Thursday, May 30, 2013

Ohio Supremes: No Foreclosure Sale 'Do-Overs' When Negligent Banksters Fail To Attend Public Auction & 3rd Party Winning Bidder Scores Property

In Columbus, Ohio, The Toledo Blade reports:
  • Banks and other mortgage lenders in Ohio were put on notice Tuesday: if you don’t attend foreclosure sales, you can’t rescind the foreclosure and do it over.

    In a unanimous opinion, the Ohio Supreme Court reversed a decision by the 6th District Court of Appeals that upheld a ruling in Wood County Common Pleas Court that permitted Countrywide Home Loans Serving to voluntarily dismiss a foreclosure on a Perrysburg home after the property was sold at sheriff’s sale.

    Countrywide representatives had failed to attend the sale, where the property was sold to a third party, so the lender dismissed the complaint before the sale was confirmed. Soon after, Countrywide re-filed the foreclosure action.

    “To grant a lender the right to dismiss an action after a trial court has issued what it had indicated was a final judgment, would lead to the untenable result that an unhappy lender could simply wait until after the sheriff’s sale has occurred, decide that the sale price was too low, and then dismiss the case in order to get a second bite at the apple,” Justice William O’Neill wrote. “This flies in the face of the general policy that judicial sales have a certain degree of finality.”

    John P. Lewandowski, an attorney for homeowners Michael and Joann Nichpor of Perrysburg, said the foreclosure action against his clients is still pending, but the high court’s ruling accomplishes two things.

    “It clarifies the rules a bank must follow, and it allows a third party to bid on a property at a sheriff’s sale with confidence, without fear a bank may be able to do this in the future,” he said.

    Attorney Gary Sommer, who also represents the Nichpors, was encouraged by the ruling.

    “One of the reasons the Supreme Court got interested in this is that there is a plethora of foreclosure actions in our county and throughout the state so it is a live topic and it does occupy a lot of the court’s docket,” he said.

    In cases like this, where the lender missed the sheriff’s sale and so missed the opportunity to bid on the property, he said, “There were different results depending on what part of the state you were in. Some counties would allow banks that failed to go to the sheriff’s sale to take a do-over, and in other counties the court would say, ‘No. You don’t get a do-over.’”

    Andrew C. Clark, an attorney for Countrywide, could not be reached for comment Tuesday.
Source: Foreclosure ‘do-overs’ rejected (Action can’t be dismissed if lenders miss sale, court rules).

For the ruling of the Ohio Supreme Court, see Countrywide Home Loans Servicing v. Nichpor, Slip Opinion No. 2013-Ohio-2083 (May 28, 2013).

For the court's press release, see Supreme Court: Foreclosure Action May Not Be Dismissed Under Civil Rule After Court Enters Judgment Granting Foreclosure, Order of Sale.

Bankster Moves Forward With State Court Judicial Foreclosure In Case Where Constitutional Challenge To Colorado's Non-Judicial/Public Trustee Proceeding Remains Open; Judicial Review-Evading Bankster To Federal Judge: 'You Must Dismiss This Action - The Case Is Moot!'

In Denver, Colorado, The Denver Post reports:
  • Amid confusion over whether a federal judge can still decide if an Aurora woman's constitutional rights are violated by Colorado foreclosure laws, U.S. Bank has filed a lawsuit in state court to take the house.

    A flurry of documents filed in the federal lawsuit Lisa Kay Brumfiel brought against the bank and some of the state's top foreclosure lawyers indicate that a giant question mark remains: whether Colorado foreclosure law violates the 14th Amendment right to due process and whether a federal judge can still take on the issue even if it doesn't affect Brumfiel anymore.

    U.S. Bank, the trustee for the investment trust that bought Brumfiel's note shortly after she signed the loan in 2006, argues that the entire issue is moot since it dropped its public-trustee case against her.

    And even though U.S. Bank filed a lawsuit Thursday in Arapahoe County District Court to take the house, Brumfiel's challenge involved only the public-trustee foreclosure process.

    While U.S. District Judge William J. Martínez last week agreed that at least one matter was resolved — and issued a permanent injunction against the bank from starting a new public-trustee foreclosure against Brumfiel — he indicated the constitutional matter remained unresolved.

    That came May 14 in an order allowing a pair of advocacy groups — the Colorado Center on Law and Policy and the Colorado Progressive Coalition — to file a brief, called an amicus curiae, in support of Brumfiel's constitutional argument.

    "The court has not issued any decision regarding the constitutional questions about which (the groups) seek to intervene," Martínez wrote in allowing the briefs. There remain "constitutional questions at issue in this case," he wrote.

    The groups filed the 19-page brief May 20 outlining how the state's public-trustee process is fraught with constitutional pitfalls.

    U.S. Bank on Thursday filed a response that simply said the issue is dead — it canceled the public-trustee foreclosure.(1) Brumfiel has said in another filing that thousands of Coloradans facing foreclosure are subject to the same problems, although she stopped short of asking Martínez to stop all public-trustee foreclosures until her case is decided.

    "Plaintiff's constitutional challenges to the Rule 120 public trustee foreclosure process are moot," U.S. Bank said in a brief filed with the court.

    Attorney Larry Castle, whose law firm filed the foreclosure against Brumfiel and helped draft the law in question, said in a court filing that Brumfiel "cannot be harmed by the process of which she complains."

    At issue is a state court hearing, known as a Rule 120 for the procedure that governs it, in which a judge signs the final order for a county public trustee to auction a piece of property, usually a house.

    Brumfiel challenges the law that governs the Rule 120 process, saying a bank's right to foreclose is never firmly established, which is a requirement of due process. Instead, a lawyer can sign a statement declaring that his client, usually a bank or other lender, owns the note and deed of trust but need only provide a photocopy.
For the story, see Constitutionality question in Colorado foreclosures remains open.

(1) From the bankster's 5-page response to the 19-page amicus brief filed by the Colorado Center on Law and Policy and the Colorado Progressive Coalition:
  • [T]he constitutional issues addressed by the Amici Brief are not justiciable in this matter.

    There is no longer any case or controversy regarding the constitutionality of the public trustee foreclosure process under C.R.S. § 38-38-101 or C.R.C.P.120 (“Rule 120 Public Trustee Foreclosure”) that affects Plaintiff.

    Each of Plaintiff’s nine causes of action has been rendered moot by: (1) Trust’s withdrawal of its Rule 120 Public Trustee Foreclosure against Plaintiff as affecting the Property, and (2) the Trust’s consent to a permanent injunction prohibiting any future Rule 120 Public Trustee Foreclosure against Plaintiff under the operative Note and Deed of Trust affecting the Property. See Doc. 126 at 9 (capitalized terms defined in Doc. 126).

    Consequently, and with no case or controversy remaining, “the federal court must dismiss the action for want of jurisdiction.” Jordan v. Sosa, 654 F.3d 1012, 1023 (10th Cir. 2011) (internal quotation marks and citations omitted); see also Doc. 126 at 6-9 (fully incorporated herein by this reference).

-------------------------------------------
Editor's Note: Not surprisingly, in its brief, the bankster failed to address the voluntary cessation doctrine (or any of the 10th Circuit Court of Appeals cases - the federal appeals court that would hear any appeal in this litigation - recognizing the existence of the doctrine), much less why it is inapplicable here. I suspect that the amici will respond to the bankster's assertion that the case is moot by raising this issue.

See United States v. WT Grant Co., 345 US 629 (1953), in which the U.S Supreme Court made these comments regarding the 'voluntary cessation doctrine' and its effect in making a case moot, particularly in a case where there is a public interest in having the legality of the challenged practice settled:
  • Both sides agree to the abstract proposition that voluntary cessation of allegedly illegal conduct does not deprive the tribunal of power to hear and determine the case, i. e., does not make the case moot. United States v. Trans-Missouri Freight Assn., 166 U. S. 290 (1897); Walling v. Helmerich & Payne, Inc., 323 U. S. 37 (1944); Hecht Co. v. Bowles, 321 U. S. 321 (1944).

    A controversy may remain to be settled in such circumstances, United States v. Aluminum Co. of America, 148 F. 2d 416, 448 (1945), e. g., a dispute over the legality of the challenged practices. Walling v. Helmerich & Payne, Inc., supra; Carpenters Union v. Labor Board, 341 U. S. 707, 715 (1951).

