Saturday, March 07, 2009

NFL Cornerback, Pastor Accused In Alleged San Diego-Area Equity Stripping, Foreclosure Rescue Scam

In San Diego, California, KGTV Channel 10 reports:
  • A professional football player and a pastor are both accused of preying on San Diegans facing foreclosure, 10News reported. According to court records obtained by 10News, the player and pastor ran a foreclosure rescue scam with the player's mother. A civil complaint was filed against Baltimore Ravens cornerback Anwar Phillips, who is accused of playing a role in a local foreclosure scam.


  • The complaint said the [homeowners] met one of the foreclosure group's members at a local church who was a pastor. The group promised to be the answer to their financial prayers. "This group promised to save these people's house by temporarily putting someone on the title, and they would be able to get the house back in a couple of months," said [homeowners' attorney Mike] Vallee. However, their prayers were left unanswered, and Vallee said the [homeowners] are victims of an equity draining scam.

  • In the alleged scheme, a troubled homeowner transfers the title of the home to so-called rescuers, who then take out a new mortgage and pocket the equity. "What they ended up doing is stripping out somewhere between $90,000 to $120,000 of equity, quit paying the loan and now the people are facing foreclosure again," said Vallee.(1)

For more, see NFL Player Accused In Local Foreclosure Scam.

(1) If the homeowners who were allegedly defrauded out of their home equity can demonstrate that they were unaware of the nature of what they were signing, this could, under California law, constitute grounds for declaring the deed void from the time it was executed ("void ab initio" - for those who speak Latin), thereby leading to voiding the foreclosing mortgage as well. See Schiavon v. Arnaudo Bros., 84 Cal. App. 4th 374; Cal.Rptr.2d 801 (Cal. App 6th Dist. 2000):

  • "A deed is void if the grantor's signature is forged or if the grantor is unaware of the nature of what he or she is signing. (Erickson v. Bohne, 130 Cal.App.2d [553] at pp. 555-556)."

The Schiavon case goes on to say that "where the grantor is aware of what he or she is executing, but has been induced to do so through fraudulent misrepresentations[,]" then such a deed is not void, but is merely voidable.

In the event the deed is found to be merely voidable, the homeowners victimized by the alleged fraud can still attempt to void or cancel the deed to the purported buyer, and the mortgage obtained by the buyer. However, central to such an effort would be the ability to:

  • prove the buyer and/or lender either participated in, or had actual knowledge of, the fraud, or
  • assuming the buyer and/or the lender neither participated in, nor had actual knowledge of, the fraud, impute upon them notice of the fraud and/or any other unrecorded rights and equities (ie. equitable mortgage) the victimized homeowners may have had at the time of the conveyance.

Lack of participation in the fraud, and lack of any actual knowledge thereof, by subsequent purchasers & encumbrancers is not enough to sustain a claim of bona fide purchaser / encumbrancer. In this case, the homeowners' continued possession of the property after signing away the deed may have triggered a duty to inquire, upon both the buyer, and the buyer's mortgage lender, into the nature of the homeowners' continued occupancy in their home. For support for this proposition under California law, see Pell v. McElroy, 36 Cal. 268, 1868 Cal. LEXIS 186 (Cal. 1868), where the California Supreme Court ruled:

  • The continued exclusive possession of a vendor after his formal conveyance of the legal title is a fact in conflict with the legal effect of his deed, and is presumptive evidence that he still retains an interest in the premises, and is sufficient to put a purchaser upon inquiry, and subject him to the general rule heretofore announced in case of the party in possession being a stranger to the title as of record.

The obligation of a subsequent purchaser to inquire into the rights of the seller when the seller retains exclusive possession after the conveyance also applies to a subsequent encumbrancer/mortgage lender. See J. R. Garrett Co. v. States, 3 Cal.2d 379, 44 P.2d 538 (Cal. 1935):

  • As a general rule, possession of real property is constructive notice to any intending purchaser or encumbrancer of said property. This rule is so well established that citation of authority is hardly necessary.

The obligation of a subsequent purchaser or encumbrancer to inquire is summarized by these excerpts from Pell v. McElroy:

  • The fact of open, notorious, and exclusive possession and occupation of lands by a stranger to a vendor's title, as of record, at the time of a purchase from and conveyance by such vendor out of possession, is sufficient to put such purchaser upon inquiry as to the legal and equitable rights of the party so in possession, and such vendee is presumed to have purchased and taken a conveyance from the vendor with full notice of all the legal and equitable rights in the premises of such party in possession and in subordination to these rights; and this presumption is only to be overcome or rebutted by clear and explicit proof on the part of such purchaser, or those claiming under him, of diligent, unavailing effort by the vendee to discover or obtain actual notice of any legal or equitable rights in the premises in behalf of the party in possession. And when the location of the lands is such as to render personal application to and inquiry of the occupant practicable, a purchaser failing to make such application and inquiry is no more entitled to be regarded a purchaser in good faith than if he had so inquired and ascertained the real facts of the case.

In Scheerer v. Cuddy, 85 Cal. 270, 24 P. 713; (Cal. 1890), the California Supreme Court made this statement regarding a purchaser's duty to know who is in possession of the property he/she is purchasing:

  • Whether the respondent knew of the appellant's possession, or not, is immaterial. It was his duty to know who was in possession of the property before making the purchase, and his purchase without ascertaining the fact must be regarded as the strongest evidence of bad faith on his part. The burden of making the proper inquiry was cast upon him by the mere fact of actual possession on the part of the appellant. If it were allowed that by failing to acquaint himself with the fact of possession on the part of another than the vendor the vendee could avoid the effect of the rule above stated, he could purposely avoid any inquiry on the subject, and thereby evade the rule and its consequences entirely.

For a California case applying the bona fide purchaser doctrine and the purchaser's duty to inquire of persons in possession in the context of an equitable mortgage, see Hyde v. Mangan, 88 Cal. 319, 26 P. 180 (1891).

For more on the aforementioned points, see:

Courts Obligated To Address Jurisdictional Issues Before Reaching Merits Of A Case

A 2006 ruling of a New York appellate court serves as a reminder that a trial court's jurisdiction to entertain a dispute is a threshold matter and, accordingly, a trial court has the obligation to address this issue before proceeeding forward to rule on the merits of the case.

The appeals court ruled that it was error for a trial court to grant a judgment in a foreclosure action before first addressing whether the defendant/homeowner was properly served with legal process:
  • [W]ith respect to that branch of the defendant's motion which was to dismiss the complaint on jurisdictional grounds, the defendant's sworn denial of receipt of process was sufficient to rebut the proffered affidavit of service and the plaintiff, therefore, was required to establish personal jurisdiction by a preponderance of the evidence at a hearing (see Schwerner v Sagonas, 28 AD3d 468, 811 NYS2d 595 [2006]; Bankers Trust Co. of Cal. v Tsoukas, 303 AD2d 343, 343-344, 756 NYS2d 92 [2003]; Kingsland Group v Pose, 296 AD2d 440, 744 NYS2d 715 [2002]).

  • It is "axiomatic that the failure to serve process in an action leaves the court without personal jurisdiction over the defendant, and all subsequent proceedings are thereby rendered null and void" (McMullen v Arnone, 79 AD2d 496, 499, 437 NYS2d 373 [1981). Accordingly, the Supreme Court erred in determining the plaintiff's motion before resolving the threshold issue of jurisdiction (see Pena v Mittleman, 179 AD2d 607, 579 NYS2d 359 [1992]).

