Attorney Scores 'Get Out Of Jail Free' Card After Admitting To $70K+ Theft While Acting As Fiduciary; Allowed To Walk In Exchange For Probation, 'Payback' Promise

In Braxton County, West Virginia, The West Virginia Record reports:

• A Braxton County attorney will remain a free man after admitting to embezzling nearly $75,000 from a trust account he was appointed to oversee.
  
  Thomas J. Drake on Sept. 13 was indicted via information on a single charge of embezzlement. According to the indictment, Drake converted $70,798.57 belonging to the ATS Settlement Trust between July 2009 and August 2011.
  
  No details are provided about the trust, and when Drake was made its trustee. The only other information available is that Drake’s embezzlement of the funds took place in Elkview.
  
  In exchange for agreeing to plead guilty, Assistant Kanawha County Prosecutor Rob Schulenburg offered to recommend Drake get probation for a term to be determined by Judge James C. Stucky. Also, as a condition of his probation, Drake was to make court-ordered restitution.(1)
  
  As of presstime, Stucky’s sentencing order was not available. According to his attorney William C. Forbes, Stucky placed Drake on two years probation.

For the story, see Braxton attorney gets probation for embezzlement.

(1) The victim may be able to look to the West Virginia State Bar's Lawyers Fund for Client Protection,  which was established to reimburse clients who have suffered a loss due to misappropriation or embezzle­ment by a West Virginia-licensed attorney, for a source of recovery of the pilfered cash if the defendant stiffs it on its restitution promise.

For similar "attorney ripoff reimbursement funds" that sometimes help 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 (now includes Canadian recovery funds, 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.

Another Attorney Pinched For Allegedly Stealing Settlement Funds From Clients' Trust Account

In Dallas, Texas, The Southeast Texas Record reports:

• A Dallas attorney was indicted recently for allegedly stealing money from his clients.
  
  Thomas Corea faces four first degree felonies after he was indicted Aug. 27 by a Dallas County grand jury. He is accused of stealing settlement funds from clients’ trust accounts, using false information to secure loans and stealing identities to apply for various loans and credit cards.
  
  The indictments are the result of a seven month investigation by the Dallas County District Attorney’s Office.
  
  Corea is charged with theft over $200,000, misappropriation of funds over $200,000 by a fiduciary, securing the execution of a document by deception worth more than $200,000 and fraudulent use and possession of identification information. He allegedly stole the identity of another Dallas attorney and used it to apply for a variety of American Express credit cards.(1)

***

• Corea had been hosting a live call-in program, “Ask the Lawyer with Tom Corea,” at noon on Tuesdays and Thursdays on station KTVT.

For the story, see TV lawyer indicted for stealing clients’ money.

(1) If the defendant is convicted, any victims may be able to look to The Client Security Fund of the State Bar of Texas, which was established to reimburse clients who have suffered a loss due to misappropriation or embezzle­ment by a Texas-licensed attorney, for a source of recovery of the pilfered cash.

For similar "attorney ripoff reimbursement funds" that sometimes help 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 (now includes Canadian recovery funds, 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.

Newly-Enacted Ordinance That Forced Local Businessman To Permanently Close Down, Lose Premises To Foreclosure Found Unconstitutional; City Now On Major 'Damages' Hook For Passing & Enforcing Crappy Law

In Jeannette, Pennsylvania, the Pittsburgh Tribune Review reports:

• Cash-strapped Jeannette could be forced to pay a city businessman more than $500,000 in damages from real estate and business losses sustained because of an unconstitutional ordinance enforced in 2005.
  
  Businessman Frank Trigona testified Monday during a nonjury trial before Westmoreland County Judge Richard E. McCormick Jr. that his restaurant was forced to close permanently and a building he leased to a day care center underwent foreclosure as a result of the Jeannette law that prevented occupancy of either structure.
  
  The restaurant, which had been in operation on Clay Avenue for more than a century, was closed in May 2005 when city officials used a newly enacted ordinance to refuse to issue Trigona health permits because he owed taxes on the building. That same ordinance was used to prevent Trigona from occupying and making storm damage repairs to a building on Fourth Street that was being leased by a day care center.
  
  In 2009, Westmoreland County Judge Daniel J. Ackerman ruled the Jeannette ordinance was unconstitutional. The state Supreme Court later upheld that finding.(1)
  
  McCormick is now being asked to decide just how much money Trigona is due because of the faulty law.
  
  “The city of Jeannette enforced an improper ordinance. Under the Constitution and the laws of the commonwealth, Mr. Trigona is entitled to damages,” said his attorney, William Lightcap.
  
  Lightcap said Trigona sustained about $500,000 in damages.

***

• Trigona testified that he did not have the financial means to reopen the restaurant after the ordinance was overturned. “I was just not able to reopen,” Trigona said.
  
  Trigona said he sustained lost rent payments from Seton Hill Child Services, which rented the Fourth Street building since 1999 for the day care center. Trigona told the judge he was in the process of negotiating a new five-year deal when Jeannette enforced its illegal ordinance.

For the story, see Unconstitutional law might cost Jeannette $500,000.

(1) For the court ruling, see Trigona v. Lender, 926 A. 2d 1226 (Pa. Cmwlth. 2007); appeal denied Trigona v. Lender, 944 A. 2d 760 (Pa. 2008).

NYC Feds Clip Bronx Landlord For $75K In Fair Housing Suit Settlement; Building Super Admits Stiffing Black Prospective Renters While, On Same Day, Welcoming Apartment-Seeking Whites With Open Arms

From the Office of the U.S. Attorney (New York City):

• Preet Bharara, the United States Attorney for the Southern District of New York, [] announced a settlement of the United States’ lawsuit against LOVENTHAL SILVER RIVERDALE, LLC, GOODMAN MANAGEMENT, and JESUS VELASCO for discriminating against African-American apartment seekers in violation of the Fair Housing Act.
  
  The settlement, in the form of a consent decree, resolves a lawsuit filed by the United States on September 26, 2011. It enjoins LOVENTHAL SILVER RIVERDALE, GOODMAN MANAGEMENT, and VELASCO from discriminating based on race or color in the terms or conditions of renting a dwelling, and establishes a $35,000 victim fund that will be available to compensate the victims of their discriminatory practices.
  
  Defendants LOVENTHAL SILVER RIVERDALE and VELASCO must also pay a $40,000 civil penalty.

***

• According to the Complaint and the Consent Decree filed in Manhattan federal court:
  
  LOVENTHAL SILVER RIVERDALE owns an apartment complex at 3800 Independence Avenue in Riverdale, New York, which consists of approximately 72 rental apartment units. GOODMAN MANAGEMENT is the management company for the complex. Under the settlement, VELASCO, the superintendent of the complex, admits that, on repeated occasions, he informed prospective African-American tenants that there were no available apartments, while, on the same day, he informed prospective Caucasian tenants that there were available apartments in the building.

For the U.S. Attorney press release, see Manhattan U.S. Attorney Settles Housing Discrimination Lawsuit With Owner, Manager, And Superintendent Of Riverdale Apartment Complex (Superintendent Admits that He Did Not Show Available Apartments to African-Americans).

For the lawsuit, see U.S. v. Loventhal Silver Riverdale LLC, et al. (go here for the settlement agreement).

Civil Rights Feds Tag HOA, Management Co. w/ Fair Housing Suit Over Alleged Overly-Restrictive Occupancy Limit For Homes That Reflects Bias Against Renters With Kids

From the U.S. Department of Justice (Washington, D.C.):

• The Justice Department [] filed a lawsuit against the homeowners association and former manager of a 249-townhome community in Gibsonton, Fla., for violating the Fair Housing Act by discriminating against families with children.
  
  The lawsuit, filed in the U.S. District Court for the Middle District of Florida, charges that Townhomes of Kings Lake HOA Inc. engaged in a pattern or practice of violating the Fair Housing Act by adopting, maintaining, ratifying, and, along with Vanguard Management Group Inc., enforcing occupancy standards unduly limiting the number of individuals who can reside in the townhomes.
  
  The suit also charges that the defendants violated the Fair Housing Act by threatening to evict a couple and their six minor children from the four-bedroom townhome they were renting and by taking other actions to interfere with their tenancy.

***

• The lawsuit arose when the family filed a complaint with the Department of Housing and Urban Development (HUD). After the family had moved into the home, the management company and the homeowners association indicated there was a problem with the number of children living there. The defendants’ occupancy policy allowed only six individuals to occupy the home, which was far more stringent than what Hillsborough County permitted.
  
