Saturday, September 22, 2012

Civil Rights Feds Settle Civil Suit With California Bank Alleging That $400K Minimum Loan Amount Policy Had Discriminatory Effect Against Blacks, Latinos

From the U.S. Department of Justice (Washington, D.C.):
  • The Justice Department announced [] that Luther Burbank Savings will invest $2 million in California communities and take other steps as part of a settlement to resolve allegations that it engaged in a pattern or practice of discrimination on the basis of race and national origin.

    The settlement, which is subject to court approval, was filed in conjunction with the Justice Department’s complaint in the U.S. District Court for the Central District of California. The complaint alleges that from 2006 through mid-2011, Luther enforced a $400,000 minimum loan amount policy for its wholesale single-family residential mortgage loan program. The department alleges that this policy or practice had a disparate impact on the basis of race and national origin.

    Today’s settlement demonstrates that the Justice Department is committed to addressing a wide range of abuses in the credit market,” said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division. “It is critical that lenders have policies in place to ensure that they don’t discriminate in their lending programs. We commend Luther Burbank Savings for revising its policies and working with the Justice Department to reach an appropriate resolution in this case.”

    The complaint alleges that from 2006 through 2010, Luther Burbank Savings, a prime lender, originated very few single-family residential mortgage loans to African-American or Hispanic borrowers or in majority-minority tracts throughout California. In the greater Los Angeles area, for example, only 5.8 percent of Luther’s single-family residential mortgage loans were made to African-American and Hispanic borrowers during this time period, compared to 31.8 percent of such loans made to African-American and Hispanic borrowers by comparable prime lenders.

    Similarly, only 5.2 percent of Luther’s single-family residential loans in the greater Los Angeles area were made in majority-minority census tracts (areas with a non-white population greater than 50 percent) during this time period, compared to 41.7 percent of such loans made in these tracts by comparable prime lenders.

    The complaint alleges that Luther continued its $400,000 minimum loan amount policy despite its knowledge that its low level of lending to African-American and Hispanic borrowers, and in majority-minority census tracts, was attributable to the policy.
For the Justice Department press release, see Justice Department Reaches Settlement with Luther Burbank Savings to Resolve Allegations of Lending Discrimination in California (Settlement Provides $2 Million to Remedy Effects of Minimum Loan Amount Policy).

Civil Rights Feds Tag Mobile Home Park Operators In Civil Suit Alleging Race-Based Housing Discrimination Against Black Rental Applicants

From the U.S. Department of Justice (Washington, D.C.):
  • The Justice Department announced [] that it has filed a lawsuit against the owner and operator of the Heritage Point mobile home park in Montgomery, Ala., alleging that the companies and their employees or officers discriminated against African-Americans.

    The complaint, filed in the U.S. District Court for the Middle District of Alabama, names several defendants, including Lawrence Properties Inc., which manages Heritage Point, William Bounds, the district supervisor for Lawrence Properties, Lawrence at Lakewood LLC, which owns the property and Michael Lawrence, the president of the Lawrence at Lakewood, LLC.

    The complaint alleges that Lawrence instructed property managers not to rent to African-American applicants at Heritage Point or other mobile home parks managed by Lakewood throughout Alabama and Georgia.(1)
The alleged victim actually purchased, directly from a private homeowner, a mobile home located on a lot that the private owner rented from the mobile home park operator. Apparently, the mobile home purchase was not contingent on obtaining approval from the park operator to take over the existing lease on the lot. After a bit of alleged jerking around by the park operator's employees, the alleged victim was advised that her rental application for the lot upon which her just-purchased mobile home sat on was rejected. Consequently, not only was the alleged victim and her family unable to move into the mobile home, she was forced to pick up the mobile home and move it off the lot and out of the park, which she did, bearing the attendant costs of the move, according to the complaint.

By the way, these allegations came to light some seven months after the alleged victim's application was rejected. According to the complaint, the then-property manager at the mobile home park, who now was no longer employed there, tracked down the alleged victim and informed her that her application to rent the lot had never been processed because the mobile home park owner did not want to rent to black people. Two other now-former employees have since come forward to assert that the company's policy was to limit rentals to black people, according to the complaint.

    Male California Landlord Agrees To Cough Up $2M+ To Settle Fair Housing Suit Alleging Illegal Use Of Hands, Etc. Targeting 25 Female Tenants

    From the U.S. Department of Justice (Washington, D.C.):
    • The Justice Department [] announced that Rawland Leon Sorensen, the owner and manager of dozens of residential rental properties in Bakersfield, Calif., will be obligated to pay more than $2 million in monetary damages and civil penalties to settle a Fair Housing Act lawsuit alleging that he sexually harassed women tenants and prospective tenants.

      The department’s complaint alleges that Sorensen sexually harassed the women by making unwelcome sexual comments and advances, exposing his genitals to women tenants, touching women without their consent, granting and denying housing benefits based on sex and taking adverse actions against women who refused his sexual advances. Sorensen has operated his rental business for more than 30 years. This represents the largest monetary settlement ever agreed to in a sexual harassment lawsuit brought by the Justice Department under the Fair Housing Act.

      The consent decree, which is subject to approval by the U.S. District Court, will result in a judgment against Sorensen requiring him to pay $2,075,000 in monetary damages to 25 individuals identified by the United States as victims of his discriminatory conduct.

      That amount includes court costs and attorneys’ fees for two of the victims who are private plaintiffs. In addition, Sorensen must also pay a $55,000 civil penalty to the United States, the maximum penalty available under the Fair Housing Act. The consent decree requires Sorensen to hire an independent manager to manage his rental properties and imposes strict limits on his ability to have contact with current and future tenants.

      The conduct in this case was egregious,” said Thomas E. Perez, Assistant Attorney General for the Justice Department’s Civil Rights Division. “Women have the right to feel safe in their homes and not to be subjected to sexual harassment just because their families need housing. The Justice Department can and will vigorously prosecute landlords who violate those rights.”
    For the Justice Department press release, see California Landlord Settles Sexual Harassment Lawsuit for $2.13 Million.

    Leaky 7-Year Old 240-Unit Condo Complex Requires Stiff HOA Repair Assessments, Leaving Dozen Condo Owners Facing Foreclosure; Developer: 'Not My Problem!'

    In Calgary, Alberta, CBC News reports:
    • A Calgary architect is trying to turn the page on one of the city's largest condo repair projects, which left many residents of the leaky building with repair bills in the thousands.

      The Bella Vista in the city's southwest required millions of dollars to fix several leaks that caused mould. Residents first learned of the problem a few years ago and the condo board began substantial repairs at a cost of $4 million soon after.

      "We had to basically strip off the enclosure — the entire enclosure, all the stucco, roofing, flashing," said Tang Lee, an architect whose team fixed many of the problems. "There were some issues with the design, as well as the construction, workmanship," Lee said.

      At least a dozen unit owners fell into foreclosure because they were unable to pay their share repair bill, with some assessments coming in around $80,000. It was reported one owner had to pay over $180,000, which is a record high in Alberta. "We are all sitting on mortgages like everyone else, so it's a mortgage payment and condo fees, and it just seems a bit unfathomable," said Tricia Stephens who owns a unit.

      Other owners tried to get legal help. "Well, I went to two lawyers,” explained Nick Mascarenhas. “They both told me ‘Nick, don't throw good money at bad money.’ They advised me to file for bankruptcy, walk away, cut your losses — but I realized I'm here; I don't want to lose my car, credit cards and have to change different things."

      Mascarenhas ended up staying and borrowed cash to cover his bill. "I've had to change my schedule, get a different job — I now do a 60-hour work week, just to compensate for that extra payment," he said.

      The Bella Vista is now fully repaired, but the condo board is suing the people who built it. The developer maintains it's not at fault, saying the building passed inspection.
    For the story, see  Calgary condo owners still paying for big repair bills.