    The defendant is free to return to his old ways.[4] This, together with a public interest in having the legality of the practices settled, militates against a mootness conclusion. United States v. Trans-Missouri Freight Assn., supra, at 309, 310.
See also, ACLUM v. Conference of Catholic Bishops, 705 F. 3d 44 (1st Cir. January 15, 2013) (discussing the 'voluntary cessation doctrine'  which provides for an exception to mootness):
  • The voluntary cessation exception "traces to the principle that a party should not be able to evade judicial review, or to defeat a judgment, by temporarily altering questionable behavior." City News & Novelty, Inc. v. City of Waukesha, 531 U.S. 278, 284 n. 1, 121 S.Ct. 743, 148 L.Ed.2d 757 (2001).

    This is to avoid a manipulative litigant immunizing itself from suit indefinitely, altering its behavior long enough to secure a dismissal and then reinstating it immediately after. See Already, LLC v. Nike, Inc., ___ U.S. ___, ___, 133 S.Ct. 721, ___ L.Ed.2d ___, 2013 WL 85300, No. 11-982, slip op. at 4 (U.S. Jan. 9, 2013); Brown, 613 F.3d at 49; see also United States v. W.T. Grant Co., 345 U.S. 629, 632, 73 S.Ct. 894, 97 L.Ed. 1303 (1953) (noting that if a court declares the case moot, "[t]he defendant is free to return to his old ways").

    As the Supreme Court stated last term, "[s]uch ... maneuvers designed to insulate a decision from review ... must be viewed with a critical eye" and, as a result, "[t]he voluntary cessation of challenged conduct does not ordinarily render a case moot." Knox v. Serv. Emps. Int'l Union, Local 1000, ___ U.S. ___, 132 S.Ct. 2277, 2287, 183 L.Ed.2d 281 (2012) (citation omitted).

    However, even in circumstances where the voluntary cessation exception applies, a case may still be found moot if the defendant meets "the formidable burden[[9]] of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur." Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 190, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000) (citing United States v. Concentrated Phosphate Exp. Ass'n, Inc., 393 U.S. 199, 203, 89 S.Ct. 361, 21 L.Ed.2d 344 (1968)); Parents Involved in Cmty. Sch. v. Seattle Sch. Dist. No. 1, 551 U.S. 701, 720, 127 S.Ct. 2738, 168 L.Ed.2d 508 (2007).

Federal Appeals Court OKs Fannie, Freddie Transfer Tax Dodge On Conveyances Of Foreclosed Homes; 6th Circuit Shreds Local Taxing Authorities' Position With Straightforward, Common-Sense Application Of Plain Language In Relevant Statute

From a Justia.com Opinion Summary:
  • The Michigan State Real Estate Transfer Tax, MICH.COMP.LAWS 207.521, and the County Real Estate Transfer Tax, section 207.501, impose a tax when a deed or other instrument of conveyance is recorded during the transfer of real property.

    The tax is imposed upon “the person who is the seller or grantor.”

    State and county plaintiffs sought to recover transfer taxes for real property transfers recorded by Fannie Mae, a corporation chartered by Congress to “establish secondary market facilities for residential mortgages,” in order to “provide stability in the secondary market for residential mortgages,” and “promote access to mortgage credit throughout the Nation,” 12 U.S.C. 1716; Freddie Mac, also a corporation chartered by Congress for substantially the same purposes; and the Federal Housing Finance Agency, an independent federal agency, created under the Housing and Economic Recovery Act of 2008, 12 U.S.C. 4617, which placed Fannie and Freddie into conservatorships, 12 U.S.C. 4617(a)(2).

    When Congress created defendants, it expressly exempted them from “all” state and local taxes except for taxes on real property. The district court entered summary judgment in favor of the plaintiffs, reasoning that “transfer taxes are excise taxes, not taxes on real property.

    The Sixth Circuit reversed.(1)
Source: Opinion Summary: Genesee Cty, v. Fed. Hous. Fin. Agency.

For the ruling, see County of Oakland v. Federal Housing Finance Agency, Nos. 12-2135/2136 (6th Cir. May 20, 2013.

(1) In approving the transfer tax dodge by Fannie, Freddie, and the Federal Housing Finance Agency, the 6th Circuit shredded the arguments by the local taxing authorities with a basic, common-sense approach to reading and applying the relevant statutes:
  • The statutes at issue here plainly state that defendants are exempt from "all taxation" imposed by the state or local taxing authority. See 12 U.S.C. § 1723a(c)(2) (Fannie Mae's charter); § 1452(e) (Freddie Mac's charter); § 4617(j)(2) (Agency exemption).

    The statutes do not define "all" or "taxation." Where terms are undefined, "[t]he everyday understanding should count for a lot," and we look to "regular usage to see what Congress probably meant." Lopez v. Gonzales, 549 U.S. 47, 53 (2006).

    "Taxation" is the "imposition or levying of taxes;" "the action of taxing or the fact of being taxed." Oxford English Dictionary 679, vol. XVII (2d ed. 1989). As employed in the exemption statutes, "all" is an adjective describing "[t]he entire or unabated amount or quantity of; the whole extent, substance, or compass of; the whole." Oxford English Dictionary 324, vol. I (2d ed. 1989).

    Accordingly, the common sense, non-technical interpretation of "all taxation" has to include the State and County real estate transfer taxes here, which impose a tax on the "seller or grantor" when a deed or other instrument of conveyance is recorded during the transfer of real property. MICH. COMP. LAWS § 207.502; § 207.523.

    In other words, a straightforward reading of the statute leads to the unremarkable conclusion that when Congress said "all taxation," it meant all taxation. Lopez, 549 U.S. at 53; see also, Sander v. Alexander Richardson Inv., 334 F.3d 712, 716 (8th Cir. 2003) ("In short, `all' means all.").

    The statutes' text is revealing in another way. In granting each of the defendants' an exemption, Congress explicitly created a carve-out from the "all taxation" language by permitting taxes on real property.

    But Congress did not provide a similar carve out for the type of transfer taxes at issue here. "When Congress provides exceptions in a statute, it does not follow that courts have authority to create others. The proper inference . . . is that Congress considered the issue of exceptions and, in the end, limited the statute to the ones set forth." United States v. Johnson, 529 U.S. 53, 58 (2000).

    Accordingly, because the statutes are clear, we are not in a position to second-guess Congress and create a new exception in the statute for state and county real estate transfer taxes.
***
  • Contrary to this commonsense reading and to the cases supporting it, plaintiffs employ a more arcane line of reasoning in an effort to persuade us that the plain language of the statute should not control here. They argue that when Congress said "all taxation" in the exemption statutes, it did not really mean all taxation. Instead, they claim that Congress used the phrase "all taxation" as a term of art—a term with a definition that does not include real estate transfer taxes. [...]
-------------------------------------
Editor's Note: In hindsight, and based on the federal appeals court analysis of the applicable statute, this litigation appears to have been one gigantic waste of time for the local taxing authorities bringing the case.

2nd Mortgage Holder Screws Itself When Making Loan Without First Inquiring As To Existence Of Prior Undisclosed Loans Secured By Existing 1st Mortgage Containing Cross-Collateralization Clause Appearing Conspicuously On Face Of Instrument

From a Justia.com Opinion Summary:
  • Peoples Bank loaned Debtors $214,044, secured by a mortgage recorded in 2004 ["Peoples Loan 1].

    In 2008, Debtors obtained a $296,000 construction loan from Banterra, secured with a second mortgage on the same property.

    Banterra was aware of the first mortgage, but did not know was that in 2007, Debtors obtained a second loan from Peoples, for $400,000, secured by another mortgage on a different piece of property. ["Peoples Loan 2"]

    The 2004 Peoples mortgage contained a cross-collateralization provision, stating that “In addition to the Note, this Mortgage secures all obligations … of Grantor to Lender … now existing or hereafter arising,” and a provision that “At no time shall the principal amount of the Indebtedness secured by the Mortgage … exceed $214,044.26 … “Indebtedness” … includes all amounts that may be indirectly secured by the Cross-Collateralization provision.”

    In 2010 Debtors filed a Chapter 11 bankruptcy petition. The balance due on Peoples 2004 loan [Peoples Loan 1] was then $115,044.26.

    Debtors received permission and sold the property for $388,500.00. Out of these proceeds, Peoples claimed the balance due on the 2004 loan plus partial payment of the 2007, up to the cap. The Bankruptcy Court found in favor of Peoples.

    The district court reversed.

    The Seventh Circuit reversed, upholding the “plain language” of the cross-collateralization agreement.(1)
Source: Opinion Summary: Peoples Nat'l Bank v. Banterra Bank.

For the court ruling, see Peoples Nat'l Bank v. Banterra Bank, No. 12-3079 (7th Cir. May 20, 2013).