For the court's ruling, see Elm Mgt. Corp. v. Sprung, 2006 NY Slip Op 7446; 33 A.D.3d 753; 823 N.Y.S.2d 187; 2006 N.Y. App. Div. LEXIS 12494 (App. Div. 2nd Dept. 2006).

Judges Are Human, Too

The following stories support the proposition that judges, like the rest of us, are human and that some of them are quite capable of getting into hot water.
  • Pennsylvania: An unprecedented case of judicial corruption is unfolding in Pennsylvania. Several hundred families have filed a class-action lawsuit against two former judges who have pleaded guilty to taking bribes in return for placing youths in privately owned jails. Judges Mark Ciavarella and Michael Conahan are said to have received $2.6 million for ensuring juvenile suspects were jailed in prisons operated by the companies PA Child Care and a sister company, Western PA Child Care. See Penn. Judges Get Kickbacks for Placing Youths in Privately Owned Jails.

  • New York: Supreme Court Justice Joseph S. Alessandro of the Ninth Judicial District in New York and his brother, Bronx Civil Court Judge Francis M. Alessandro, should be removed from office for failing to repay on time a $250,000 loan made to one of Joseph Alessandro's campaigns and for misstating their financial holdings and obligations on disclosure forms and loan applications, the Commission on Judicial Conduct recommended in two decisions made public in February. See N.Y. Agency Recommends Removal of Two Judges Who Are Brothers (Read the Commission's Findings on Justice Joseph Alessandro and Judge Francis Alessandro).

  • New York: A Long Island judge notoriously dubbed "Senator Road Rage" for his horrifying behavior while he was a politician nearly mowed down a traffic agent in Manhattan and then threatened the officer's job, The Post has learned. Court of Claims Judge James J. Lack and his daughter, Katherine, 37, were "barreling down" West 60th Street near the Mandarin Oriental Hotel at about 5 p.m. when they crossed paths with the unlucky agent, sources said. The robed rage-a-holic - who's been involved in dozens of angry driving incidents over the last 20 years - gunned his engine to swerve around the agent, who struck his hand on the passenger's-side mirror, the sources said. See ROAD-RAGE LI JUDGE IS AT IT AGAIN.

  • Texas: The presiding judge of the highest criminal court in Texas has been charged by the state judicial ethics commission. Judge Sharon Keller has been charged over her refusal to allow Michael Richard, a death row prisoner, to file an after-hours appeal in 2007. Keller, a Republican, could be removed from office or reprimanded if she is convicted. The State Commission on Judicial Conduct, in its charging papers, said Keller's "willful and persistent failure" to follow her court's execution-day procedures on Sept. 25, 2007, constituted "incompetence in the performance of duties of office." See Texas judge charged with judicial misconduct.

  • Arkansas: A lawyer accused of trying to defraud a pawnshop out of a lawn mower has pleaded guilty to a misdemeanor charge and surrendered his law license. Donald Warren Senior of Pine Bluff was serving as a special judge in Jefferson County when he signed an order July 16 for Money Corner to release a Land-Pride Finish Mowing Deck to him. Warren claimed he was the owner, although he had not filed a police report on the theft of the machine. See Ark. lawyer enters guilty plea, surrenders license.

For other posts on judges in hot water, go here and go here. knuckleheaded judges zeta

Friday, March 06, 2009

Foreclosure Defense Self-Help Seminar Upcoming In Downtown Miami

In Miami, Florida, South Florida Caribbean News reports:
  • Homeowners who are in any stage of foreclosure in Miami can now get the help they need during a FREE legal seminar designed to address homeowners’ rights and the types of foreclosure defenses available to them. The Homeowners Legal Assistance Program for the public will be held Saturday, March 14 at the Miami-Dade College Wolfson Campus, located at 245 N.E. 4th Street, Room 3210, Building 3000, from 9 a.m. to 3 p.m. Attendees will have an opportunity to ask questions of attorneys who handle foreclosure cases.(1)

  • Homeowners will be able to meet with an attorney one-on-one after the presentations. They will be seen on a first come, first served basis. Homeowners should bring [their loan and court] documents related to their case[. ... M]ayor Carlos Alvarez’ Mortgage Fraud Task Force [...] will distribute forms for filing criminal complaints involving mortgage fraud.

For more, see Free Homeowners Legal Assistance Program Provides Foreclosure Help To Residents of Miami Dade County.

(1) Presenters include former U.S. Attorney for South Florida Kendall Coffey; Consumer Advocate attorney Leonard Elias of the Miami-Dade Consumer Services Department; attorney Erik Wesoloski, whose law practice concentrates in real estate litigation and real estate transactions; bankruptcy attorney Jordan Bublick; Chief Counsel Glen Theobald of the Miami-Dade Police Department; and Richard Zaretsky, who is a Florida Bar Board certified real estate attorney. Elias will be the moderator, and Tim Ravich, President of the Dade County Bar Association will give the opening remarks.

Freddie Suspends Foreclosures On Mortgages Qualified For Obama Modification Plan; Will Enter Landlord Business; Halts Evictions Thru April 1

In McLean, Virginia, Freddie Mac announced this week:
March 4 press release:
  • Freddie Mac [...] announced it is suspending foreclosure sales on mortgages eligible for the Home Affordable Modification Program announced [...] as part of the Obama Administration’s Making Home Affordable plan. [...] Specifically, Freddie Mac will instruct its servicers not to complete a foreclosure sale on a mortgage eligible for the Home Affordable Modification program unless they completed their effort to contact the borrower and either the borrower did not respond or lacked the capacity or willingness to participate in the Home Affordable Modification program or any other Freddie Mac workout program.
March 6 press release:

  • Freddie Mac [...] announced the official launch of its new REO Rental Initiative giving qualified tenants and former owners the option to lease their recently foreclosed properties on a month-to-month basis. The REO Rental Initiative will be managed by HomeSteps®, Freddie Mac's national real estate unit, and implemented through several national property management firms.

  • Freddie Mac also announced it will continue to suspend all eviction actions until April 1, 2009 to ensure there is ample time for current occupants to learn about the options available to them under the new initiative.

Go here for the entire March 4 press release: Freddie Mac Stops Foreclosure Sales on Loans Eligible for New Obama Home Affordable Modification Program.

Go here for the entire March 6 press release: Freddie Mac Officially Launches REO Rental Initiative for Tenants Owner-Occupants After Foreclosure (Freddie Mac Continues Suspension of Evictions Through April 1, 2009).

Current, Former L.I. Local Municipal Officials Accused Of Swiping 4-Acre Parcel; Used Unlawful Tax Deed Scheme, Says Developer In Civil RICO Suit

In Nassau County, Long Island, Newsday reports:
  • A developer has filed a civil racketeering lawsuit against a dozen Freeport Village and former Nassau County officials, accusing them of conspiring to take by unlawful means a 4-acre parcel he owns. The suit claims that Freeport Mayor William Glacken and his brother-in-law, village attorney Harrison J. Edwards, plotted with former Nassau deputy treasurer Keith Sernick and others between 2000 and 2004 to take the property through an unlawful tax deed scheme. The defendants acquired the property, which the owner subsequently retrieved through court action.

For more, see Suit accuses Freeport, Nassau officials of land scheme.