    See also:

    Code Violations Lead To 30-Unit Building Shutdown, Forcing Residents Out On Street; Two Fire Inspectors Attacked After Providing Tenants 72-Hour Notice To Pack Bags & Hit The Road

    In Miami, Florida, WSVN-TV Channel 7 reports:
    • Residents of an apartment building have been forced out of their homes after the structure was deemed unsafe. Code compliance and police officers ordered all residents to evacuate the building located at 971 W. Flagler, Monday morning. City officials said they had given the owner months to get the building up to code.

      Officials said the building had multiple code violations, and the building is not safe. Officials also said the owner of the building had to hire someone to check the building hourly and keep a log, but when firefighters went by on Friday, they were not satisfied with the logs and closed the building. Everyone was then given 72 hours to leave.

      Jessica Hernandez said her and her husband have no where to go. "Right now, it's get out and find out what you gonna do," she said. "Nobody has nothing. We paid our rent. Right now, we have nothing, nothing, and we're out. They couldn't even give us enough time, They gave us the weekend. The weekend is nothing," she added as she began breaking down in tears. "There's nothing opening for leasing, and there's nothing open where you can go and rent. Nothing, nothing at all."

      Firefighters believe, as some of the residents were leaving, they turned their gas on, which caused a very heavy smell. Crews had to shut the gas off to the entire building and close the street. Officials had to wait for the gas level to come back down to normal before they reopened the street and residents could continue moving out.

      "We have a lot of angry residents out here," said Miami Fire Rescue Lt. Ignatius Carroll. "I don't think they understand that it's not trying to do anything bad to them. It's for their safety alone."

      According to police, on Friday, when a firefighter went to put a notice on the building he was hit by a car by someone who co-owns a marketplace located at the bottom of the building. That subject was later identified as Brinio Medrano.

      Police also said Medrano punched another firefighter. From the back of a police car, Medrano professed his innocence. "For what? I didn't do nothing. I didn't do nothing," he said. Medrano was later charged with two counts of battery on a firefighter.

      Once repairs are made, residents will be allowed back in.
    Source:  Residents forced out after building condemned.

    See also:

    Class Warfare Breaks Out In NYC 'High' Rise Between Haves, Have Nots; Cannabis Smoke Wafting Thru Vents Triggers Call By Rich To 'Weed' Out Pot-Smoking Poor

    In New York City, the New York Post reports:
    • Class warfare has broken out at a swanky Midtown apartment complex, where high-end renters are tussling with their lower-income neighbors over pot use and messy hallways.

      Some of the well-to-do residents at tony 1 Columbus Place are blaming their less-fortunate neighbors — who live in the affordable-housing section in the concierge building — for the pot smoke that wafts through their vents and the cigarette butts that litter their halls.

      The richer residents, who pay up to nearly $7,000 a month in rent, say the pungent pot odor and litter had gotten so bad that the building’s management had to send security teams to patrol the hallways. “Pot was coming through the vents,” according to a resident in the south tower of the double-high-rise complex near Columbus Circle. “It stopped for a little bit when they were using security, but as soon as they left, it started up again.” The landlord even tacked a stern warning in the elevators threatening to evict any tenant caught with pot, another resident said.

      I don’t expect illegal things to be happening in this building,” said the resident, Lidia Fluhme, 31, who pays nearly $5,300 for a two-bedroom unit in the building, which boasts a gym and roof terrace. “We feel that it’s unfair that we have people living in the same building on the same floor and they pay a fraction of what we do. If you need special housing, there are so many places other than a block away from Central Park.”

      Nearly 150 of the building’s 700 units are set aside for low-income housing under the state’s 80/20 initiative. The program allows the developer to use tax-exempt bonds for construction, thus greatly reducing costs, as long as it sets aside 20 percent of the housing for tenants earning no more than 50 percent of an area’s median income.

      The median household income for Columbus Circle is about $93,000. That means to qualify for a low-income slot at 1 Columbus Place, tenants would have to make no more than $46,000.
    Source:  Tony vs. stoney at ‘high’ rise (Posh: ‘Weed’ out poor).

    NYC Points To Legal Technicality To Evict Longtime Greenwich Village Newstand Operator; Big Shot White Shoe Law Firm Volunteers Services To Help City Boot Hapless, Soon-To-Be Jobless Senior

    In New York City, the New York Post reports:
    • The city has gone nuclear in its efforts to oust a longtime Greenwich Village newsstand operator beloved by thousands of New Yorkers and made famous in feature films.

      Legal papers show the city has retained — for free — the services of powerhouse international law firm Proskauer Rose to boot Jerry Delakas from the Astor Place news kiosk he’s run for the past quarter-century.

      This truly is David vs. Goliath,” said Gil Santamarina, the lawyer waging a long-shot battle to keep Delakas from being evicted over his lack of a license. Delakas — a neighborhood fixture who alongside his newsstand has appeared in such movies as “Sex and the City,” as well as countless ads — has run the business for 25 years by subleasing from the family who held the license.

      The city Department of Consumer Affairs became aware of that forbidden arrangement, and began eviction proceedings, only after the estate of the family tried to renew the license and keep Delakas there when the last relative died.

      Last week, “much to my shock and dismay,” Santamarina said he received a new letter revealing that the city now is being represented pro bono by a lawyer for the prestigious Proskauer Rose — instead of by a city Law Department attorney, as had been the case since last year.

      Such charity legal work is strongly encouraged for lawyers as a means to help criminal defendants and others who can’t otherwise afford legal counsel. “So, Proskauer, a firm whose lawyers charge upwards of $800 per hour, is lending their legal services for free for the purposes of rending a 64-year-old man unemployed, jobless,” Santamarina said of the firm’s donating associate Alyse Fiori’s time — and the global company’s vast resources — to try to evict his client.

    Friday, September 21, 2012

    Criminal Prosecutors Jump Into Bed With Debt Collectors, 'Renting Out Their Office Stationery' To Facilitate Cash Recoveries In 'Rubber Check' Cases

    The New York Times reports:
    • The letters are sent by the thousands to people across the country who have written bad checks, threatening them with jail if they do not pay up.

      They bear the seal and signature of the local district attorney’s office. But there is a catch: the letters are from debt-collection companies, which the prosecutors allow to use their letterhead.

      In return, the companies try to collect not only the unpaid check, but also high fees from debtors for a class on budgeting and financial responsibility, some of which goes back to the district attorneys’ offices.

      The practice, which has spread to more than 300 district attorneys’ offices in recent years, shocked Angela Yartz when she was threatened with conviction over a $47.95 check to Walmart. A single mother in San Mateo, Calif., Ms. Yartz said she learned the check had bounced only when she opened a letter in February, signed by the Alameda County district attorney, informing her that unless she paid $280.05 — including $180 for a “financial accountability” class — she could be jailed for up to one year.

      I was so worried driving my kid to and from school that if I failed to signal, they would cart me off to jail,” Ms. Yartz said.

      Debt collectors have come under fire for illegally menacing people behind on their bills with threats of jail. What makes this approach unusual is that the ultimatum comes with the imprimatur of law enforcement itself — though it is made before any prosecutor has determined a crime has been committed.

      Prosecutors say that the partnerships allow them to focus on more serious crimes, and that the letters are sent only to check writers who ignore merchants’ demands for payment. The district attorneys receive a payment from the firms or a small part of the fees collected.

      The companies are returning thousands of dollars to merchants that is not coming at taxpayer expense,” said Ken Ryken, deputy district attorney with Alameda County.

      Consumer lawyers have challenged the debt collectors in courts across the United States, claiming that they lack the authority to threaten prosecution or to ask for fees for classes when no district attorney has reviewed the facts of the cases.

      The district attorneys are essentially renting out their stationery, the lawyers say, allowing the companies to give the impression that failure to respond could lead to charges, when it rarely does.