(1) Some of the 7th Circuit's analysis and reasoning in applying the law of Illinois (the state in which the deal took place) as to why Banterra, the 2nd mortgage holder, had an obligation to discover the existence of the undisclosed People's Loan 2 when making its secured loan to Debtors follows:
  • It is undisputed that Banterra did not have actual notice or knowledge of Peoples Loan 2. It is similarly undisputed that Banterra did have actual notice and knowledge of Peoples Loan 1, the mortgage securing it, and the cross-collateralization clause that it conspicuously[1] contained. The dispute is over the legal significance of these two facts.
***
  • Like record notice, inquiry notice is essentially a form of constructive notice. See Pelfresne v. Village of William Bay, 965 F.2d 538, 542 (7th Cir. 1992); National Family Ins. Co. v. Exchange Nat. Bank of Chicago, 474 F.2d 237, 241-42 n.1 (7th Cir. 1973); 112 Am. Jur. Proof of Facts 3d 419 § 12 (2013) (collecting cases); 1 PATTON AND PALOMAR ON LAND TITLES § 12 (3d ed. 2012) (collecting cases).

    Record notice rules treat a subsequent creditor with no actual knowledge of a prior interest as having actual notice if the prior interest was properly recorded. A subsequent creditor receives no quarter for having failed to search the relevant real estate records, so long as the interest was properly recorded. Inquiry notice operates under a similar principle.

    Inquiry notice describes the situation where the transferee has been made aware of facts or circumstances from which the existence or possibility of a prior claim might reasonably be inferred.

    If so, the purchaser then has a duty to verify or dispel the inference through further inquiry.

    If he fails to make inquiry, he is nonetheless chargeable with knowledge of facts that a diligent inquiry would have disclosed, the same as if he had acquired actual knowledge of those facts. In re Shara Manning Properties, Inc., 475 B.R. 898, 906 (Bankr. C.D.Ill. 2010); see Smith v. Grubb, 402 Ill. 451, 464-65 (1949); 112 Am. Jur. Proof of Facts 3d 419 § 12 (collecting cases).

    Here, we find that the Bankruptcy Court correctly identified the dispositive question presented by these facts when it asked "whether actual notice of a cross-collateralization clause in a mortgage imparts inquiry notice as to the existence of other obligations that may be covered by the security instrument." In re Jones, 2011 WL 6140686, *8 (Meyers, Bankr. J.). On these facts, we hold that it does.

    Banterra concedes its actual notice of Peoples Loan 1 and the mortgage securing it. The cross-collateralization clause is conspicuously placed on the first page of the mortgage, discoverable with just a cursory review of the document. Id.

    The clause states expressly that, in addition to Peoples Loan 1, the collateral secured all debts of the grantor to the lender "now existing or hereafter arising."

    Of this Banterra was aware and "from [this] the existence or possibility of a prior claim might reasonably be inferred." Moreover, it is clear that a reasonable investigation would have disclosed this prior claim.[3]
***
  • The cross-collateralization clause expressly contemplates debts arising in the future, when Debtors may well have paid down some of the initial loan, creating room under the cap. Nothing in the case explains why this entirely plausible scenario (indeed, it is precisely what happened) should be outside the set of possible outcomes considered by anyone reading the document. Because it is self-evident that the parties intended that the amount of indebtedness under the initial loan would be paid down by Debtors over time, we cannot agree that setting the maximum amount of indebtedness equal to the amount of the initial loan "evidence[s] an intent that the mortgage not secure any other debt." Peoples Nationals Bank, 482 B.R. at 264.
***
  • Finally, as a matter of policy Banterra laments that the position we adopt today will chill lending and commerce, making it more difficult for third-party lenders like Banterra to confidently approve loans secured by property that has been cross-collateralized.

    As a general matter, we should think that prudent lenders would do well to exercise caution before accepting a second mortgage on real property that has been cross-collateralized. But the more salient response to Banterra's concern is that adopting its position will not in any event dispel the chilling effect—it will merely transfer it between the parties.

    A cross-collateralization clause makes a given security interest more valuable to the grantee. The position Banterra urges would reduce that value, shifting it away from the initial grantee and to prospective subsequent grantees.[5] In either case, one lender's incentive to lend is increased, while the other's is reduced. Between the two, however, only one outcome has the virtue of being consistent with the plain contractual language that the parties agreed upon, and we think it more sensible to allow sophisticated parties to contract as they wish. If cross-collateralization clauses are in the end too costly to borrowers, they need not agree to them.
------------------------------
In footnote 3 of the ruling, the appeals court reminds us that the duty to inquire in a case like this is limited to the making of 'reasonable inquiry':
  • It is undisputed that a name search of the Jefferson County land records would have revealed the existence of Peoples Loan 2. Banterra wonders skeptically whether, under Peoples' theory, the investigation required of one put on inquiry notice might entail searching records, not just in Illinois counties, but in every county in neighboring states as well.

    But the law requires reasonable investigation, not endless investigation, and a party allegedly on inquiry notice can rebut the argument by showing that a reasonable investigation did not yield discovery of the relevant information. Jesko v. American-First Title & Trust Co., 603 F.2d 815, 818-19 (10th Cir. 1979); 112 Am. Jur. Proof of Facts 3d 419 § 12 (2013) (collecting cases); 1 PATTON AND PALOMAR ON LAND TITLES § 12 (3d ed. 2012) (collecting cases).

    Ultimately, where to draw that line will be a question for the trier of fact. Here, however, the Bankruptcy Court found, and the parties do not dispute, that the investigation required to have discovered Peoples Loan 2 was within the bounds of reasonableness. See In re Jones, 2011 WL 6140686, *9.

Wednesday, May 29, 2013

Financial Powerhouses Flood Online Tax Lien Auctions With Bids From Tens & Hundreds Of Thousands Of Shell Companies, Driving Away Bona Fide Bidders; Anti-Competitive Practice? Will Somebody Please Call The Antitrust Feds???

In Fort Lauderdale, Florida, the South Florida Sun Sentinel reports:
  • Tax lien auctions are a little-known but juicy Florida financial market worth up to $1 billion a year. And, the Sun Sentinel has found, banks, hedge funds and other financial powerhouses have hit upon a way to game the system, squeeze out the little guy and gobble up most of the good deals.

    "I don't think it's fair; it's rigged," said Linda Kliston, of Plantation, a small-scale investor who, like many others in South Florida, finds she can no longer realistically compete.(1)

    Big banks are widely blamed for sending America's real estate market and economy into a tailspin beginning in 2007, and then receiving billions of dollars in government bailout loans. Now, some of these same financial heavyweights have found another way to turn the system, and Floridians who can't pay their taxes in time, into a profit center.
***
  • A bank CD might pay 0.26% interest a year these days. Florida tax liens guarantee a return nearly 20 times higher, and can generate annual returns of as much as 18%.

    For decades, these liens were part of some families' or individuals' investment portfolios, with the proceeds used to help fund retirements, vacations, kids' college tuition and other personal expenses.

    Then events coincided to rewrite the script. Uncertainly bred by the Great Recession made the financial returns on liens look extremely attractive to institutional investors, including banks that provide millions of dollars in credit to hedge funds seeking to buy liens. About the same time, tax collectors in Florida started selling the liens online.

    Those online auctions have come to be dominated by large financial institutions, which have dramatically increased their odds of winning by forming thousands, even hundreds of thousands, of proxy or shell companies to flood the auction, giving them a huge edge in tie bids where the winner is chosen by lottery.

    The gambit is legal under Florida law, but some question whether it's fair. The silly or preposterous names often given the dummy companies — "Yay for Tax Liens," "Pork Chop Sandwiches" and "Spiderman Corp." among them — strongly suggest their creators know there's something absurd about the whole process.

    "The majority of the smaller bidders are getting squeezed out or dropping out because they cannot effectively compete," complained Miami real estate agent Murry Diamond, 60, a longtime participant in South Florida tax auctions.

    "I'm one of the people they're driving out," Diamond said.
***
  • First, under Florida law, all liens are guaranteed to yield at least a 5 percent return to the buyer over the lifetime of the loan. That's even if the bidder won the lien by agreeing to accept only a quarter of 1 percent, the minimum bid allowed under state rules.

    Second, in online auctions, tie bids are broken by a random number generator, a computerized equivalent of how winning numbers are picked in the Florida Lottery.

    The result: big investors now all agree to accept the theoretical minimum return, and swamp the system with simultaneous bids to increase their chances at being picked.

    At first, firms created thousands of shell companies by applying for and receiving taxpayer ID numbers from the Internal Revenue Service. Then tens of thousands.

    Then came what Miami-Dade Tax Collector Fernando Casamayor calls the "nuclear arms race of bidder numbers."

