'Form 1099' Screw-Up By Sloppy Servicer Leads Cash-Lacking F'closed Couple To Pay Income Tax They Didn't Legally Owe; Lawyer: Not An Isolated Case

In Salinas, California, the Santa Cruz Sentinel reports:

• People whose homes have been foreclosed are now facing another financial shock: a hefty tax bill. William Purdy, a tax attorney with Simmons & Purdy in Soquel, tells the story of a husband and wife who got a first mortgage of $700,000 and a second mortgage of $80,000 to buy a home in Salinas. After the wife lost her job, the couple couldn't make payments.

• The lender foreclosed and said the home was worth a little more than $300,000. The couple then got a 1099-A and 1099-C indicating they had taxable debt relief in excess of $400,000. They went to a tax preparer and learned they owed $30,000. They ended up on a payment plan.

• Two years later, Purdy discovered the couple owed nothing. Both of their loans were "purchase money" loans to buy a house, not a refinance, Purdy said, and the home was their primary residence, so under [California] state law they had no personal liability for the debt and no taxable debt relief.

• "They were literally making payments on a tax they never owed," said Purdy, who gave them the good news just before Christmas. The problem, he said, is the lender incorrectly marked both 1099 forms indicating the couple was personally liable for the debt, and the tax preparer assumed the forms were accurate.

• The couple are not alone in this predicament. Foreclosures have become commonplace, and taxpayers have had debt canceled via "short sales," selling their homes for less than what they owed to escape foreclosure.

• "I am seeing most of the forms mismarked," said Purdy, who blames lenders for the economic crisis.(1) [...] Other tax advisers suggest using IRS Form 982 to reduce taxes from mortgage debt relief. Purdy said the Salinas couple's tax preparer used that tool.(2)

• It does not provide complete relief, and here's why. California sets a limit of $800,000 in home indebtedness for a couple, with the maximum exclusion of $500,000 for forgiven debt.

For the story, see Tax bill after foreclosure can cause confusion (Couple who lost home made payments on a tax it turned out they didn't owe).

(1) See Foreclosing Mortgage Lender Screw-Up Results In Whopping IRS Tax Bill For Ex-Homeowner for another example of this type of loan servicer screw-up filing IRS Form 1099.

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

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

Those lenders, servicers, etc. who have no clue how to prepare a Form 1099-A or Form 1099-C are invited to peruse the 2011 Instructions for preparing Forms 1099-A & C.

Another Foreclosure Sale Bid-Rigging Real Estate Operator Finds Himself On Short End Of Guilty Verdict; Count Now Up To 23 Who Have Either Been Convicted Or Pleaded Guilty In Ongoing Antitrust Feds' Probe Into Atlanta-Area Public Auctions

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

• A federal jury convicted a real estate investor of bid rigging and bank fraud related to public foreclosure auctions held in Georgia, the Department of Justice announced today [June 16].
  
  Douglas L. Purdy was convicted today [June 16] following a two-week trial before the Honorable Richard W. Story in Gainesville, Georgia. The jury convicted Purdy on one count of bid rigging and two counts of bank fraud for participating in the charged conspiracy and scheme at Forsyth County, Georgia, foreclosure auctions from 2008 to 2011.
  
  The evidence at trial showed that Purdy and his co-conspirators agreed not to compete for real estate at foreclosure auctions in Forsyth County and defrauded lender banks and homeowners. Among other methods, the conspirators held secret “second auctions” of properties they had obtained through rigged bids, dividing among themselves the auction proceeds that should have gone to pay off debts against the properties and, in some cases, to homeowners.
  
  A federal grand jury in the Northern District of Georgia returned an indictment against Purdy on Feb. 3, 2016. Including Purdy’s conviction, 23 real estate investors have either pleaded guilty or been convicted after trial as a result of the Department’s ongoing antitrust investigations into bid rigging at public foreclosure auctions in the Atlanta area.
  
  The Antitrust Division’s Washington Criminal II Section and the FBI’s Atlanta Division conducted the investigation, with assistance from the U.S. Attorney’s Office of the Northern District of Georgia. Anyone with information concerning bid rigging or fraud related to real estate foreclosure auctions should contact the Washington Criminal II Section of the Antitrust Division at 202-598-4000 or call the FBI tip line at 415-553-7400.

Source: Georgia Real Estate Investor Convicted of Bid Rigging and Bank Fraud at Public Foreclosure Auctions.

Homeowners Invoking "Truth In Lending" Rights To Back Out Of Bad Loans

CBS5 in San Francisco, California reports:

• "This may be the life preserver for homeowners about to sink-- a way to strike back at shady loan brokers who mislead people about the true cost of their mortgage loans."
• "Federal Truth in Lending documents that are required with every refinanced loan give homeowners a greatly expanded right to cancel if the documents are not exactly right."
• "How much extended time? Try three years from the date of the loan."