Colorado Regulator: Local Realtor Association Thwarting Attempts To Probe Mortgage Fraud

In Colorado Springs, Colorado, The Gazette reports:
  • The state's top real estate cop subpoenaed the Pikes Peak Association of Realtors for access to its Multiple Listing Service database on Wednesday, accusing the group of hindering her agency's investigations into local cases involving millions in fraudulent loans that left buyers with ruined credit and sent homes into foreclosure. Erin Toll, director of the Colorado Division of Real Estate, said her investigators were forced to use surreptitious means to get access to the MLS, and she is "furious" about it.


  • Toll wants her staff of 50 to be able to search the Pikes Peak MLS to search for signs of overappraised properties, pockets of houses going into foreclosure and other indicators of mortgage fraud. She said her investigators should not have to reveal the details of each investigation to the real estate association staff and possibly compromise their probes, and added that they have unfettered access to virtually every other MLS database in the state.

For more, see State sues realty group over access to database.

Homeowners Bombard California State Bar With Complaints Against Attorneys Doing Loan Modifications; Calls Up To 1,000/Month, Says Official

In San Francisco, California, KCBS Radio 740 AM reports:
  • As the Obama Administration kicks off a $75 billion loan modification plan, the California State Bar is reporting a high number of calls regarding lawyers who may be crossing the line when working with loan modification specialists. It's prompted the Bar to take the unusual move of issuing an "ethics alert".(1)

  • California law prohibits foreclosure consultants from taking fees up front. Lawyers, on the other hand can, so often they're asked by foreclosure specialists to work with them and split the fees, but that's against the rules.

  • "It's possible that lawyers have gone to law school and have gone through the ethics portion of their admissions requirements and don't realize that they're not supposed to split fees with non-lawyers. For those lawyers that don't know that, this is helpful," said Russell Weiner, who is deputy trial counsel with the State Bar.

  • He says just a few months ago they started getting calls from people complaining about hiring a lawyer to help with loan modification, only to wind up losing the house. Those calls are now up to a thousand a month. He says if a lawyer does hire a so called mortgage specialist, or non-lawyer to work on a case, he or she must supervise them.

  • The worst offense Weiner says he's seen is lawyers who are letting non-lawyer[s] use their name to get clients in the door. "For a lawyer to basically sell their name to make it look like a lawyer is basically handling their case when they're not, that is pretty significant," said Weiner.

Source: CA Bar Sounds Ethics Siren Over Foreclosures.

For the State Bar's press release, see STATE BAR ISSUES FORECLOSURE ETHICS ALERT.

Go here and go here for other posts on issues relating to attorneys' professional ethics and the unlicensed/unauthorized practice of law in the context of loan modifications and foreclosure rescue.

(1) See ETHICS ALERT: Legal Services to Distressed Homeowners and Foreclosure Consultants on Loan Modifications. UnauthPractOfLawKappa

Orlando Loan Modification, Foreclosure Rescue Firm Shuts Down Amid State AG Probe, Reopens Under A Different Name

In Orlando, Florida, WFTV Channel 9 reports:
  • A foreclosure rescue firm, that Action 9 first exposed last year, is back in business with a new name. Homeowners claim they've been taken for thousands. She was the face of hope---at least many homeowners thought Nanci Hubsch was going to save them from foreclosure. [... One homeowner said] she was told the company ["Fix the Foreclosure"] was HUD government approved to negotiate with lenders to lower monthly payments.---but we found it's not.


  • Since Action 9 first exposed the company, the Attorney General has launched a formal investigation of unfair and deceptive trade ... But we found Nancy Hubsch has already changed company names---and she's running new ads. Her company is now called the American Housing Counsel---and it's website is HUD though it's not a federal HUD approved agency. It's business address is a virtual office in a downtown tower.

For more, see Action 9 Exposes Foreclosure Company.

Go here for a summary of the allegations regarding AG's probe into Fix the Foreclosure.

Arizona Landlord In Foreclosure Leaves Tenants In Over A Dozen Buildings Under Threat Of Utilities Shutoffs, Lack Of Maintenance

In Phoenix, Arizona, KTVK-TV Channel 3 reports:

  • A California outfit that's one of the biggest apartment investors in the Valley is facing serious financial difficulties that could leave employees and residents in a major lurch. According to property managers in three cities, lenders are beginning to take over the operations of more than a dozen complexes owned by Bethany Group.

  • Some employees say they have not been paid since January. Residents say repairs and basic maintenance are not being taken care of. In some cases, there's the threat that utilities could be shut off. [...] The 13 complexes owned by Bethany Group reportedly are in receivership, which is one of the beginning stages of foreclosure.

For more, see Apt. investment group's financial troubles bad for Valley tenants.

See also, KNXV-TV Channel 15: Valley company leaves residents, employees scratching heads:

  • [G]reen pools and trash overflowing are common. "It's an issue everyday with trash, with water, with electricity. It just goes on and on," said complex site manager Cheryl Credio.

For story update (3-9-09), see Tenants at risk of losing water get court appointed help.

Go here for other posts on Bethany Group buildings in foreclosure.

For other posts involving the problems tenants face in homes in foreclosure, go here, go here, go here, go here, go here, go here, and go here. SkimmingKappaRent

California Appeals Court Upholds Oakland's "Just Cause" Tenant Protection Law

From the Office of the City Attorney, Oakland, California:
  • On Tuesday, March 3, City Attorney John Russo announced that the city has prevailed in a 6-year lawsuit filed by landlords seeking to overturn Oakland’s strong tenant protection law – the Just Cause for Eviction Ordinance [Measure EE].(1) A decision last week by the California Court of Appeal upholds the Just Cause ordinance and affirms the right of tenants to receive significant damages and attorney fees from landlords who break the law.

  • "Oakland has been hit with waves of illegal evictions as a result of the foreclosure crisis," City Attorney Russo said. "Some banks and their agents have routinely violated the law by evicting good tenants from foreclosed apartments and homes without cause."

For the rest of the Oakland City Attorney's press release, see Oakland’s Tenant Protection Law Upheld by Appeals Court.

For the ruling of the California Appeals court, see Rental Housing Association of Northern Alameda County v. City of Oakland.

(1) Measure EE is codified at Oakland Municipal Code chapter 8.22.300 et seq. SkimmingKappaRent

Thursday, March 05, 2009

Georgia Man Facing Foreclosure Charged With Commercial Gambling For Selling Raffle Tickets In Attempt To Sell Home

In Gwinnett County, Georgia, The Atlanta Journal Constitution reports:
  • A Lawrenceville man went from the poor house to the big house this week after he was arrested in connection with a raffle scam. Joseph Imafidon set up a website called luring prospectors to buy raffle tickets for $100 each, said Stacey Bourbonnais, spokeswoman for the Gwinnett County Sheriff’s Department.(1)

  • You can get this house for $100,” the Web site beckons. An appealing photograph shows a four-bedroom, two-and-a-half- bathroom home at 1791 Surrey Hill in Lawrenceville.

For more, see Lawrenceville man busted in house raffle scam.

(1) According to the story, Imafidon allegedly contacted the Sheriff’s Department in December to apply for a raffle license. His request was denied because raffle licenses are only granted to nonprofits or charity events. Bourbonnais said his request did not meet that criteria. Imafidon perpetuated the alleged scam for months despite repeated warnings from the Sheriff’s Department to shut down the website.

Ex-Countrywide Execs Now Cashing In On Self-Created Mess?

The New York Times reports:
  • Fairly or not, Countrywide Financial and its top executives would be on most lists of those who share blame for the nation’s economic crisis. After all, the banking behemoth made risky loans to tens of thousands of Americans, helping set off a chain of events that has the economy staggering.