    In Broward County the total of bidders went from 20,351 in 2010 to more than 1.1 million the following year.

    In Palm Beach County, the count zoomed from 64,877 to 2 million.

    In last year's property lien auction, Broward topped 2 million bidders. Five investment funds alone accounted for more than 1.4 million of them.

    Since the winning bid is now usually chosen at random, the process is akin to tossing the bouquet at a wedding with one bridesmaid having hundreds of thousands of proxies on hand to help her grab it.
***
  • In implementing their strategy for dominating Florida's tax lien market, institutional investors had an unwitting accomplice: the Internal Revenue Service.

    In the online bidding process, Florida counties require that each participant furnish a taxpayer identification number, which is considered adequate proof by local tax collectors that a business exists.

    The IRS issues those numbers at no cost. It's a closely guarded secret as to how certain firms were able to apply for and obtain tens and hundreds of thousands of ID numbers.

    Some in the industry devised an automated method to deluge the IRS with requests.

    "They identified a process that streamlined a common industry practice," said New York tax lien broker Tom McOsker, president of BloxTrade.

    Asked how his company created more than 200,000 sub bidders, each with its own IRS number, LienBase partner Joshua Schrager said: "We just work hard and work long hours."

    Shocked by the sheer volume of companies registering, Summerford said the Florida Tax Collectors Association questioned IRS officials about the firms' legitimacy, but got no response.

    "They were more concerned about simply running out of the numbers," he said.(2)

    The IRS's South Florida office declined to answer questions submitted by the Sun Sentinel about the process. On its web site, however, the government agency warns that taxpayer ID numbers "are issued for the purpose of tax administration and are not intended for participation in any other activities (e.g., tax lien auction or sales, lotteries, etc.)."
***
  • Last year, Miami-Dade County began requiring $5,000 refundable deposits from all individual bidders before the public sale began. At prior auctions, a deposit was demanded only from the parent company.

    Now, a firm with 450,000 dummy subsidiaries would have to plunk down $2.2 billion.

    Not surprisingly, Miami-Dade experienced a dramatic reduction in the number of bidders participating: from 1.7 million to about 64,400.

    "Is it fair? I don't know. If you have more money, you have more opportunities to register more bidders," said Casamayor, the county tax collector. "But it's as fair as we could have done it."

    Because of the change in IRS policy, even tax ID numbers have become a commodity to be bought and sold. According to Palm Beach County Tax Collector Anne Gannon, companies with a lot of the numbers are known to rent them to other would-be bidders.
For the story, see Sun Sentinel Investigation: Tax lien sharks use shell companies to squeeze out locals.

For a story follow-up, see Broward leaders order review of tax lien auction rules (Action follows Sun Sentinel's finding that system is stacked in favor of banks, hedge funds).

(1) According to the story, Kliston's husband and fellow investor, attorney Todd Kliston, feels that the local tax lien auctions have become unfair playing fields where a single bidder now can raise 200,000 paddles at once. In 2011, the Florida Tax Collectors Association has reportedly urged its members to take action to restore "integrity and fairness" to the system.

The Klistons are reportedly unsure if they will be participating. Over two decades, they reportedly invested in tax liens to save extra funds, helping to put their daughter through college. But now the odds have become very long, perhaps impossibly so, the story states.

"As far as we're concerned, it's illegitimate. It's not an auction anymore," Linda Kliston reportedly said.

(2) It may be that the Florida Tax Collectors Association (or any other interested party, for that matter) should contact the Antitrust Division of the U.S. Department of Justice and file a complaint. The practices described in the story sure sound like a pattern of collusive schemes among a few, big-money tax lien investors that appears to be eliminating bona fide competition at tax lien auctions.

Florida Supremes Kibosh Local Ordinance That Would Have Given Municipal Liens 'Superpriority' Status Over Mortgages, Even If Latter Were Earlier-Recorded

In Tallahassee, Florida, The Florida Current reports:
  • A local Palm Bay ordinance giving municipal liens on property superiority over mortgages was struck down Thursday by the Florida Supreme Court. However, a bill headed to Gov. Rick Scott’s desk could give local governments more power to address municipal liens.

    The court upheld a 5th District Court of Appeal decision nullifying the ordinance, which states that Palm Bay’s liens on a property rank higher than a mortgage lien, even if the mortgage was entered into before the municipal lien. In a 5-2 decision, the court stated state laws preempt such local ordinances.

    “Giving effect to the ordinance superpriority provision would allow a municipality to displace the policy judgment reflected in the Legislature’s enactment of the statutory provisions,” the ruling penned by Justice Charles Canady states. “A more direct conflict with a statute is hard to imagine.”

Flood Insurance Rate Increase To $28K/Year Threatens To Literally Blow Louisiana Family, Neighbors Out Of The Water!

In Bayou Gauche, Louisiana, WWL-TV Channel 4 reports:
  • Being next to the water is one of the pleasures of life in Louisiana. But alarm is spreading over the potential for massive flood insurance hikes.

    "It's my house," said tearful Bayou Gauche homeowner Lisa Taylor. Robert and Lisa Taylor choked back emotion at the potential huge flood insurance rate increase they face, even though they live in a neighborhood that has never flooded.

    "$28,554 and it can only mean one thing – foreclosure and bankruptcy,” Robert Taylor said. "I don't know what we can do," added Lisa, still crying. "We can't afford $28,000 a year."

    Robert Taylor gave 1,100 keys for homes and businesses that could be affected to Sen. David Vitter (R-La.) to take to Washington as area leaders fight the increases.

    "This is going to affect the real estate market, it is going to affect the banking industry," Jefferson Parish President John Young said. "This is un-American and this is something that we cannot stand for," exclaimed St. John Parish President Natalie Robottom. "People will have to abandon their homes, abandon their jobs," Lafourche Parish President Charlotte Randolph warned. "That is criminal," St. Charles Parish President V.J. St. Pierre said. "Losing is not an option with us. We have to be successful in this goal," noted Terrebonne Parish President Michele Claudet. "If nothing is done, it will be devastating, but I think something is going to be done," New Orleans City Council Member James Gray said.
***
  • Now Louisiana leaders are reaching out to other states to form a national coalition to fight the flood insurance hikes.

Pennsylvania AG, Mobile Home Park Operator Settle Suit Accusing Latter Of Stiffing Booted Residents On Buyout/Relocation Payments Due Under State Manufactured Home Community Rights Act, Violating State UDAP Statute

From the Office of the Pennsylvania Attorney General:
  • Attorney General Kathleen G. Kane announced [] the settlement of a case against Hilltop Mobile Home Park in State College, PA.

    Under the terms of the deal, the owners of the park will pay $26,700 to the Commonwealth. $21,700 will be distributed to residents of the park, and $5,000 will go to the state to pay court costs and attorney's fees. An additional $10,000 will initially be set aside in case other residents file valid claims in the next 30 days, and this additional fund will be supplemented if valid claims exceed the initial set aside.

    In September 2012, the owners of Hilltop announced they would close the mobile home park. However, they did not close it until February 28, 2013. Some of the residents complained to the Office of Attorney General that they were not given payments now required under Pennsylvania law when a park closes.

    Pennsylvania law requires that the owners of manufactured home communities which are closing must pay certain relocation expenses of the manufactured home owners in the community, or make certain payments to them if they are unable or unwilling to relocate their manufactured homes.
For the Pennsylvania AG press release, see Attorney General Kane settles with mobile home park owners.

Go here for:
Thanks to Donald Marritz of the non-profit law firm Regional Housing Legal Services for the heads-up on this litigation.

Tuesday, May 28, 2013

Pastor Who Agreed To Hold Mortgage On $18M Sale Of Church, School, Day Care To Developer Fails To Have Documents Recorded; Winds Up Facing The Boot After Having Entire Property Fraudulently Financed Out From Under Him

In Edmonton, Alberta, CBC News reports:
  • A bad business deal between an evangelical pastor and an accused con man has cost the church’s congregation its church, school and daycare.

    On Friday, a judge ordered the final sale of the Victory Christian Center at 11520 Ellerslie Road. The congregation will have to be out by the end of July.
***
  • Both the church and a second mortgage holder, Edmonton dentist Ram Singh, will receive nothing from the sale. The first mortgage holder, Romspen Investments, will receive the proceeds of the sale but will still lose about $8 million.

