Saturday, April 24, 2010

Jury Convicts POA Abuser Of Ripping Off 89-Year Old Woman; Care Home Staff's Suspicions Raised After Scammer Put Victim's £300,000 Home Up For Sale

In Exeter, Devon (UK), the Herald Express reports:
  • A "greedy" 67-year-old man has been found guilty of defrauding his elderly neighbour out of £40,000. Robert Cole, of Ilsham Marine Drive, Torquay, abused his position as power of attorney over the affairs of Hilda Falk, a jury at Exeter Crown Court found. Cole denied one charge of fraud but the jury returned a unanimous verdict. [...] The verdict brought to an end a five-day trial during which the court was told that Cole had gained control over his neighbour's financial affairs and then exploited that to pay for his failing business.


  • Suspicions were only raised after Mrs Falk had moved into residential care at Sundial Care Home in Torquay. Staff were puzzled by her diminishing financial assets. Cole put her house on the market and changed the locks.(1) Speaking during a police interview in 2008, Mrs Falk, who has since died, said: "I thought I could trust him but I found I couldn't."

For the story, see Greed 'overcame' man who took £40,000 from elderly neighbour.

(1) See: Man 'put home of neighbour up for sale':

  • [Robert Cole] stole £42,000 from his elderly neighbour to pay for his mortgage and failing business[, ... ] then put the 89-year-old's £300,000 house on the market and attempted to auction her belongings when she went into a care home 'with eyes on the main prize', the jury has heard on the first day of his trial for fraud.

Renters Say "You Lend It, You Mend It!" As Lawyers Cite NY Legal Precedent In Attempt To Hold Banks Responsible For Repairing Property In Legal Limbo

In New York City, the Daily News reports:
  • Thousands of city tenants living in foreclosed apartment buildings - many with deteriorating conditions - saw a glimmer of hope Wednesday. Lawyers for Legal Service NYC filed a motion in Bronx Supreme Court that would force banks foreclosing on a property to maintain the building's upkeep while the case is pending.

  • A foreclosure, especially a contested one, could drag on for years, leaving the building without a tangible owner to make repairs for some things as simple as a runny faucet or as serious as toxic mold. "As complicated as this problem is, we're not going to take it lying down," said City Council Speaker Christine Quinn (D-Manhattan), who was involved in forming a city task force on financially distressed rental housing last year. "We will go building by building. This is a message to lenders that they will be held accountable," Quinn said.

  • The judge hearing the case, Justice Stanley Green, will not likely rule on the motion for several weeks. There is legal precedent for the motion, said Legal Services lawyers citing a 1997 New York State appellate court ruling that a bank is responsible for maintaining a property during a foreclosure proceeding.

  • About a year ago, banking behemoth Wells Fargo foreclosed on 10 properties in the Bronx owned by Los Angeles-based Milbank Real Estate. Since then, the buildings have been languishing in legal limbo, no longer owned by Milbank, but not yet definitively awarded by a judge to Wells Fargo.

For more, see Judge to rule on maintenance resposibility for foreclosing properties.

See also, The New York Times: Bid to Make Banks Fix Crumbling Bronx Properties (Housing advocates estimate that 4,700 apartments in dozens of buildings across New York City are in foreclosure, and that about 110,000 apartments are at risk).

California State Pension Plan To Cease Predatory Equity Real Estate Investments After Writing Off Million$ In Soured Deals

In Sacramento, California, Bloomberg News reports:
  • The California Public Employees’ Retirement System, the largest U.S. public pension, said it will stop investing in real-estate projects that would eliminate rent-regulated apartments, such as New York City’s Stuyvesant Town-Peter Cooper Village. [...] The new policy states that Calpers cannot invest in projects that would eliminate rent-controlled apartments or convert them to market rates.

  • Calpers wrote off a $500 million investment with Tishman Speyer Properties LP and BlackRock Inc. after the partnership’s plan to raise rents at Manhattan’s largest apartment complex failed to generate enough income to pay the $3 billion mortgage. The group paid $5.4 billion for Stuyvesant Town-Peter Cooper Village in 2006. The policy change is intended to head off a more restrictive proposal making its way through the California Legislature. That bill might prevent the fund from investing in affordable housing projects, said Brad Pacheco, a Calpers spokesman. Tenant-rights advocates sought the change after Calpers invested $100 million in a project in East Palo Alto, a low-income city in Silicon Valley. Tenants there complained to the Calpers board that if vacancy rates increase enough, the owners would be allowed to end rent-control rules.

Source: Calpers’ Board Approves Policy Shift to Protect Rent Control.

Cops Search For KC Woman Accused Of Forging Elderly Alzheimer's Victim's Signature To Pocket Reverse Mortgage Proceeds

In Kansas Ciy, Missouri, The Associated Press reports:
  • A Kansas City woman is accused of using an 89-year-old neighbor with Alzheimer's disease to obtain a reverse-mortgage loan of more than $64,000. Jackson County prosecutors on Thursday announced charges against 55-year-old Marilyn James, including financial exploitation of an elder/disabled person and two counts of forgery.

  • James is accused of forging David Cecil's signature to get a $9,000 loan from his life insurance policy. Officials say she also deeded a house that she had inherited over to Cecil, then forged his signature to take out a $64,445 reverse-mortgage loan on the property. Prosecutor Jim Kanatzar says James kept the money from the loan and now Cecil is liable for repayment. The house is in foreclosure and James is still at large.

Source: KC woman accused of using elderly neighbor to land fraudulent reverse-mortgage loan.

Houston Woman Says Lender Foreclosed On Her Twice By Mistake

In Houston, Texas, KVUE-TV reports:
  • A Houston woman says Wells Fargo sold her home through foreclosure by mistake last summer, quickly corrected the error, then did the same thing again. Debra Cannon's story began with a divorce in 2007 when she fell behind on her payments and threats of foreclosure followed.

  • "In August of 2009 they foreclosed on my home," she said. Cannon says she was in the process of working out a deal with her mortgage holder, Wells Fargo. But she says it was foreclosed on anyway. "They never really said, but it was an error due to Wells Fargo, and they did rescind -- they gave the money back to the man who bought the home," Cannon said.

  • Cannon's relief was short lived. The foreclosure process began again -- but this time, she thought she had reached an agreement for loan modification and that ended with a knock at the door. "A gentleman came by and told me my home was foreclosed on and gave me a letter demanding I get out," she said.

  • On April 6, Wells Fargo sold her home again through foreclosure. She said she was never notified and has a letter from the bank dated the same day of the foreclosure that states "a system error caused her to be deemed ineligible for the loan modification." "I didn't understand, after Wells Fargo told me everything was fine … I didn't understand it," she said.

For more, see Bank forecloses on woman's home twice.

Homeowner/Couple Say They Owe $20K+ Over $50 Ticket For Texas HOA's Rules Infraction

In Austin, Texas, The Dallas Morning News reports:
  • Lawmakers say they have tried to write laws in recent years to prevent homeowners associations from gouging and abusing property owners, but more might need to be done. On Monday, outraged homeowners told a House panel they've been threatened with huge fines and possible foreclosure for what they described as minor infractions of association rules.

  • A Houston couple may wind up having to pay more than $20,000 after a feud over a $50 ticket for having gray – instead of black – tape on exterior water lines, leaders of a property owners' rights group told the House Business and Industry Committee. "That was clearly, if it's true, the most egregious thing we heard today," said Rep. Gary Elkins, R-Houston, the panel's vice chairman.

For more, see Outraged homeowners detail HOA fines, foreclosure threats to Austin lawmakers.

Virginia Woman Loses Chance To "Buy Down" Felony Conviction By Failing To Return Entire Ripoff Proceeds To Elderly Victim

In Spotsylvania County, Virginia, The Free Lance Star reports:
  • A woman who stole more than $188,000 from an elderly Spotsylvania County woman officially became a felon yesterday. Jerriett A. Bennett, 56, has repaid $143,000, Commonwealth's Attorney Bill Neely said, but so far has been unable to come up with the rest of the money.

  • Bennett entered a conditional guilty plea last year in which her embezzlement conviction was deferred in order to give her a chance to repay the money. According to the agreement, if she repaid the whole amount, she would have been convicted of a misdemeanor and gotten a suspended 12-month jail sentence. If not, she'd get the felony conviction and a suspended five-year prison term. Neely said Bennett still has to repay the rest of the money or face the possibility of serving prison time.

  • According to the evidence, Bennett stole the money from Maude Scott, a longtime county resident, between October 2007 and April 2008. [...] On Oct. 19, 2007, Scott signed a [] power of attorney giving Bennett control of her affairs. [...] Court records show that Bennett proceeded to cash large annuities belonging to Scott. The money was supposed to provide for Scott's care, and Scott told police she never gave permission for Bennett to spend it.(1)

For the story, see Spotsylvania woman declared a felon in embezzlement case (Woman formally convicted in $188,000 heist; gets suspended sentence).