  The homeowners association also adopted similarly restrictive limitations on the number of individuals who could live in two- and three-bedroom townhomes in Kings Lake. After HUD investigated the complaint, it issued a charge of discrimination and the matter was referred to the Justice Department.

For the Justice Department press release, see Justice Department Files Fair Housing Lawsuit Against Florida Homeowners Association and Management Company for Discrimination Against Families with Children.

For the lawsuit, see U.S. v. Townhomes of Kings Lake HOA, Inc. et ano.

Another Clueless Private Equity Real Estate Investor Leaves 10-Building, 475 Unit Mess In Upper Manhattan; Low Income Renters, Local Pols Now Concerned With Possible Flip To New Speculator

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

• City officials flagged 10 apartment buildings in the Washington Heights section of Manhattan as "at-risk properties" in danger of deterioration and falling into further distress.
  
  The buildings, which house 475 units located at 566 and 570 W. 190th streets, are among several apartment complexes across the city in which owners paid hefty sums at the top of the market in hopes of raising rents but failed to do so and defaulted on their mortgages and left the properties in disrepair. The buildings will fall under the city's Proactive Preservation Initiative, a year-old program designed to monitor properties that carry liens and a high number of housing code violations.
  
  Now, the buildings' tenant associations, city officials and local politicians are expressing concern that another over-leveraged investor may take over the Washington Heights properties.

***

• Vantage Properties bought the buildings in 2007. It defaulted on a $44 million mortgage issued by Anglo Irish Bank in August 2010.
  
  A year later, Lone Star Funds, a Texas-based private equity investment group, bought the loan through an auction of Anglo Irish's non-performing and sub-performing loans and began foreclosing on the properties in March, according to the city. Lone Star is now marketing the property for $50.75 million, or more than the current mortgage on the buildings.

For more, see City: 10 Washington Heights apt. buildings 'at risk' (Officials, politicians and housing advocates are lining up against a private-equity group trying to flip deteriorating properties it bought in foreclosure last year).

See also, Pols Join Forces To Protect Rents at Foreclosed Manhattan Apartments.

Ex-LA Public Housing Official Gets 51 Months In $500K+ Ripoff; Coordinated w/ Brothers To Set Up Sham Companies To Pocket Cash Meant For ADA-Compliant Construction For Low Income Disabled Renters

From the Office of the U.S. Attorney (Los Angeles, California):

• A former public official who orchestrated a conspiracy involving his two brothers that stole more than $500,000 from the Housing Authority of the City of Los Angeles (HACLA) was sentenced [] to 51 months in federal prison.
  
  Victor Taracena, 41, who formerly resided in Burbank, was sentenced by United States District Judge Percy Anderson. In addition to the prison term, Judge Anderson ordered Victor Taracena to pay $526,727 in restitution to HACLA.
  
  Victor Taracena managed HACLA’s construction program for public housing units occupied by disabled residents, and the money that he and his brothers stole was intended to build accommodations that complied with the American with Disabilities Act.
  
  In June, Victor Taracena’s two brothers – Diego L. Taracena, 37, and Bennett A. Taracena, 32, both of Burbank – each were each sentenced to 21 months imprisonment.
  
  All three Taracena brothers pleaded guilty earlier this year to conspiracy charges. As part of the scheme, Diego and Bennett Taracena established four sham companies to get contracts from HACLA. After establishing bank accounts for those sham companies, Diego and Bennett Taracena accepted $526,727 from HACLA over the course of 3½ years. Despite receiving the payments, the companies did not perform any actual work.

For the U.S. Attorney press release, see Third Brother Sentenced to Over Four Years in Prison in Plot that Stole Over $500,000 Designated for Low-Income, Disabled Residents.

NYC Feds Tag BofA For $1B For Allegedly Generating Thousands Of Fraudulent & Otherwise Defective Home Loans Peddled To Fannie, Freddie

In New York City, The Associated Press reports:

• The latest federal lawsuit over alleged mortgage fraud paints an unflattering picture of a doomed lender: Executives at Countrywide Financial urged workers to churn out loans, accepted fudged applications and tried to hide ballooning defaults.
  
  The suit, filed Wednesday by the top federal prosecutor in Manhattan, also underscored how Bank of America’s purchase of Countrywide in July 2008, just before the financial crisis, backfired severely.
  
  The prosecutor, Preet Bharara, said he was seeking more than $1 billion, but the suit could ultimately recover much more in damages. “This lawsuit should send another clear message that reckless lending practices will not be tolerated,” Bharara said in a statement. He described Countrywide’s practices as “spectacularly brazen in scope.”
  
  He also charged that Bank of America has resisted buying back soured mortgages from Fannie Mae and Freddie Mac, which bought loans from Countrywide.

***

• Bharara said the lawsuit was the first civil fraud suit brought by the Justice Department concerning loans later sold to Fannie and Freddie. When Fannie and Freddie collapsed, investors were wiped out.
  
  Taxpayers have spent $170 billion to keep Fannie and Freddie afloat, and it could cost $260 billion more to support the companies through 2014 after subtracting dividend payments to taxpayers, according to the government.
  
  The lawsuit says that Fannie and Freddie suffered $1 billion in losses because they had to pay for Countrywide’s defaulted loans. The lawsuit also complains that Bank of America is refusing to buy back mortgages “even where the loans admittedly contained material defects or even fraudulent misrepresentations.”

***

• For at least two years, Bank of America and other banks have been sifting through so-called repurchase demands from Fannie, Freddie and other investors who bought its mortgages. The repurchase demands contend that the bank should buy back mortgages that have since gone bad.

***

• In the past year and a half, Bharara’s office has settled lawsuits against CitiMortgage, Flagstar Bank and Deutsche Bank over mortgages. Its lawsuits against Wells Fargo and Allied Home Mortgage are pending.
  

For the story, see US suit cites ‘brazen’ mortgage fraud at Countrywide, even after Bank of America purchase.

For the U.S. Attorney press release, see Manhattan U.S. Attorney Sues Bank Of America For Over $1 Billion For Multi-Year Mortgage Fraud Against Government Sponsored Entities Fannie Mae And Freddie Mac.

For the lawsuit, see U.S. v. Countrywide Home Loans, Inc., et al.

Arizona AG Squeezes $75K In Penalties, Restitution From Woman Suspected Of Running Loan Modification Racket; Refused Giving Refunds On Failed Assistance, Saying Homeowner Payments Were Donations To Her Church

From the Office of the Arizona Attorney General:

• Arizona Attorney General Tom Horne has obtained a Consent Judgment against Rosa Galope in a consumer fraud lawsuit in which the State alleged that Ms. Galope engaged in a scheme designed to defraud homeowners looking for assistance in obtaining mortgage loan modifications and forestalling foreclosure on their homes.
  
  The State alleged that Ms. Galope charged distressed homeowners thousands of dollars in advance fees for her services and, when she was unable to obtain results for her clients, refused to refund their money while claiming that their payments were donations to her church, Nation to Nation Ministries.
  
  The State also alleged that Ms. Galope instructed her clients to not communicate with their lenders and to send their mortgage payments to her so that she could forward them to the consumer’s mortgage lender, while keeping the money for her own use.

***

• The terms of the judgment require Ms. Galope to pay full restitution to consumers who filed a complaint with the Attorney General’s Office, an amount of nearly $65,000. Ms. Galope was also ordered to pay $10,000.00 in civil penalties and is prohibited from engaging in any loan modification activities in Arizona or on behalf of Arizona consumers.
  
  In entering into the Consent Judgment Ms. Galope did not admit that she violated the law nor did the court make findings that she did so.

For the Arizona AG press release, see Consent Judgment for West Valley Woman Who Claimed "Church Donations" as Part of Alleged Mortgage Modification Scheme.

Caretaker Pinched In Alleged $400K Ripoff Of Now-Deceased Dementia Patient; Loot Included Proceeds From Reverse Mortgage Loan On Victim's Home

In Fort Lauderdale, Florida, the South Florida Sun Sentinel reports:

• A 55-year-old Lauderhill woman was charged with grand theft and elderly exploitation, on Wednesday, and accused of stealing an estimated $400,000 from the Deerfield Beach woman she was paid to care for, according to the Broward Sheriff's Office.
  