    “This is a difficult case for everyone involved,” Court of Queen’s Bench Justice Juliana Topolniski told the court. “It is difficult for the congregation, the children at the school, for the daycare, and for Dr. Singh.”
***
  • Court documents show Victory Church pastor Cal Switzer sold the Victory property to developer Kevyn Frederick in August 2008 for $18 million. Frederick transferred the land to a numbered company he controlled but did not register the mortgage, which would have guaranteed the property reverted back to the church if he did not make his payments.(1)

    The documents show Frederick made a down payment of $2.8 million but paid nothing more.

    The property fell into foreclosure and eventually a judicial sale was ordered.

    As part of the original deal, Frederick was supposed to provide the church with land in Leduc for a new church. But documents show he also reneged on that deal.

    Court documents show Switzer inexplicably cut the deal with Frederick on behalf of the church without any independent legal advice.
For more, see Southside church duped by accused con man, sold in forced sale (Church congregation, school and daycare must leave by end of July).

(1) See Edmonton Journal: Web of mortgages left Leduc condo owners, Edmonton church in limbo:
  • The August 2008 deal was supposed to be guaranteed by a mortgage defaulting the land back to the church if something went wrong.

    However, within a few days, Frederick mortgaged half of $12.3 million to Ram Singh, his future partner at Bellavera, and the remainder to his other holdings.

Cincinnati-Area Trio Get Federal Time For Peddling Bogus Sale Leaseback Ripoffs That Left Financially-Strapped Victims Booted From Homes, Unwitting Straw Buyer/Investors Drowning In Debt With Ruined Credit On Artificially Inflated, Underwater Mortgages

In Cincinnati, Ohio, The Enquirer reports:
  • Men from Mason, Monroe and Covington were sent to federal prison for a foreclosure-rescue scheme that left victims facing foreclosure, bankruptcy and ruined credit, authorities say.

    On Thursday, a U.S. District judge in Cincinnati sentenced Adam P. Moellers, 35, of Mason, to three years in prison and sentenced Gary P. Dailey, also known as Gary Klump, 33, of Covington, to a 21-month prison term. A third defendant, Perry Bensick, 37, of Monroe, was previously sentenced to a year in prison.

    Moellers and Besnick each had pleaded guilty to a count of conspiracy; Dailey pleaded guilty to a count of wire fraud, a news release said.

    The men were involved with a company called American Equity Group.

    Here’s how their scheme worked, authorities said: The company approached homeowners facing foreclosure and pledged to find buyers who would allow them to remain in their homes as renters and later repurchase their homes.(1)

    The company promised investors that they could buy a property with no money down, collect rent for a year or two then sell it back to the renter at a profit.

    But “AEG inflated the sale price, put together fraudulent loan applications, and took out extra cash at closing,” the release said. “The renters never purchased the properties back and the investors couldn’t afford to keep them.”

    “As a result, the properties went into foreclosure with even larger loan balances and with investors/borrowers who did not appreciate the risk that they had undertaken,” Assistant U.S. Attorney Timothy Mangan wrote in a court filing.

    The FBI calculated that in 2006 and 2007, the scheme caused losses of $6,849,460 to lenders; the court will decide how much restitution the defendants must pay.

    “The lenders were not the only victims,” Mangan told the court. “For the investors, they typically ended in bankruptcy or with ruined credit in exchange for a rescue plan by AEG that was doomed to fail.”
Source: $6.8M scam leaves trail of foreclosures, bankruptcies.

See also, Four Charged With Running $13 Million Loan Fraud Scheme.

(1) For more on this type of foreclosure rescue ripoff, see:

San Diego Feds Send Loan Modification Peddler Packing For 57 Months For Ripping Off 120+ Homeowners Out Of $670K+; Probe Into Legitimacy Of Offered Services Triggered When Postal Inspectors Scored 750+ Undeliverable Solicitation Letters In One Month Bearing Non-Existent, Incorrect Return Addresses

From the Office of the U.S. Attorney (San Diego, California):
  • United States Attorney Laura E. Duffy announced that Christian Hidalgo of Chula Vista was sentenced [] to 57 months of custody by District Court Judge William Q. Hayes for a mortgage loan-modification scheme that cheated over 120 people out of over $670,000, and resulted in the loss of many homes to foreclosure. Hidalgo was also ordered to pay full restitution to all of his victims.
***
  • In order to carry out his fraud, Hidalgo sent hundreds of solicitation letters in which he falsely represented that these businesses were affiliated with the U.S. Department of Housing and Urban Development ("HUD"), and its Home Affordable Modification Program ("HAMP").

    The letters would direct the recipients to contact one of Hidalgo's business entities by telephone, or obtain information from one of the websites he had created to advertise his services. Hidalgo targeted low-income persons in Southern California with Hispanic surnames by obtaining marketing leads with this specific criteria.
***
  • For his part, Hidalgo spent the victim funds in a variety of ways, including purchasing a BMW, diamond rings, a large-screen television, and firearms. All of these items, were seized by the United States and forfeited as part of Hidalgo's sentence. The items will be sold at auction, with proceeds going to the victims.

    Hidalgo's scheme was discovered after Special Agents from the United States Postal Inspection Service of the Downtown San Diego Station received over 750 undeliverable solicitation letters in April 2011 sent by Hidalgo and associates. The solicitation letters appeared to offer loan modification services and a free consultation regarding HAMP, or another HUD home-loan restructure program.

    Because the letters bore non-existent or incorrect return addresses, Postal Inspection agents began investigating the legitimacy of the offered services. In conjunction with the HUD Office of the Inspector General, agents interviewed hundreds of victims, conducted various searches, and seized property purchased with proceeds obtained pursuant to Hidalgo's fraudulent scheme.

Lawyers' Committee, Pro Bono Counsel Continue Private Enforcement Efforts Against Another Alleged Attorney-Operated Loan Modification Racket

From a recent press release from the Lawyers' Committee for Civil Rights Under Law:
  • The Lawyers' Committee for Civil Rights Under Law (Lawyers' Committee) has filed a lawsuit in Los Angeles County, California against a network of for-profit loan modification companies on behalf of eight California homeowners. The suit alleges that defendants defrauded vulnerable homeowners out of tens of thousands of dollars by falsely promising to obtain—for substantial upfront fees—much-needed mortgage modifications on the homeowners’ behalf, but consistently failing to deliver results. Attorneys in the Los Angeles office of Arnold & Porter LLP are providing pro bono counsel on the case.
***
  • “The Lawyers’ Committee and our pro bono co-counsel continue our private enforcement efforts to put a stop to scamming operations preying upon distressed homeowners.

    This is our seventh lawsuit nationwide, third in California, alleging attorney involvement in such unlawful schemes,” said Linda Mullenbach, senior counsel for the Fair Housing and Fair Lending Project of the Lawyers’ Committee. “These scamming activities have a devastating effect on vulnerable homeowners who are seeking solutions and, instead, find themselves at a greater risk or foreclosure and in greater financial peril as a result of the deceptive and unlawful conduct.”

    ”Arnold and Porter is pleased to work with the Lawyers’ Committee on this case,” said Ronald Johnston, a senior litigation partner at Arnold & Porter. “Our firm has an extensive history handling pro bono matters in a wide range of areas.”

    The complaint alleges that the loan modification scam in this case is operated by multiple corporate and individual defendants, led by California attorney Jerry A. Stevenson and former mortgage broker David Gomez. The key corporate defendants named are California-based entities Platinum Law Group, Inc., Platinum Law Center, Priority Realty Group, Priority Mortgage Group, Inc., Priority Financial Group, and LaBrea Group LLC.

    The case, Baker, et al. v. Platinum Law Group, et al., was filed in California Superior Court in Los Angeles County and seeks monetary damages, including those related to the illegal upfront fees paid by plaintiffs, and injunctive relief to put a halt to the deceptive practices of the named defendants.

    Baker v. Platinum Law Group is the Lawyers’ Committee’s fourteenth loan modification scam lawsuit filed nationwide and its fifth filed in California.

    As part of the Lawyers’ Committee’s work with the Loan Modification Scam Prevention Network (LMSPN), this litigation effort has sought to put an end to the fraudulent and deceptive behavior of so-called loan modification “specialists” in California, Florida, Georgia and New York. LMSPN is a broad coalition that also includes representatives from key governmental agencies, such as the Federal Trade Commission, the U.S. Department of Housing and Urban Development (HUD), the U.S. Department of Justice, the U.S. Department of the Treasury, the Federal Bureau of Investigation, and the offices of numerous state Attorneys General.

    Since the launch of the national LMSPN database in March 2010 through April 30, 2013, more than 32,000 homeowners nationwide have reported loan modification scams or potential scams that have resulted in total losses of over $78 million. Approximately 6,300 of these reports have been submitted by California homeowners, who have reported losses of over $22 million in fees paid to alleged loan modification scammers.