  • So it may come as a surprise that a dozen former top Countrywide executives now stand to make millions from the home mortgage mess. Stanford L. Kurland, Countrywide’s former president, and his team have been buying up delinquent home mortgages that the government took over from other failed banks, sometimes for pennies on the dollar. They get a piece of what they can collect.(1)

For more, see Ex-Leaders of Countrywide Profit From Bad Loans.

See also, Blogging Stocks: Former Countrywide honchos look to cash in on their mess.

(1) According to the story, Mr. Kurland said he regrets what happened at Countrywide and in the mortgage industry nationwide, but does not believe he deserves blame. But lawsuits against Countrywide raise questions about Mr. Kurland’s portrayal of his role. The lawsuits, including one filed by New York State’s comptroller, say Mr. Kurland was well aware of the risks, and even misled Countrywide’s investors about the precariousness of the company’s portfolio. “Kurland is seeking to capitalize on a situation that was a product of his own creation,” said Blair A. Nicholas, a lawyer representing retired Arkansas teachers who are also suing Mr. Kurland and other former Countrywide executives.

Legal Bills Pile Up For BC Homeowner In Effort To Get Back Home Stolen From Out From Under Him

In Richmond, British Columbia, reports:
  • Richmond [Royal Canadian Mounted Police] are investigating what is believed to the city's first-ever case of house theft. Norman Gettel, a retired press operator, had his house literally stolen out from under him in June 2007. One year later, he is still waiting to get back title on the home he has owned since 1985, and the legal bills are piling up. "I'm out quite a few thousand dollars already," he said. "I'm going to spend the money because I want my house back."


  • The scheme starts with identity theft and ends with a bank holding the bag on a defaulted mortgage.(1) It also ends with the homeowner having to spend a considerable amount of time, money and effort to get legal title back.

For more, see Scam artists steal house (Richmond RCMP are investigating what is believed to the city's first-ever case of house theft).

In another story on British Columbia home title ripoffs, see B.C. Appellate Court Sides With Victims Who Lost Homes In Deed/Refinance Scams Involving Use Of Forged Documents; Duped Lenders End Up Holding The Bag.

Go here, Go here, Go here, Go here, Go here, and Go here for other posts related to deed or refinancing scams by forgery, swindle, power of attorney abuse, etc.

(1) According to the story, the sale is on paper only. If any money changes hands, it comes and goes from the same criminal organization's pocket. Nor do the new owners try to take possession of the house. The fraudsters make their money by taking out mortgages on the newly transferred properties. By the time anyone notices something is awry, the thieves have scammed the bank out of hundreds of thousands of dollars. DeedGammaTheft

Lenders Refusing To Bid At Foreclosure Sales Leaves Homeowners On The Hook For Housing Court Citations

In Cleveland, Ohio, National Public Radio reports on what reportedly is a growing practice by lenders at Cuyahoga County sheriff sales of refusing to bid on their own foreclosures:
  • [W]hen there's no bid, the lender can either try to sell at another sheriff sale or do nothing. Doing nothing means the foreclosure is not complete. And Cleveland foreclosure attorney Larry Rothenberg says doing nothing is becoming more popular.

  • "Lately, lenders are finding that the costs to purchase property at the sheriff sale and resell it, and the likelihood of finding a buyer weigh against a decision to buy the property. And so it's become more likely than before that lenders are not entering bids at sheriff sales," Rothenberg says.


  • [Foreclosed homeowner Sharon Little] found out her name was still on the deed only when she got a summons last October to appear in housing court. [...] Cleveland Housing Court officials say they are now seeing homeowners take matters into their own hands. Little, for instance, wrote up a deed and gave her house to her lender. "That's because it was their house from the jump, so that's what we do — give it right back to them. You can keep your house. I don't want it," Little says.

For more, see Banks Refusing To Take Back Foreclosed Properties.

Go here for other posts on code violation & other problems associated with homes in legal limbo. responsibility code violations foreclosure

Ohio AG: Watch Out For Phony "Stimulus Vouchers" - Solicitations Containing The Words "Federal" & "Tax Benefits" - Foreclosure Rescue Scams

From the Ohio Attorney General's Office:
  • [I]n 2008, the Ohio Attorney General’s office received more than 25,000 consumer complaints. [...] Many of the complaints filed involve old predatory practices tailored to current issues, catching Ohioans off-guard. The AG’s Office has seen a recent trend in federal stimulus package scams with companies purporting to send “stimulus vouchers” and use words such as “federal” or “tax benefits” to mislead consumers into believing that they are associated with the government. Another hot topic for scam artists is foreclosure rescue packages.

For the Ohio AG press release, see Consumer Scams Rise as Economic Conditions Decline (Cordray, State, Local Agencies Kick Off National Consumer Protection Week).

Florida AG: 40+ Active Investigations Into Loan Modification, Foreclosure Rescue Firms

From the Florida Attorney General's Office:
  • Attorney General Bill McCollum [Tuesday] issued a consumer advisory as part of National Consumer Protection Week on foreclosure "rescue" services and loan modification offers, the most frequent subject of complaints to the Attorney General's Office during 2008. Within the last year, the Attorney General's has reviewed information on over 200 foreclosure rescue businesses and has over 40 active investigations into potential violations of Florida's Foreclosure Fraud Protection Act, a new law supported last year by the Attorney General. Several lawsuits have been filed throughout the state, including one against a South Florida company which allegedly defrauded several hundred homeowners out of more than $1 million collectively.

For more, see Homeowners encouraged to look for warning signs, avoid common scams.

Wednesday, March 04, 2009

NY Loan Modification Firm Facing $100M Class Action Suit Back In The News

In New York City, the New York Daily News recently ran a couple of stories that mention Long Island-based loan modification firm American Modification Agency ("AMA"). The firm reportedly is facing a $100 million class-action suit that claims the company has collected fees from more than 7,000 homeowners nationwide - all potential victims. For the stories, see:

For an earlier story on AMA, in which former employees were interviewed and who give an insider's description of the firm, see Crain's New York Business: No helping hand (Struggling families sue mortgage fixer AMA; paid but got nothing in return).

Vegas Loan Modification Firm Shuts Down Amid Suspicions Of Unlicensed Practice Of Law

In Las Vegas, Nevada, KLAS-TV Channel 8 reports:
  • A local company that claims it can stop foreclosures closed its doors Monday. A sign posted at the U.S. Justice Foundation tells clients it is filing for bankruptcy, but the I-Team has learned that's only part of the story. The I-Team has been looking at the U.S. Justice Foundation, and its owner Jack Ferm, for some time. So has the state Attorney General's Office, the District Court, the Federal Court, and the state bar.

  • The company claims it can stop foreclosures by helping people to sue their mortgage companies themselves. Though it's unclear how many if any of those suits have been successful, they've captured the courts attention. Ferm has been ordered by both the state and the federal court to explain why he shouldn't be held in contempt for practicing law without a license. He is not an attorney.

For more, see Mortgage Relief Company Closes Amid Investigation.

For story updates, see:

Go here and go here for other posts on issues relating to attorneys, loan modifications, and the unlicensed/unauthorized practice of law. UnauthPractOfLawKappa

Attorneys Incur License Suspensions For Fee Sharing, Other Violations In Arrangement With Loan Modification, Foreclosure Rescue Operator

Two relatively recent decisions from the Ohio Supreme Court illustrate how attorneys who allow themselves to be pimped out by upfront fee loan modification firms and foreclosure rescue operators can find themselves in hot water.