  Lorna Mulgrave was a home health care aide for Jean Barbara between March 2007 and March 2010 when Barbara died at the age of 93, investigators said.
  
  Barbara's grandson, Russell Markowitz, had hired Mulgrave temporarily to care for Barbara after a fall in 2006 that required 12 stitches to Barbara's knee. But, the doctor diagnosed Barbara with dementia and said she needed 24-hour care and could no longer drive, medical records showed.
  
  Markowitz arranged to pay Mulgrave $500 per week to care for Barbara. The arrangement worked for about eight months until Markowitz and his family traveled from New Jersey to Deerfield Beach for a visit. He found several cancellation notices for the electric bill and insurance coverage, according to the arrest report.

***

• Bank of America records revealed Mulgrave opened a joint account with Barbara in July 2007 without telling Markowitz. He later told detectives hundreds of thousands of dollars were funneled through the account without his knowledge.
  
  In addition to the $500 payments she received, Mulgrave paid herself an extra $157,000 over the three years she cared for Barbara. Records showed Mulgrave also gave money to her daughter Sherika Jackson and her son-in-law Shane Jackson.

***

• Markowitz said thousands worth of gold and diamond jewelry, including his grandmother's engagement and wedding rings, were missing. Her credit cards were maxed out at $30,000 as well, he said.
  
  Mulgrave also is accused of cashing out Barbara's $170,000 worth of Certificates of Deposit, despite early withdrawal penalties. She also managed to get a reverse mortgage for the house that Barbara owned outright for 30 years. Mulgrave burned through an estimated $148,000 within six months, investigators said.
  
  Barbara died thousands of dollars in debt, Markowitz said.

For the story, see Caretaker accused of stealing from elderly client (Lorna Mulgrave, 55, watched over Jean Barbara, 93).

California Regulator Hammers Underwriter Peddling Force-Placed Insurance With 30.5% Rate Reduction; Homeowner Savings Estimated At $42.7M

The California Department of Insurance recently announced:

• Insurance Commissioner Dave Jones [] announced a 30.5 percent rate reduction, for "lender-placed" (also called force-placed) homeowner insurance coverage offered by American Security Insurance Company (an Assurant Inc.-owned company). The reduction will result in an estimated $42.7 million savings to homeowners, with an average savings to policyholders of $577 annually.
  
  Force-placed insurance has been subjected to controversy because, under certain circumstances, homeowners are forced to purchase the policies. These policies are primarily intended to protect the lender's interest in the property and typically come with exorbitant costs that are often much higher than standard homeowners insurance policies.
  
  In March, Commissioner Jones contacted the state's largest "lender-placed coverage" insurers to express his concerns about apparent excessive rates. He directed insurers to submit new rate filings with the California Department of Insurance (CDI) to determine if rates could be reduced.
  
  Force-placed insurance has been the subject of national scrutiny and there have been investigatory hearings regarding this insurance in the states of New York and Florida, as well as at the annual meeting of the National Association of Insurance Commissioners (NAIC).
  
  At the Commissioner's direction, CDI carefully examined the insurers' annual financial statement data, and found many cases of low loss ratios. The low loss ratios (the percentage of every premium dollar an insurer spends on actual claims) were a flag to Department officials that rates charged by insurers may be excessive. Insurers were directed to provide a response to CDI by April 1, 2012.
  
  Today's rate reduction is a result of the efforts taken by the Commissioner earlier this year. American Security is the first insurer to lower rates based on the Commissioner's action.

For the California Department of Insurance press release, see Insurance Commissioner Dave Jones Announces $42.7 Million Rate Reduction For Policyholders Of "Force-Placed" Mortgage Insurer (Warns Consumers Not to Let Homeowners Insurance Lapse).

Cops Tell Squatter-Victimized Homeowner Her Problem Is A 'Civil Matter', Then Quickly Change Tune & Boot Occupants After Local Media Airs Story

In Detroit, Michigan, WJBK-TV Channel 2 reports:

• A Detroit resident was surprised to find squatters had taken over her house she had recently put on the market. After airing the story on FOX 2, the squatters have moved out.
  
  Jacqueline Frazier was stunned upon entering what she thought would be her empty home. But instead she found a family of squatters, making themselves at home. Frazier had the house on the market and was even expected to close in a few days but the family was getting in the way.
  
  They claimed they had a lease and had paid $1,400 in rent. They had no receipt because they paid in cash. FOX 2's Ronnie Dahl checked out the situation and visited the "landlord's" address listed on the lease. To no one's surprise, no one by that name was living there.
  
  Frazier called the police but was told they did not have eviction rights so she would have to take it to court.
  
  The "tenants" eventually told Frazier they would leave this past weekend, as Frazier was planning to close on the house on Monday, October 8th. Unfortunately when she went to the home that morning, they were still inside. In fact – they had even barricaded the doors. Frazier called the police.
  
  The officer that responded saw our story and forced the family out, saying they were there illegally since they did not have a valid lease. However they came back around one in the morning, kicking the door in. Fortunately Frazier had someone watching the home.

For the story, see Detroit home squatters forced out by police.

See also, Detroit homeowner finds family living in her house for sale.

Fake Repo Men Use Phony Work Order, Post Bogus Foreclosure Sticker On Front Door, Then Proceed To Burglarize Temporarily-Vacated Home In Broad Daylight

In Braselton, Georgia, WFMY-TV Channel 2 reports:

• A Braselton woman is reeling after her neighbors watched burglars posing as repo men steal almost everything in her house-all in broad daylight.
  
  Ariella Guzman is living and working in Atlanta while her Braselton home is on the market. She left it furnished hoping it would sell faster.
  
  "What bothers me is how brash and bold they were. It was 2:00 in the afternoon when they took the things and they loaded up three truckloads," Guzman said. "They came back in again and again and nobody thought anything different of it."
  
  Neighbors weren't home Tuesday, but they told police they saw the burglars visit the home on four different occasions. The two men took pictures, and posted a fake foreclosure sticker on the front door. When they returned, they loaded their pickup truck with everything from flat screens to a dining room set to Christmas decorations and family portraits. Neighbors who asked what was going on were shown a fake work order.
  
  "With authority they basically told my neighbor to mind his own business because they were from the bank and they were doing their jobs," Guzman said.
  
  There were no signs of forced entry into the home, and police think the men may have visited the house through a realtor and left a window unlocked. They are planning to dust for fingerprints, and hoping to find something before talking to the neighbors. They say the complexity of the scheme means the men will be hard to catch.

For the story, see Burglars Posing As Repo Workers Steal Woman's Belongings.

Kansas Appeals Court: Existence Of Agency Relationship Between MERS, Loan Holder Enough To Defeat Homeowner's 'Split-Note/Mortgage' Foreclosure Defense

From a client alert from the law firm Goodwin Proctor:

• The Kansas Court of Appeals has rejected a challenge to a lender’s designation of MERS as nominee on a mortgage.
  
  Plaintiffs/appellants, a husband and wife who defaulted on their home mortgage loan, challenged the standing of the bank to foreclose on the property based on a so-called “splitting of the note and mortgage” that allegedly resulted from a series of assignments of the note between MERS members while MERS itself remained the mortgagee of record “as nominee for the lender and its successors and assigns.”
  
  Citing recent Kansas Supreme Court precedent affirming the operation of MERS as nominee for a series of successor lenders, the Court, applying basic principles of contract interpretation, held that the language of the mortgage itself, which designated MERS “as nominee for the lender and its successors and assigns,” was sufficient to create an agency relationship between MERS and the foreclosing bank as a “downstream assignee” of plaintiffs’ note, such that the bank could be deemed to hold both the note and mortgage for purposes of establishing its standing to foreclose under Kansas law.

Source: Kansas State Appellate Court Rejects Split-the-Note Theory.

For the ruling, see MetLife Home Loans v. Hansen, No. 106,846 (Kan. App. September 28, 2012).

More Consumers Step Up, Take On Zombie Debt Buyers In Court As Credt Card Collection Lawsuits Lacking Proper Documentation Continues

In Lackawanna County, Pennsylvania, The Scranton Times Tribune reports:

• A New Jersey company recently dropped credit-card debt litigation against a Dunmore man after a Lackawanna County judge ordered the business to prove it owned the account.
  
  Velocity Investments, a collection agency near Asbury Park, had sought $1,543 in overdue credit-card debt, interest and fees from Michael Kahanic. Velocity filed suit in Lackawanna County Court in 2011 after acquiring Mr. Kahanic's MasterCard account that had originated at British banking conglomerate HSBC, court records show.
  