(1) Reportedly, Bennett's attorney, Claire Caldwell, tried to have Scott declared unfit to testify because of her mental slippage. Neely acknowledged he would have had no case against Bennett had the effort succeeded. But Judge David Beck ruled that Scott could testify and said it would be up to the jury to determine her credibility.

Friday, April 23, 2010

Pressure From State AG Leads Oregon Man To Cough Up Cash To Settle Complaints From Homeowners In Lopsided Sale Leaseback Arrangements

In Portland, Oregon, KATU-TV Channel 2 reports:
  • Thousands of dollars have been returned to families that Oregon’s attorney general said were hurt in a scam that promised to save their houses from foreclosure, but the man who had to refund the money said he has done nothing wrong. Scott Barnes, a former lease/buyback plan agent, said the homeowners knew exactly what they were getting into – selling their homes and leasing them back with an option to buy them back someday, but Attorney General John Kroger said the case shows how difficult foreclosure rescue schemes are to understand for people in desperate situations.

  • One woman, who declined to be identified, said it was “a total shock, because I wasn’t expecting (the money to be returned).” She got a $4,000 check from Barnes as restitution. Kroger said he promised to help people save their homes through the lease buy-back plan, which he said was too lopsided against the families.

For the story, see Man pays back homeowners in loan modification case.

(1)(They) were in danger of losing their homes to foreclosure and entered into an agreement that they believed would give them a little bit of time to get their financial house in order; instead, it resulted in them having a real risk of losing their home and not be able to get it back,” AG Kroger reportedly said. Barnes said he wrote another $4,000 check to a second family but said he only settled the case because it was cheaper than fighting the attorney general, according to the story.

S. Calif. Man Suspected Of Openly Hijacking Title To Vacant Homes & Renting Them Out, Leaving Owners Frustrated, Neighbors Rattled, Cops Flat-Footed

In Southern California, The Orange County Register reports:
  • California's foreclosure crisis has spawned an unusual operation by a bankrupt Orange County businessman who takes control of vacant homes and rents them out, according to police, property records and neighbors.

  • From an office at an Anaheim massage clinic, Blair Hanloh has recorded deeds on at least 12 vacant houses in Southern California that he does not own. Property records show no evidence that the owners deeded interest to him—and five owners interviewed by The Orange County Register said that they had not.

  • Hanloh's scheme has rattled neighbors, befuddled police and frustrated the properties' real owners – who say they must spend thousands of dollars in legal fees to evict the tenants.(1)

For more, see Owners say they lost vacant homes to 'renters'.

See also, D.A. to examine vacant home scheme:

  • Orange County prosecutors have begun examining the law behind an unusual Southern California scheme in which an Anaheim businessman deeds vacant homes to himself and then installs renters. The District Attorney's fraud unit is working with Orange County Recorder Tom Daly to gather information about the operation by Anaheim businessman Blair Hanloh, officials said.

(1) According to the story, Hanloh twice declined comment, saying only that he is doing everything legally. "I will tell you that what I do is fight the banks," Hanloh reportedly said. Reportedly, the Orange County Sheriff's Department and Anaheim police say they are investigating. "We're getting an education, just like you are," said sheriff's Lt. Mark Levy, who oversees police services in Dana Point. "These quitclaim deeds, if misused, certainly muddy the water." Hanloh's official-looking paperwork has reportedly kept police officers from immediately taking action.

The story states that Hanloh's scheme appears similar to one in Pasco County, Fla., where a man took over 72 homes under a law called "adverse possession," renting out half of them, according to published reports. He was arrested in February on fraud charges. See C. Fla. Man Claims "Adverse Possession" Defense After Arrest On Home Hijacking Charges; Swiped 72 Houses, Rented Out 31 To Unwitting Tenants, Say Cops.

Upstate New York Man Charged With Using Forged Documents To Steal Dead Mom's Home & Rip Off His Six Siblings

In Washington County, New York, The Post Star reports:
  • A former Whitehall police dispatcher has been indicted on five criminal charges that accuse him of cheating his siblings out of a Whitehall home after their mother died. John Dalton, 50, [...] is accused of filing a will and property deed with forged signatures of his mother that allowed him to take ownership of her West Street home, worth an estimated $70,000.

  • State Police said Dalton’s six grown siblings were denied their rightful inheritance by the forgeries. Dalton faces felony counts of grand larceny and criminal possession of a forged instrument and misdemeanor counts of offering a false instrument for filing in the indictment handed up recently in Washington County Court.

For more, see Police: Man tried to steal home.

LA Real Estate Broker Cops Plea To Use Of Forged Documents In Deed Theft Scam

In Los Angeles, California, the Los Angeles Times reports:
  • A former Los Angeles firefighter who also worked as a real estate broker pleaded no contest [] to more than a dozen felony counts in connection with a real-estate fraud scheme, authorities said. Brent Lamont Mathews, 43, pleaded no context to six counts of forgery, three counts of recording a false or fraudulent instrument and four counts of grand theft, the Los Angeles County district attorney's office said. He also admitted two special allegations of taking more than $500,000.(1)


  • Mathews allegedly put his name on the title of a Hacienda Heights property without the owner's knowledge or consent through a series of forgeries and false filings, prosecutors said. He also allegedly went on to defraud two investors after recruiting them as partners to "flip" the house, the district attorney's office said. The two victims lost $146,000 in the deal, prosecutors said Mathews resigned from the Los Angeles Fire Department in December 2009 in lieu of discharge, according to the district attorney.

Source: Former L.A. firefighter pleads no contest in real-estate scheme.

(1) Acording to the story, Mathew’s girlfriend at the time, Joi Rochelle Smith, 34, was a notary public and part-time real estate broker who was also charged by authorities. In February, she pleaded no contest to one count of recording a false or fraudulent instrument, the district attorney said. Smith was sentenced to three years of formal probation and 52 days of community service, the story states.

Thursday, April 22, 2010

Another Florida Judicial Rubber-Stamper Reversed On Appeal As Foreclosing Lender Fails To Conclusively Establish Standing To Sue

In West Palm Beach, Florida, a unanimous, 3-judge panel of Florida's 4th District Court of Appeal recently reversed a Broward County trial judge that rubber-stamped a summary judgment of foreclosure in favor of a lender that failed to conclusively establish that it had standing to sue (bold text is my emphasis, not in the original text):
  • Aurora Loan Services, LLC, filed a mortgage foreclosure action against Jerry Riggs, Sr., alleging that it was the "owner and holder" of the underlying promissory note. Aurora filed a copy of the mortgage and a copy of the promissory note, which named Riggs as the mortgagor and First Mangus Financial Corporation as the mortgagee. The promissory note reflected an "endorsement in blank," which is a stamp with a blank line where the name of the assignee could be filled in above a pre-printed line naming First Mangus. Aurora moved for summary judgment, and, at the hearing, produced the original mortgage and promissory note reflecting the original endorsement in blank. The trial court granted summary judgment in favor of Aurora over Riggs' objections that Aurora's status as lawful "owner and holder" of the note was not conclusively established by the record evidence. We agree with Riggs and reverse the summary judgment.

  • The Second District confronted a similar situation in BAC Funding Consortium, Inc. ISAOA/ATIMA v. Jean-Jacques, 28 So. 3d 936 (Fla. 2d DCA 2010), when the trial court granted alleged assignee U.S. Bank's motion for summary judgment. In order to establish its standing to foreclose, U.S. Bank filed an assignment of mortgage, which, as described, is comparable to the endorsement in blank in the instant case. Id. at 937.

  • That court reversed because, inter alia, "[t]he incomplete, unsigned, and unauthenticated assignment attached as an exhibit to U.S. Bank's response to BAC's motion to dismiss did not constitute admissible evidence establishing U.S. Bank's standing to foreclose the note and mortgage." Id. at 939. The court in BAC Funding Consortium, properly noted that U.S. Bank was "required to prove that it validly held the note and mortgage it sought to foreclose." Id.

  • In the instant case, the endorsement in blank is unsigned and unauthenticated, creating a genuine issue of material fact as to whether Aurora is the lawful owner and holder of the note and/or mortgage. As in BAC Funding Consortium, there are no supporting affidavits or deposition testimony in the record to establish that Aurora validly owns and holds the note and mortgage, no evidence of an assignment to Aurora, no proof of purchase of the debt nor any other evidence of an effective transfer. Thus, we reverse the summary judgment and remand for further proceedings. We find no merit in any of the other arguments raised on appeal.

    Reversed and remanded.
    GROSS, C.J., and POLEN, J., concur.

For the ruling, see Riggs v. Aurora Loan Services, LLC, 4D08-4635, (Fla. 4th DCA, April 21, 2010).

