Saturday, April 27, 2013

Homeowner Refuses To Pay Code Enforcement Fine, Vows To Demolish Home Instead; Says He Installed Bullet-Proof-Like Glass Without A Permit Because He Was Tired Of Golfballs Flying Through His Windows

In Palm Beach, Florida, the Palm Beach Daily News reports:
  • The Code Enforcement Board postponed a foreclosure hearing Thursday on a Bahama Lane home, after hearing that owner Karl Wattenhofer plans to demolish the house rather than install proper windows.

    Wattenhofer, a native of Switzerland who has lived on the island for 20 years, installed bullet-proof-like glass 10 years ago at 264 Bahama Lane because he was tired of golfballs flying through his windows, according to his attorney Jason Evans.

    Officers found out about the windows last year and have since been fining Wattenhofer daily. The fine is “somewhere in the $56,000 range,” Evans said.

    Evans requested a 60-day postponement of the foreclosure hearing so he can seek approval from the Architectural Commission to demolish the house and so he can appear at a fine reduction hearing. He said the owner is fed up.

    “It’s an emotional issue for the owner,” Evans said. “He’s upset and decided he wants to return to his home country full-time. He feels as though it’s extremely unfair because it’s an extreme fine.”
For the story, see Owner looks to demolish house rather than install different windows.

For story follow-up, see Feud over unpermitted golf-ball-proof windows spikes (Homeowner to seek demolition rather than pay ‘unfair’ fine; town calls it ‘life-safety issue’).

Senior Advocates: Sarasota Nursing Home A Poster Child For Sort Of Problems That Can Arise From Lack Of Government Oversight; State Lawmakers Push To Further Loosen Industry Regulations

In Sarasota, Florida, the Sarasota Herald Tribune reports:
  • Two men imprisoned for health care fraud in the late 1970s slipped by a state agency's screening when they opened a Sarasota nursing home.

    The Harmony Healthcare and Rehabilitation Center later became one of the nation's prime examples of what can go wrong in senior housing before it was shut down by state regulators for failing basic safety measures and not accounting for the disbursement of narcotics.

    The state Agency for Health Care Administration approved a 2004 application from a company owned by brothers-in-law Benjamin Gelbtuch and Neil Ellman, each of whom was sentenced to three years in prison in 1979 for Medicaid fraud in New York.

    Six years after the pair opened Harmony Healthcare in 2006, the skilled nursing home on Courtland Street in Sarasota was shuttered after the death of a patient revealed widespread problems with the center's care.

    With the building now lost to foreclosure and the company run by Gelbtuch and Ellman in bankruptcy, advocates for seniors say the nursing home is a poster child for the sort of problems that can arise from a lack of government oversight.

    Meanwhile, state legislators are pushing to further loosen regulation of the nursing home industry and erode the recourse consumers might have, a move opponents fear will open the floodgates for problems like those identified at Harmony.
  • "People who committed fraud, gamed the system and went to prison should never be able to open these types of facilities," said Brian Lee, who directed Florida's Long-Term Care Ombudsman Program for eight years and now operates the nonprofit advocacy group Families For Better Care.

    "No convicted felon should be operating these homes. They're caring for our parents and grandparents."

Landlord, Fannie Fight It Out Over Who Gets To Snatch Rent While Caught-In-The-Middle Tenants Say They're Wallowing In Building Facing Foreclosure With Pests, Mold, $2M In Code Violations, Etc.

In Orlando, Florida, WFTV Channel 9 reports:
  • The owners of the Washington Shores Villages apartments owe the city of Orlando close to $2 million for code violations. People living in the apartment complex said they live in terrible conditions with pests, mold and other problems.

    Real estate attorney Karen Wonseter said the foreclosure proceedings between PDQ, the company that owns Washington Shores Villages, and Fannie Mae came to a head. "The court said, I don't believe you, I think the bank has shown that you are lying,’” Wonseter said.

    Court documents show Fannie Mae wants the rent from tenants in the apartment complex.

    According to documents, they've requested PDQ turn over the paperwork that shows how much they're entitled to numerous times. So far the company hasn't done it and had a number of excuses.

Homeowner Facing Foreclosure Dodges Serious Jail Time, Gets Five Months Instead For Torching Home To Pocket Insurance Cash; Basement Blaze Set While Suspect's Wife Lay Asleep Upstairs

In Rockland, Maine, the Bangor Daily News reports:
  • A 52-year-old South Thomaston man was sentenced [] to five months in jail after admitting he set fire to his home in an effort to collect insurance.