  Velocity's complaint included copies of Mr. Kahanic's 2004 credit-card application and a MasterCard billing statement from February 2010. The company withdrew the suit after Judge Terrence Nealon ordered Velocity to furnish documents showing it had authority to collect the debt.
  
  "Debt buyers don't usually have all the documentation to support the original agreement," said Adelle Zavada, an attorney with North Penn Legal Services(1) in Scranton who represented Mr. Kahanic. "We have had good success in being able to defend these cases."
  
  The case reflects nationwide troubles over debt-collection practices. Many companies file debt-related suits with insufficient records, faulty documents and questionable claims.
  
  "All debt collection is under the microscope," said Chris DeRitis, Ph.D., a consumer credit expert at Moody's Analytics, a West Chester economic research and consulting firm. "A lot of this debt gets traded three, four or five times. It's a messy business."
  
  The issue has similarities to abuses in the foreclosure process that led to the 2010 "robo-signing" scandal, in which banks seized thousands of homes without adequate proof of documentation. Five major banks in February agreed to pay $26 billion to settle the matter.
  
  Allegheny County Judge R. Stanton Wettick has presided over hundreds of cases in which banks sold delinquent credit-card accounts to debt buyers who filed litigation to recover the money.
  
  "There is a fair amount of chaos in all this," Judge Wettick said. "Once the paper has moved on, you really don't have anyone who knows much about the transaction. You don't know if, in fact, they are the owner of the debt."
  
  In the local case, Ms. Zavada argued that Velocity's complaint against Mr. Kahanic lacked dates of credit-card transactions, amounts charged or descriptions of items purchased. Velocity argued it needed only to provide the 2010 billing statement in order to collect.
  
  Mr. Kahanic, 51, who could not be reached for comment, never contested the alleged amount of the obligation.
  
  The company withdrew the suit after Judge Nealon in May demanded copies of the original credit-card agreement, its terms and conditions, and the assignment or sale of Mr. Kahanic's account to Velocity.
  
  "The judge asked us to produce a document that no longer exists," James Mastriani, Velocity's president, said of the demand for the original agreement. "What we had, we felt and still feel was sufficient." Mr. Mastriani said the company bought the account in December 2010 from a debt-trading concern that had acquired it from HSBC.
  
  "You have all sorts of cases where the debt buyer bought the debt and didn't get all the information," Dr. DeRitis said.
  
  The Federal Trade Commission issued a report in July 2010(2) calling the debt-collection system "broken" and urging reforms to improve fairness to consumers. The report recommended states adopt measures making it more likely for consumers to defend themselves in credit-card cases and called for states to require collection companies to include more information about the alleged debt in court filings.
  
  Ms. Zavada said she has handled more than 230 collection cases in the last five years at North Penn Legal Services, which provides free counsel to low-income citizens. Debt buyers filed many of the cases, she said. "They are playing the odds," Ms. Zavada said.
  
  Debt buyers in some cases fail to follow legal procedures, even though they have a right to collect. "Sometimes, the affidavits don't appear to be signed by the right people," Judge Wettick said.
  
  "Some companies are doing this more responsibly than others," Dr. DeRitis said. "There are cases of fraud where unscrupulous debt collectors put charges on people's accounts."
  
  U.S. consumers are delinquent on $18.5 billion in credit-card debt, about 3 percent of the total amount owed, according to the most-recent Federal Reserve statistics.
  
  Debt collectors frequently prevail easily in court because many defendants in credit-card suits do not contest the action. "People put their head in the sand. They don't know what to do," Ms. Zavada said. "If 100 get filed, 75 turn into default judgments," Judge Wettick said.
  
  Default judgments enable debt collectors to freeze a consumer's bank account or garnish wages to recover obligations.
  
  More consumers, though, are taking on debt collectors in court and fending them off by challenging the evidence, Judge Wettick said. "For a lot of companies now, if someone shows up and contests it, it may not be worth their while to pursue it," he said.

Source: More people challenging credit card debt collection.

(1) North Penn Legal Services is a regional non-profit provider of civil legal representation to low-income people in over a dozen counties in Pennsylvania.

(2) See Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration.

FDCPA Lawsuit: Bill Collector Snatched Permanently Injured Vet's Exempt Disability Payments, Refused To Give It Back, Saying "You Should Have Died!"

In Phoenix, Arizona, Courthouse News Service reports:

• After garnishing exempt disability payments from a 100% disabled Army veteran's wife, a debt collector told the vet he was "living off social security while the rest of us honest Americans work our a-- off. Too bad; you should have died," the veteran claims in court.
  
  Michael Collier and his wife, Kim, sued Gurstel Chargo, P.A., a Minnesota-based third-party debt collector, in Federal Court. Collier suffered spine and head injuries in the Army and was declared 100 percent disabled. He and his wife, a college student, receive disability payments, which are exempt from execution, according to his complaint.
  
  Nonetheless, Gurstel garnished Kim's savings account, and the credit union froze her money, to seek $6,000 from Michael's defaulted student loan. The Colliers say they "immediately filed an objection and request for hearing."
  
  At the hearing, Gurstel's attorney told the court that the frozen funds were indeed exempt, and promised the court that the money would be released "Right away," according to the complaint.
  
  "The court then issued its ruling finding that the garnished funds were exempt from execution, and entered an order quashing garnishment on the credit union effective that day, May 24, 2012," the complaint states.
  
  But in the parking lot, the Gurstel attorney told Michael Collier "he would need to get a lawyer in order to get his money back."
  
  Collier says he called Gurstel's office, and an unidentified paralegal told him he would have to sue to get the money. When he said the money was exempt veteran disability payments, "the assistant told Michael, 'F--- you! Pay us your money! You can't afford an attorney. You owe us. I hope your wife divorces your a--. If you would have served our country better you would not be a disabled veteran living off social security while the rest of us honest Americans work our a-- off. Too bad; you should have died.'" (Spelling as in complaint.)
  
  The Colliers seek actual damages, statutory damages, and punitive damages for violations of the Fair Debt Collection Practices Act, conversion, privacy invasion, and malicious infliction of emotional distress. They are represented by Floyd Bybee of Chandler.

Source: The Worst Debt Collector in the World?

For the lawsuit, see Collier v. Gurstel Chargo, P.A.

NJ Appeals Court Nixes Homeowner's Attempt To Challenge Foreclosing Lender's Standing Where Former Snoozed On Raising Issue During Litigation

From a client news release from the law firm Goodwin Proctor:

• A New Jersey state appellate court held that a borrower could not challenge the standing of a bank in a foreclosure proceeding in a last ditch effort to re-litigate the case. The borrower filed an application to vacate the default judgment entered against him, arguing that because the mortgage on the property was not assigned to the bank until after the bank filed the foreclosure complaint, the bank lacked standing.
  
  The borrower sought to vacate the judgment based on a recent New Jersey state court opinion, Deutsche Bank National Trust Co. v. Mitchell, 27 A.3d 1229 (N.J. Ct. App. 2011), which held that either possession of the note or an assignment of the mortgage that preceded the complaint conferred original standing. The lower court refused to vacate the judgment; the appellate court affirmed.
  
  In reaching its decision, the Court rejected plaintiff's argument that Mitchell applied. The Court noted that unlike in Mitchell, where the "defendant actively engaged in the litigation" and challenged the bank's standing to file the foreclosure complaint "long before the end of the litigation," here, the borrower "did not raise the standing issue or contest the foreclosure in any way, until two years after default judgment was entered and three and one half years after the complaint was filed."
  
  Further, the Court held that the borrower did not "definitively" demonstrate a lack of standing, holding that the bank could have held possession of the note at the time it filed the complaint. The Court's ruling shows a general apprehension to allow borrowers to sit on their rights during foreclosure proceedings, and should serve as a reminder that courts may hold borrowers accountable for their inaction during foreclosure proceedings.

Source: New Jersey State Court Rejects Borrower Appeal Challenging Foreclosure.

For the court ruling, see Deutsche Bank National Trust Americas v. Angeles, ___ N.J. Super. ___, (App. Div. October 11, 2012) (approved for publication).