Supremes Reverse Lower Courts; Say Attorney Screw-Up When Pursuing Foreclosure Action Is Indefensible As "Bona Fide Error" Under FDCPA

In Washington, D.C., Courthouse News Service reports:
  • Attorneys cannot hide behind an honest mistake should they violate federal debt-collection laws when chasing down debt, the Supreme Court ruled Tuesday. The ruling comes after the law firm of Carlisle, McNellie, Rini, Kramer & Ulrich filed suit in Ohio state court in 2006 on behalf of Countrywide Home Loans to foreclose on the mortgage for property owned by Karen Jerman. The lawsuit included a notice that the mortgage debt would be assumed valid unless Jerman disputed it in writing. Jerman's attorney sent a letter disputing the debt, and Countrywide confirmed that the debt had been paid in full.

  • The law firm withdrew its foreclosure lawsuit. Jerman fired back with a lawsuit, seeking class certification and damages for violating the Fair Debt Collection Practices Act. She contended that the firm broke the law by stating that her debt would be assumed valid unless she disputed it in writing.(1) The district court found that the woman's rights had been violated, but concluded that the law firm was shielded from liability because the violation was not intentional and "resulted from a bona fide error. The 6th Circuit found that the fair-debt law extends to "mistakes of the law."

  • In writing the decision, Justice Sonia Sotomayor said the court declines "to adopt the expansive reading" of the law. "We have long recognized the 'common maximum, familiar to all minds, that ignorance of the law will not excuse any persons, either civilly or criminally.'"

For the story, see Ignorance Still No Defense, Court Says.

See also, The Wall Street Journal: Debt Collectors Can Face Lawsuits for Mistakes, Court Says.

For the ruling, see Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, 08-1200 (April 21, 2010).

For earlier post, and links to all the briefs, see Supremes To Decide Whether Attorney Screw-Up When Pursuing Foreclosure Action Is Defensible As "Bona Fide Error" Under FDCPA.

(1) The consumer alleged the defendant violated the FDCPA because it compelled consumers to dispute the debt in writing when the FDCPA imposes no such requirement. See 15 USC 1692g(a)(3). The FDCPA states simply that if the consumer dipsutes the debt in writing, such written dispute operates to impose certain legal obligations on the creditor. See 15 USC 1692g(a)(4),(5); 15 USC 1692(g)(b). The consumer is always free to dispute the debt orally. Such oral dispute, however, will not impose those legal obligations on the creditor that a written dispute imposes.

Pair To Get Probation In Foreclosure Rescue Scam That Duped 22 Victims Into Signing Over Title To 34 Properties Into Fraudulent Trusts

In San Diego, California, San Diego News Network reports:
  • A husband and wife who assisted others in a Ponzi scheme aimed at San Diego Filipinos struggling to make their mortgage payments pleaded guilty [] to felony charges. Ben Hebron, 51, and Gloria Hebron, 53, will be placed on probation and be required to give up their real estate licenses when they are sentenced May 20, said Deputy District Attorney William La Fond. [...] The couple pleaded guilty to three counts each of deceitful practices by a foreclosure consultant and two counts each of rent skimming, La Fond said.(1)


  • During the scam, 22 people “quitclaimed” 34 properties into various fraudulent trusts owned by [Edmundo] Rubi and administered by the Hebrons, the prosecutor said.

For the story, see Couple pleads guilty in Filipino Ponzi scheme.

(1) According to the story, they were indicted in January along with co-defendants Edmundo Rubi and Joseph Encarnacion. Encarnacion, 60, pleaded guilty to helping the scheme’s alleged ringleader, Rubi, by recruiting victims and assisting in a presentation in which the victims were encouraged to transfer titles to their real estate to the defendants, La Fond said. Encarnacion was sentenced to four years in prison and Rubi is scheduled for a mental competency hearing next month. Filipinos in San Diego were urged to invest in companies called “Apocalypse Trust” and “Amerisian Trust,” the prosecutor said. At the time he was indicted, Rubi had just gotten out of prison after serving a 70 month federal sentence for swindling $24 million out of 425 mostly Filipino victims in 2005, La Fond said.

Foreclosure Volume May "Encourage" Sloppiness, Boilerplate Paperwork Or A Lack Of Thoroughness;" Makes Process "Fraught With Potential For Fraud"

A recent story in The Wall Street Journal serves as another reminder of the problems inherent with mortgage lenders' use of assembly line law firms to prosecute foreclosure actions:
  • [A] Florida ruling against U.S. Bank was also a critique of law firms that handle foreclosure cases on behalf of banks, dubbed "foreclosure mills." Lawyers operating foreclosure mills often are paid based on the volume of cases they complete. Some receive $1,000 per case, court records show. Firms compete for business in part based on how quickly they can foreclose. The David Stern firm had about 900 employees as of last year, court records show.

  • "The pure volume of foreclosures has a tendency perhaps to encourage sloppiness, boilerplate paperwork or a lack of thoroughness" by attorneys for banks, said Judge [Lynn] Tepper of Florida, in an interview. The deluge of foreclosures makes the process "fraught with potential for fraud," she said.

Source: Judge Bashes Bank in Foreclosure Case.

Paralegal Admits Guilt In $2.6M Client Ripoff; Trust Account Looted, Chronic Care Patient Left Broke, On Public Dole; Pair Lost Entire Inheritance

In Hamilton, Ontario, The Hamilton Spectator reports:
  • A crooked paralegal with an admitted gambling problem admits to siphoning more $2.6 million from unsuspecting clients, while masquerading as a bona fide lawyer. Shellee Spinks, 47, pleaded guilty to 16 criminal charges yesterday, including one of theft by power of attorney, 12 counts of theft by conversion, and one each of perjury, obstruction of justice and uttering a forged document.


  • Superior Court Justice Barry Matheson heard that between September 2002 and February 2008, Spinks was employed as a paralegal by Hamilton lawyer Michael Puskas. Much of her work involved completing real estate transactions for her employer, along with various accounting responsibilities.

  • Puskas maintained a bank account at TD Canada Trust in which mortgage funds were held in trust for real estate clients in the process of buying and selling properties. At the same time, Spinks controlled another account with the bank that was for her personal use and into which she regularly transferred large sums of money from the law firm's legitimate trust account. Total losses to real estate clients from these type of thefts amounted to $926,000.

  • Between October 2002 and February 2008, Spinks held power of attorney for an 81-year-old woman in a nursing home. Spinks stole an estimated $200,000 and left the chronic-care patient destitute and on public assistance.

  • In March 2006, Spinks forged the last will and testament of an Ancaster man, which named herself as the executor and trustee of his estate. The bogus will directed that his estate should pass to Spinks, and absent that, to the man's two sisters. The man died on Sept. 26, 2006. At the time of his death, he owned a property on Glancaster Road and had about $400,000 in investment securities.

  • In December that year, Spinks and one of the sisters sold the Glancaster Road property. After adjustments and fees, the balance of nearly $950,000 was to have been deposited into an account in trust for the man's estate. Instead, Spinks deposited the cheque into her private account. When his family questioned why the estate was taking so long to disburse, Spinks told another lie. She said a former employee had come forward with a new will, naming himself executor and this was causing complications and delay. In the end, Spinks also cashed out the deceased man's securities and ended up cheating his sisters out of their entire $1.4 million inheritance.

  • Crown counsel Tracey Stapleton said documents obtained from the Ontario Lottery and Gaming Corporation and internet gambling records revealed that most of the $2.6 million was gambled away by Spinks, except for $700,000, which was transferred to a company called The Broker's Room.

Source: Legal assistant bilked millions (Woman pleads guilty to 16 charges).

Wednesday, April 21, 2010

LI Judge Strikes Again; Hammers Lender For $100K In Damages, Scraps $119K In Dubious Loan Charges For "Overreaching, Shocking, Unconscionable" Conduct

In Suffolk County, New York, Newsday reports:
  • A state judge accused Emigrant Mortgage Co. of premeditated attempts to destroy an East Northport couple's chances of keeping their home, ordering the lender to pay the borrowers $100,000 in damages and scrapping as much as $119,330 in questionable late charges.


  • [E]migrant waited 14 months before starting a foreclosure case, apparently to rack up penalty fees, [State Supreme Court Justice Jeffrey Arlen Spinner](1) concluded. Then, two months ago, on Feb. 23, the lender offered a loan modification plan and 10 days to accept or reject a proposal whose "deplorable particulars" insulated Emigrant from any liability by violating [homeowners'] state and federal rights, Spinner wrote.

  • "This court is driven to the inescapable conclusion that plaintiff has, by way of calculation and premeditation . . . created a scenario whereby it is a virtual certainty that defendants will ultimately be irreparably damaged," he wrote. "In short, the conduct of plaintiff in this matter has been overreaching, shocking, willful and unconscionable."


  • [W]hat the judge ripped into were the parts that called for the [homeowners] to "unconditionally" agree not to raise any challenges to Emigrant's foreclosure actions, including filing for bankruptcy, if the couple defaults again. The agreement also seems to release Emigrant from federal truth in lending laws, the judge said.