      This is guilty until proven innocent,” said Paul Arons, a consumer lawyer in Friday Harbor, Wash., about two hours north of Seattle.

    NYC Federal Court Green Lights Class Action Certification In Alleged Sewer Service Racket Involving Fraudulently Obtained Default Judgments, Zombie Debt Buyer, Process Server, Law Firm

    From a recent client alert from the law firm Ballard Spahr LLP:
    • A recent decision by a New York federal court provides yet another example of the documentation-related challenges that creditors and debt buyers are increasingly facing in collection actions involving non-mortgage consumer debts.

      In its opinion in Monique Sykes v. Mel Harris and Associates, LLC, issued September 4, 2012, the U.S. District Court for the Southern District of New York granted class certification in a case alleging that a debt buyer, law firm, and process service company had engaged in a scheme to fraudulently obtain default judgments against more than 100,000 consumers in debt collection actions filed in state court.

      The complaint alleged that the process service company had regularly engaged in "sewer service" by failing to serve the summons and complaint. It further alleged that, after a debtor failed to appear in court for lack of notice of the collection action, the debt buyer and law firm would seek a default judgment based on a false "affidavit of merit" attesting to their personal knowledge of the "facts and proceedings" relating to the action and a false affidavit of service.

      According to the court, the plaintiffs had established that the affidavits of merit were "generated en masse by sophisticated computer programs and signed by a law firm employee who did not read the vast majority of them and claimed to, but apparently did not, have personal knowledge of the facts to which he was attesting."

      The employee typically did not receive the original credit agreement for a particular debt included in a portfolio of purchased debts. Instead, the employee received a bill of sale for the portfolio that included sample credit agreements and warranties from the portfolio seller. The court noted that even if the credit agreement existed (which it often did not), the employee's standard practice was to rely on the warranties and database information instead of reviewing the agreements before signing an affidavit of merit.

      The evidence showed that after producing the affidavits of merit in batches of up to 50 at a time, the law firm's employee would do a "quality check" of one affidavit per batch to confirm that the affidavit information matched the database information. If both sets of information matched, he would sign the remaining affidavits without reviewing them. The employee would sign as many as 350 affidavits of merit in any given week.

      The plaintiffs also alleged that, because the defendants had regularly engaged in "sewer service," the affidavits of service that accompanied the affidavits of merit were also often false.

      According to the court, evidence showing hundreds of instances of the same process server executing service at multiple locations simultaneously provided substantial support for the plaintiffs' "sewer service" allegations.

      In addition to claiming that the defendants' conduct violated the Racketeer Influenced and Corrupt Organizations Act and New York's General Business Law and Judiciary Law, the complaint alleged that the defendants had violated the Fair Debt Collections Practices Act by filing false affidavits in the collection actions.

      The court, in finding that the plaintiffs had satisfied the commonality requirement for class certification, noted that there is conflicting case law on whether making false representations in court, rather than to the debtor, violates the FDCPA.

    Pair Gets Multi-Year Prison Stays For Running Straw Buyer Flipping Scams, Rent To Own Ripoffs

    From the Office of the U.S. Attorney (Seattle, Washington):
    • Two men who engaged in a mortgage fraud scheme that collapsed with the real estate downturn, were sentenced [] to federal prison terms in U.S. District Court in Seattle. ROBERT STRONG, 48, of Bothell, Washington was sentenced to four years in prison and ANTHONY WALDRON, 49, of Kirkland, Washington was sentenced to 42 months in prison.

      Between 2005 and 2008, the men used fraudulent information to obtain more than $13 million in loans on 30 different properties, primarily in South King County. When the scheme ended and the homes went into foreclosure the lenders had lost more than $2.5 million.
    • According to records filed in the case, the men recruited straw buyers with good credit to “purchase” the houses. These straw buyers were paid as much as $18,000 for use of their identity and credit score on the loan documents. The men submitted false employment information on the straw buyers, in one case claiming the woman made $22,000 per month working for an entity they created and controlled.

      Using this false information the men got banks to fund the mortgages on the houses, then the men would quickly “sell” the house to another straw buyer at a higher price to claim the additional mortgage funds.

      The men also rented the houses on “rent to own” plans, asking the renters to pay an option, ranging from $400-$7000, to purchase the home at a later date and at an increased price. The men also falsely claimed repairs were made to the homes and increased the value of the homes based on those repair bills. Instead they pocketed the money that they claimed went to home improvements.
    For the U.S. Attorney press release, see Two King County Men Sentenced To Prison For Mortgage Fraud Scheme (Pair Used Straw Buyers to Buy and “Flip” Houses, Defrauding Banks of more than $2.5 Million).

    Thursday, September 20, 2012

    LA Feds Pinch Three, Seek Another In Alleged Sale Leaseback Equity Stripping Ripoff That Left Homeowners Broke & Straw Buyers Holding The Bag

    From the Office of the U.S. Attorney (Los Angeles, California):
    • The top two managers at a Westwood-based mortgage brokerage company have been arrested on federal charges relating to a foreclosure avoidance and equity-skimming scheme that targeted distressed homeowners. According to an indictment in this case, the scheme led several mortgage lenders to disburse more than $15 million in loan proceeds – with nearly half of that being lost to the fraud conspiracy.

      Federal authorities on Tuesday arrested David Singui, 49, of Inglewood, and Aziz Meghji, 35, of Los Angeles, who were, respectively, the principal owner and the second-in-charge at Direct Money Source (DMS), a mortgage brokerage which allegedly operated as an equity-skimming operation that took possession of distressed homeowner’s equity under fraudulent pretenses and also defrauded mortgage lenders.

      A third defendant in the case – Kiet Truong, 27, of Hawthorne, who worked at DMS, [subsequently] surrendered to authorities [...].

      The fourth defendant named in the 42-count indictment – Starr Smith, 31, whose last known address was in Long Beach, is a fugitive currently being sought by authorities.

      The federal grand jury indictment, which was returned on September 6, charges all four defendants with conspiracy, wire fraud, loan fraud and aggravated identity theft. Singui and Meghji are additionally charged with money laundering.

      DMS held itself out as a company with a “Fresh Start Program” that was devoted to assisting distressed homeowners avoid foreclosure by arranging to have their homes purchased by so-called “credit investors,” who would hold the properties for 12 months and then sell them back to the original homeowners after they restored their credit ratings.

      In fact, as alleged in the indictment, DMS was an equity-skimming operation that took possession of distressed homeowner’s equity under fraudulent pretenses. The scheme allegedly defrauded mortgage lenders in connection with loans on approximately 50 different properties.
    • The distressed homeowners were told that, because they had equity in their homes, DMS would be able to draw down on the equity and make monthly mortgage payments on behalf of the homeowners during the one-year period in which they were to repair their credit.

      In fact, according to the indictment, DMS took title to more than four dozen properties belonging to the distressed homeowners it targeted and simultaneously misappropriated the existing equity in their homes.

      Using “straw borrowers” as the “credit investors,” DMS orchestrated loan transactions that allowed DMS to obtain access to the distressed homeowners’ equity. As alleged in the indictment, DMS and its principals falsified the employment, bank account and income information of the straw borrowers on the loan applications. DMS also allegedly fabricated fictitious bank statements to support this false information on the loan applications in order to facilitate the approval of these fraudulent loans.

      At the conclusion of these transactions, DMS usually ended up with approximately $100,000 equity per transaction, plus around $35,000 in fees and commissions associated with each loan. In the meantime, each of the straw borrowers ended up owing approximately $300,000 or more on loans that went into default because DMS did not make the 12 months of mortgage payments as promised.(1)

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

    Mortgage Cancellation Rackets That File Suits To Obtain Default Judgments To Wipe Out Banksters' Liens Gain Steam In Florida

    In West Palm Beach, Florida, The Palm Beach Post reports:
    • More companies are jumping into the land trust business. At least two new firms in Florida are trying to cancel mortgage debt with lawsuits that lenders call “baseless” and “nonsensical” but that some borrowers say are their last chance at keeping their homes.