The attorneys accepted client referrals from WJW Enterprises, an organization that purported to assist persons trying to keep their homes after foreclosure proceedings had been filed against them. Some of the clients referred by WJW to the attorneys were in need of advice and representation on bankruptcy matters. The president of WJW was James Warsing,(1) who was not an attorney licensed to practice law in Ohio.

Among the violations of the attorneys' Code of Professional Responsibility were findings that the homeowners never paid the attorneys any money but rather, paid money to WJW, who passed along some of it to the attorneys providing the legal services, and pocketed the rest.

The Ohio high court made this observation on the need to prohibit this type of arrangement:

  • [T]he prohibition against sharing legal fees with nonlawyers benefits the public by (1) limiting the possibility that a nonlawyer will interfere with the exercise of a lawyer's professional judgment in representing a client and (2) ensuring that the total fee paid by the client is not unreasonably high. ABA Comm. on Ethics and Professional Responsibility, Formal Op. 356 (1988). The prohibition also limits the possibility that a nonlawyer will be motivated to engage in the improper solicitation of business for a lawyer.

For more, see:

For another Ohio attorney disciplinary action involving a different loan modification, foreclosure rescue operator using a similar compensation arrangement with the lawyers involved, see:

Go here and go here for other posts on issues relating to attorneys, loan modifications, and the unlicensed/unauthorized practice of law.

(1) On December 12, 2007, the Ohio Feds hit Warsing with a Federal mail fraud indictment in connection with the activities where he allegedly promised homeowners he could save their homes from foreclosure. See Indictment - U.S. v. Warsing, and U.S. Attorney News Release. The matter is still pending. At last check, Warsing appears to be in the process of changing his not guilty plea. A hearing is scheduled in an Ohio Federal Court for the end of March.

(2) The attorney in this case also held a license to practice law in New York, which the Committee on Professional Standards in New York moved for and obtained an order imposing reciprocal discipline (see 22 NYCRR 806.19), resulting in a reciprocal suspension for a period of one year, effective as of April 18, 2007, the date of his suspension in Ohio. Matter of Simonelli, 2007 NY Slip Op 6326; 43 A.D.3d 548; 842 N.Y.S.2d 587; 2007 N.Y. App. Div. LEXIS 8834 (NY App. Div. 3d Dept. 2007). UnauthPractOfLawKappa

Suit Filed Against Firm That Allegedly Provides Advice To Homeowners In Connection With Walking Away From "Underwater" Homes

In Capistrano Beach, California, MISH'S Global EconomicTrend Analysis posts that You Walk Away LLC was sued for alleged violations of California State Law. A copy of the News Release from attorney Benjamin L. Meeker announcing the lawsuit is included in the post:
  • CAPISTRANO BEACH, Calif., February 23, 2009 – The Law Offices of Benjamin L. Meeker, APC announced today that it represents the plaintiffs in a class action lawsuit filed against You Walk Away, LLC, a “foreclosure consultant” company located in Carlsbad, California. According to the complaint filed in San Diego County Superior Court on February 13, 2009, You Walk Away peddles foreclosure consulting “services” and “protection kits” through which it entices desperate homeowners into paying an upfront fee of $995 for an essentially worthless service.

  • We believe that You Walk Away’s conduct falls within that described by the California Attorney General’s Office as the ‘Foreclosure For a Fee Scam’” says attorney Benjamin Meeker.(1)

For the rest of the post, see You Walk Away LLC sued in class action lawsuit.

See also, San Diego Union Tribune: Foreclosure consultants in Carlsbad target of suit.

For docket information on this case, see Hurst v. You Walk Away LLC.

(1) If the firm actually counsels homeowners to cease making their mortgage payments, said conduct may give rise to a cause of action for the mortgage lender as a tortious interference with an existing contract. See Quelimane Co. v. Stewart Title Guaranty Co., 19 Cal. 4th 26; 960 P.2d 513; 77 Cal. Rptr. 2d 709; 1998 Cal. LEXIS 5419 (1998):

  • "The elements which a plaintiff must plead to state the cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage." (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal. 3d 1118, 1126 [270 Cal. Rptr. 1, 791 P.2d 587].)

Retirement Home Operator In Ch. 11 & Facing Foreclosure Now Hit With SEC Charges; Accused Of Deception In Sale Of Partial Interests To 1300+ Investors

Reuters reports:

  • U.S. regulators charged Sunwest Management and its former chief executive with securities fraud on Monday, alleging the retirement home operator lied to investors and eventually operated the business as a kind of Ponzi scheme. The Securities and Exchange Commission accused Oregon-based Sunwest, which operates more than 200 U.S. retirement homes, and former CEO Jon Harder of concealing the risks of investments and exposing investors to "massive losses."


  • "By June 2008, they operated Sunwest virtually as a Ponzi scheme," the lawsuit said, adding that money raised in the final offerings was used to pay old investors their 10 percent return. By January 2009, more than 100 Sunwest retirement homes were placed in foreclosure, receivership or bankruptcy, the SEC said.

For more, see SEC charges Sunwest Management with fraud.

From the Securities and Exchange Commission:

Go here for other posts on nursing home operator Sunwest Management.

Tuesday, March 03, 2009

Calif. Widower Takes On MERS As Bankruptcy Judge Thwarts Foreclosure Attempt, Sanctions Attorney For Sloppy Motion; Homeowner Files Suit Seeking $1M+

In Cerritos, California, reports:
  • Questions linger here, as ripe and nagging as the odor that once wafted over this former dairy capital: Who is trying to seize the home of Ray Vargas, child of the Great Depression, D-Day veteran and loving husband who just wanted to do right by his dying wife? And are they entitled to it?

  • In bankruptcy court documents, the party attempting to foreclose is identified as Mortgage Electronic Registration Systems Inc., or MERS,(1) a small Vienna, Va.-based company employed by lenders to streamline the resale of mortgage loans and servicing rights. In that role, MERS claims an interest in tens of millions of U.S. home loans and the legal right to foreclose on those in default.

  • But MERS never gave Vargas a loan. It never collected money from him or recorded his payments. It had no ability to modify his loan. What it did have was a copy of a document that named it a “beneficiary” of the mortgage on his home and a “nominee” for the lender and “lender’s successors and assigns.” But it has never identified the current holder of the loan.

  • While such documentation has allowed many foreclosures to proceed around the nation, the judge in Vargas’ case threw MERS for a loop, ruling that the company had no right to attempt to seize his home on behalf of unnamed plaintiffs. “No such unidentified parties are permitted in a motion before the court,” wrote Judge Samuel L. Bufford. Bufford’s October ruling kept the foreclosure on hold and opened the door for Vargas to sue MERS in an action aimed at clearing his home of the $826,549 in debt he says is the result of fraud, forgery and abuse of process.


  • [J]udge Bufford’s ruling in Vargas’ case was greeted with enthusiasm by [consumer bankruptcy advocates]. In a withering opinion, the judge said MERS “presented no admissible evidence” in its case. And he found that sanctions should be imposed against [Mark T.] Domeyer, the attorney representing MERS, for bringing such a sloppy motion to court. The bottom line, Bufford said, was that the true owners of the loan — “highly unlikely” to be original lender Freedom — did not come forward in court and MERS failed to prove any right to act on their behalf.