In this report, attorney William Purdy from the Santa Cruz law firm of Simmons and Purdy, who reportedly with his law partner have hundreds of cases of Truth in Lending violations, is interviewed.

Also covered in the report is another case where The Fair Housing Law Project of the non-profit agency The Law Foundation, which provides free legal services to Silicon Valley individuals in need, is suing a broker and lender on behalf of a consumer borrower for Truth In Lending violations.

Purdy says the Truth in Lending Act is not a way of getting out of debt -- but it can be a way of getting out of a bad loan, and it essentially depends on whether the lenders got sloppy with the right-to-cancel document required to be given to refinancing homeowners. (The part of the law being enforced in these cases only applies to homeowners who are refinancing; it does not apply on purchase transactions.)

To watch the report, by CBS5's Tony Russomanno, see CBS5 Video - Bay Area Homeowners Backing Out Of Bad Loans, (then, click "Play") or

Go here for the text of the story - Bay Area Homeowners Backing Out.

For a related article, see Finding a legal escape clause (Attorney rescues homeowners from loans they can't afford)

For a story involving law firm Simmons & Purdy that resulted in the arrest of mortgage broker Altaf Abdulrehman Shaikh (alias Zak Kahn) for allegedly ripping off homeowners in mortgage transactions, see DA: Scammer sought to bilk homeowners.

Go here for more posts on homeowners who have refinanced into bad mortgage loans and are now using the Federal TILA to try and undo the bad loans.

Editor's Note

Using the Federal Truth In Lending Act is also being used by financially strapped homeowners to void sale leaseback, repurchase option deals entered into with foreclosure rescue operators. See, for example,

• Foreclosure Rescue Operator Violates Federal Law, State Usury Law, and
• Michigan Federal Judge Orders Return Of Home By Foreclosure Rescue Operator. undo mortgage loans TILA alpha

California Foreclosure Rescue Operator Faces Felony Charges

The Santa Cruz Sentinel is reporting that Leonard Bernot, a man who over three years ago offered to help a local, financially strapped Santa Cruz homeowner with foreclosure rescue services and ended up owning her home, is now facing felony charges on the grounds that he induced her into entering into an unlawful "equity purchase" contract, in violation of California state law and is also charged with grand theft. Bernot was charged in May of this year and pleaded not guilty on June 13.

According to county prosecutor William Atkinson, a grant deed turning over ownership of the home to Bernot was among the paperwork he had the homeowner sign; he also refinanced the property with a loan large enough to pay off the existing mortgage and to allow him to pocket $90,000.

The criminal charges allege violations of what is long standing California law (passed in 1979) regarding equity purchasers (Section 1695 - 1695.17, Cal. Civ. Code) and foreclosure consultants (Section 2945 - 2945.11, Cal. Civ. Code).

After being victimized, the homeowner retained the assistance of Soquel attorney Bill Purdy, who filed a notice of rescission (possibly a Federal Truth In Lending claim here; the article doesn't say) on her behalf in April 2005 and is representing the homeowner in a civil lawsuit against Bernot. Reportedly, Bernot trnsferred title to the home back to the victim in March of this year. (Inasmuch as it wasn't until May of this year that Bernot was charged criminally for conduct that took place three years ago, I suspect that it may have been the civil lawsuit -- and the facts that may have come out of it -- that possibly served as the impetus for the criminal action by the local prosecutor.)

For more, see Santa Cruz resident says her home was stolen in foreclosure scam (no longer available online).

Go here for more on attorney William Purdy.

Go here for more on Leonard Bernot.

Go here for more posts on homeowners who have refinanced into bad mortgage loans and are now using the Federal TILA to try and undo the bad loans. undo mortgage loans TILA alpha

Suing May Be Viable Option For Some Homeowners Facing Foreclosures

An article by The Associated Press appearing in the Naples Daily News provides a list of what financially strapped homeowners can do to try and stave off a foreclosure. Of the number of options a homeowner can consider, one route is to take the offensive and bring a contingent legal fee-based lawsuit. According to the story:

• A growing number of private lawyers, with help from consumer-rights groups and legal-aid lawyers, are pursuing legal relief for borrowers who got loans they had little chance of repaying and, the lawyers argue, shouldn't have been granted.

• Taking cases on a contingency-fee basis, these lawyers are giving borrowers the chance not only to stop foreclosure and rescind the loan, but also to seek damages for abuses in some cases. The aim is to prove that lenders granted fraudulent or "unconscionable" loans with terms skewed heavily in their favor, or to fight abuses by servicers such as phony fees that cause homeowners to default.