  • "This court has never been presented with such a waiver, especially when accompanied by absurd representations [drafted by the lender] that amount to what could best be described as an express warranty that defendants presently are and will forever be insolvent," the ruling read.(2)

For the story, see Lender ordered to pay E. Northport couple $100G (A state judge accused a mortgage company of premeditated attempts to destroy an East Northport couple's chances of keeping their home).

For the ruling, see Emigrant Mtge. Co. Inc. v Corcione, 2010 NY Slip Op 20133 (Sup. Ct. Suffolk County, April 16, 2010).

(1) The story notes that Justice Spinner is the same judge who, back in November, 2009 voided Long Island residents Greg and Diana Yano-Horoski's $292,500 mortgage for similar conduct by the lender (see Indymac Bank F.S.B. v Yano-Horoski, 2009 NY Slip Op 52333(U), November 19, 2009). He had accused IndyMac Mortgage Services of failing to negotiate a loan modification in good faith. The lender's appeal is pending.

Spinner is also the same judge who recently belted Wells Fargo for giving a homeowner facing foreclosure a premature boot (see Long Island Judge Hammers Wells w/ $155K Tab For Oppressive, Heavy Handed, Egregious Conduct For Pre-Sale Lockout Of Homeowner In Foreclosure).

In his ruling, Justice Spinner makes this acknowledgement to a fellow New York trial judge:

  • Indeed, my learned and distinguished colleague, Justice Timothy J. Walker, in the matter of Wells Fargo Bank, N.A. v Hughes 2010 NY Slip Op (Supreme Court, Erie County; 1/13/2010) declined to approve a settlement proposal where the Plaintiff failed to act in good faith as required by CPLR § 3408. Regrettably, it is patently clear to this Court that Plaintiff has failed to act in good faith in this matter.

(2) In a recent New Jersey case (see Gonzalez v. Wilshire Credit Corp., DOCKET NO. A-2634-08T2, 988 A.2d 567; 2010 N.J. Super. LEXIS 16 (App. Div. 2010)), the state appeals court found that unfair, deceptive, or unconscionable practices engaged in by a mortgage lender in connection with "negotiating" a one-sided loan modification agreement with a financially strapped homeowner was subject to the provisions of the New Jersey Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -106. See Unfair, Deceptive Practices In Connection With Post-Foreclosure Judgment Loan Workout Negotiations Subject To NJ Consumer Fraud Act.

Northern California Seniors Live In Unwitting Jeopardy Of Getting The Boot As Underwater Elder Care Homes Fall Into Foreclosure

In Northern California, The New York Times reports:
  • In September 2009, Sgt. Rick Turini of the Santa Clara County Sheriff’s Office drove to a house in San Jose to carry out a court-ordered eviction. With foreclosures in Bay Area counties near all-time highs, the office had been routinely evicting 35 to 40 households a week. But this property was different: It was a board-and-care home for the elderly.

  • Neither the residents nor their families had been warned about an eviction, said Sergeant Turini, who does not recall the home’s exact address. When he arrived with his partner, the house was still occupied, and the distraught daughter of an elderly bedridden woman was struggling to get her mother into a car. A couple of teenagers doing homework in the living room looked up at the officers in shock.

  • We got a call from Adult Protective Services letting us know that the house we were evicting had four or five bedridden residents, and the guy was ignoring the eviction notice,” Sergeant Turini said, referring to the owner. “I couldn’t believe it had gone this far.” He said the sheriff’s department worked with agencies to arrange for the fragile inhabitants to be transferred to other facilities or sent home with relatives.


  • An analysis of data by The New York Times shows that more than 100 elder-care homes in the Bay Area were under foreclosure in the last six months, and that as many as 700 residents — who often need help with bathing, eating and other daily activities — may have faced eviction.

For more, see When Foreclosure Threatens Elder-Care Homes.

See also, Elder-Care Home Foreclosures, Without Warning.

Revenue For S. Florida Assembly Line Foreclosure Mill Skyrockets To $260M As Media Shines Light On Alleged Sloppy, Fraudulent Document Manufacturing

The Tampa Tribune reports:
  • The housing crisis has been very good for Florida's biggest processor of foreclosure lawsuits: Its revenues have skyrocketed to $260 million since the housing bust began. In recent years, the Law Offices of David J. Stern, a Broward County-based foreclosure law firm, has become the largest filer of foreclosure suits in Florida. It also is the biggest filer in Hillsborough County, according to local court records.

  • Stern has taken an unusual step by separating his firm's lawyers from its back-office clerks, title insurance workers and other non-legal staff. Stern spun this back-office staff into a publicly traded company called DJSP Enterprises, which must file financial reports with the Securities and Exchange Commission.(1)


  • Dubbed "foreclosure mills," these firms are known for a factory-like process where most of the legwork of filing lawsuits, researching titles and other duties are handled by clerks and paralegals rather than lawyers. Some judges around Florida have criticized foreclosure mills for sloppy legal work and cutting corners.

  • Last week, the Wall Street Journal wrote [see Judge Bashes Bank in Foreclosure Case] about Lynn Tepper, a circuit court judge in Pasco County who accused the Law Offices of David J. Stern and a banking client of submitting a fraudulent document. According to the article, the judge found Stern's office presented a mortgage document with a falsified notary stamp. In an interview with the Tribune Monday, Tepper said it appeared the document had been backdated in order to give a bank legal standing to foreclose on a home.

For more, see Foreclosure firm's revenues jump to $260 million.

(1) In a related story, DJSP Enterprises has signed an agreement to acquire Timios, a national title insurance and settlement services company. Headquartered in Westlake Village, California, Timios is a licensed title insurance and escrow agent operating in 38 States. See Insurance Business Review: DJSP Enterprises Acquires Timios., and DJSP Enterprises, Inc. to Handle Processing for National Foreclosure Alternative Program for Leading Mortgage Lender.

San Jose Man Gets Year in Jail In Loan Modification Ripoff; Cops Plea To Six Felony Counts Of Grand Theft

In Santa Clara County, California, the Contra Costa Times reports:
  • [A] 32-year-old San Jose man was sentenced March 30 to one year in jail for six felony counts of grand theft for defrauding homeowners in a loan modification scam, according to the District Attorney's Office.

  • Hector Ricardo Esquivel pleaded guilty to charges that he scammed thousands of dollars from homeowners in Santa Clara County and beyond from May 2008 to May 2009, according to the district attorney. Esquivel was arrested in May 2009 after an investigation by San Jose police, and he pleaded no contest on Feb. 11.

  • Esquivel was working as a real estate agent after his license had been revoked. He solicited primarily Spanish-speaking homeowners and offered loan modification services, charging thousands of dollars without providing any services. Several homeowners lost their homes to foreclosure, according to the District Attorney's Office. Esquivel also was ordered to pay $23,600 in restitution and is prohibited from working in the real estate or financial sector for the next three years.

Source: 3 charged with defrauding 45 homeowners in mortgage scam.

WV High Court Points To Process Server Screw-Up To Void Judgment; Says Trial Judge Lacked Jurisdiction Where Service Made At Defendant's Mom's Home

In Charleston, West Virginia, The West Virginia Record reports:
  • In a case with no lawyers and no plaintiff, the defendant won. On April 1, the Supreme Court of Appeals relieved Barry Dailey of liability from a car crash at a Charleston intersection 10 years ago. The Justices reversed Kanawha County Circuit Judge Paul Zakaib, who ordered Dailey to pay Samantha Beane more than $2,000.

  • Dailey, pleading his own case, told the Justices in January that Beane served the suit on his mother in Dunbar[, West Virginia] when he lived in Missouri. Beane didn't appear for oral argument. Her former lawyer, Henry Wood, told the Justices in November that he couldn't find her and wouldn't represent her.

  • The Justices reached back to 1909 for authority to void any decree based on substitute service that doesn't strictly comply with requirements. "Moreover, our case law is clear that a court that enters a judgment where there has been insufficient service of process is without jurisdiction to enter said judgment," they wrote.(1)


  • "From the outset it is important to note that there is absolutely no evidence whatsoever in the record showing that Mr. Dailey resided at his mother's home," they wrote. The return of service could have indicated that her home was his "usual place of abode," they wrote, but it didn't. "Mr. Dailey's mother was not a party to this case and evidence that service was left at her home, in and of itself, is insufficient to effectuate proper service of process," they wrote.(2)(3)

Source: Defendant wins with no lawyers, no plaintiff.

(1) In the court's ruling, Beane v. Dailey, No. 34630, 2010 W. Va. LEXIS 25 (W.V. April 1, 2010), the court made this observation:

  • In Jones v. Crim & Peck, 66 W.Va. 301, 66 S.E. 367, 368 (1909), this Court held that:

    Before substituted service can take the place of, and be equivalent to, an actual personal service, all the requirements of the statute regarding the manner of such substituted service must be strictly complied with. . . . Such want of service renders the decrees based thereon absolutely void.”