      The companies, including one with a Jupiter address, are in addition to the Fidelity Land Trust Company that opened last year in Boca Raton. Together, they have filed scores of lawsuits statewide and collected hundreds of deeds from homeowners, who are typically solicited by phone because they have underwater mortgages.

      And desperate borrowers are biting.
    • [P]roponents of the trusts point to a Levy County case they say proves it works. A press release issued Tuesday by one of the trust referral companies says Boca Raton attorney Howard Feinmel, who is under a Florida Bar investigation for issues relating to quiet title lawsuits, won a judgment in November that canceled a mortgage.

      It was a default judgment, typically awarded when the defendant fails to respond within 20 to 30 days and can be reopened if there are legitimate reasons for missing the deadline.

      The plaintiff in the Levy County case was Levy County Partners, which had the homeowner deed his house to it before filing the lawsuit, according to property appraiser records. The deed has since been transferred from Levy County Partners to Fidelity Land Trust Company. The foreclosure lawsuit against the homeowner was voluntarily dismissed in June by the lender. The dismissal was done without prejudice, meaning it can be re-filed.

      Bank of America, the servicer on the loan, did not respond to a request for comment.

      Fidelity Land Trust Company, which was incorporated in December and is believed to be one of the first firms to make widespread attempts to cancel mortgages by suing the banks, has amassed about 240 deeds statewide, including 100 in Palm Beach County.

    Title Agent Gets Pinched For Allegedly Converting Real Estate Escrow Cash Into Play Money For Her Own Personal Pleasure

    In West Palm Beach, Florida, The Palm Beach Post reports:
    • A Wellington title agent faces up to 30 years in prison and $5 million in fines from federal charges filed last week that allege she diverted money from closings to gamble and pay personal expenses.

      Dawn Herndon, who ran Accurate Title Closings, LLC., was charged Wednesday with five counts of fraud on a financial institution. The complaint says the 46-year-old obtained more than $3.3 million of mortgage monies by falsyfing HUD-1 settlement statements in 32 separate sale closings that occurred between December 2009 and December 2010.

      Herndon could not be reached Monday, and no defense attorney was listed in federal court documents. A bond recommendation of $100,000 was filed with the complaint.

      Contrary to the representations made on the HUD-1s, Dawn Herndon transferred most of the mortgage proceeds from the Accurate Title Closings escrow accounts to the business operating accounts and then used these monies for her personal benefit, that is, to gamble and pay personal and business expenses,” according to the complaint.

      The five felony charges stem from closings Herndon allegedly conducted on homes in Wellington, Lake Worth, West Palm Beach and Boynton Beach.

      Florida’s Office of the Chief Financial Officer issued an administrative complaint against Herndon in January alleging she wrote checks on Accurate’s escrow account that bounced, failed to pay $4,882 to the Miami-Dade Tax Collector and failed to maintain the company’s surety bond.

    Wednesday, September 19, 2012

    Florida High Court Suspends Two Lawyers From Practice For Their Involvement In Performing Loan Modification Services

    The Florida Bar, the state's guardian for the integrity of the legal profession, recently published its periodic 'gossip sheet,' announcing that the Florida Supreme Court in recent court orders disciplined 24 attorneys, disbarring eight and suspending 13.

    Among those Florida attorneys making this period's hit parade are the following pair for their involvement in the performance of loan modification services:
    1. Thomas C. Matevia, 4521 PGA Blvd., No. 254, Palm Beach Gardens, suspended for three years, effective 30 days from a June 29 court order. (Admitted to practice: 1970) Matevia worked at a high volume law firm providing loan modification services, in which he was ultimately unable to meet his payroll and other financial obligations. The financial failure of the law firm caused at least 41 complaints to be filed with The Florida Bar, by clients that paid a retainer fee for Matevia to handle cases for them that he didn’t complete. He also violated Bar rules by paying bonuses to non-lawyer employees for signing up clients for the law firm. Matevia was also ordered to pay restitution of $102,049 to clients. (Case No. SC12-1118).

    2. Robert Victor Rossenwasser, 99 N.W. 183rd St., Suite 100B, North Miami, suspended for 90 days, effective 30 days from a June 29 court order. (Admitted to practice: 1992) Rossenwasser is the subject of several Bar disciplinary matters stemming from his involvement in a loan modification business. (Case No. SC12-1120).

    Mortgage Servicers' Contractor Cops Plea In $12M Ripoff, Admitting To Fabricating Foreclosure Property Inspection Reports

    In Tampa, Florida, the Tampa Bay Times reports:
    • As the housing market imploded, Dean Counce's business boomed.

      Counce's Brooksville company contracted with lenders to regularly inspect properties in foreclosure throughout the state. By 2009, Counce was sending as many as 100,000 inspection reports each month to Bank of America, receiving about $6.50 for each. Bank of America then billed the federal entities that owned or insured the mortgages.

      At one point, Counce was making as much as $1 million per month. The problem: Half of those reports were fabricated. Now, investigators say, Counce owes taxpayers more than $12 million and faces up to 20 years in prison.

      On Friday, the 42-year-old Spring Hill resident pleaded guilty in federal court to one count of conspiracy to commit wire fraud. His sentencing date has yet to be set.
    • As part of a plea deal, Counce agreed to cooperate with an ongoing investigation and testify if necessary. Prosecutors, in turn, will not oppose his request for a prison term on the low end of the sentencing range.

    Title Insurer Screws Itself w/ Ambiguous Policy Terms; Forced To Calculate Loss On Search Screw-Up By Including Value Decline Based On Market Factors

    (This post will probably be of absolutely no interest to absolutely anyone, other than maybe some title insurance industry people, and possibly, a certain anonymous blogger - me. Accordingly, here goes.)

    The following facts are taken from a recent ruling of the
    South Carolina Supreme Court:
    1. On October 30, 2006, Plaintiff purchased a lot along the Intracoastal Waterway in Myrtle Beach. A mobile home and an out-building were situated on the property at the time of purchase. Plaintiff purchased the lot intending to build a single-family home on the property.

    2. Since 1931, the property has been subject to a properly recorded spoilage easement allowing for the construction and maintenance of the Intracoastal Waterway. According to Plaintiff/Landowner, the spoilage easement allows the Army Corps of Engineers to dredge and maintain the Intracoastal Waterway and to dump dredged material on Plaintiff/Landowner's lot at any time.

    3. At closing, Plaintiff purchased from Defendant an owner's title insurance policy in the face amount of $410,000—the amount of the purchase price.

    4. The existence of the spoilage easement was missed in the title search and therefore was not included as an exception to coverage in the title policy. The existence of the spoilage easement was not known by Plaintiff at the time she purchased the property.

    5. In January 2010, Plaintiff sought a building permit from Horry County to construct a home on her property. Through that process, she learned of the spoilage easement, which prevented her from obtaining a building permit.

    6. It is undisputed that by 2010, the value of the property had decreased as a result of the downturn in the real estate market, irrespective of the diminution in value caused by the title defect.

    7. Plaintiff filed an action seeking damages caused by the existence of the easement. The parties filed cross motions for summary judgment. Defendant argued the value of any loss should be measured as of the date of the discovery of the title defect.

    8. Plaintiff moved for summary judgment as to liability only and argued the case presented a jury issue regarding damages. Plaintiff contended that her damages, as measured by the diminution in property value, should be measured as of the date the property was purchased.

    9. The United States District Court found Defendant/Title Insurer was liable under the insurance policy and granted summary judgment in favor of Plaintiff.