For the entire story, see D-Day vet's tale parallels mortgage meltdown (Ex-corpsman, 84, blames 'greed, greed, greed' as he faces losing his home).

For Judge Bufford's ruling in this case, see In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008).

Go here for the homeowner's lawsuit against MERS and Freedom Home Mortgage Corporation.

For posts that reference the failure of mortgage lenders and their attorneys to file the proper paperwork when bringing foreclosure actions, Go Here, Go Here, Go Here, Go Here, Go Here, and Go Here.

(1) A 2007 lawsuit against MERS (Trevino v. Merscorp Inc., et al.) identified its controlling shareholders as: Citigroup, Inc., Countrywide Financial Corporation, Fannie Mae, Freddie Mac, GMAC-RFC Holding Company, LLC, (doing business as GMAC Residential Funding Corporation), HSBC Finance Corporation, JP Morgan Chase & Co., Washington Mutual Bank, and Wells Fargo & Company.

Among other things, the 2007 lawsuit alleged that "MERS is grossly undercapitalized to cover the potential liability stemming directly from its role as primary mortgagee on tens of millions of Mortgage Notes." Because of this, the suit sought to "pierce the corporate veil of MERS" and hold the the controlling shareholders jointly and severally liable for damages as well as MERS (see Trevino v. Merscorp Inc., et al. - page 8, paragraphs 9(l) and 9(m)). See also, Homeowners In Foreclosure Being Clipped For Illegally Inflated Legal & Appraisal Fees, Says Lawsuit. Copyright 2009 The Home Equity Theft Reporter (http:/ ThetaMissingDocsMtg

Scammer Sentenced For Hate Crime For Targeting Now-Deceased Elderly Alzheimer's Victim In Theft Of Home Equity

In Jamaica, Queens, the New York Post reports:
  • A former Long Islander was sentenced on hate-crime charges yesterday for pulling a brazen, $800,000 mortgage scam on a 94-year-old Alzheimer's victim, officials said.(1) Alexandra Gilmore, 37, will have to serve two to six years behind bars for the cruel con job because New York hate-crime laws apply to victims targeted because of their age, said Queens District Attorney Richard Brown.

For the story, see 'ALZHEIMER' SCAMMER GETS 2 YRS.

Go here for the Queens DA press release: Long Island Woman Is Sentenced In Hate Crime For Targeting 93-Year Old Queens Man In $800,000 Mortgage Fraud Scheme (Receives Two To Six Years In Prison).

Go here, Go here, Go here, Go here, Go here, and Go here for other posts related to deed or refinancing scams by forgery, swindle, power of attorney abuse, etc.

(1) According to the story, Gilmore first went after Artee McKoy, a Jamaica resident and friend of her late father, in 2004, when she posed as his daughter and took out a $150,000 mortgage on his [...] home. Not satisfied with that haul, she took out a second, $420,000 mortgage on the home without McKoy's knowledge. In 2005, Gilmore expanded her con, stealing McKoy's house away by teaming up with a "straw buyer" and forging the elderly man's name on documents of sale. The phony buyer - who officials say is Rebecca Tharpe, 31, of Brentwood, LI - got a mortgage on the home for $395,000. The pair then allegedly split the dough. The house was eventually put into foreclosure. McKoy died last Christmas Eve. DeedGammaTheft

D.C. Appeals Case Provides Roadmap For Obtaining Triple Damages Plus Punitives Against Foreclosure Rescue, Equity Stripper

A 2006 decision of the District of Columbia Court of Appeals may provide a roadmap for how a state's consumer protection laws can be used to obtain significant damages from a foreclosure rescue operator engaged in an equity stripping arrangement. The players in this case are Rodney Byrd, the foreclosure rescue operator, and Hattie Smith, the homeowner. Tina Jackson, Hattie Smith's grandchild, brought the case on behalf of her grandmother's estate.

The fact pattern, in Byrd v. Jackson, No. 04-CV-940, 902 A.2d 778; 2006 D.C. App. LEXIS 362 (2006), is summarized in the first paragraph of the appellate court's opinion:
  • Plaintiff-appellee, the grandchild and personal representative of the estate of the deceased Hattie Smith, brought suit against appellant (Byrd) for his conduct in persuading Smith to sign documents which resulted in the sale of her home to a partnership Byrd controlled. After a bench trial, the judge found that Byrd had committed multiple violations of the District of Columbia Consumer Protection Procedures Act, D.C. Code §§ 28-3901 et seq. (2001) (the CPPA or the Act), and awarded treble and punitive damages to the estate.

  • The judge found, in essence, that despite representing himself to Smith as a foreclosure specialist who would assist her in retaining ownership of her home, Byrd "orchestrat[ed] ... the sale of [her] property worth $ 200,000" to the partnership he controlled for $ 33,000, then "flip[ped] the property to [a third person] for $ 150,000 from which Byrd would take substantial money." n1

[Opinion, footnote 1: Indeed, the judge found that ultimately Byrd had paid Smith nothing for the property].

In applying the D.C. consumer protection statute, the appellate court rejected the foreclosure rescue operator's attempt to characterize the relationship between himself and the frail, elderly homeowner as "a purchaser-seller relationship in which Smith, in an arm's length transaction, sold her house to him in circumstances admittedly unfavorable to her but not of his making."

The appellate court agreed with the lower court ruling that the relationship between Byrd, who presented himself to the homeowner as a "foreclosure specialist" who would aid her in keeping her home -- and not as a prospective buyer, and Hattie Smith was a merchant-consumer relationship to which the D.C. consumer protection statute was applicable.

  • As the [trial] judge concluded, it enabled him to gain Smith's trust by a promise to save her home, after which he "orchestrat[ed]" the scheme to gain title to the home "for a fraction of its value." Both the treble damages, which under the CPPA "serve a remedial rather than a punitive purpose," [...], and the separate punitive damages award -- which the judge assessed after finding Byrd's actions to have been "particularly malicious because . . . calculated to take advantage of a frail, elderly and vulnerable widow" -- are entirely justified on this record.

The trial judge found that Hattie Smith lost $148,175.41 equity in her home, and accordingly based the treble damage calculation on that amount. (The actual award of $315,026.23 represented a multiplier of three minus a credit of $ 129,500 from other settling defendants).(1)

For the opinion, see Byrd v. Jackson, No. 04-CV-940, 902 A.2d 778; 2006 D.C. App. LEXIS 362 (2006).

For the trial court ruling, see Jackson v. Byrd, Civil Action No. 01-ca-825 , 2004 D.C. Super. LEXIS 19 (D.C. Super. Ct., 2004) (link may require free registration at LexisOne Free Case Law).

For a media report on this case, see The Washington Post: Judge Rules Against Foreclosure Rescuer (Investor Ordered to Pay Widow's Estate).

(1) The trial court noted in its ruling that Byrd, who (as a result of a motion filed by Plaintiff) was prohibited from testifying at trial because during his deposition, he invoked his 5th Amendment right to remain silent, was no stranger to the D.C. courts in cases with similar fact patterns:

  • This was not the only time Byrd inserted an unconscionable price into a contract to buy the home of a frail elderly person. In Cole v. Herbert (Civ. Action No. 98-9252), Byrd bought a house worth $ 120,000 for $ 8000 by defrauding the personal representative of three elderly people who owned interests in the home. (P Ex. 96) In Crockett v. Byrd (Civ. Action No. 98-1584) Byrd purchased a home worth $ 150,000 for $ 56,000 from an elderly lady suffering from dementia. (P Ex. 73)

  • From all of the facts described above, the Court concludes by a preponderance of the evidence that Byrd made and enforced an unconscionable sales price by taking advantage of Smith's frail physical and mental condition. As a self-proclaimed foreclosure specialist, he got this frail elderly woman to trust him with saving her home, and then he took it for himself at an unconscionable price.