Rackets Peddling 'Contingency Fee' Help For Homeowners Seeking Share Of Nat'l Mortgage Settlement Surface On State AGs' Radar

From the Office of the West Virginia Attorney General:

• Attorney General Darrell McGraw warns West Virginia borrowers who lost their homes to foreclosure to avoid scammers offering help with the National Mortgage Settlement. McGraw reminds all consumers never to pay anyone to file a claim in a case brought by his office. Help from the Consumer Protection Division is always free.

***

• Unfortunately, unscrupulous organizations soon began offering "help" to eligible borrowers. For a hefty "contingency fee" of up to 20% of the expected payment, fringe companies offer to help consumers submit simple claim forms, but this is unnecessary according to the Attorney General’s office. "It’s not complicated," said McGraw. "The claims process is simple and easy, so don’t be fooled by outfits claiming you need their help with a settlement resulting from my office’s enforcement efforts."

***

• McGraw’s office recently learned that a San Antonio, Texas, company called Murray LLP ran TV and Internet ads directing consumers to its website, www.bringaclaim.com to charge eligible borrowers a 20% fee to submit a one-page claim form in the National Mortgage Settlement.
  
  Attorney General McGraw warns all homeowners to be aware of settlement-related scams. Do not provide personal information or pay money to anyone who advertises, calls or emails you claiming that they are providing settlement related assistance. If you believe someone is conducting a settlement related scam, contact the West Virginia Attorney General at 1-800-368-8808.
  
  For more information about eligibility and filing a claim:
  
  www.NationalMortgageSettlement.com
  
  Email: administrator@nationalmortgagesettlement.com
  
  Call toll free: 1-866-430-8358 (hearing impaired: 1-866-494-8281).

For the press release, see Attorney General McGraw Darrell McGraw Warns Against Mortgage Settlement Related Scams.

For a similar warning issued by the Office of the New Hampshire Attorney General, see Attorney General Delaney Warns Against Mortgage Settlement Related Scams - Consumer Alert.

Thanks to Mike Dillon at Stellionata Consulting, LLC for the heads-up on the press releases.

Detroit Homeowners' Fair Housing Suit: Bankster's Reverse Redlining Practices Targeted Blacks With Risky Subprime Home Loans

From a column in The Atlantic Cities:

• In the years leading up to the housing crash, public data suggest that black would-be homeowners in Detroit were 70 percent more likely than white borrowers to receive a risky subprime loan from the now-defunct lender New Century Mortgage Company. This is the central statistic embedded in a 70-page lawsuit filed [last week] in New York against Morgan Stanley, the investment bank that went on to purchase a large share of those loans for repackaging in mortgage-backed securities.
  
  The suit, filed by the ACLU and the National Consumer Law Center, alleges that a kind of "reverse-redlining" became the norm in Detroit. Fifty years ago, discriminatory housing policies prevented many blacks from obtaining home mortgages. Barely five years ago, this suit suggests that a different kind of racial discrimination was taking place in Detroit: Predatory lenders couldn’t approve enough high-risk loans to black borrowers, increasing Morgan Stanley’s profits and disproportionately leaving many of these black homeowners in financial ruin.
  
  In a twist on the ever-expanding legal fallout from the housing crisis, this case – filed on behalf of five Detroit borrowers with the hint of thousands more to come if this turns into a class-action lawsuit – accuses for the first time an investment bank elbow-deep in the housing bubble of violating federal civil rights laws.

For more, see Were Big Banks Guilty of Racial Discrimination in the Housing Crisis?

For the lawsuit, see Adkins, et al. v. Morgan Stanley, et al.

Three Metro Atlanta Counties Bring Fair Housing Suit Against Major Bankster Alleging Claims That Predatory, Discriminatory Lending Encouraged Foreclosure, Destroyed Neighborhoods

In Atlanta, Georgia, WSB-TV Channel 2 reports:

• Channel 2 Action News has learned three metro Atlanta area counties are taking on a major bank, saying predatory lending has hurt neighborhoods and cost tax revenue.
  
  Cobb, DeKalb and Fulton counties filed a lawsuit Thursday against HSBC, saying damages are in the hundreds of millions of dollars. "It is the first instance in Georgia of the local governments, on behalf of the people, saying, 'We are all victims of the mortgage foreclosure crisis,'" said Emory professor Frank Alexander, who specializes in real estate finance.
  
  Thousands of boarded up homes with overgrown lawns are signs of the mortgage meltdown still hammering metro Atlanta neighborhoods.
  
  The lawsuit alleges predatory and discriminatory mortgage lending by HSBC encouraged foreclosures, which lower values for all homeowners. The suit, filed in federal court, makes claims under the Fair Housing Act.
  
  "The lawsuit alleges that [HSBC] made loans that were racially discriminatory; that the terms of the loans they made to minorities or persons of color were different than loans they were making to other people," Alexander said.
  
  Records show HSBC owns more than 160 properties within the three counties but has taken over roughly 3,500 since 2006.
  

***

• Alexander said lawsuits under the Fair Housing Act are usually filed by the individuals who were wronged, not county governments. He said the plaintiffs will have to overcome that hurdle.

For more, see Atlanta-area counties sue bank for predatory lending.

LAPD Bags Eleven In Alleged Loan Modification Racket That Bilked 65 Out Of $1M+

In Los Angeles, California, the City News Service reports:

• Eleven people were facing possible conspiracy charges in connection with a loan modification scam that allegedly bilked 65 mostly Spanish-speaking victims out of more than $1 million.
  
  Detectives from the Los Angeles Police Department's Commercial Crimes Division, Fraud Section and Fugitive Warrant Section, as well as investigators from the Los Angeles County District Attorney's Office, arrested the suspects around 6 a.m. Wednesday on suspicion of conspiracy to commit a crime, according to a police statement.
  
  The suspects were identified as Nino Vera, Tony Haschke, Franklin Marquez, Eduardo Teran, Corina Castillo, Daniel Argueta, Susana Vasquez, Jimmy Alvarez, Gustavo Vargas, Octavio Ponce and Juan Diego Perez.(1)
  
  Felony complaints stemming from the alleged conspiracy also were filed against David Zepeda, John Zepeda, Rene Solis and Hector Menendez, who were all already in custody, in Ventura and San Diego counties, and more suspects are in the process of being located and arrested, the statement said.
  
  The scam targeted primarily Spanish-speaking homeowners having difficulty making their mortgage payments during the housing market downturn. Many were induced to sign paperwork and contracts that were in English only, police said.
  
  The suspects, who ran their operation out of 10-12 offices in the Los Angeles County area, did virtually no work in helping the victim's save their homes and in fact placed some in greater jeopardy of foreclosure, police said, adding that most of the victims either lost their homes or have received default notices.

***

• Victims were told that if they paid large large upfront fees and made monthly payments to SB Management they would be able to stay in their homes as caretakers, police said.

For more, see Loan scam that targets mostly Spanish-speaking victims nets 11 SoCal arrests.

(1) According to the story, the operation used business names that included SB Management, Financial Wellness for Homeowners of Los Angeles County Corporation, California Sky Premier, Zap Group Legal, Majestic Group, El Camino Marketing and J&E Services, police said.

Florida Appeals Court Nixes Bank's Foreclosure Deficiency Judgment; Amount To Be Based On Property Value On Sale Date, Not Six Months Later

The Florida Banking Law Blog reports:

• Most of you may know that, in Florida, the standard by which a deficiency is determined in a foreclosure case is the difference between the amount owed to the lender and the fair market value of the mortgage property as of the date of the foreclosure sale. This has been well established by case law over the years.
  
  In practice, the fair market value is typically established by presenting testimony from a real estate appraiser who is recognized by the court as an expert in property appraisal. Often, the lender has ordered the appraisal in connection with its evaluation of the property and before it takes the asset into ORE.
  
  In these instances, there are times when the appraisal report is dated as of a date other than that of the foreclosure sale date. What impact can this have on a subsequent motion for deficiency? A recent appellate decision by the Second District Court of Appeals addressed this question.
  
  In this case, decided in April of this year, the Court reviewed a $2.6 million dollar deficiency judgment entered by the trial court based in part on an appraisal dated some six months after the foreclosure sale date.
  
  It appears that the borrower’s trial counsel must have raised the issue that the value was not determined as of the foreclosure sale date. In response, the lender’s attorney offered only the argument that the values could not have changed much in the five month time from the foreclosure sale date to the appraisal date.
  