    Homeowners who believe they have been victims of a scam are encouraged to call 888-995-HOPE (4673) or visit www.preventloanscams.org and click the “Report a Scam!” link.

Monday, May 27, 2013

Bankster's Effort To Evade Judicial Review Of Constitutional Challenge To Colorado Non-Judicial Foreclosure Law By Rendering Issue Moot Advances After State Court Judge Tosses Order Authorizing Forced Home Sale

In Denver, Colorado, The Denver Post reports:
  • A Denver judge [last] week rescinded his order authorizing the county foreclosure auction of an Aurora woman's house, paving the way for the banks she sued in federal court to press for the suit's dismissal.

    The legal maneuver to end a specific type of foreclosure against Lisa Kay Brumfiel gives strength to U.S. Bank's pending request to toss out her federal lawsuit challenging the constitutionality of Colorado's foreclosure laws.(1)

    That's because the bank contends in papers filed in U.S. District Court that Brumfiel, 43, no longer faces any harm since U.S. Bank won't foreclose via the county public trustee.

    Instead, lawyers for U.S. Bank, which is the trustee to the investor-owned trust that owns the note on Brumfiel's four-bedroom house, said they will file their own lawsuit to foreclose.

    Brumfiel contended the public-trustee process violates her 14th Amendment right to due process by allowing banks to foreclose without providing proof they have the right to do so.

    In a three-sentence decision, Denver District Court Judge J. Mark Hannen granted U.S. Bank's request to close the foreclosure case it filed in October 2011 against Brumfiel.

    Brumfiel challenged the dismissal, which also rescinded Hannen's order to auction the house, saying it would impact her federal lawsuit, ultimately leaving her constitutional question unaddressed. Hannen called Brumfiel's contention "speculative" and sided for U.S. Bank.

    In papers filed Wednesday, Brumfiel challenged U.S. Bank's request to close the federal case.
Source: Denver judge closes foreclosure; law's fate rests in federal court.

(1) Rescinding the foreclosure appears to be nothing more than this bankster's attempt to render the homeowner's Constitutional challenge moot.

The case law appears abundantly clear that the mere voluntary cessation of the alleged illegal conduct by the challenged party will not ordinarily render the matter moot, and won't necessarily evade judicial review, especially if there is a public interest in having the legality of the practices settled.

See United States v. WT Grant Co., 345 US 629 (1953), in which the U.S Supreme Court made these comments in this regard:
  • Both sides agree to the abstract proposition that voluntary cessation of allegedly illegal conduct does not deprive the tribunal of power to hear and determine the case, i. e., does not make the case moot. United States v. Trans-Missouri Freight Assn., 166 U. S. 290 (1897); Walling v. Helmerich & Payne, Inc., 323 U. S. 37 (1944); Hecht Co. v. Bowles, 321 U. S. 321 (1944).

    A controversy may remain to be settled in such circumstances, United States v. Aluminum Co. of America, 148 F. 2d 416, 448 (1945), e. g., a dispute over the legality of the challenged practices. Walling v. Helmerich & Payne, Inc., supra; Carpenters Union v. Labor Board, 341 U. S. 707, 715 (1951).

    The defendant is free to return to his old ways.[4] This, together with a public interest in having the legality of the practices settled, militates against a mootness conclusion. United States v. Trans-Missouri Freight Assn., supra, at 309, 310.
See also, ACLUM v. Conference of Catholic Bishops, 705 F. 3d 44 (1st Cir. January 15, 2013) (discussing the 'voluntary cessation doctrine'  which provides for an exception to mootness):
  • The voluntary cessation exception "traces to the principle that a party should not be able to evade judicial review, or to defeat a judgment, by temporarily altering questionable behavior." City News & Novelty, Inc. v. City of Waukesha, 531 U.S. 278, 284 n. 1, 121 S.Ct. 743, 148 L.Ed.2d 757 (2001).

    This is to avoid a manipulative litigant immunizing itself from suit indefinitely, altering its behavior long enough to secure a dismissal and then reinstating it immediately after. See Already, LLC v. Nike, Inc., ___ U.S. ___, ___, 133 S.Ct. 721, ___ L.Ed.2d ___, 2013 WL 85300, No. 11-982, slip op. at 4 (U.S. Jan. 9, 2013); Brown, 613 F.3d at 49; see also United States v. W.T. Grant Co., 345 U.S. 629, 632, 73 S.Ct. 894, 97 L.Ed. 1303 (1953) (noting that if a court declares the case moot, "[t]he defendant is free to return to his old ways").

    As the Supreme Court stated last term, "[s]uch ... maneuvers designed to insulate a decision from review ... must be viewed with a critical eye" and, as a result, "[t]he voluntary cessation of challenged conduct does not ordinarily render a case moot." Knox v. Serv. Emps. Int'l Union, Local 1000, ___ U.S. ___, 132 S.Ct. 2277, 2287, 183 L.Ed.2d 281 (2012) (citation omitted).

    However, even in circumstances where the voluntary cessation exception applies, a case may still be found moot if the defendant meets "the formidable burden[[9]] of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur." Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 190, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000) (citing United States v. Concentrated Phosphate Exp. Ass'n, Inc., 393 U.S. 199, 203, 89 S.Ct. 361, 21 L.Ed.2d 344 (1968)); Parents Involved in Cmty. Sch. v. Seattle Sch. Dist. No. 1, 551 U.S. 701, 720, 127 S.Ct. 2738, 168 L.Ed.2d 508 (2007).
Colorado federal courts are bound to follow rulings of the U.S. Court of Appeals for the 10th Circuit. Go here for links to 10th Circuit Court of Appeals cases discussing the stringent test in determining mootness in cases where the party alleged to have engaged in illegal conduct voluntarily ceases said conduct under threat of a pending lawsuit.

Georgia High Court: Trust Deed Holder Need Not Also Hold Note To Initiate Non-Judicial Foreclosure; Secured Creditor Need Not Be I.D.'d In Notice To Debtor; State Supremes: Current State Of The Law May Stink, But There's Nothing We Can Do About It; Add'l Reforms Are Up To Lawmakers - Our Hands Are Tied!

From a Justia.com Opinion Summary:
  • The United States District Court for the Northern District of Georgia certified three questions regarding the operation of the State's law governing non-judicial foreclosure to the Georgia Supreme Court.

    After careful analysis, the Georgia Court concluded that current law did not require a party seeking to exercise a power of sale in a deed to secure debt to hold, in addition to the deed, the promissory note evidencing the underlying debt.

    The Court also concluded that the plain language of the State statute governing notice to the debtor (OCGA 44-14-162.2), required only that the notice identify "the individual or entity [with] full authority to negotiate, amend, and modify all terms of the mortgage with the debtor."

    This construction of OCGA 44-14-162.2 rendered moot the third and final certified question.(1)
Source: Opinion Summary: You v. JP Morgan Chase Bank, N.A..

For the court ruling, see You v. JP Morgan Chase Bank, N.A., S13Q0040 (Ga. May 20, 2013).

(1) The Georgia Supreme Court respectfully concluded its ruling with the following message, apparently meant for state lawmakers, regarding the crappy law on non-judicial foreclosures as it currently exists in Georgia:
  • As members of this State's judicial branch, it is our duty to interpret the laws as they are written. See Allen v. Wright, 282 Ga. 9 (1) (644 SE2d 814) (2007).

    This Court is not blind to the plight of distressed borrowers, many of whom have suffered devastating losses brought on by the burst of the housing bubble and ensuing recession.

    While we respect our legislature's effort to assist distressed homeowners by amending the non-judicial foreclosure statute in 2008, the continued ease with which foreclosures may proceed in this State gives us pause, in light of the grave consequences foreclosures pose for individuals, families, neighborhoods, and society in general.

    Our concerns in this regard, however, do not entitle us to overstep our judicial role, and thus we leave to the members of our legislature, if they are so inclined, the task of undertaking additional reform.

1st Circuit Reinstates Loan Modification-Seeking Homeowner's Earlier-Dismissed Suit Accusing Servicer Of Unfair Debt Collection Practice By Jerking Her Around In Violation Of Bay State UDAP Statute; Bankster Faces Possible Triple Damages; Court: 'Absence Of Contractual Breach No Bar To Liability'

In Boston, Massachusetts, The National Law Journal reports:
  • A federal appellate court ruled that Wells Fargo Bank must face a Massachusetts consumer protection law claim that entails possible triple damages, plus additional claims, for its conduct toward a homeowner under a federal loan modification program.