Buyers Cautioned To Address Title Issues When Buying Foreclosed Homes

In a Q & A article in The Memphis Daily News, Tennessee real estate attorney Ryan E. Byrne cautions investors about buying foreclosed properties without understanding all the risks and legal ramifications. One potential problem arises when a lender, in its effort to unload a foreclosed home, requires the use of a title insurance agent selected by them to insure the title to the home.
  • [T]he perception is that a foreclosure wipes away any clouds on a title that were there before. A foreclosure wipes away a lot, but it doesn’t clean the slate completely clean. If there’s anything that was in existence prior to the deed of trust that was foreclosed upon, that remains an issue, and often times, these foreclosing banks require you to close with their chosen title officer. They don’t give you the option of closing with your own attorney, and sometimes these old title issues – not only are they not dealt with properly by the foreclosing banks – they usually aren’t disclosed to the purchaser. Sometimes, several years later, these things pop up when the client is going to sell the property.(1)

For the story, see Byrne Warns of Legal Pitfalls With Foreclosure Buys.

(1) Reading between the lines, the story may be cautioning purchasers of foreclosed homes to be alert to attempts by the lender/seller to unload a property that may have title problems, and that the requirement that the buyer use the lender's title agent may be an attempt by the lender to "control" the closing in a way that will make it easier for it to "slip something past" the unwitting buyer.

One source of title problems involving foreclosures may arise from the fact that a lender may have lacked the legal standing to initiate the foreclosure process in the first place. In such a case, an argument can be advanced that the court (or the trustee, in non-judicial foreclosure states) lacked jurisdiction/authority to authorize the foreclosure sale, potentially making such a sale, and any subsequent conveyances of the property, void.

Go here for case law that supports the proposition that a lender that lacks standing to initiate the foreclosure process leaves the court without subject matter jurisdiction to entertain the matter.

See also, Thousands Of Foreclosures Are Void, Says Massachusetts Class Action Demanding Lenders & Their Lawyers Prove Note Ownership. title insurance legal issues

State Legislator Proposes Law To Protect Texas Homesteads From Homeowner Association Lien Foreclosures

In Austin, Texas, The Dallas Morning News reports:
  • Homeowners associations in Texas would lose their power to foreclose on individual homeowners for nonpayment of dues and other fees under a proposed constitutional amendment filed Friday by a Dallas-area lawmaker. [...] "Things have gotten out of control with homeowners associations," [Rep. Burt Solomons, R-Carrollton] said.(1)


  • Solomons' proposal, which is expected to be opposed by HOA groups, would submit a constitutional amendment to Texas voters that would prohibit foreclosures by associations on homesteads within their jurisdiction.

For more, see Proposed constitutional amendment would prohibit HOA foreclosures.

(1) According to the story, Solomons said the plight of many Texans in HOAs has been illustrated in news stories, such as when a Frisco homeowner was threatened with fines by his association in August for parking his Ford F-150 pickup in his driveway. HOA rules there required that nonluxury trucks be kept in the garage.

Monday, March 02, 2009

Miami Foreclosure Sale Set Aside As Lender Is Unable To Produce The Proper Paperwork Proving The Right To Enforce The Note

In Miami, Florida, The New York Times reports:
  • [O]n Feb. 11, a circuit court judge in Miami-Dade County in Florida set aside a judgment against Ana L. Fernandez, a borrower whose home had been foreclosed and repurchased on Jan. 21 by Chevy Chase Bank, the institution claiming to hold the note. But the bank had been unable to produce evidence that the original lender had assigned the note, which was in the amount of $225,000, to Chevy Chase.

  • With the sale set aside, Ms. Fernandez remains in the home. “We believe this loan was never assigned,” said Ray Garcia, the lawyer in Miami who represented the borrower. Now, he said, it is up to whoever can produce the underlying note to litigate the case. The statute of limitations on such a matter runs for five years, he said.(1)


  • Mr. Garcia has another case in which a borrower tried to sell his home but could not because the note underlying a $60,000 second mortgage cannot be found. The statute of limitations on the matter will expire in October, he said, and if the note holder has not come forward by then, the borrower will be free of his obligation on the second mortgage.

For the story, see Fair Game: Guess What Got Lost in the Loan Pool?

Go here for the court order setting aside the foreclosure judgment.

For posts that reference the failure of mortgage lenders and their attorneys to file the proper paperwork when bringing foreclosure actions, Go Here, Go Here, Go Here, Go Here, Go Here, and Go Here.

(1) Sec. 95.11(2)(c), 95.281(1)(a), Florida Statutes. ThetaMissingDocsMtg

Maryland Feds Indict Title Agent For Pocketing Escrow Proceeds, Failing To Pay Off Existing Liens; Accused Of Using "Ponzi" Method Of Hiding Bad Acts

From the Office of the U.S. Attorney in Maryland:
  • A federal grand jury indicted title company owner Deborah Williams, age 56, of Pasadena, Maryland, [Wednesday] for mail fraud related to a scheme to divert settlement funds to her own benefit, announced United States Attorney for the District of Maryland Rod J. Rosenstein.


  • According to the 15 count indictment, Williams [the sole officer and director of Day Title, Incorporated, ...] used for her own benefit settlement funds from real estate closings that were deposited in Day Title’s escrow account and were intended to pay off the lien holders on those properties. Williams attempted to conceal her illegal transactions by falsely representing on the settlement documents that her company had paid off lien holders, then sent the falsified settlement documents to the lender by commercial carrier. In fact, Williams either initiated stop payments of payoff checks that had been disbursed or intentionally failed to mail the payoff checks to the lien holder.

  • According to the indictment, Day Title’s failure to make the pay offs to the lien holders was not detected until sellers began receiving delinquency notices from their mortgage companies. The time delay between the settlement and the date when Day Title made the pay offs to the lien holders allowed Williams to replenish the escrow account with proceeds from new real estate settlements.

For the U.S. Attorney's press release, see Pasadena Title Company Owner Indicted for Allegedly Defrauding Lenders of over $3.4 Million (Diverted Real Estate Proceeds to Personal Use and Created False Settlement Documents).

More On Missing Promissory Notes In Foreclosure Actions

An article co-authored by U.S. Bankruptcy Judge Samuel Bufford (Central District of California) and Texas attorney (and former Chief U.S. Bankruptcy Judge, Western District of Texas) R. Glen Ayers with the firm Langley & Banack in San Antonio, Texas directs the reader's attention to, among other things, title issues under Article 3 of the Uniform Commercial Code ("UCC") in the context of mortgage foreclosures.

The authors assert that these issues have received less than adequate focus in foreclosure proceedings. The article, which is part of a UCC presentation to be given by Mr. Ayers at the Advanced Bankruptcy Institute on April 3, 2009, is available online courtesy of his firm.

With respect to the lender's producing the promissory note in order to proceed with a foreclosure action, the authors point out that of even more importance than producing the note, the lender seeking to enforce a missing instrument:

  • must be entitled to enforce the instrument,
  • must prove the instrument’s terms, and
  • must prove its right to enforce the instrument

pursuant to §3-309 (a)(1) & (b) of the UCC.

