his roof and sign off on a required insurance form all said his roof needed to be replaced immediately. They wouldn't sign the form, and that nearly forced Zilinski, who has never missed a mortgage payment, into foreclosure. "At this point I just don't have the assets to get a new roof," Zilinski said.



• Without the form, Citizens Insurance said it would drop Zilinski's coverage October 28. He didn't have the $5,000 needed to replace the roof. And because he has a mortgage, the lender would have assigned him a policy — likely at triple the cost.



• That would have pushed his mortgage payment beyond what he could afford, and Zilinski said he likely would have lost the home to foreclosure. He asked Citizens for more time to save money for a new roof, but that request was denied.

***

• Zilinski is one of thousands across Florida whose homes must pass a roof inspection before they can get a policy renewed with Citizens, the state's insurer of last resort. Any home 25 or more years old is subject to the inspection, which verifies the roof is expected to last at least three years.



• Many have gotten inspection reports signed with no problems. But Zilinski's case raises the question: Are consumers at a disadvantage by relying on roofers who have something to gain by recommending a new roof? Gelling thinks so. He said roofing business is down, and he fears some roofers see easy money in Citizens' requirement.

For the story, see Insurer's rule for roofs raises fraud fears.