    10. However, as to the issue of damages, because this issue required an interpretation of substantive state law for which the state law precedent may not have been clear, the district court 'punted' on answering that question, instead opting to certify the question to the South Carolina Supreme Court for an authoritative determination.
    Despite acknowledging the apparent inequity against the title insurer resulting from its decision, the South Carolina Supreme Court ruled that, because of ambiguous language in the title insurance policy, state law required it to interpret the policy in a light most favorable to the insured.

    Accordingly, they ruled that the date the property was purchased was the date to be used in measuring the diminution in property value resulting from the screw-up in the title search (when the property was worth much more due to the real estate market 'bubble'), resulting in a greater damages calculation for the landowner than would have been the case had the date of discovery of the title defect been used to calculate damages (when the property value was worth much less due to the subsequent real estate market 'crash' several years later).

    In recognizing that courts around the country have generally identified three points in time to measure an owner's actual loss (the date the property was purchased, the date the title defect was created, and the date the defect was first discovered), the South Carolina Supreme Court made these comments:
    • [W]e are guided by the contract principle that parties may contract as they see fit, provided the contract terms do not offend public policy. In the context of establishing a method of valuation in a title policy, as noted above, "[t]he terms of individual insurance agreements can control the method of valuation." Stanley, 377 S.C. at 411, 661 S.E.2d at 65.

      The title policy here does not unambiguously set forth a method of valuation in line with the construction Defendant urges us to adopt.

      Thus, we need look no further than the general rule that ambiguities in an insurance contract must be construed in favor of the insured. In this case, that construction results in a date-of-purchase valuation date.

      We fully appreciate the equity and inherent logic for valuing the property in this case as of the date of the discovery of the title defect as Defendant suggests. See generally Matthew C. Lucas, Now or Then? The Time of Loss in Title Insurance, 85 Fla. B.J. 10, 15 (2011).

      Defendant asserts that under a title policy the risk of a decline in the land's market value because of market conditions should be assumed by the purchaser, and the risk of the land's market value being impacted by a title matter should be assumed by the title insurance company.

      We conceptually agree with Defendant, but we are construing a contract of insurance, not attempting to fashion an equitable remedy.

      The insurance policy here simply fails to identify the valuation date as the date of discovery of the title defect or otherwise provide clear language that would require a valuation date in line with Defendant's position. The well-established rule concerning construction of ambiguous terms in insurance contracts compels a result adverse to Defendant's position.

      In sum, although we acknowledge the apparent inequity in our answer to the certified question, the resolution of this question is not a matter of equity.

      Rather, this Court is faced with the task of construing an insurance policy, and in the presence of an ambiguity we are constrained to interpret it most favorably to the insured. In this case, the date the property was purchased is the proper valuation date.
    For the ruling, see Whitlock v. Stewart Title Guaranty Company, Opinion No. 27169 (S.C. September 12, 2012).

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

    Tuesday, September 18, 2012

    Michigan Loan Modification Racket Operator Gets 10-20 Years For Screwing 60 Victims Out Of $250K+

    From the Office of the Michigan Attorney General:
    • Attorney General Bill Schuette [] announced his Corporate Oversight Division has secured a prison sentence for a Holly woman who ran a fraudulent foreclosure-rescue operation that scammed at least 60 victims across the state out of more than $250,000.

      Tashia Winstanley, 38, of Holly, has been sentenced to 10 to 20 years in prison and ordered to pay $243,474 in restitution [...]. Winstanley and her company, TLW Mortgage Solutions, each pleaded guilty on August 3, 2012 to three felonies for collecting upfront fees while impersonating a mortgage modification company.

      "Foreclosure rescue scam artists attack Michigan homeowners who are struggling financially and fighting to stay in their homes," said Schuette. "Anyone who exploits struggling homeowners through these scams will be prosecuted to the fullest extent of the law."
    • Winstanley offered prospective clients mortgage loan modifications for a fee. Winstanley promised victims she would secure a mortgage loan modification for them. Some victims even made their mortgage payments directly to Winstanley instead of their lenders, but instead of remitting those payments to the banks, Winstanley pocketed the funds in order to feed self-proclaimed shopping and drug addiction.

      The Attorney General Investigation uncovered evidence that Winstanley made no efforts to secure loan modifications for many of the victims.

      Affected victims reside in the following counties: Grand Traverse, Leelanau, Kalkaska, Roscommon, Oakland, Genesee, Benzie and Macomb.
      Winstanley and her company, TLW Mortgage Solutions both plead guilty in Grand Traverse County's 13th Circuit Court to the following:

      One count of Conducting Criminal Enterprises (Racketeering), a felony punishable by up to twenty years in prison;

      One count of False Pretenses - More than $20,000, a felony punishable by up to ten years in prison; and

      One count of False Pretenses - $1,000-$20,000, a felony punishable by up to five years in prison and/or three times the value of money or property involved.

      Winstanley is currently incarcerated in Huron Valley Women's Correctional Facility serving time for previous convictions for Larceny by Conversion - $1,000-$20,000 charged in Leelanau and Kalkaska counties.

      Citizens who believe they may have been victims of Winstanley or TLW Mortgage Solutions are encouraged to file complaints with the Attorney General's Office at by clicking "File a Complaint."

    Couple Get Prison Stays For Peddling Phony Mtg Reduction Racket Ponzi Scheme; Used Lulling Payments To Lull Investors To Sleep While Living High Life

    From the Office of the U.S. Attorney (Chicago, Illinois):
    • A Will County couple has been sentenced to federal prison terms for engaging in a brazen investment fraud scheme that swindled more than $1 million from approximately 40 victims, causing some of them to lose their homes and financial security while the couple spent the money primarily on themselves.

      JAMES PILON was sentenced today to 53 months in prison, while his wife, VERNA PILON, was sentenced last week to 78 months in prison, and they were ordered to pay $967,702 in restitution.
    • According to court records, the investigation of the Pilons, of Monee at the time, began in 2005 when the Illinois Securities Department ordered them to cease selling investments in the state. Instead of complying, the couple continued to solicit and obtain investment funds through 2005 and 2006.

      The couple operated numerous nusinesses through which they purported to sell two forms of investment — the Mortgage Acceleration Program, which essentially promised to pay investors’ monthly mortgage payments, completely pay off the outstanding balance in two years, and generate additional returns, and the Private Placement Program, which also promised high-yield returns of as much as 100 percent or more on investments within 90 days.

      In fact, neither investment program existed and the Pilons used some funds they fraudulently obtained to make Ponzi-type payments to lull some investors, while using the remaining funds for themselves. As a result, some investors’ mortgage payments were never made and their homes were foreclosed.
    • During court proceedings, Verna Pilon was identified as a member of the so-called Washitaw nation sovereign group and she repeatedly maintained that the U.S. District Court had no jurisdiction over her. Evidence showed that the Pilons were acquainted with many of their victims, including some who testified that the couple preyed upon their religious faith in appealing for investment funds.

    1,500 Elderly Residents To Get The Boot After Tribe Buys Out Master Lease On Mobile Home Park Located On Reservation & Announces Closure

    In Broward County, Florida, The Miami Herald reports:
    • The Seminole Tribe of Florida announced on Friday plans to close the Hollywood Estates Mobile Home Park near Hollywood about one month after the tribe bought out a long-term lease on the 110-acre property previously held by a private management company.

      About 1,500 residents live in the 55-and-older community at 3300 N. State Road 7, and everyone will be required to vacate the park by June 30, 2013, said Gary Bitner, a tribe spokesman. Park residents may own their mobile home units, but pay monthly rent for the land and trash service.

      It’s pathetic. They’re kicking all us old people out,’’ said Nancy Gallagher, 73, president of the park’s tenants association. Gallagher said she is a retiree who has lived at the park about nine years and cares for her husband, Joe, who is bed-ridden. Gallagher spent Friday afternoon hanging posters in the community, informing residents of the changes.