For the article (in MS Word format), see Where's The Note, Who's The Holder: Enforcement Of Promissory Note Secured By Real Estate.

For posts that reference the failure of mortgage lenders and their attorneys to file the proper paperwork when bringing foreclosure actions, Go Here, Go Here, Go Here, Go Here, Go Here, and Go Here. ThetaMissingDocsMtg

Buffett: "Beware Of Geeks Bearing Formulas"

The New York Times reports:
  • The renowned investor Warren E. Buffett chided himself and the business world at large in his annual letter to shareholders of his holding company on Saturday as he sifted through the wreckage of his worst year in four decades.

This excerpt reflects Buffett's view on one reason for the huge losses in mortgage-related securities:

  • The stupefying losses in mortgage-related securities came in large part because of flawed, history-based models used by salesmen, rating agencies and investors,” he wrote. He went on: “These parties looked at loss experience over periods when home prices rose only moderately and speculation in houses was negligible. They then made this experience a yardstick for evaluating future losses. They blissfully ignored the fact that house prices had recently skyrocketed, loan practices had deteriorated and many buyers had opted for houses they couldn’t afford.”

  • Also blissfully ignored, he wrote, were the perils of relying on mathematical models devised without worst-case situations in mind. Too often, he wrote, Americans have been enamored of “a nerdy-sounding priesthood, using esoteric terms such as beta, gamma, sigma and the like.”

  • Some skepticism about these models is overdue, he added. “Our advice: Beware of geeks bearing formulas.”

For more, see In Letter, Warren Buffett Concedes a Tough Year.

Lenders Owning Foreclosed, Dilapidated Cincy Homes Dodge Criminal Trial By Failing To Show Up In Court; City Legal Tactic Copies Cleveland Approach

In Hamilton County, Ohio, the Cincinnati Enquirer reports:
  • Cincinnati prosecutors tried a controversial legal tactic Friday in the city's ongoing campaign to get banks and other corporations to take care of foreclosed and abandoned properties they own. In Hamilton County Municipal Court, Assistant City Prosecutor Keith C. Forman asked a judge to proceed with trials against three corporate defendants - even though the companies and their lawyers failed to show up.(1) [...] But Judge Russell J. Mock denied the city's motion, saying he's not convinced that the law allows it in misdemeanor housing cases. [...] The city had building inspectors and neighbors lined up to testify.


  • The city's attempt is fashioned after Cleveland, where Housing Court Judge Raymond L. Pianka has used it against speculators, landlords and banks. But two recent appellate decisions out of Cleveland are split on whether such trials are legal, and one of those cases is now before the Ohio Supreme Court.

  • In one Cleveland ruling, the appeals court conceded that its decision "leaves a difficult gap in the law."(2) Corporations can't be arrested and jailed, so they can escape responsibility by simply failing to appear in court.

For more, see Corporations avoid trial by not showing up (City's attempt to try landlords fails).

Go here for other posts on code violation & other problems associated with homes in legal limbo.

(1) The trial in the absence of a defendant - or "in absentia," in legal jargon - is allowed against corporations in some cases under Ohio law, the story states.

(2) See City of Cleveland v. Wash. Mut. Bank, No. 91379, 2008 Ohio 6956; 2008 Ohio App. LEXIS 5827 (Ohio Ct. App. 8th Dist., Cuyahoga County; December 31, 2008), footnote 1. responsibility code violations foreclosure

Sunday, March 01, 2009

Sloppy Bookkeeping In Securitizations Beginning To Bite Financial Institutions As Big Squeeze On Lenders, Servicers Looms In The Horizon

The New York Times reports:
  • WE are all learning, to our deep distress, how the perpetual pursuit of profits drove so many of the bad decisions that financial institutions made during the mortgage mania. But while investors tally the losses that were generated by loose lending so far, the impact of another lax practice is only beginning to be seen. That is the big banks’ minimalist approach to meeting legal requirements — bookkeeping matters, really — when pooling thousands of loans into securitization trusts.


  • THE woes brought on by sloppy bookkeeping in securitizations will be on the agenda at the American Bankruptcy Institute’s annual spring meeting on April 3. An article titled “Where’s the Note, Who’s the Holder,” co-written by Judge [Samuel L.] Bufford and R. Glen Ayers, a former federal bankruptcy judge in Texas, will be the basis of a discussion at the meeting.

  • Mr. Ayers, who is a lawyer at Langley & Banack in San Antonio, said he expects that these documentation problems will halt a lot of foreclosures. That will mean pain for investors who hold the securities. The problem for those who expect to receive the benefit of the note, Mr. Ayers said, is that they “may not be able to show to the judge they have a right to foreclose.” “It’s a huge problem,” he added. “It’s going to be expensive, I don’t know how expensive, ultimately to the bondholders.”(1)

For the story, see Fair Game: Guess What Got Lost in the Loan Pool?

Thanks to Mike Dillon at for the heads-up on the story.

(1) More and more judges, attorneys, and homeowners are taking note of the fact that foreclosing lenders have no business foreclosing on defaulted mortgages unless the lenders (a) produce the promissory note, and more importantly, (b) produce evidence (ie. the chain of title to the note, etc.) that they have the legal right to enforce the note. First in line in feeling the financial squeeze are the loan servicers, according to a recent story in American Banker:

  • [P]ooling and servicing agreements typically require that servicers advance all the principal and interest payments, as well as tax, insurance, maintenance, and foreclosure costs, to investors regardless of whether the borrower is paying. Servicers get reimbursed for expenses incurred while a loan is delinquent but only after the property goes into foreclosure, so getting repaid can take nine months to a year. Large banks with servicing operations may be able to handle the financial strain of paying advances to investors, but independent servicers and special servicers that deal with defaulted borrowers are already cash-strapped, said Matt Stadler, a principal and the chief financial officer at National Asset Direct Inc., a New York buyer and servicer of distressed loans. "Advance lines are ballooning, and servicers are paying interest on those advances," he said. Mr. Stadler likened the state of the servicing industry to the "I Love Lucy" episode in which Lucy is furiously grabbing chocolates off a fast-moving conveyor belt. "The borrowers are just piling up, and servicers are inundated and overwhelmed with calls they can't answer, short sales they can't complete, and not enough staff," he said.

The estimate of nine months to a year that it takes for a servicer to get reimbursed for its advances is obviously based on the foreclosing entity producing the note, and producing satisfactory evidence of its right to enforce it. However, as more and more lenders are unable to produce the proper paperwork in foreclosure actions, these cases are going into indefinite limbo, and will be causing (if they haven't already) a serious financial crush on those loan servicers caught in the middle as they are obligated to continue paying the holders of the securitized interests while the defaulting homeowners continue to properly stiff them. Any payments being made by the homeowners on account of their home mortgage will go directly into a court registry, or their attorney's trust account, pending resolution of the matter. ThetaMissingDocsMtg

NBC Nightly News On Courtroom 676: Home Of Philadelphia's Residential Mortgage Foreclosure Diversion Pilot Program

In Philadelphia, Pennsylvania, NBC Nightly News ran a story Saturday evening on Courtroom 676, home of the city's Residential Mortgage Foreclosure Diversion Pilot Program. Among those interviewed for the story is Judge Annette Rizzo, who heads the operation designed to help homeowners in foreclosure keep their homes by restructuring repayment agreements with their mortgage lenders.

For the story (approx. 2:38), see Seeking Solutions.

Go here for other posts on Philadelphia's Courtroom 676.