  • (Citations omitted). Moreover, our case law is clear that a court that enters a judgment where there has been insufficient service of process is without jurisdiction to enter said judgment, “and a void judgment or decree is a mere nullity and may be attacked at any time.” Dierkes v. Dierkes, 165 W.Va. 425, 430, 268 S.E.2d 142, 145 (1980). See Syllabus Point 7, Aldrich v. Aldrich, 147 W.Va. 269, 127 S.E.2d 385 (1962) judgment rev'd on other grounds by 378 U.S. 540, 84 S.Ct. 1687, 12 L.Ed.2d 1020 (1964); Syllabus Point 1, Cable v. Cable 132 W.Va. 620, 53 S.E.2d 637 (1949). See also Desmond v. Brennan, 639 A.2d 1351 (R.I.1994); In re Schmidt, 436 N.W.2d 99 (Minn.1989); In re Hall, 173 Mont. 142, 566 P.2d 401 (1977); Smith v. Hatgimisios, 233 Ga. 354, 211 S.E.2d 306 (1974), aff'g 229 Ga. 475, 192 S.E.2d 270 (1972); Shaddrix v. Womack, 231 Ga. 628, 203 S.E.2d 225 (1974); Webster v. Clanton, 259 S.C. 387, 192 S.E.2d 214 (1972).

(Editor's Note: In the context of foreclosure actions, I still can't help wondering:

  • how many foreclosure judgments are floating around out there that are "mere nullities" that "may be attacked at any time," and
  • how title insurance agents can sleep at night having to insure these crappy land titles coming out of recent foreclosure actions where judges have lacked jurisdiction, whether by reason of a foreclosing lender's: (a) failure to properly serve a defendant with process, or (b) lack of standing to bring the foreclosure action.)

(2) The story goes on to set forth these details that led to the judgment against Dailey. Beane sued Dailey in 2002, over an auto collision that happened in December 2000. His mother, Cheryl Dailey, received a summons at her home in Dunbar, WV. Beane filed a default motion three months later, with an affidavit from Wood attesting to return of service. Judge Zakaib granted the motion but took two years to hold a hearing and three more to decide how much Dailey owed. In 2008, he awarded $1,600 in general damages and $449.86 in reimbursement of medical expenses, plus five years interest. Dailey appealed, writing that he was unaware of any hearing, trial or verdict. He wrote that as of May 2000, he lived at Whiteman Air Force Base in Missouri. He wrote that he was not a West Virginia resident at any point in the proceedings. As a matter of procedure he should have moved to set aside judgment before appealing, but the Justices let it slide because he lacked counsel, the story states.

(3) Since the Court reversed the default judgment entered below based upon insufficient service of process, it stated in its ruling that it was unnecessary to address any potential issues surrounding the Federal law known as the Servicemembers Civil Relief Act (SCRA) in regard to Mr. Dailey's contention that he was a member of the United States Armed Forces. The Court nevertheless issued a reminder to West Virginia trial courts that they are obligated to observe any applicable requirements of the SCRA, found at 50 App. U.S.C.A. §§ 501 et seq., which, according to the court, was enacted on December 19, 2003, as a recodification of the Soldiers' and Sailors' Civil Relief Act of 1940.

Tuesday, April 20, 2010

NY AG Shuts Down Process Server Outfit For Allegedly Engaging In "Sewer Service" Racket

From the Office of the New York Attorney General:
  • Attorney General Andrew M. Cuomo [] announced that his office has shut down a Brockport-based process server company that repeatedly claimed in legal affidavits that its employees had made proper service of legal documents to thousands of consumers when in fact it had not. We Serve It For You served summonses, complaints and other legal documents on individuals on behalf of law firms.


  • Generally, process servers deliver legal papers via one of three methods: to the defendant personally (actual service), to a person of suitable age and discretion at the location of the intended person to be served (substitute service), or to the door of the intended person’s actual location and by mail to their last known address (“nail-and-mailservice). After providing service to the intended recipient, process servers would print an affidavit of service to prove that they had indeed provided the legal documents to the defendant.

  • Attorney General Cuomo’s investigation determined that those documents were regularly signed and mailed to John Coy, who would notarize them without witnessing the signature. From 2007 to 2009, We Serve It For You served approximately 54,000 complaints and maintained a database detailing each service. The Attorney General’s Office and the Unified Court System determined that:

    On more than 1,100 occasions, We Serve It For You process servers claimed to have made service or service attempts at two or more places at the same time.

    On more than 700 occasions, We Serve It For You process servers claimed to have made service or service attempts before they even received the documents to serve.

    On tens of thousands of occasions, John Coy notarized the signatures of We Serve It For You process servers when he did not witness the signatures.

For the New York AG press release, see Cuomo Shuts Down WNY Process Server Company For Lying On Affidavits Of Service ("We Serve it For You” servers claimed to be in two or more places at same time, claimed to serve documents before receiving them; Company and operators must pay $10,000 to state, cooperate with ongoing investigations, and cease process serving).

Alabama Appeals Court: Process Server Screw-Up Leaves Trial Judge w/out Jurisdiction In F'closure Action; Default Judgment Against Pair To Be Vacated

The Alabama Civil Court of Appeals recently reversed a ruling of a lower court that refused to vacate a foreclosure judgment in favor of the Bank of New York ("BNY") on the grounds that the trial court lacked personal jurisdiction over the homeowner-couple, Linda and James Bogus. The issue - a process server screw-up in serving the court papers on the couple facing foreclosure.
  • Although BNY's complaint alleged that the Boguses were residents of Shelby County, the record indicates that BNY made no attempt to personally serve the Boguses with process. Rather, the record indicates that, on July 28, 2008, four days after it filed its complaint, BNY attempted to effect service of process on the Boguses by posting the process on the property.


  • On February 24, 2009, the trial court entered a default judgment against the Boguses. The default judgment awarded possession of the property to BNY and determined that the Boguses had forfeited their right to redeem the property; it did not award any damages.

  • On April 10, 2009, the Boguses moved the trial court for relief from the default judgment [...]. As one of their grounds, the Boguses asserted that the default judgment was void because, they said, they had not been personally served with process and, therefore, they said, the trial court lacked jurisdiction to enter the default judgment. Following a hearing, the trial court denied the Boguses' motion for relief from the default judgment. The Boguses timely appealed to the supreme court, which transferred the appeal to this court [...].


  • Th[e] statute requires that a defendant who is a resident of the State of Alabama be served personally unless he or she cannot be found. In the case now before us, the record indicates that BNY did not make any attempt to serve the Boguses personally. Consequently, BNY's attempt to serve the Boguses by posting the process on the property did not comply with the service-of-process provisions [...]. Therefore, BNY did not validly serve the Boguses [...].

  • Accordingly, we reverse the trial court's denial of the Boguses' [] motion [to vacate a default judgment] and remand the action to the trial court for further proceedings consistent with this opinion.

For the ruling, see Bogus v. Bank of New York, No. 2081195 (Ala. Civ. App. April 16, 2010).

Manager Of Foreclosure Consulting Outfit Bagged & Held On $1M Bail; Accused Of Pocketing Upfront Cash From Homeowners In Or Nearing Mortgage Default

In Los Angeles, California, the Santa Maria Times reports:
  • The manager of a Los Angeles-based foreclosure consultant organization with an office in Santa Maria has been arrested on suspicion of violating rights of residents whose homes were in or nearing default. Irma Diaz, 41, of Hacienda Heights was arrested by Santa Barbara County District Attorney’s Office investigators Thursday in Los Angeles County. She was booked into Los Angeles County Jail with bail set at $1 million, according to the District Attorney’s Office.


  • Diaz currently is facing two felony counts of committing prohibited foreclosure practices involving one alleged victim, but investigators believe there are more victims. “We suspect that there are many other victims out there, and the investigation is continuing,” said Dave Tonello, supervising investigator with the District Attorney’s Office.

  • Investigators suspect Diaz took part in a scam where victims paid her money to refinance their homes, but she didn’t complete the process, according to Tonello. Her bail was set so high because authorities consider Diaz at risk of fleeing, he said.

For the story, see Foreclosure manager faces felony charges.

Go here for the Santa Barbara County DA press release.