  The appellate court reversed the decision, finding that this was merely a conclusory statement that was not supported by the evidence. The case was remanded for further proceedings which means more cost and delay for that lender.(1)
  
  The lesson here is a basic one. You need to present evidence of fair value as of the date of the foreclosure sale or risk an unfavorable ruling, either at trial or on appeal. The best way is to make sure that the appraiser you are using as an expert has valued the property at the foreclosure sale date and that the resulting report reflects that.(2)

Source: The Importance of Having the Correct Appraisal Evidence When Seeking Deficiency.

For the ruling, see Empire Developers Group, LLC v. Liberty Bank, Case No. 2D11-1410 (Fla. App. 2d DCA, April 13, 2012).

(1) In reversing the trial court, the Florida appeals court enunciated the state law applicable in this case as follows:

• "[T]he correct formula to calculate a deficiency judgment is the total debt, as secured by the final judgment of foreclosure, minus the fair market value of the property, as determined by the court." Morgan v. Kelly, 642 So. 2d 1117, 1117 (Fla. 3d DCA 1994). "[T]he party seeking a deficiency judgment has the burden of proving that the fair market value of the property foreclosed upon was less than the total mortgage debt owed." Estepa v. Jordan, 678 So. 2d 876, 878 (Fla. 5th DCA 1996) (citing Coral Gables Fed. Sav. & Loan Ass'n v. Whitewater Enters., Inc., 614 So. 2d 682 (Fla. 5th DCA 1993)). And "[t]he critical date the fair market value of the real estate must be established for such purpose is the date of the foreclosure sale." Estepa, 678 So. 2d at 878 (emphasis added) (citing Cmty. Bank of Homestead v. Valois, 570 So. 2d 300, 301 n.1 (Fla. 3d DCA 1990)).

(2) To add insult to injury, the appeals court threw in this tidbit:

• We also note that the trial court erred in awarding Liberty Bank interest on the entire debt from the date of the final judgment of foreclosure through the date of the deficiency hearing. See Estepa, 678 So. 2d at 878 ("A secured party is not entitled to statutory interest on the entire foreclosure judgment following the date of the foreclosure sale.").
  
  Accordingly, on remand, "statutory interest may only be awarded against the remaining debt" from the date of the foreclosure sale. Shaw v. Charter Bank, 576 So. 2d 907, 909 (Fla. 1st DCA 1991).

Florida Regulator Orders Title Insurer Shutdown Over Potentially Crippling Volume Of Claims, Unsatisfactory Cash Reserves; Firm Fingers Rogue Agent's Alleged Incapacitating Escrow Ripoff As Cause

In Orlando, Florida, the Orlando Sentinel reports:

• Citing a regulatory mandate and a potentially crippling volume of claims, K.E.L. Title Insurance Group — owned by the partners of Orlando's KEL law firm — has withdrawn from the title insurance business and is trying to get into a state "rehabilitation" program for troubled insurers, the company confirmed [].
  
  With its cash reserves faltering, K.E.L. Title stopped issuing policies [] and severed its ties with agencies that had sold its policies and performed real estate closings, the company said. It said it had been "instructed" by the Florida Office of Insurance Regulation to take those actions.
  
  Company officials said the business' cash-surplus reserve had fallen below the state-required minimum; meanwhile, they were negotiating with insurance regulators over terms of entering "rehabilitation" — a sort of state-led business restructuring.

***

• In the state's "Rehab and Liquidation" program, if a title insurer can't pay its claims, the state raises cash to cover them by imposing a statewide surcharge on policies sold by other title insurers. The only way an insurer can emerge from the program intact is to be acquired by another insurer, something that has not happened in the program's history, a regulatory spokeswoman said.
  
  Lynd blamed K.E.L. Title's woes mostly on a South Florida-based title-agency worker whom he accused of stealing hundreds of thousands of dollars in escrow money while fabricating real estate sales documents. The title company was blindsided by the scam, he said, which took place more than three years ago but was discovered only this year during certain foreclosure litigation.
  
  The company has paid more than $1.6 million in scam-related claims so far this year alone, according to Lynd, who said the insurer alerted state regulators about the problem.
  
  "It was a systemic theft by this agency's employee," Lynd said. "These incidents took place in 2008 and 2009, but it takes a long time for title claims to surface related to this kind of fraud. We're not the only ones who've been victimized; a lot of title insurers have been impacted by these kinds of scams."
  
  When asked why K.E.L.'s audits had not detected the theft, he insisted that conventional audits would not have turned up such a surprisingly sophisticated scam.
  
  "It would have been impossible to know [sooner] about this kind of theft. I mean, there were fabricated documents that made the transactions look normal on paper," Lynd said. "And there's just not an opportunity for us to review every single closing for all our agents. To some extent, you have to trust they will follow the requirements of their license, to act responsibly and professionally."
  
  K.E.L. Title's explanation drew criticism, however, from one long-time title insurance lawyer.
  
  "If a single agency is able to create enough fraud to bring down an entire company, you've obviously got a huge internal problem," said Cliff Shepard, a veteran real estate lawyer who is also legal counsel for the city of Maitland. "It tells you there weren't adequate controls in place to red-flag this kind of thing in your audits; otherwise, they wouldn't be in this mess."

For the story, see KEL partners' title insurer halts business.

Classic "Who's On First?" Battle Pits Local NY Bank, Synagogue Over Lien Priority On Failed Development; Dispute Centering Around Forged Payoff Letter Claws Title Insurer Into Fray

In Rockland County, New York, the Times Herald Record reports:

• Empire State Bank in the Town of Newburgh has been battling an unlikely foe in court: Rabbi Harvey Waxman, the leader of one of the oldest synagogues in a Rockland County Orthodox Jewish enclave.
  
  Waxman and bank executives are fighting over a failed subdivision in Rockland County valued at nearly $2 million. The synagogue and the bank both claim their liens on the 11.5-acre property should be first in line for proceeds from its sale.
  
  The bank, working with another financial institution, and the synagogue, Congregation Beth Medrosh of Monsey, each loaned more than $1 million to developer Tovi Mermelstein, who has built homes and rehabilitated apartments across Rockland, Orange and Sullivan counties.
  
  Devastated by the downturn in the real estate market, Mermelstein stopped making payments on his loan to Empire State Bank by 2009. Rather than face foreclosure, he turned over the land to the bank.  As Mermelstein washed his hands of the failed project, Empire State Bank was just beginning a complex legal battle.
  
  Waxman's synagogue, Congregation Beth Medrosh, started its own foreclosure action in early 2010. Court proceedings took a turn for the bizarre with the appearance of a faxed letter — an apparent forgery — claiming the synagogue's loan had been paid off.
  
  Empire State Bank relied on the letter in making its loan, and later, in taking back the deed to the land. With the letter in hand, the bank filed a lawsuit charging its title company and a real estate firm with fraud and negligence, and seeking more than $8 million in damages. Appellate judges in Brooklyn are now weighing the facts of the case.

***

• Waxman made the loan [for $1.2 million to developer Mermelstein on behalf of the synagogue in November, 2005] under a provision of Jewish law called Heter Iska, according to his deposition. Some Jews believe religious law bars them from paying loan interest to one another, but Heter Iska provides a loophole that treats loans as investments. It's the standard way of structuring business deals in the Hasidic community, Mermelstein said.
  
  Mermelstein repaid $450,000 to the synagogue in 2006, and Waxman released a lien the congregation held on another of his properties, but not the Chestnut Ridge land, according to court papers. Mermelstein still owed the synagogue $750,000.
  
  But, a mysterious fax on what appeared to be synagogue letterhead — albeit with the word "Congregation" misspelled — led Empire State Bank and its title insurance agent to believe otherwise. The letter states that Mermelstein had paid off the $750,000 balance owed to Congregation Beth Medrosh.

***

• Empire State, working with an undisclosed partner bank, extended Mermelstein a line of credit totaling $3.4 million, with an interest rate of about 6 to 7 percent, Mermelstein said. The title agent and Empire State relied on the faxed letter they believed to have come from Waxman's congregation.
  
  Empire State took the lead in administering the loan because the partner bank was not local and construction projects need close supervision, Guarnieri said. Empire State was lending less than 20 percent of the money.
  
  In a key — and routine — step in making the loan, Empire's title insurance agent, Sky Abstract in Spring Valley, assured bank executives the bank had the priority position on the property, said co-CEOs Tony Costa and [Philip] Guarnieri. Having the priority, or first, position ensures a lender is made whole first if the borrower defaults.
  