      Some of those changes arrived suddenly and others will take more time.

      The Seminole Tribe immediately closed the park’s swimming pool, community room, bowling alley, meeting rooms, spa and gym. To make up for the loss of those common areas, the tribe reduced the monthly rent for residents by $100 per space, dropping the average rental from $533 to $433.

      Bitner also spent Friday afternoon driving through the park. He said about half of the estimated 720 mobile homes appeared to be shuttered, suggesting they belonged to seasonal residents, most of whom live in Canada during the summer. “This time of year, I’d say it’s only about half occupied,’’ Bitner said of the park.

      The tribe plans to close the park, which occupies about 20 percent of the 497-acre Seminole reservation, to build homes for members, Bitner said. A housing shortage on the reservation has resulted in a waiting list of more than 200 tribal members seeking housing on their ancestral land.

      The Seminole Tribe took over management of the park in July after a protracted legal battle for control of the land led to a negotiated settlement with Hollywood Mobile Estates, the former management company that held a lease on the land through 2024. The terms of the settlement were not disclosed.

      Essentially, the tribe bought them out of their long-term lease, and took over management,’’ Bitner said.

      The tribe wants most residents to leave the park by Dec. 31, and has offered financial incentives to lower-income, year-round residents.

      For those residents who earn a combined annual household income of less than $40,000, and who agree to move out by Dec. 31, the Seminole Tribe will pay up to $3,000 for abandonment or moving expenses. Residents who stay past Dec. 31 will see monthly rents rise to $590 on Jan. 1, with increases to $620 on March 1,and to $650 on May 1. Park residents are now allowed to terminate their lease without penalty at any time, Bitner said.

      Friday’s news of the park’s closure appears to close the book on a contentious and protracted legal battle over the property, which is steps from the tribe’s glitzy Hollywood-area casino.

      The park was built in 1969, and Hollywood Mobile Estates took over management in 1986 with approval from the federal government. But the company was forced off the property by the Seminoles in 2008, with no prior notice, and at gunpoint. The Seminoles had cited a litany of alleged lease violations that included desecration of a tribal cemetery.

      A federal judge ordered the tribe in July 2011 to return the park to the former management company, however, and the tribe complied. Now the Seminoles likely will face resistance from park residents such as Gallagher, the tenants association president.

      I can’t afford to move; neither can these other people,’’ Gallagher said. “It’s not right. It’s not humane to do this.’’
    Source: Seminole Tribe to close Hollywood mobile home park (About 1,500 residents of a mobile home park on the Seminole reservation near Hollywood will have to move out by July 2013. The tribe says it wants to use the land to build more housing for tribal members).

    Monday, September 17, 2012

    Court Rejects Bankster 'Buy Off' Of Ch 7 Trustee w/ $10K In Exchange For F'closure Defense Waiver; Homeowner's Defenses Not Waivable By Trustee: Judge

    From the National Consumer Bankruptcy Rights Center blog:
    • In an action comparable to two wolves and a sheep voting on what to have for dinner, the Bankruptcy Court for the Southern District of Florida stepped in on behalf of the sheep and disapproved a settlement agreement under which the trustee sought to waive the debtor’s defenses in an underlying state court foreclosure action. In re Larkin, 468 B.R. 431 (Bankr. S.D. Fla. 2012).

      Approximately one year prior to debtor’s filing her chapter 7 bankruptcy petition, Wells Fargo instituted foreclosure proceedings on the debtor’s home. The debtor counterclaimed in that action and raised defenses to Wells Fargo’s claims. The chapter 7 trustee sought to allow the foreclosure to go forward and to dismiss the debtor’s counterclaim and waive her defenses in the underlying foreclosure action, in exchange for Wells Fargo paying $10,000 to the estate.

      The court disapproved the settlement agreement finding that while the counterclaim was property of the estate, (citing Parker v. Wendy’s Int’l, Inc., 365 F.3d 1268,1272 (11th Cir.2004)), the defenses to the foreclosure action were not and, therefore, could not be waived by the trustee.

      The issue of whether the debtor’s defenses were property of the estate turned on interpretation of section 558 which provides:

      The estate shall have the benefit of any defense available to the debtor as against any entity other than the estate, including statutes of limitation, statutes of frauds, usury, and other personal defenses. A waiver of any such defense by the debtor after the commencement of the case does not bind the estate.

      The court correctly found that this provision permits the trustee to avail himself of debtor’s defenses but does not authorize the trustee to deprive the debtor of those defenses.

      The court did caution that defenses that seek monetary damages may be more akin to counterclaims and could, therefore, be waived by the trustee, but that defenses that seek to reduce potential recovery by the claimant do not fall into that category and are not waivable by the trustee as to the debtor.

    Closing Agent Admits To Ripping Off Escrow Cash From Real Estate Deals; Failed To Pay Off Existing Mortgages, Leaving Title Insurer On Hook For $1.5M+

    From the Office of the U.S. Attorney (Baltimore, Maryland):
    • Harriet M. Taylor, age 56, of Ellicott City, Maryland, pleaded guilty [] to wire fraud in connection with a scheme to use over $1.5 million in mortgage closing funds for her personal use or to operate her title companies.
    • According to her plea agreement, Taylor co-owned and managed two title insurance companies, Regal Title Company, LLC and Loyalty Title Company, LLC, located in Columbia, Maryland. Taylor entered into an agreement with a national title insurance underwriter to establish escrow accounts for Regal and Loyalty, separate from company operating accounts, for the purpose of holding and disbursing funds received from lenders for real estate closings.

      Beginning in 2009, however, Taylor caused mortgage lenders to wire their funds entrusted for real estate settlements to Regal’s operating account, rather than to the escrow accounts. Taylor also caused funds in Regal’s and Loyalty’s escrow accounts to be transferred back and forth between their respective operating accounts. By using commingled funds throughout 2009, Taylor kept her two businesses afloat, while enriching herself with both company and escrow funds. From January through December 2009, Taylor paid herself $477,877.50 from three company operating accounts.

      As shortfalls in the escrow accounts increased, Taylor failed to remit insurance premiums to the title insurance underwriter, Old Republic National Title Insurance Company (Old Republic), pay recording fees for deeds and pay off prior liens, including four of which belonged to the government sponsored entities, Fannie Mae and Freddie Mac.

      Old Republic learned of the misuse of settlement funds from a 2009 audit of Regal and an early January 2010 audit of Loyalty. Old Republic terminated its agency relationship with the two companies, but was obligated to satisfy the prior liens against the properties affected by the misuse of settlement funds and to complete other transactions Regal and Loyalty failed to perform.

      Accordingly, in January 2010, Old Republic incurred a total loss of $1,518,532 which resulted from paying off prior liens, paying recording fees, and for insurance premiums collected by Regal and Loyalty but not forwarded to Old Republic.
    For the U.S. Attorney press release, see Title Company Owner Pleads Guilty in $1.5 Million Fraud Scheme.

    L.A. Feds Indict 11 For Roles In Alleged Loan Mod Scam That Screwed 4,000+ Homeowners Out Of At Least $7M; Many Lost Homes To Foreclosure Anyway

    From the Office of the U.S. Attorney (Los Angeles, California):
    • Federal agents [...] arrested 10 defendants who worked at a Rancho Cucamonga-based business that allegedly offered bogus loan modification programs to financially distressed homeowners. As a result of the scheme allegedly run out of 21st Century Real Estate Investment Corp. and several related companies, more than 4,000 financially distressed homeowners lost at least $7 million in fees they paid to the company, and many homeowners lost their homes to foreclosure.

      Those taken into custody [...] were among 11 defendants named in a federal indictment unsealed today following an investigation by the Federal Bureau of Investigation; IRS-Criminal Investigation; the United States Postal Inspection Service; the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP); and the Federal Housing Finance Agency, Office of Inspector General.