• The number of lawyers specializing in this area is still small, and many already have packed caseloads. Melissa Huelsman, a Seattle lawyer who has focused on wrongful-foreclosure litigation since 2001, says her caseload has doubled in the past year to 50 active cases. She is mentoring several local lawyers.

• Bill Purdy, a Soquel, Calif., lawyer, first looks for violations of federal statutes such as the Truth in Lending Act, a 1968 law that requires disclosure of key terms of the loan and its costs. "There are tons of illegal loans out there, but nobody's looking," Mr. Purdy says. Most cases settle out of court. But courts in states such as West Virginia and California have been most receptive to suits against lenders and servicers, says Margot Saunders of the National Consumer Law Center, which assists attorneys in such suits.

• A possible downside to suing: in extremely rare instances, borrowers who lose a suit may get saddled with attorneys' fees for the lenders. For a list of attorneys specializing in lender/servicer abuses, check http://www.naca.net, the Web site of the National Association of Consumer Advocates, or call your local legal-aid office or bar association.

This approach is currently being used by homeowners caught up in foreclosure rescue scams. For the rest of the story, see What people can do if foreclosure looms.

For more on consumers invoking their legal rights to undo predatory transactions that violate the law, check out these posts & links. If you want more, check out these additional posts & links. undo mortgage loans TILA alpha

Partnership Deal Results In 78 Year Old Connecticut Man's Eviction From Home, Losing Farm & 50% Interest In Property; Now Living Out Of Car

In Greenwich, Connecticut, the Greenwich Citizen reports:

• After 43 years of operating Purdy's Farm on King Street, Delmo Zanette effectively became a farmer without a farm at midnight Oct. 31. Not by choice -- at least by his account.

• The 78-year-old Zanette was ordered to vacate the property by court order resulting from a legal battle that began four years ago and ended on Oct. 7 when the court finally ruled against him and in favor of Ronald Pecunies and Arthur K. Watson Jr. - his business partners and now adversaries in the case.

***

• "I was 100 percent owner of the farm and somehow they got hold of 50 percent of my real estate," said Zanette in a phone interview this past week with the Greenwich Citizen. "I was too trusting, I did not have a lawyer I trusted them implicitly ... but somewhere things didn't go right."

***

• Zanette says with the closing of the farm, he is now surviving on income from his monthly Social Security check of $574 and hopes to raise additional money by having tag sales of antiques and a collection of some farm artifacts and books he owns. Despite having some family in the area, Zanette says he is living out of his Suburban and periodically on the couches of family and friends. [...] Currently, Zanette is still 50 percent owner in the properties, which are now on the market with Weichert Realty, listed for $2.6 million.

For more, see A Farmer Without a Farm: What to Do?

Two More Atlanta-Area Real Estate Operators Find Themselves In Hot Water In Ongoing Federal Probe Into Foreclosure Sale Bid Rigging Rackets

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

• A federal grand jury in Atlanta charged in separate indictments two real estate investors with bid rigging and bank fraud related to public real estate foreclosure auctions in Georgia, the Justice Department announced [].
  
  Real estate investor Douglas L. Purdy [indictment here] has been charged with one count of bid rigging and five counts of bank fraud for participating in the alleged conspiracy and scheme at Forsyth County, Georgia, foreclosure auctions from 2008 to 2012.
  
  Clifford Wayne Hill [indictment here] was charged with one count of bid rigging and seven counts of bank fraud related to public foreclosure auctions in Gwinnett County, Georgia, from 2007 to 2012. The defendants and their co-conspirators allegedly rigged bids at public foreclosure auctions and defrauded banks that owned the mortgage notes.
  
  Among other methods, the conspirators allegedly held secret “second auctions” of properties they had obtained through rigged bids, dividing the auction proceeds that should have gone to pay off debts against the properties and, in some cases, to homeowners who had defaulted.
  
  ***
  Including the indictments filed today in the Northern District of Georgia, 14 defendants have been charged in connection with the department’s ongoing investigation into bid rigging and fraudulent schemes involving real estate foreclosure auctions in the Atlanta area; 12 have pleaded guilty.
  
  ***
  Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Washington Criminal II Section of the Antitrust Division at 202-598-4000, call the Antitrust Division’s Citizen Complaint Center at 888-647-3258, or visit http://www.justice.gov/atr/report-violations.

For more, see Two Georgia Real Estate Investors Indicted for Bid Rigging and Bank Fraud at Public Home Foreclosure Auctions.