  With the faxed letter in hand, and assurance they had first position, Empire State secured $3.4 million in title insurance, which is meant to insure a mortgage in case an abstract company like Sky makes a mistake in a records search and misses a lien.

***

• By 2009, [developer Mermelstein] stopped making payments. Empire State started to foreclose and then, instead of waiting out a process that could take three to four years, took back the deed to the property.
  
  In early 2010, two months after Empire State took over the property, the congregation began its own foreclosure proceeding, and named Empire State Bank as a defendant.
  
  The bank shot back with a lawsuit seeking damages of more than $8 million from Sky Abstract and Terrace Capital, alleging fraud and negligence. Contrary to the claim in the letter, Mermelstein's mortgage to the congregation hadn't been satisfied.
  
  To date, no one has taken responsibility for the faxed letter, which is signed by an "I. Unger, Treasurer."
  
  Rabbi Waxman's wife, Esther, said in court documents that she has been the treasurer for at least 10 years and has no idea who "I. Unger" might be. She added that the letter was faxed at 9:30 p.m. on a Friday, the Jewish Sabbath. On that day, Orthodox Jews, like her and her husband do not work, so they would not have faxed the letter.
  
  It was faxed from Terrace Capital, a Manhattan real estate firm Mermelstein had worked with on the project, according to the letter's fax stamp. A Terrace Capital lawyer said the firm had no knowledge of the letter.
  
  Rabbi Waxman said in a deposition that the letter did not come from his synagogue, and Mermelstein, who also observes the Sabbath, pointed his finger at another party.
  
  Costa admitted in a phone interview that the letter was "obviously fraudulent." He suggests it was yet another organization's "chicanery."
  
  "If I did the letter, I would have at least spelled the name right," Mermelstein said.
  
  Waxman and representatives of Sky Abstract declined to comment.
  
  A judge last year dismissed most of the bank's lawsuit against Sky Abstract and Terrace Capital, explaining that Empire State Bank had the means to determine whether or not the letter was legitimate, but didn't. The bank's attorney, Jonathan Nelson, appealed the decision to the Appellate Division. A decision is expected in the next few months.

For the story, see Bank, synagogue clash over 11.5 acre, $2 million property (Both say liens should be 1st).

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

Unrecorded Contracts For Deed Continue To Leave Poor, Unsophisticated Property Owners (& Their Heirs) In Texas Colonias Vulnerable

From a news release from the University of Texas at Austin:

• As many as 1 in 5 families who recently bought land on which to build their homes may have bought using an unrecorded “contract for deed”— one that does not confer formal title to their properties, according to a major report on the titling practices in Texas colonias and other informal settlements released [] by researchers at The University of Texas School of Law and Lyndon B. Johnson School of Public Affairs.
  
  Researchers visited more than 1,300 households on the border and in Central Texas counties to examine whether and how low-income buyers in Texas’ poorest communities are obtaining title to their land, with a specific focus on the use of contract for deed.

***

• Concerned with the rampant use of contracts for deed in land sales to low-income homebuyers in colonias, Texas lawmakers intervened in the mid-1990s to afford buyers greater protections. This report is one of the first major studies to chronicle land transaction practices in colonias since the passage of the legislation, and highlights the need for further study. The report also examines land transaction practices in similar settlements located in Central Texas counties.

Among the report’s key findings:

1. Since the passage of the legislative reforms of contracts for deed, most developers have steered away from using such contracts. However, in some newer low-income subdivisions and informal housing developments, developers and investors are quickly repossessing land from buyers with foreclosure rates that far surpass national rates. Buyers in these newer developments are also living in some of the poorest housing conditions in the state.
   
2. Contracts for deed continue to be used frequently in land sales by former residents. These sales are very informal and continue to place the buyers in a vulnerable position.
   
3. Texas is likely to see a rise in title problems in colonias and informal settlements caused by families inheriting property outside of the probate system. Nine out of 10 households in the study area do not have a will.(1)

For the news release, see Contracts for Deed Alive and Well in Texas, New Study Shows.

For the full report, see ―The Contract for Deed Prevalence Project (go here for report summary).

(1) Apparently, it's not all that uncommon in Texas to sell property using unrecorded contracts for deed. With regard to situations where a seller who sells property using this approach, and who (and without the knowledge of the buyer) subsequently either encumbers the property with a mortgage or sells the property to a second buyer, it should be noted that, in Texas (as well as in plenty of other states), the failure by the first buyer to record his/her instrument of ownership in the real property (while not exactly the preferred practice) is not necessarily fatal to his/her ownership claim against subsequent purchasers and encumbrancers who record their later-acquired interests where the first buyer under the unrecorded instrument takes possession of the premises and, provided that certain requirements are met.

Said possession is sufficient to impart constructive notice to the world of the possessor's interest in the property, and thereby provides some measure of legal protection against subsequent purchasers and encumbrancers who come along and record their subsequently-acquired interests in the same property.

In essence, and contrary to popular opinion, such possession has the effect of 'recording' the unrecorded instrument of said ownership.

For more on what this means, see Madison v. Gordon, 39 S.W.3d 604; 2001 Tex. LEXIS 5; 44 Tex. Sup. J. 410, (Tex. 2001), where the Texas Supreme Court refers to their earlier ruling in Strong v. Strong, 128 Tex. 470, 98 S.W.2d 346, 350 (1936) for the state law applicable in these circumstances:

• In Strong, we described the kind of possession sufficient to give constructive notice as "consist[ing] of open, visible, and unequivocal acts of occupancy in their nature referable to exclusive dominion over the property, sufficient upon observation to put an intending purchaser on inquiry as to the rights of such possessor." Strong, 98 S.W.2d at 350. Possession that meets these requirements—visible, open, exclusive, and unequivocal possession—affords notice of title equivalent to the constructive notice deed registration affords. Strong, 98 S.W.2d at 348.

See In re Hayes, 2004 WL 2926006 (W.D. Tx. 2004) (apparently, an unreported case) for an example of how one unwitting homeowner who failed to obtain and record his deed was able to save his butt against a foreclosure of a mortgage that, unbeknownst to him, was placed on the premises by the prior owner (and, ostensibly, the still- owner of record as reflected in the local deed/land document registry) after he (the unwitting homeowner) bought his home and took possession thereof. The lower Federal court's ruling in In re Hayes gives a reasonably detailed analysis on the Texas law involving the effect of the bona fide purchaser doctrine to subsequent purchasers and mortgage lenders where one is in possession of land under an unrecorded instrument and how it was applied to the facts in this case

In a much less extensive (ostensibly rubber-stamped) per curiam opinion, a Federal appeals court subsequently affirmed the trial court's ruling. Bank of Am., N.A. v. Schwartz (In re Hayes), 194 Fed. Appx. 217; 2006 U.S. App. LEXIS 21139 (5th Cir. 2006).

For more on Texas law on this issue, see footnote 2 at More Contract For Deed Horror Stories - Texas Homebuyers Lose Home To Foreclosure Despite Making All Payments As Seller Pockets Cash & Stiffs Bank.

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

'Rogue' Foreign Pipeline Construction Outfit 'Invades' Lone Star State; Creates Uproar By Using Private Condemnation To Allegedly Bully Texans, Trampling Over Their Property Rights

In Sumner, Texas, The Associated Press reports:

• Oil has long lived in harmony with farmland and cattle across the Texas landscape, a symbiosis nurtured by generations and built on an unspoken honor code that allowed agriculture to thrive while oil was extracted. Proud Texans have long welcomed the industry because of the cash it brings to sustain agriculture, but they also see its presence as part of their patriotic duty to help wean the United States off "foreign" oil.
  
  So the answer to companies that wanted to build pipelines has usually been simple: Yes. Enter TransCanada.
  
  As the company pursues construction of a controversial 1,179-mile-long cross-country pipeline meant to bring Canadian tar sands oil to South Texas refineries, it's finding opposition in the unlikeliest of places: oil-friendly Texas, a state that has more pipelines snaking through the ground than any other.
  
  In the minds of some landowners approached by TransCanada for land, the company has broken an unspoken code. Nearly half the steel TransCanada is using is not American-made and the company won't promise to use local workers exclusively; it can't guarantee the oil will remain in the United States.
  
  It has snatched land. Possibly most egregious: They've behaved like arrogant foreigners, unworthy of operating in Texas.
  