      According to the indictment, during an 18-month period that began in June 2008, a Rancho Cucamonga woman – Andrea Ramirez – operated 21st Century and several other companies.

      According to the indictment, 21st Century “defrauded financially distressed homeowners by making false promises and guarantees regarding 21st Century’s ability to negotiate loan modifications from the homeowners’ mortgage lenders, falsely representing that 21st Century was operating a loan modification program sponsored by the United States government, instructing homeowners to cease communication with their mortgage lenders and to cease making their mortgage payments.”
    • Ramirez and the other 21st Century employees contacted distressed homeowners through cold calls, newspaper ads and mailings, and various 21st Century-controlled websites that advertised loan modification services.

      Once they contacted the distressed homeowners, according to the indictment, Ramirez and other 21st Century employees often falsely told clients that the company was operating through a federal government program, that they would be able to obtain new mortgages with specific interest rates and reduced payments, and that attorneys would negotiate loan modifications with their lenders.

      Ramirez and other 21st Century employees regularly instructed financially distressed homeowners to cease making mortgage payments to their lenders and to cut off all contact with their lenders because they were being represented by 21st Century.

      On some occasions, Ramirez and other 21st Century employees would tell homeowners that 21st Century was using the fees paid by the homeowner to make mortgage payments, when in fact Ramirez and 21st Century simply were keeping the homeowner’s money.

      Christy Romero, Special Inspector General at SIGTARP, stated: “Ramirez and her co-conspirators are charged with fraudulently operating 21st Century to exploit the hardships of homeowners fighting to keep a roof over their head. As alleged, these con artists swindled distressed homeowners by lying about their affiliation with federal housing programs and giving money-back guarantees that the homeowners would get a lower mortgage payment if they paid an advance fee. SIGTARP and our law enforcement partners are committed to shutting down schemes that prey on those who can least afford it by falsely claiming an affiliation with TARP’s housing programs.”

      Leslie P. DeMarco, Special Agent in Charge of the IRS-Criminal Investigation’s Los Angeles Field Office, said: “Using the guise of a federally sponsored loan modification program, and the assurance of a qualified legal team, the defendants preyed on financially distressed homeowners allegedly depriving them of much needed money and property. Those who find ways to fraudulently benefit from government programs meant to help struggling homeowners keep their homes will be brought to justice.”

      The 11 defendants named in the indictment are:

      Andrea Ramirez, who also used the names Andrea Parker and Lisa Evans, 44, of Rancho Cucamonga; Christopher Paul George, 42, Rancho Cucamonga, who surrendered [...] to authorities; Michael Bruce Bates, who also used the names Michael Bruce Myers and Robert Allen Castro, 61, of Moreno Valley; Crystal Taiwana Buck, 37, of Long Beach; Michael Lewis Parker, 34, of Pomona, who is currently a fugitive being sought by federal authorities; Catalina Deleon, 35, of Glendora; Hamid Reza Shalviri, 50, Montebello, who self-surrendered [...] after being contacted by federal agents; Yadira Garcia Padilla, 35, of Rancho Cucamonga; Mindy Sue Holt, 53, of San Bernardino; Iris Melissa Pelayo, 42, of Upland; and Albert DiRoberto, 59, of Fullerton.

    Private Company's Attempt To Invoke Eminent Domain Power To Wrestle Property Away From SE Texas Landowners Again At Issue

    In Jefferson County, Texas, The Southeast Texas Record reports:
    • Southeast Texas landowners will have to wait two weeks before learning if a Jefferson County judge will grant a foreign company’s petition to condemn land for the construction of a crude oil pipeline.

      TransCanada Keystone Pipeline filed the petition for condemnation against Texas Rice Land Partners, James and David Holland and Mike and Walter Latta on June 28, 2011. According to its website, TransCanada seeks to build a pipeline to carry crude from Alberta to the Gulf Coast.

      A hearing on whether to grant the petition was held Wednesday, Sept. 12, before Judge Tom Rugg, Jefferson County Court at Law No. 1. Rugg did not rule on the matter, but gave the parties until Sept. 21 to reply to a recently filed legal brief.

      While the hearing was in progress, several protestors stood outside the Jefferson County Courthouse to show their objection to the overuse of eminent domain. “It’s a concern of this court that the rights of landowners not be trampled,” Rugg said during the hearing. Rugg said he would craft a ruling on Sept. 24.

      During the hearing, Terry Wood, the attorney for the rice farmers, attempted to link the TransCanda case to a ruling made by the Texas Supreme Court last August denying Denbury Green common carrier status in a pipeline project of its own.

      In that opinion, the court stated “Private property is constitutionally protected, and a private enterprise cannot acquire condemnation power merely by checking boxes on a one page form.”

      TransCanada argued that the high court ruling did not apply, since Denbury Green’s pipeline would not have carried crude oil, but would have transported carbon dioxide (CO2) to be injected into oil reservoirs to recover additional crude oil.

    WV AG Scores $15M Win Against Internet Lender Accused Of Using Sham Deal With South Dakota Bank To Evade Usury Law, Abusive Collection Tactics

    In Charleston, West Virginia, The West Virginia Record reports:
    • Kanawha County Circuit Court Judge Louis "Duke" Bloom has ordered a California Internet lender to pay $15 million in civil penalties, refunds and cancelled debts to the nearly 300 West Virginia consumers who obtained loans and to the State.

      Bloom entered two lengthy orders Monday finding in favor of the State on all of its claims against Anaheim-based CashCall.

      West Virginia Attorney General Darrell McGraw filed a lawsuit against CashCall in 2008.

      In the suit, McGraw's office alleged that CashCall entered into a "sham" relationship with the First Bank and Trust of Milbank, S.D., for the purpose of using the bank's charter to evade West Virginia's usury laws.

      The attorney general alleged that although the loans obtained by West Virginia consumers were made to appear as if they were issued by the South Dakota bank, in fact, CashCall was the "true lender" because it bore the entire economic risk of the loans. In his orders, Bloom agreed.

      McGraw's office also alleged that CashCall engaged in a wide range of abusive debt collection practices, including severe telephone harassment -- calling some consumers 20-25 times a day -- and calling and sometimes disclosing alleged debts to various third parties, including friends, family members, co-workers and persons that consumers listed as "references" on their loan applications.

      The attorney general also alleged that CashCall repeatedly contacted consumers at work, subjecting them to embarrassment and humiliation -- even after the consumers had asked that the calls stop.

      McGraw's suit against the California company garnered national attention earlier this year after it was learned that CashCall's founder and owner, J. Paul Reddam, also owned the race horse "I'll Have Another."

      The horse was in line to be the first Triple Crown winner in 34 years after it won the Kentucky Derby and the Preakness Stakes. However, on the day before the Belmont Stakes, he was scratched due to tendonitis and was retired from racing.

      "I am proud of my consumer protection staff for making West Virginia the only state to successfully challenge CashCall's 'sham' business model that was designed to evade laws intended to protect West Virginia consumers from excessive interest rates," McGraw said in a statement Tuesday.

    Sunday, September 16, 2012

    Discharging Student Loan In Bankruptcy May Be Hopeless Cause, But Telling Borrower That She Can't In Effort To Collect Debt Violates FDCPA: Appeals Ct

    In New York City, The New York Times reports:
    • For borrowers struggling to pay off their student loans, getting rid of the debt in bankruptcy is difficult because they need to convince a judge that it constitutes an “undue hardship.”

      But it is not impossible. And [last month], the United States Court of Appeals for the Second Circuit, based in Manhattan, ruled that a debt collection agency working to collect loans backed by the Education Department misled borrowers by telling them their debt was not dischargeable in bankruptcy.

      In doing so, the appellate court reversed a lower-court ruling and allowed a lawsuit brought against Collecto, the collection agency, to proceed in Federal District Court.