    A unanimous U.S. Court of Appeals for the First Circuit ruling in Young v. Wells Fargo Bank N.A. revived Susan Young's District of Massachusetts case.

    Young sued Wells Fargo and American Home Mortgage Servicing Inc., now part of Atlanta's Ocwen Financial Corp., after she tried to avail herself of protections under the Home Affordable Modification Program (HAMP). She tried to modify a $282,000 mortgage she obtained from Wells Fargo in 2006. American Home was the servicer.

    "This conduct dates back to August 2008, when defendants mistakenly posted a notice on her door stating that she was in arrears on her mortgage payments, and continued to supply her with misinformation about her obligations under the mortgage," Senior Judge Kermit Lipez wrote, joined by Judge Jeffrey Howard and Senior Judge Norman Stahl. The court released the opinion on Tuesday.

    "Defendants' handling of her loan modification process under [HAMP's trial period plan] was only the culmination of a prolonged period of unfair conduct," he continued.(1)
For more, see First Circuit Revives Claim for Faulty Foreclosure.

For the ruling, see Young v. Wells Fargo Bank N.A., No. 12-1405 (1st Cir. May 21, 2013)

(1) In this excerpt, the appeals court described the situations where the Massachusetts statute prohibiting unfair or deceptive acts or practices ("UDAP") applies:
  • Young also pleads a claim under Mass. Gen. Laws ch. 93A, otherwise known as Chapter 93A. This statute "provides a cause of action for a plaintiff who 'has been injured,' by 'unfair or deceptive acts or practices.'" Rule v. Fort Dodge Animal Health, Inc., 607 F.3d 250, 253 (1st Cir. 2010) (quoting Mass. Gen. Laws -30-ch. 93A, §§ 2(a), 9(1)).

    The Massachusetts courts have explained that "[a] practice is unfair if it is within the penumbra of some common-law, statutory, or other established concept of unfairness; is immoral, unethical, oppressive, or unscrupulous; and causes substantial injury." Linkage Corp. v. Trs. of Boston Univ., 679 N.E.2d 191, 209 (Mass. 1997) (citation omitted) (internal quotation marks omitted) (modifications omitted).

    Violation of a statute is not a necessary element of a Chapter 93A claim, as the consumer protection law "creates new substantive rights and, in particular cases, makes conduct unlawful which was not unlawful under the common law or any prior statute." Commonwealth v. Fremont Inv. & Loan, 897 N.E.2d 548, 556 (Mass. 2008) (internal citation omitted) (quotation marks omitted).

    Nor is liability under Chapter 93A precluded by the absence of a contractual breach. See NASCO, Inc. v. Public Storage, Inc., 127 F.3d 148, 152 (1st Cir. 1997).

California Appeals Court Boots Homeowner's Declaratory Action Brought To Challenge Lender's Standing To Initiate Non-Judicial Foreclosure

In Orange County, California, Metropolitan News-Enterprise reports:
  • A borrower facing foreclosure cannot bring a declaratory action to challenge the lender’s standing to initiate a nonjudicial foreclosure, the Fourth District Court of Appeal ruled [].

    Div. Three affirmed an Orange Superior Court judge’s dismissal of a suit by a Diane Jenkins against JP Morgan Chase Bank, N.A. and Quality Loan Service Corporation. The panel said Judge William Monroe properly sustained demurrers to all causes of action, which included claims for bad-faith breach of contract and for violation of the Unfair Competition Law and other statutes, as well as the declaratory relief claim.
***
  • The primary theory of the complaint was that the pooling of her loan with other loans in a securitized investment trust did not comply with the investment trust’s pooling and servicing agreement, and that the lack of compliance extinguished the security interest created when she executed her deed of trust. She also claimed various statutory violations related to how the loan was serviced and the foreclosure initiated.

    In sustaining the demurrers, Monroe ruled that Jenkins, as a non-party to the pooling and servicing agreement, lacked standing to enforce it; that she could not sue for bad-faith breach of contract because she did not allege the existence of a contract, and that even if she did, the court could not imply that the contract included a covenant to refinance the loan; and that neither Chase nor Quality could be held liable for any failings of WaMu.

    Presiding Justice Kathleen O’Leary, writing Friday for the Court of Appeal, said the trial judge was correct as to all of the claims.

    O’Leary noted that prior cases have rejected efforts to delay or deny foreclosure based on contentions regarding the identity of the party asserting the right to foreclose.

    No Authority

    Emphasizing that the foreclosure sale had not been rescheduled, O’Leary said there was no statutory or other basis for a preemptive lawsuit. “Moreover, we find the statutory provisions, because they broadly authorize a “trustee, mortgagee, or beneficiary, or any of their authorized agents” to initiate a nonjudicial foreclosure…do not require that the foreclosing party have an actual beneficial interest in both the promissory note and deed of trust to commence and execute a nonjudicial foreclosure sale. “

    Jenkins, the presiding justice went on to say, does not deny that she borrowed the money, that she executed the deed of trust, or that she defaulted, so there is no present controversy between the parties and there would be no basis for a declaratory action even if the foreclosure statutes permitted one.

    The jurist further concluded that the remaining causes of action were properly dismissed. Jenkins, O’Leary said, has no standing to challenge allegedly illegal business practices as between the various lenders in the securitization pool, nor can she base a bad-faith claim on statutory violations unconnected to a contract.
For the story, see No Preemptive Suit to Challenge Lender’s Right to Foreclose—C.A. (Panel Rejects Attempt to Bring Loan-Pooling Arrangement Into Question).

For the ruling, see Jenkins v. JP Morgan Chase Bank, N.A., G046121 (Cal. Ap.. 4th Dist., Div 3 May 17, 2013).

So-Called 'Dream-Killing Slumlord Millionaire' Gets 72 Months In Mortgage Fraud Scam Used In Connection With 'Rent To Own' Racket That Peddled Shabby Houses To City's Poorest; Philly Feds' Prosecution Leads To Inclusion Of Wanna-Be Homebuyer/Victims In Restitution Order

From the Office of the U.S. Attorney (Philadelphia, Pennsylvania):
  • Robert Coyle, Sr., 68, of Glassboro, New Jersey, was sentenced [] to 72 months in prison for a loan fraud scheme that attempted to swindle more than $10 million from three banks. He pleaded guilty to two counts of loan fraud on October 1, 2012.

    Coyle owned and/or rented more than 300 properties in Philadelphia and operated a real estate business out of 2332 E. Allegheny Avenue. Among his business entities were Landvest, LLP, Alivest, LLP, and Otay, LLC, to name a few. Through those business entities, Coyle borrowed more than $3 million from East River Bank (“ERB”) and more than $6.6 million from Republic First Bank (“RFB”).

    Polonia Bank was a 49% participant in the ERB loans after settlement. The purpose of the loans was purportedly to refinance existing loans, make improvements on some of the properties Coyle owned, and/or to allow Coyle to pursue other real estate opportunities. Coyle pledged approximately 71 properties to secure the ERB loans and approximately 117 other properties to secure the RFB loan. The banks anticipated that the loans would be repaid through rental income that Coyle was collecting and, if necessary, through the sale of the collateral properties.

    But Coyle had entered into various ownership agreements, including rent-to-own, with the occupants of several of the properties and he, therefore, did not hold good title for all of the properties he pledged. The loans that were submitted totaled more than $10 million.

    In addition to the prison term, U.S. District Court Judge Stewart Dalzell ordered restitution in the amount of $6,480,302.65, five years of supervised release, a $200 special assessment, and a forfeiture money judgment of $10,106,200.

    The restitution amount includes individuals who had entered into rent-to-own, house swap, or similar ownership agreements with the defendant, or any entity controlled by the defendant, for properties that were pledged as collateral.(1)
For the U.S. Attorney press release, see New Jersey Man Sentenced To Six Years In Prison For Loan Fraud.

(1) For earlier posts on Philadelphia's dream-killing 'slumlord millionaire,' see:

Sunday, May 26, 2013

Miami Non-Profit Law Firm, Local Feds Join To Score Wins In Two Novel Whistleblower Suits Accusing Local Landlords Of Illegally Squeezing Gov't, Section 8 Tenants Out Of Excessive Rent Subsidies; $uccessful Recovery Includes Tenants' Damages, Legal Fees

From the Office of the U.S. Attorney (Miami, Florida):
  • Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, and Marcia K. Cypen, Executive Director, Legal Services of Greater Miami, Inc. (LSGMI),(1) announced the United States’ successful prosecution of several civil False Claims Act cases brought under the qui tam provisions of the False Claims Act, 31 U.S.C. §3730(b) against landlords participating in the United States Department of Housing and Urban Development’s (HUD) Housing Choice Voucher/Section 8 (HCV) Program who unlawfully received excessive rent subsidies known as Housing Assistance Payments (HAP).