Schack Hammers Attorney For Failure To Cancel Foreclosure Action After Delinquent Mortgage Was Paid Off & Subject Property Sold In Private Sale

In Brooklyn, New York, state court Justice Arthur M. Schack hammered another foreclosure attorney in a recent ruling for allowing a foreclosure action to continue despite the fact that the property owner had sold the subject property and paid off the delinquent mortgage over a year ago. Justice Schack stated the folowing (bold text and alterations [...] added, not in the original text):
  • On April 6, 2010, I searched ACRIS [the Automated City Register Information System] and discovered that WELLS FARGO executed a satisfaction of the instant mortgage more than ten months ago, on May 20, 2009. The satisfaction was recorded at the Office of the City Register of the City of New York, on June 1, 2009, [...]. Further, ACRIS revealed that defendant HUNTE sold the premises to Milton R. Linguard for $610,000.00, with the deed executed on March 13, 2009. The deed was recorded on June 16, 2009, at the Office of the City Register of the City of New York, [...]. ACRIS also revealed that Mr. Linguard, on March 13, 2009, borrowed $518,500.00 from GOLDEN FIRST MORTGAGE CORP. This was secured by a mortgage recorded at the Office of the City Register of the City of New York, on June 16, 2009, by MERS, as nominee for GOLDEN FIRST MORTGAGE CORP., [...].

  • Plaintiff's counsel never had the courtesy to notify the Court that the instant mortgage was satisfied and file a motion to discontinue the instant action. The Court is gravely concerned that: it expended scarce resources on an action that should have been discontinued; and, would have signed an order that could have possibly damaged the credit rating of defendant HUNTE and put an unfair cloud on the title to the subject premises now owned by Mr. Linguard, causing both defendant HUNTE and Mr. Linguard much time and effort to correct an error caused by the failure of plaintiff's counsel to exercise due diligence. The Court notes that [foreclosure attorney Peter G.] Zavatsky, in his affirmation for an award of attorneys' fees, requests that this Court award him $3,000.00 because, he states in ¶ 8 of his affirmation, that he has "been admitted to the Bar of the State of New York for more than thirty (30) years and have devoted my practice to real estate litigation and mortgage foreclosure practice for that entire time . . . and I have lectured on the subject of mortgage foreclosures."


  • The failure of Peter G. Zavatsky, Esq., and his firm, Zavatsky, Mendelsohn & Levy, LLP, to discontinue the instant action since the payoff of the HUNTE mortgage in 2009 appears to be "frivolous." 22 NYCRR §130-1.1 (a) states that "the Court, in its discretion may impose financial sanctions upon any party or attorney in a civil action or proceeding who engages in frivolous conduct as defined in this Part, which shall be payable as provided in section 130-1.3 of this Subpart." Further, it states in 22 NYCRR §130-1.1 (2), that "sanctions may be imposed upon any attorney appearing in the action or upon a partnership, firm or corporation with which the attorney is associated."

It appearing that foreclosure attorney Peter G. Zavatsky, and the Zavatsky, Mendelsohn & Levy, LLP law firm, engaged in "frivolous conduct," and that pursuant to the applicable court rules "[a]n award of costs or the imposition of sanctions may be made . . . upon the court's own initiative, after a reasonable opportunity to be heard," Justice Schack scheduled a hearing affording Mr. Zavatsky and his law firm "a reasonable opportunity to be heard," before deciding whether to hammer them with sanctions for their apparent screw-up in allowing the foreclosure action to proceed, despite the fact that the delinquent mortgage was paid off, a mortgage satisfaction was recorded in the public records, and the subject property was sold off to a third party in a private sale.

For the ruling, see Wells Fargo Bank, N.A. v Hunte, 2010 NY Slip Op 50637 (NY Sup. Ct. Kings County April 14, 2010).

Monday, April 19, 2010

Central Florida Judge Blasts Foreclosure Mill Law Firm For Filing "Fraudulently Backdated" Document "In A Purposeful, Intentional Effort To Mislead"

In Central Florida, The Wall Street Journal reports:
  • A Florida state-court judge, in a rare ruling, said a major national bank perpetrated a "fraud" in a foreclosure lawsuit, raising questions about how banks are attempting to claim homes from borrowers in default. The ruling, made last month in Pasco County, Fla., comes amid increased scrutiny of foreclosures by the prosecutors and judges in regions hurt by the recession. Judges have said in hearings they are increasingly concerned that banks are attempting to seize properties they don't own.

  • The Florida case began in December 2007 when U.S. Bank N.A. sued a homeowner, Ernest E. Harpster, after he defaulted on a $190,000 loan he received in January of that year. The Law Offices of David J. Stern, which represented the bank, prepared a document called an "assignment of mortgage" showing that the bank received ownership of the mortgage in December 2007. The document was dated December 2007.

  • But after investigating the matter, Circuit Court Judge Lynn Tepper ruled that the document couldn't have been prepared until 2008. Thus, she ruled, the bank couldn't prove it owned the mortgage at the time the suit was filed. The document filed by the plaintiff, Judge Tepper wrote last month, "did not exist at the time of the filing of this action…was subsequently created and…fraudulently backdated, in a purposeful, intentional effort to mislead." She dismissed the case.

  • Forrest McSurdy, a lawyer at the David Stern firm that handled the U.S. Bank case, said the mistake was due to "carelessness." The mortgage document was initially prepared and signed in 2007 but wasn't notarized until months later, he said. After discovering similar problems in other foreclosure cases, he said, the firm voluntarily withdrew the suits and later re-filed them using appropriate documents.

  • "Judges get in a whirl about technicalities because the courts are overwhelmed," he said. "The merits of the cases are the same: people aren't paying their mortgages."(1)


  • At an unrelated hearing in a separate matter last week, Anthony Rondolino, a state-court judge in St. Petersburg, Fla., said that an affidavit submitted by the David Stern law firm on behalf of GMAC Mortgage LLC in a foreclosure case wasn't necessarily sufficient to establish that GMAC was the owner of the mortgage. "I don't have any confidence that any of the documents the Court's receiving on these mass foreclosures are valid," the judge said at the hearing.(2)

For the story, see Judge Bashes Bank in Foreclosure Case.

For Judge Tepper's dismissal and the "fraudulently backdated" (Judge Tepper's words, not mine) document in question, see U.S. Bank v. Harpster.

(Note: In paragraph 13 of the Judge Tepper's dismissal, the court also declared that the Defendant/homeowner was the prevailing party in this litigation and, accordingly, is entitled to an award of attorney's fees and costs, to be imposed against the Plaintiff/lender, and to be determined in a future evidentiary hearing before the Court).

(1) What foreclosure mill attorney McSurdy conveniently seems to ignore (when reportedly making these ridiculous statements) is that when a plaintiff files a lawsuit, the merits of the case (whatever they may be) are irrelevant and remain irrelevant unless and until the plaintiff can first overcome the procedural hurdles of establishing that it has a right to file the case in the first place. For example, in a recent ruling [see Wells Fargo Bank, N.A. v Hunte, 2010 NY Slip Op 50637 (Sup. Ct. Kings County, April 14, 2010)], Brooklyn, NY Justice Arthur M. Schack reminds us of this basic tenet with this excerpt (bold text is my emphasis, not in the original text):

  • The Court of Appeals (Saratoga County Chamber of Commerce, Inc. v Pataki, 100 NY2d 801, 812 [2003], cert denied 540 US 1017 [2003]) declared that "[s]tanding to sue is critical to the proper functioning of the judicial system. It is a threshold issue. If standing is denied, the pathway to the courthouse is blocked. The plaintiff who has standing, however, may cross the threshold and seek judicial redress."

(2) For the transcript of this hearing, see GMAC Mortgage LLC v. Visicaro.

Central Florida Foreclosure Rescue Operator Cops Plea In Racket That Targeted House-Rich, Cash-Poor Owners In Home Equity Ripoff

In Tampa, Florida, the Bradenton Herald reports:
  • The reputed ringleader of a foreclosure-rescue scam that operated in Manatee County and elsewhere in Florida now is facing more federal prison time. Peter James Porcelli II, also known as Peter James, pleaded guilty in a Tampa federal courtroom Thursday to one count of mail fraud in connection with the rescue scheme, U.S. Attorney A. Brian Albritton said Friday.


  • He initially was charged with fleecing 56 distressed homeowners, including three in Manatee and four from Sarasota County, out of more than $1.8 million, court records show. Porcelli recruited those homeowners through Safe Harbour Foundation of Florida Inc., a Clearwater outfit that misrepresented itself as a nonprofit corporation dedicated to helping homeowners avoid foreclosure, prosecutors said.

  • It combed public records to target homeowners facing foreclosure and send mailers that offered “immediate relief from financial pressures” and a “guaranteed solution to stay in your home,” among other promises. Homeowners who called the number on the flyer reached Porcelli or one of his associates, who asked questions to determine how much equity the homeowner had. If it was a significant amount, homeowners would be referred to Silverstone Lending LLC or Silverstone Financial LLC — both also controlled by Porcelli — to take out six-month loans to get the mortgage up to date, authorities said.

  • But those loans often charged the state maximum of 18 percent interest and numerous fees that often exceeded 60 percent of the loan amounts.(1) The loan terms also gave Silverstone the power to take the home if the borrower defaulted, authorities said.

For the story, see Foreclosure-rescue scammer facing 20 years in prison.