      They were giving incorrect legal advice in an attempt to coerce money out of these people,” said Brian L. Bromberg, appellate lawyer for the plaintiff, a Buffalo woman. He said that while debt collectors often told borrowers that they could not discharge their students loans in bankruptcy, Collecto “was foolish enough to put it in writing.” Collecto officials declined to comment Friday afternoon, as did the Education Department.

      There is a common misperception that student loans cannot be discharged in bankruptcy, in part because it is so difficult to do so. Debtors must demonstrate that repaying the loan “would impose an undue hardship on the debtor,” showing that they cannot maintain a minimal living standard, that their dismal state of affairs is likely to continue and that they have made a good-faith effort to repay.

      Though hard numbers are difficult to come by, it appears that fewer than 1,000 borrowers each year even try to make the “undue hardship” case.(1) There are 37 million borrowers with federal student loans.

      The appellate case dates back to 2001, when the Buffalo woman, Berlincia Easterling, filed a bankruptcy petition. At that time, she owed the Education Department $2,460 for a student loan. Mr. Bromberg did not know where Ms. Easterling attended college, and she could not be reached for comment.

      In her bankruptcy petition, Ms. Easterling did not try to pursue an undue hardship claim and listed her student loan debt as “not dischargeable.”

      Seven years later, she received a letter from Collecto about her student loan balance, which had grown to $3,359.76 with accrued interest. “Account ineligible for bankruptcy discharge,” the letter said. “Your account is NOT eligible for bankruptcy discharge and must be resolved.”

      According to the appellate opinion, when Collecto learned that a debtor had filed for bankruptcy, it stopped collection activity until it could determine if the student debt was discharged. In the unlikely event that it was, Collecto would send the debt back to the Education Department as uncollectable.

      If the debt was not discharged, Collecto would resume trying to collect it by sending a letter like the one Ms. Easterling received. Ms. Easterling brought the lawsuit on behalf of herself and 181 other debtors in New York State who received the same collection letter.
    Source: Debt Collector Misled Borrowers, Court Says.

    For the ruling, see Easterling v. Collecto, Inc., Docket No. 11-3209-cv (2d Cir. August 30, 2012).

    (1) See Discharging Student Loan In Bankruptcy: Proving "Certainty Of Hopelessness" May Be Hopeless Cause.

    Bkrptcy Judge To Servicer: Cough Up $25K In Punitives For Ripping Off Homeowner w/ Phony Fees; Court Rejects Convoluted Records, Slippery Explanations

    From the National Consumer Bankruptcy Rights Center blog:
    • In a victory for consumer debtors, the Bankruptcy Court for the Eastern District of Kentucky disallowed Ocwen’s proof of claim for late fees and charges, and awarded judgment, including punitive damages in the amount of $25,000.00, in favor of the debtor due to Ocwen’s “gross reckless[ness]” in accounting and servicing her mortgage. In re Tolliver, No. 09-21742, Adv. Proc. No. 09-2076 (Bankr. E.D. Ky. July 19, 2012).

      In reaching its decision, the court held Ocwen’s feet to the fire demanding adequate explanation of Ocwen’s convoluted and contradictory accounting records. After finding Ocwen’s explanations just as slippery and unreliable as the records themselves, the court turned to the expert testimony of Margot Saunders from the National Consumer Rights Center.

      She sifted through the dust heap and offered the only reliable evidence as to the history of the loan, revealing a litany of mismanagement including collecting “unsubstantiated interest arrearage balance,” and “systematically assessing late charges, fees and costs in complete disregard of the terms of the [loan documents.]”

      Ocwen’s attempt to justify the charges with evidence of forbearance agreements was roundly rejected. The court found the debtor had been “bullied” into signing those agreements by repeated false representations that the debtor was in default and that foreclosure was imminent even though she had completely paid off the underlying loan.

      Ocwen’s outrageous conduct was found to violate state common laws including breach of contract, breach of implied covenant of good faith and fraud.

    New Federal Watchdog's Demand For Information May Be Catching Banksters Flat-Footed As Agency Launches Dozens Of Enforcement Probes

    The Associated Press reports:
    • The new federal agency charged with enforcing consumer finance laws is emerging as an ambitious sheriff, taking on companies for deceptive fees and marketing and unmoved by protests that its tactics go too far.

      In the 14 months it has existed, the Consumer Financial Protection Bureau has launched dozens of enforcement probes and issued more than 100 subpoenas demanding data, testimony and marketing materials -- sometimes amounting to millions of pages -- from companies that include credit card lenders, for-profit colleges and mortgage servicers.

      More than two dozen interviews with agency officials and industry executives offered sweeping insight into the new agency's behind-the-scenes efforts, which have taken the financial industry off guard and have been far more aggressive than previously known.

      The number of subpoenas and probes was confirmed by agency, industry and trade group officials who spoke to The Associated Press on condition of anonymity because the subpoenas bar both sides from discussing them.

      The bureau's actions have many banks, payday lenders and credit card companies racing to adjust. They're tightening their record-keeping and budgeting for defense lawyers, according to attorneys and trade group executives who work with them. The companies themselves are reluctant to discuss the bureau because they don't want to be seen as criticizing a regulator that is still choosing its battles.

    CFPB Raid May Be Sign Of Things To Come As Federal Consumer Watchdog Gets Off To Aggressive Start

    The Associated Press reports:
    • As it announced its first big enforcement action against Capital One Financial this summer, the Consumer Financial Protection Bureau was preparing to raid a California company that had offered to help lower at-risk homeowners' monthly payments.

      In court papers, the government accused Chance Gordon and Abraham Michael Pessar of misleading homeowners about their chances of negotiating reduced payments. It said the two charged illegal, upfront fees and did little to help clients who signed up.

      Homeowners who paid the steep fees often ended up in foreclosure, while Gordon and Pessar used their money to "to fund a lavish lifestyle, including expensive cars, dinners and nightclubs," the government said. Among the company's assets is a 2004 Lamborghini Gallardo with an original cost of $88,321.

      A federal district court in central California allowed the consumer bureau to raid the men's offices, freeze their assets and investigate claims that homeowners in at least 25 states were misled about the company's services.

      On his Facebook page, Gordon described officials storming into his offices on the morning of July 19 and disconnecting the phones. The bureau had used details from Gordon's bank statements and earlier investigations by the California State Bar to make its case, he said in the Facebook account, which is part of the court record.

      Agents were aggressive, obtaining a restraining order in secret, raiding the offices without warning and freezing defendants' assets even before confirming that they had done anything wrong. Now officials are in settlement talks with Pessar, he said last week. He has agreed not to dispute many of the allegations, court papers show.

      Gordon maintains his innocence. His lawyer, Gary Kurtz, said the upfront fees actually were for "pre-litigation services," a claim the government disputes. Kurtz said Pessar was responsible for the communications with homeowners that the government criticized.

      Gordon and Pessar marketed their service to struggling homeowners with mailed flyers and phone marketing, the government said in its complaint. Some of the flyers included the logos of government agencies and a Washington, D.C., mailbox address. It is illegal to imply falsely that a loan modification service is endorsed by the government.

      The businesses' phone operators sometimes suggested that people should stop paying their mortgages in order to qualify for lower payments, the government said. That also would violate consumer protection laws.

      The action grabbed fewer headlines than the Capital One Financial case, which required the card issuer to refund millions in fees charged for add-on products like identity-theft protection and credit protection.

      The two cases are early examples of how the bureau will enforce federal consumer protections at both ends of the spectrum for one of the biggest card issuers, and for a small operation that the government says existed only to prey on consumers.

      Both cases are seen as bellwethers of its approach to enforcing consumer laws. Companies, lawyers and advocates are dissecting them for hints about how tough the new regulator will be and what practices it will target.