  To fight back, insulted Texas landowners are filing dozens of lawsuits, threatening to further delay a project that has already encountered many obstacles. Others are allowing activists to go on their land to stage protests. Several have been arrested.
  
  "We've fought wars for it. We stood our ground at the Alamo for it. There's a lot of reasons that Texans are very proud of their land and proud when you own land that you are the master of that land and you control that land," said Julia Trigg Crawford, who is fighting the condemnation of a parcel of her family's 650-acre Red'Arc Farm in Sumner, about 115 miles northeast of Dallas.
  
  Oil and agriculture have lived in peace in part because a one-time payment from a pipeline company or monthly royalties from a production rig can help finance a ranch or farm that struggle today to turn a profit from agriculture. The oil giants also respected landowners' fierce Texas independence, even sometimes drilling in a different yard or rerouting a pipeline to ensure easy access to the minerals below.
  
  TransCanada is different. For one, it has sought and received court permission to condemn land when property owners didn't agree to an easement.
  
  "This is a foreign company," Crawford said. "Most people believe that, as this product gets to the Houston area and is refined, it's probably then going to be shipped outside the United States. So if this product is not going to wind up as gasoline or diesel fuel in your vehicles or mine then what kind of energy independence is that creating for us?"
  
  Activists have handcuffed themselves to machinery. A group has moved into a grove of trees on a TransCanada easement. A 78-year-old great-grandmother, Eleanor Fairchild, whose late husband worked in the oil industry, spent a night in jail after trespassing — along with actress Daryl Hannah of "Splash" fame — on land condemned on her 425-acre farm. On Monday, eight others were arrested for their protest activities.
  
  TransCanada's pipeline, some landowners say, is more worrisome than those built by other companies because of the tar sands oil the company wants to transport. They point to an 800,000-gallon spill of mostly tar sands oil in Michigan's Kalamazoo River in 2010. It took Enbridge, the company that owns that pipeline, 17 hours to detect the rupture, and the cleanup is still incomplete.
  
  With a pipeline, landowners give up control of the land for a one-time check, risking a spill that could contaminate their land or water for years. It's a risk many are willing to take in exchange for cash -- to a point.
  
  Some say the risk of a spill now is too high to cooperate. Others want guarantees TransCanada will take full responsibility for a spill.
  
  Many just want respect.
  
  Most pipeline projects in Texas have been completed with an average of 4 percent to 10 percent of condemned land. TransCanada, however, has condemned more than 100 of the 800 or so tracts -- or about 12.5 percent -- of the land it needed to complete a 485-mile portion of the pipeline that runs through Texas.
  
  Many of the lawsuits in Texas are about TransCanada's "common carrier" status. This allows companies building projects benefiting the public to condemn private property. The Texas Supreme Court recently ruled if a landowner challenges a condemnation, the company must prove its project is for the public good.
  
  Crawford, whose family has denied other pipelines access to their land, argues that, since TransCanada's pipeline will have only one access point -- or a place where oil can get into the pipe -- at a hub in Cushing, Okla., it does not qualify for the status, which requires the pipeline be accessible in Texas.
  
  "This is not about the money," said Crawford, who notes that TransCanada's final offer of $20,000 amounts to about $1 a year over 60 years, less time than her family has been on the land. "This is about the right of a landowner to control what happens on their land."
  
  David Dodson, a TransCanada spokesman in Houston, said the company has agreements with 60,000 landowners in North America, hundreds of them in Texas. Many have been reached easily, he said. The problems in Texas, he believes, may just be a sign of the times.
  
  "These days, anyone who attempts to build a linear infrastructure project, Texas, wherever it is, it doesn't matter, is facing increased opposition," Dodson said.
  
  David Holland's 3,850-acre rice farm and ranch in southeast Jefferson County is littered with nearly 50 pipelines. In the five years since he was first approached by TransCanada, he said he has signed contracts with two other companies. He insists he would do the same for TransCanada -- if they offered him fair value for his 10.5 acres.
  
  Until now, Holland said, he and other landowners had given pipeline companies a roughly 20 percent discount because it was cheaper than fighting Big Oil. TransCanada offered him more than $400,000 for his land. But that, he said, was about $200 less for every 16.5 feet than he had previously received. After Holland declined, the court allowed TransCanada to take the land for $13 for every 16.5 feet -- totaling slightly more than $20,000.
  
  "Every landowner in the state is furious at them," he said.
  
  Some landowners have reached agreements without a problem. Henry Duncan, whose 200-acre farm is across the road from the Crawford's, wouldn't say how much TransCanada paid, but feels he was fairly compensated for his seven acres. He does wish they would use American-made steel for the pipe and hire local workers. He, too, feels they bullied landowners, but is realistic.
  
  Pipeline money helps keep his 100 head of cattle roaming the pastures. It could help him and his wife as they age. "To be quite honest, I'd like to see another one come through because they pay good," Duncan said.

For the story, see Texas-size rarity: Landowners opposing Big Oil.

Dodger Hurler 'Pinch Hits' For Feds, Wings 'Brushback' Pitch At Energy Outfit That Allegedly Bulldozed Wildlife Habitat On His 7,000 Acre S. Texas Ranch When Clearing Corridor For Pipeline Construction

In Laredo, Texas, the San Antonio Express News reports:

• Los Angeles Dodgers pitcher Josh Beckett is suing an Eagle Ford Shale pipeline company for destroying an endangered ocelot habitat on his ranch in La Salle County.
  
  According to the lawsuit, filed Tuesday in Laredo, Eagle Ford Midstream and its parent company Midstream, told the U.S. Fish and Wildlife Service, which is charged with protecting the endangered species, there was no ocelot habitat on Beckett's 7,000 acre South Texas ranch.
  
  The pipeline company then continued with survey work for constructing the pipeline despite ranch representatives giving it an alternative route and letting it know it would be sued in federal court if it continued.
  
  The lawsuit maintains the 15- to 30-pound nocturnal cat, which is famous for its spotted fur and reclusive behavior, travels along the river corridors and tributaries that cross the ranch. There are believed to be only 50 ocelots left living in the United States.
  
  The notice of intent to sue stated that “multiple big cat tracks” were located and photographed as recently as June, and Beckett observed ocelots on his property as recently as November.
  
  Michael Tewes, a large-cat expert from the Caesar Kleberg Wildlife Research Institute at Texas A&M University-Kingsville, visited the ranch after the pipeline corridor was cleared and identified ocelot habitat, including where the pipeline would be built.
  
  “They started bulldozing for 10 days,” said environmental lawyer Jim Blackburn, who is representing Beckett Ventures, which owns the Herradura Ranch. “I think it is an arrogant move of a company that is relatively dismissing of federal law.” The company declined to comment.
  
  If the company is found to have destroyed habitat and harmed the species, it will be in violation of federal law and could face fines and be forced to do mitigation for harming the ocelot.
  
  Beckett, a 12-year major league veteran, is a two-time World Series champion and was named World Series MVP in 2003. He was born in Spring and is an avid deer hunter, winning the Muy Grande contest for deer hunting in 2002. Nolan Ryan has won the same award.

Source: Dodgers MVP sues Eagle Ford Shale over ocelots.

Battles Between Texans, Energy Companies Continue; Landowner Claims Trespass; Pipeline Company Alleges Encroachment

In Tyler, Texas, The Southeast Texas Record reports:

• An Elkhart woman filed a lawsuit claiming a gas pipeline company is trespassing on her property when attempting to reach its gas pipeline easement. Mildred Brown filed suit against Gulf South Pipeline Co. on Sept. 11 in Anderson County District Court. The defendant removed the case to the Eastern District of Texas, Tyler Division on Oct. 12.
  
  Brown is the owner of estate in the Lake Road Addition in the city of Elkhart. In October 2010, the defendant demanded that Brown move a building located on her property because it encroached on the company’s gas pipeline easement running across her property.
  
  Brown states she was unaware of the pipeline as there were no visible markers or signs of a pipeline being present. According to the lawsuit, Gulf South Pipeline came upon Brown’s property to clean brush and trees from the easement and only then did markers become visible.
  
  The defendant is accused of trespassing on plaintiff’s property by the continued use, maintenance and operation of a pipeline.
  
  The plaintiff is asking the court for an injunction against defendant’s trespass and for an award of damages for the loss of use of her property, loss of market value of her property, and loss of profits from a business that was conducted on the property, interest and court costs.

Source: Gas pipeline company sued for trespass by Elkhart woman.