(1) See also, The Tampa Tribune: Pinellas telemarketer pleads guilty to mail fraud:, which reports that of the total money the homeowners purportedly orrowed, they received less than 38 percent of that loan money, and they ended up owing Porcelli or his companies the remainder in fees and costs.

Three Charged For Allegedly Pocketing $10K Per Victim In Bogus "Principal Reduction" Loan Mod Racket; Part Of Larger Scam That Clipped 400 Homeowners

In Santa Clara County, California, the Contra Costa Times reports:
  • A Santa Clara County criminal grand jury has indicted three people on 83 counts of defrauding 45 homeowners in Northern California in a wide-ranging loan modification scam. The Santa Clara County District Attorney's Office alleges Rene Alvarez, 39, and Mariano Ortega, 34, both of San Jose, and Cydney Sanchez, 60, of Los Angeles, stole more than $2 million from more than 400 homeowners — most of them Latino — in seven states, most of them from California.

  • The grand jury found that in 2008 and 2009, Alvarez and Ortega owned and operated M & R Contemporary Solutions, a Campbell foreclosure consulting firm, according to prosecutors, and Sanchez owned and operated West Coast Mortgage and Horizon Property Holdings of Beverly Hills.

  • Prosecutors contend M & R lured homeowners who were in various stages of the foreclosure process by pitching a "principal reduction" program. Homeowners were told M & R would save their homes by facilitating the purchase of their existing lender's loan by a third party at a discounted price. Sanchez was then supposed to provide the investors to purchase the loans. The homeowners were to be offered a new reduced-principal loan that would have significantly lower monthly payments.

  • According to the homeowners and several ex-employees of M & R who testified before the grand jury, no homeowners were ever helped in this manner. In many cases, prosecutors say, homeowners paid $10,000 for the loan-buying scheme even though they had already lost title to their homes through trustee sales. M & R collected thousands of dollars in upfront fees from each homeowner in foreclosure, which is a felony, prosecutors said.

Source: 3 charged with defrauding 45 homeowners in mortgage scam.

For the Santa Clara County DA press release, see Santa Clara County Criminal Grand Jury Indicts Three in More Than Two Million Dollar Loan Modification Scam.

California Man Cops Plea For Role In Bid-Rigging At Foreclosure Sales

In Sacramento, California, The Stockton Record reports:
  • A 43-year-old Stockton man pleaded guilty Friday to rigging bids at public real estate auctions in San Joaquin County over a six-month period in 2009. Anthony B. Ghio, 43, admitted in U.S. District Court that he conspired with a group of real estate speculators who agreed not to bid against each other at selected foreclosure auctions as a way to suppress competition, thus keeping prices artificially low.(1)

  • According to court documents:

    (1) After the conspirators' designated bidder bought a property at a public auction, there would be a second, private auction.

    (2) Each participant would then submit higher bids at the private auction.

    (3) The conspirator who bid the highest amount in the second auction won the property. The difference between the noncompetitive price at the public auction and the winning bid in the second auction was the group's illicit profit - and that amount was divided among them.

For the story, see Stocktonian admits to bid-rigging land scheme (Man faces 10 years in prison, $1 million fine).

For the U.S. Attorney (Sacramento, California) press release, see California Real Estate Executive Pleads Guilty to Bid Rigging.

Go here for other posts on foreclosure sale bid-rigging.

(1) Ghio is charged with bid rigging, a violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million fine.

Sunday, April 18, 2010

Feds Charge Goldman Sachs With Fraud In Civil Suit In Connection With The Manufacturing & Peddling Of Subprime Mortgage Securities

In New York City, The Associated Press reports:
  • The government has accused Goldman Sachs & Co. of defrauding investors by failing to disclose conflicts of interest in mortgage investments it sold as the housing market was collapsing. The Securities and Exchange Commission said in a civil complaint Friday that Goldman failed to disclose that one of its clients helped create -- and then bet against -- subprime mortgage securities that Goldman sold to other investors.

  • The SEC said the fraud, a blow to the reputation of Wall Street's most powerful firm, was orchestrated in 2007 by a Goldman vice president then in his late 20's. The employee, Fabrice Tourre, has since been promoted to executive director of Goldman Sachs International in London.

  • Tourre, the SEC said, boasted to a friend that he was able to put such deals together as the mortgage market was unraveling in early 2007. In an email to the friend, he described himself as "the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!"

For more, see SEC Accuses Goldman Sachs Of Civil Fraud.

For the Securities and Exchange Commission press release, see SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages:

  • "The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, Director of the Division of Enforcement. "Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party."

For the SEC lawsuit, filed in a Manhattan Federal District Court, see Securities And Exchange Commission v. Goldman Sachs & Co., et ano.

Sale Leaseback Deal A Constructively Fraudulent Transfer, Violated State Consumer Protection Act, Says Judge In Granting $244K+ Triple Damage Award

In a recent ruling from a U.S. Bankruptcy Court in Boston, Massachusetts, 3 individuals and one company were found liable for the return of over $81,000 in home equity that was pocketed from a couple facing foreclosure in a sale leaseback, foreclosure rescue arrangement which was found to constitute a constructively fraudulent transfer under sections 548 and 550 of the U.S. Bankruptcy Code.(1)

In addition, as a result of a default in the case by the company involved and one of the individuals who failed to show up to the trial to defend himself, the court found them liable for violating the Massachusetts Consumer Protection Act [Mass. Gen. Laws ch. 93A]. Accordingly, it assessed an award in favor of the Bankruptcy Trustee (who brought the lawsuit on behalf of the bankruptcy estate) in the amount of $244,513.11, which represents triple damages allowed under state law, and is based on the amount of the home equity ripoff ($81,504.37 x 3).

For the ruling, see Lassman v. Reilly (In re Feeley), Chapter 7, Case No. 06-13582-JNF, Adv. P. No. 07-1201 (Bankr. D. Mass., April 13, 2010).

(1) In this regard, the court observed:
  • Under section 548(a)(1)(B), the trustee must prove the following elements: "(1) a transfer of the debtor's property or interest therein; (2) made within one year of the filing of the bankruptcy petition; (3) for which the debtor received less than a reasonably equivalent value in exchange for the transfer; and (4) either (a) the debtor was insolvent when the transfer was made or was rendered insolvent thereby. . . ." In re Cahillane, 408 B.R. at 188-89 (citations omitted). Additionally, the trustee must prove each element by a preponderance of the evidence. Id. at 189 (citing, inter alia, Frierdich v. Mottaz, 294 F.3d at 867). See also Tomsic v. Pitocchelli (In re Tri-Star Techs. Co., Inc.), 260 B.R. 319 (Bankr. D. Mass. 2001).


  • Having found that the Trustee is entitled to avoid the transaction, section 550 permits the trustee to recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from "the initial transferee of such transfer [Reilly] or the entity for whose benefit such transfer was made [the remaining defendants]." 11 U.S.C. § 550(a)(1). In his Amended Complaint, the Trustee did not specify which alternative he sought, but in his Memorandum, the Trustee clarified that he is seeking the value of the property transferred, namely the Debtors' equity which equaled $81,504.37 on March 29, 2006.

(Note that the sale leaseback deal was consummated between the homeowners and the foreclosure rescue operators on March 29, 2006, which was at or near the height of the recent real estate boom/bubble. Between that time and now, the value of the home has presumably suffered a significant loss in value. Given that, when filing a lawsuit to unwind or undo this type of home equity scam, a decision must be made (typically by the screwed over homeowner, or in this case, the bankruptcy trustee) whether to seek to restore the property title in the name of the homeowner, or allow the foreclosure rescue operator (or whoever the current homeowner is) to keep the house and, instead, seek financial damages for the amount of the home equity ripoff, it may be in the homeowner's best interest to opt for the financial damages (assuming, of course, that the foreclosure rescue operators have deep enough pockets to cough up the cash to cover the court's damage award). This may be especially true if the homeowner is in a state/jurisdiction that has a consumer protection statute that provides for a recovery of triple damages. In this case, the amount of the $81,000+ in recoverable damages (increased to $244,000+ with respect to two of the defendants for violating the Massachusetts Consumer Protection Act) was calculated based on the home's value on March 29, 2006 (the day the ripoff was consummated). Had the Bankruptcy Trustee sought recovery of the home itself, the bankruptcy estate would be getting back the home at today's (presumably significantly lower) worth, encumbered by a mortgage debt that may exceed the home's now-lesser value.

It appears that, when seeking to unwind or undo one of these sale leaseback, foreclosure rescue scams that was consummated at or near the height of the recent real estate boom/bubble, the victim - and the victim's attorney - must "be careful what they ask for" and exercise great care with respect to the specific remedy they seek, the way (I suspect) the Bankruptcy Trustee did in this case (or maybe he just got real lucky).)