    Through Section 8 of the United States Housing Act of 1937, as amended, HUD distributes federal funds to local public housing agencies to assist eligible low income families in obtaining decent, safe, and sanitary housing in the private rental market. To receive federally subsidized rents, landlords participating in the HCV Program contractually agree to comply with HUD requirements, to charge only the rent authorized by the local public housing agency and to not raise rents or change lease terms without the written approval of the local public housing agency.

    Two of the False Claims Act cases were originally filed by LSGMI who represented Sabrina R. Newberry and Taronda Wade, two low income tenants participating in the HCV Program administered by the Miami-Dade Public Housing and Community Development, a department of Miami-Dade County previously known as the Miami-Dade Public Housing Agency.

    The tenants brought the cases on behalf of the United States alleging that their landlords, the defendants, made unlawful false claims for rental subsidies by charging and accepting excessive rents, in violation of HUD rules and contractual requirements.

    After investigating the cases, the United States intervened in the two suits. The United States filed amended complaints asserting that the landlords violated the False Claims Act by making false statements to the County’s HCV Program and endorsing HAP rent subsidy checks for which the United States suffered damages.
------------------------------
  • 1. United States of America, ex rel Sabrina R . Newberry, Relator, Plaintiffs, v. George David Horton, Defendant, Case No. 1:11-cv-20153-Graham.

    According to court documents, during her brief tenancy, Newberry’s landlord, the Rev. Dr. George David Horton, collected $5,377.32 in rent from Ms. Newberry in excess of that specified in the HAP Contract and the rental agreement approved by the County’s HCV Program. A settlement was reached in this matter after the United States filed a Motion for Summary Judgment.

    There, the landlord who denied wrongdoing, paid to the United States $26,000 of which Ms. Newberry received, pursuant to the provisions of the False Claims Act, a Relator’s share of $5,377.32 and recovery of her legal expenses.

    During its investigation of the matter, the United States learned that Rev. Dr. Horton had also accepted at least $19,169.00 in excessive rents from another HCV tenant over a long period of time. In settlement of that matter, the landlord agreed to pay to the United States an additional $24,000.00.
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  • 2. United States of America, ex. rel. Taronda Wade, Relator, vs. DBS Investments, LLC, and John P. Joseph, 1:11-cv-20155-Cooke.

    Court documents provide that Ms. Wade’s landlord, DBS Investments and John P. Joseph, unlawfully charged and accepted $4,398.00 more than Ms. Wade was lawfully required to pay during her tenancy.

    U.S. District Judge Marcia Cooke granted the United States’ motion for summary judgment in this matter and entered an award against the Defendants and in favor of the United States of $35,194.00, consisting of damages in the amount of $13,194.00 and penalties of $22,000. The Court additionally entered an award of $4,398.00 in damages, $10,470.00 in attorney’s fees and $152.35 in costs to Ms. Wade.

    U.S. Attorney Wifredo A. Ferrer stated, “We will not tolerate abuse of federal housing or other programs. Schemes such as the ones uncovered in these cases steal taxpayers’ monies and often prey on those who need our assistance the most. We appreciate the actions of Legal Services of Greater Miami in bringing these cases and applaud whistleblowers for coming forward and exposing these schemes. We are pleased to return these monies to the taxpayers.”

    “This is not only a legal victory for low-income tenants but also serves as a deterrent to other landlords who do not comply with federal housing requirements,” said LSGMI Senior Staff Attorney Sean Rowley. Added Mr. Rowley, “This case also illustrates how the novel use of the False Claims Act to challenge illegal conduct by landlords can be a highly effective legal strategy and can serve as precedent for other public housing tenant advocates.”

    Mr. Ferrer commended LSGM and Miami-Dade Public Housing and Community Development for their assistance and investigative efforts. These cases were prosecuted by Assistant U.S. Attorney James A. Weinkle.
For the U.S. Attorney press release, see United States Successful In False Claims Act Cases Against Landlords Charging Housing Choice Voucher Tenants Excess Rents.

For the False Claims Act quit tam complaints filed by Legal Services of Greater Miami, Inc. on behalf of the United States and its 'Section 8' clients, see:
(1) Legal Services of Greater Miami, Inc. is a non-profit legal services provider that handles a variety of civil legal matters benefiting more than 30,000 individuals and families each year. In most cases, eligibility for services is based on an annual income at or below 125% of the federal poverty guidelines.

Disbarred Long Island Lawyer Allegedly Used Forged Documents, Bogus POAs To Steal $4M+ From Wife, Clients, Others In Real Estate Deals

From the Office of the Nassau County, New York District Attorney:
  • Nassau County District Attorney Kathleen Rice announced [] that a disbarred attorney has been indicted on multiple felonies for stealing more than $4 million from multiple individuals and banks he was representing in real estate deals, including his own wife.

    James Kalpakis, 52, of Old Westbury, was arraigned this morning on a grand jury indictment charging him with two counts of Grand Larceny in the First Degree, five counts of Grand Larceny in the Second Degree, four counts of Grand Larceny in the Third Degree, 10 counts of Criminal Possession of a Forged Instrument in the Second Degree and two counts of Offering a False Instrument for Filing in the First Degree.
***
  • Rice said that Kalpakis, an attorney who was suspended from the practice of law in 2005 and disbarred upon his resignation in September 2009, stole approximately $4.315 million from five clients he represented in real estate deals between September 2008 and January 2011.

    In September 2008, Kalpakis illegally obtained a 30-year, $1.1 million mortgage loan from a bank to refinance a mortgage on a home owned by his wife by submitting a forged power of attorney in her name, giving him authority to sign the mortgage in her absence. He received a check made payable to him in the amount of $402,152 at closing. The balance of the loan was used to pay off the existing mortgage, but Kalpakis stopped making payments on the loan in December 2009. His wife knew nothing about the loan.

    Other fraudulent dealings by Kalpakis include:

    The theft of approximately $1.3 million from a victim to whom Kalpakis sold two homes with forged deeds from banks that were not actually the owners of the properties between October and December 2009. Kalpakis stole an additional $290,000 from the victim between February and April 2009 by never returning the victim’s escrow deposit on a home purchase that fell through.

    The theft of $500,000 from the same victim between June and July 2009 by falsely representing that it would be invested in oil, gas, and mineral leases in Texas involving Kalpakis’s brother.

    The theft of a $750,000 one-year mortgage loan in June 2010 from a private investment firm by representing himself as the attorney for the owners of a residential property, one of whom was the victim of the above listed crimes. Kalpakis provided the lender with a forged power of attorney giving Kalpakis authority to collect the loan.

    The theft of $150,000 between August and September 2010 from a different victim by “selling” him a property owned by the same victim in the above listed crimes. Kalpakis provided the buyer with forged documents that gave Kalpakis authorization to sell the property.

    The theft of $100,000 in escrow deposits from a different victim to purchase a home between October 2008 and April 2009. The sale fell through but Kalpakis never returned the escrow funds.

    The theft of a $45,000 escrow deposit from a victim between January and December 2010 for the purchase of a home. The sale never went through but Kalpakis kept the money.

    The theft of $80,000 from a victim using three separate scams. Between August 2010 and January 2011, he stole $33,000 from the victim from a home purchase that fell through. In October 2010, he stole $35,000 from her by promising that a client he represented in a civil case would sign over the $42,000 settlement that would be received later, netting the victim a $7,000 profit. In fact, there was no lawsuit, no client, and no pending settlement. Kalpakis pulled this scam on the victim again in November 2010, stealing $12,000 and promising a $3,000 profit this time. Again, no lawsuit existed and Kalpakis kept her money.(1)
For the Nassau County DA press release, see Old Westbury Man Charged With Stealing More Than $4.3 Million From Clients He Represented In Real Estate Deals (Kalpakis, a disbarred attorney, forged paperwork to steal millions).

(1) The Lawyers’ Fund For Client Protection Of the State of New York may find itself being asked by the victims to step up and cover at least some of the losses they suffered. The Fund exists to protect legal consumers from dishonest conduct in the practice of law in the state, to preserve the integrity of the bar, to safeguard the good name of lawyers for their honesty in handling client money, and to promote public confidence in the administration of justice in the Empire State. It attempts to secure these goals by, among other things, reimbursing client money that is misused in the practice of law.

For similar "attorney ripoff reimbursement funds" that cover the financial mess created by the dishonest conduct of lawyers licensed in other states and Canada, see:
Maps available courtesy of The National Client Protection Organization, Inc.