Lenders' Subtle Screw-Ups Letting Homeowners Off The Hook On Toxic Refinancings

Reporter Amir Efrati, of The Wall Street Journal, reports:

• Having buyer's remorse about a mortgage? It can pay to scrutinize the fine print. Amid the housing-market turmoil, homeowners have been increasingly turning to a little-known process for renegotiating or exiting a loan. Even seemingly minor paperwork slip-ups can be enough to get a "rescission" (basically, a loan cancellation) based on the Truth in Lending Act, a federal law requiring disclosure of a loan's key terms. Under a rescission, while a homeowner still owes the principal, the lender won't be able to foreclose. Plus, all loan-related fees and interest that were paid are subtracted from the principal, which can mean substantial savings for the borrower. After a rescission, the borrower must pay off the loan, typically with a new mortgage, or sell the house. Other times, lenders will modify the terms of a mortgage instead of doing a rescission.

• It isn't for everyone. Borrowers have just three years after the loan is made to make a rescission claim. It is available only to people who refinanced their original mortgage on their primary residences.

• People who haven't refinanced can still use a bevy of state laws to seek damages from lenders, mortgage brokers, real-estate agents or appraisers who committed similar mistakes (or outright fraud) during loan origination.

***

• Consumer lawyers say rescissions are on the rise. Pamela Simmons of Simmons and Purdy says the Soquel [California] law firm has done more than 300 this year, up from 200 last year. Until recently, some judges were loathe to cancel loans where the only violations were paperwork mistakes, says Ira Rheingold of the National Association of Consumer Advocates, a group of consumer attorneys. Now that foreclosures are mounting, "courts have gotten more sensitive" to violations, he says.

• Many seemingly small foul-ups can qualify. If the APR, or annual percentage rate, is off by a fraction of a percent between the preliminary and final loan documents, the loan may be rescindable. Same goes if the total in fees is off by more than $100 (or $35, if the borrower is facing foreclosure).

In one case cited in the story, the lender's failure to provide the homeowner couple with two copies of a disclosure form informing them of their three day right to cancel the loan was enough to get a toxic loan canceled, saving the couple about $60,000. They were then able to refinance their way out of the bad loan with a mortgage with better terms from a different lender.

For more, see How minor mistakes can upend a mortgage (Many seemingly small discrepancies in paperwork can qualify for a loan rescission) (story appears in the Contra Costa Times - may require free registration; or try here - courtesy of the The Press Enterprise)

Go here for other posts on using the Truth In Lending Act to Undo Bad Mortgage Loans.

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

For those stuck with bad loans who want to find out if their mortgage lender screwed up with the loan documents, and need a starting point for finding a consumer protection attorney to look over the paperwork, go here , or go here , or go here. (Don't hesitate to ask them if they work on a "contingency fee" basis - where they are entitled to their fee only if they succeed. In the context of consumer protection litigation, your attorney, if successful, will generally obtain a court order compelling the mortgage lender who screwed up to cough up the fee, therby costing you nothing out-of-pocket. Also ask the attorney if there is a charge for an initial consultation - don't be shy!)

These sources may also be a good place to begin a search for a consumer protection attorney if you're stuck with an unreasonable mortgage servicing company. Go here , go here , and go here for posts on questionable mortgage servicing practices and for those who think their mortgage servicing company is screwing them over. undo mortgage loans TILA alpha

Final Tab In Fair Housing, ADA Lawsuit Nearly $200K For Upstate NY Municipality For Its Refusal To Rezone Former School Building For Use By Non-Profit To Assist Persons Recovering From Mental Health Issues

In Ogdensburg, New York, North Country Now reports:

• Ogdensburg paid $43,276 in legal fees to defend the city against a discrimination suit brought by Step By Step Inc., according to City Manager Sarah Purdy.
  
  The sum includes fees paid to Sugarman Law Firm and a special payment to City Attorney Andy Silver for extra work that related to the suit.
  
  That’s on top of the $150,000 settlement the city was ordered to pay to Step By Step Inc. in August. However $75,000 of the settlement was covered by the city’s insurance provider.
  
  The controversy began when Step by Step sought to rezone the former Lincoln Elementary School, which it had recently purchased from Ogdensburg School District.
  
  That effort was met with backlash from the public for a variety of reasons including fear of reduced property values.
  
  Over the course of several public hearings residents in the neighborhood and clients of Step by Step made arguments to the city council about the proposed change.
  
  In the end the city denied the request with no explanation.
  
  The suit centered around Ogdensburg's denial of a zoning request in May 2015. Step by Step Inc. sued the city in federal court, alleging violations of the Fair Housing Act and Americans with Disabilities Act.

Source: Ogdensburg paid $43,276 in legal fees for defense in discrimination suit.