Sale Leaseback Foreclosure Rescue Scams & The Bona Fide Purchaser Doctrine In Pennsylvania

In a recent story in The Philadelphia Inquirer on Chester County homeowner Melissa Miller who was victimized out of an estimated $140,000 in equity in a sale leaseback foreclosure rescue scam (see Mortgage scheme costing Chesco woman her home), a reference was made to her apparent failed attempt to undo the ripoff through the filing of a civil lawsuit:

  • [Bruce] Baldwin, Miller's attorney, said the [straw buyers] did not respond to JPMorgan Chase's foreclosure action on [Miller's] house, or to a suit he filed in Chester County Court on Miller's behalf "against all the parties involved," including the [straw buyers] and Washington Mutual [the lender who, presumably unwittingly, financed the foreclosure rescue ripoff].

  • Based on the evidence, Baldwin said, County Judge Robert Shenkin, while agreeing that both Miller and Washington Mutual had been "innocent victims of fraud," determined in December that the burden of loss fell on Miller because she had agreed to the arrangement.

It is arguable whether any mortgage lender who, albeit unwittingly, finances a foreclosure rescue ripoff where the victimized homeowner remains in possession of the premises is an innocent victim of the fraud.

The general rule in Pennsylvania, based on its state case law, is clear that, prior to making a loan secured by real estate, a mortgage lender has an obligation to determine whether the premises is in the possession of one other than the actual borrower/mortgagor and, if so, to make the appropriate inquiries into the legal rights and equities of those in occupancy. Failure to do so may lead to the imputation of constructive notice on the mortgage lender of the fraud.(1)

It appears that, in this case (and in most cases), the lender financing the scam failed to satisfy its obligation. In such an event, the mortgage lender is arguably not entitled to status as a bona fide purchaser and, accordingly, arguably not entitled to the recording statutes, thereby leaving its interest in the premises subject to being voided by the victimized homeowner.(2)(3)


(1) In Woods v. Farmere, 7 Watts 382, 1838 Pa. LEXIS 94 (1838), the court stated:

  • The duty of inquiring into the foundation of a notorious possession is not a grievous one, [... .] [T]he doctrine of constructive notice is undoubtedly a sharp one; but it is not more so in regard to a notorious possession than it is in regard to a registry. Nor is it less reasonable; for it certainly evinces as much carelessness to purchase without having viewed the premises, as it does to purchase without having searched the register.

In Kinch v. Fluke, 311 Pa. 405, 166 A. 905 (1933), the court observed:

  • Such possession is evidence of title, and, in a certain sense, is a substitute for recording the agreement of purchase, and is sufficient to put a subsequent purchaser or mortgagee on inquiry: Hottenstein v. Lerch, 104 Pa. 454; Lord's App., 105 Pa. 451; Rowe v. Ream, 105 Pa. 543; White v. Patterson, 139 Pa. 429.

  • A prospective purchaser is required to make inquiry of those in possession, and failing to do so, is affected with constructive notice of all that such inquiry would have disclosed: Stonecipher v. Keane, 268 Pa. 540; Lazarus v. Lehigh & W.-B. Coal Co., 246 Pa. 178; Ohio R. Junc. R.R. Co. v. Pa. Co., 222 Pa. 573; Jamison v. Dimock, 95 Pa. 52.

  • The notice of possession which the law imposes on a subsequent vendee or mortgagee without regard to whether he has actual knowledge or not, is of such character that it cannot be controverted. The means of knowledge which possession affords is regarded as the legal equivalent of actual notice: Rowe v. Ream, supra, at 546.

In Sidle v. Kaufman, 345 Pa. 549, 29 A.2d 77 (1942), the court stated the following:

  • It is well settled that purchasers and mortgagees of real estate are affected not only by matters of which they had actual knowledge and by what appeared in the office of the recorder of deeds and in the various courts of record whose territorial jurisdiction embraced the land in dispute, but as well "by what they could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect the title": Salvation Army Inc. Tr. v. Lawson, 295 Pa. 459, 463. See also Kinch v. Fluke, 311 Pa. 405, 408; Driebe v. Fort Penn Realty Co., supra, 318; Koubek v. Tenos, 343 Pa. 409, 412.

In Malamed v. Sedelsky, 80 A.2d 853, 367 Pa. 353 (Pa. 1951), this statement was made by the court:

  • [I]t has long been settled that it is the duty of a purchaser of real property to make inquiry respecting the rights of the party in possession and failing to do so they are affected with constructive notice of such facts as would have come to his knowledge in the proper discharge of that duty: Lazarus v. Lehigh and Wilkes-Barre Coal Co., 246 Pa. 178, 184, 92 A. 121 (1914); Atlantic Refining Co. v. Wyoming Nat. Bank, 356 Pa. 226, 236, 51 A. 2d 719 (1947); Sidle v. Kaufman, 345 Pa. 549 557, 29 A. 2d 77 (1942); Kinch v. Fluke, 311 Pa. 405, 166 A. 905 (1933)

  • This has been the law as far back at least as Woods v. Farmere, 7 Watts 382, 387 (1838), where it was said by Chief Justice GIBSON, at p. 387, "... it certainly evinces as much carelessness to purchase without having viewed the premises, as it does to purchase without having searched the register."

In Mid-State Bank & Trust Co. v. Globalnet Int'l, Inc., 557 Pa. 555; 735 A.2d 79 (1999), the Pennsylvania Supreme Court continued its recognition of the duty of purchasers and mortgagees to make the appropriate inquiries of those in possession of the premises in which they are acquiring an interest in by making this statement:

  • A party is on constructive notice of another's interest in real property where the party "could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect title, and also by what appeared in the appropriate indexes in the office of the recorder of deeds." Lund v. Heinrich, 410 Pa. 341, 346, 189 A.2d 581, 584 (1963).

(2) As recently as March 3, 2010, a U.S. Bankruptcy Court in Philadelphia (in applying Pennsylvania case law) ruled that a lender who (presumably unwittingly) financed a foreclosure rescue scam involving a sale leaseback arrangement was not a bona fide purchaser and not entitled to the protection of the Pennsylvania recording statute. Consequently, the court voided the lender's mortgage (although it did grant it an equitable lien to the extent of the approximate unpaid balance owed by the victimized homeowners on their existing mortgage loan immediately prior to the ripoff - no lien was granted for the amount by which the new loan that financed the scam exceeded the existing loan).

Among other things, the court, in In re Fowler, Chapter 13, Bky. No. 07-11692ELF, Adv. No. 07-00139ELF (Bankr. E.D. Pa. March 3, 2010), made this statement (among others) recognizing the following general rule in Pennsylvania on the bona fide purchaser doctrine:

  • [i]t is well settled that purchasers and mortgagees of real estate are affected not only by matters of which they had actual knowledge and by what appeared in the office of the recorder of deeds and in the various courts of record whose territorial jurisdiction embraced the land in dispute, but as well by what they could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect the title. Sidle v. Kaufman, 345 Pa. 549, 29 A.2d 77, 82 (Pa. 1942) (emphasis added) (internal quotations omitted).

For more on the bona fide purchaser doctrine in Pennsylvania, see:

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

(3) A 2009 ruling by a Federal District Court in Chicago ruled, in applying Illinois law, that a mortgage lender who financed a foreclosure rescue scam (where the victimized homeowner remained in possession of his home throughout the relevant time period) was not entitled to status as a bona fide purchaser and, consequently, not entitled to protection of the state recording statutes. See Lender's Failure To Inquire Into Possession Disqualifies It For Bona Fide Purchaser Protection In Suit To Undo Foreclosure Rescue Sale Leaseback Scam.

Support for imputing constructive notice in the application of the bona fide purchaser doctrine on a mortgage lender in situations where a property owner remains in possession of premises conveyed to another, after which the grantee obtains a mortgage loan secured thereby, has been around for over 140 years - it is certainly not a new phenomenon - as evidenced by this excerpt from a ruling from the California Supreme Court in Pell v. McElroy, 36 Cal. 268, 1868 Cal. LEXIS 186 (1868) (bold text is my emphasis, not in the original text):

  • An absolute deed divests the grantor not only of his legal title, but right of possession; and when such grantor is found in the exclusive possession of the granted premises long after the delivery of his deed, here is a fact antagonistic to the fact and legal effect of the deed; and we cannot appreciate the justice, sound reason, or policy of a rule which would authorize a subsequent purchaser, while such fact of possession continues, to give controlling prominence to the fact and legal effect of the deed, in utter disregard of the other notorious prominent antagonistic fact of exclusive possession in the original grantor. He cannot be regarded a purchaser in good faith who negligently or willfully closes his eyes to visible pertinent facts, indicating adverse interest in or incumbrances upon the estate he seeks to acquire, and indulges in possibilities or probabilities, and acts upon doubtful presumptions, when by the exercise of prudent, reasonable diligence he could fully inform himself of the real facts of the case.


  • 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.