    Dana R. Benner was sentenced Monday morning in Knox County Superior Court to six years in jail with all but five months suspended for arson. Benner also will be placed on probation for three years. During that probationary period, Benner is prohibited from possessing incendiary devices including a cigarette lighter or cigarettes.

    Justice Jeffrey Hjelm cited the potential injury to first responders such as firefighters from the two towns that responded to the Sept. 2, 2008, fire.

    The judge also pointed out that Benner’s wife was asleep upstairs in the house when Benner used a match to set fire to clothes in the basement.

    Defense attorney Jonathan Handelman cited his client’s mental health issues in seeking no jail time for his client. Handelman said the Dana Benner before the court Monday was not the same man at the time of the fire.

    Assistant District Attorney Christopher Fernald cited evidence that Benner wanted to get rid of the house that was near foreclosure.

Foreclosure Forces Reception Venue Shutdown, Leaving Dozens Of Brides Out Thousand$ & Without Place To Hold Weddings; Victims: Owner Knowingly Pocketed Upfront Deposits While Facing Imminent Boot

In Chandler, Arizona, KNXV-TV Channel 15 reports:
  • A local Chandler wedding venue closed its doors leaving dozens of brides out of money and out of a place to hold their wedding.

    Inspirador, owned by Dilia Wood, emailed clients Saturday telling them they needed to shut down immediately, blaming a recent foreclosure for the problem.

    According to the company's bank, Inspirador has had financial problems since 2011. The bank took over the bank last week.

    Brides like Theresa Tanner aren't happy. Tanner has already paid for her wedding in full. It cost her $14,000 to host 170 guests at her wedding that's supposed to happen in 30 days.

    "We have to cancel her honeymoon," said Tanner. She's doing that to pay for her wedding.

    "It's the coldest thing you can imagine. This is the place where all my dreams would come true and this is the place that shattered them all in an email," said Tanner.

    Tanner, along with 60 other brides received the same letter saying the company had to close it's doors immediately.

Friday, April 26, 2013

Ex-Real Estate Agent Gets 26 Years In Racket That Combined Illegal Foreclosure Rescue Schemes, Straw Buyer Scams & Short Sale 'Flopping' Ripoffs, Duping Financially Distressed Homeowners, Unwitting Lenders

From the Office of the U.S. Attorney (Tampa, Florida):
  • U.S. District Judge Elizabeth A. Kovachevich sentenced John Lebron (33, Tampa) last week to 26 years in federal prison for conspiracy to commit wire fraud, wire fraud affecting a financial institution, and making false statements to a financial institution. Lebron was also ordered to serve a 5-year term of supervised release, following his release from prison. As part of his sentence, the court also entered a money judgment in the amount of $1,469,300. Lebron was found guilty on October 19, 2012, following a three-week jury trial.

    According to testimony and court documents, Lebron was a Florida-licensed realtor and worked as a loan officer. Taking advantage of the downturn in the real estate market, Lebron participated in mortgage foreclosure rescue fraud and short sale fraud, which is sometimes called “flopping” a house.

    As part of the scheme, Lebron had hand drawn signs placed on the side of the roads, usually in low income neighborhoods. These signs often advertised the sale of nonexistent houses. The purpose of the signs was to generate leads, to prey upon unsophisticated people, particularly those losing their houses in foreclosure.

    Working with another Florida-licensed real estate agent, Lebron opened up a company, called EZ Investments. During their first deal, they used a victim whose house was falling into foreclosure. Lebron arranged for a straw purchaser - his sister - to buy the house in a non-arm’s length transaction.

    That is, Lebron controlled both ends of the deal. Lebron also served as the loan officer, thus receiving the mortgage broker’s commission, although another loan officer’s name was placed on the paperwork to conceal what Lebron had done. Lebron also took the check that represented the proceeds of the sale of the home from the distressed home owner without her knowledge.

    After the straw purchaser “bought” the house, Lebron paid the original mortgage for a short time to prevent the victim from detecting the fraud.

    He then arranged a short sale of the house to his brother-in-law, in another non-arm’s length transaction. Six days later, using simultaneously recorded deeds, the property was resold to a “credit partner,” that is, another straw purchaser, who Lebron had arranged to buy the house before the short sale proposal was submitted to the bank. This straw purchaser, essentially unemployed, was added on to bank accounts under the control of the conspirators to make it appear that he had assets. The down payment for the transaction was funded through those bank accounts. Fake pay stubs were created to give the appearance that the buyer had an income to support the loan.

    In these deals, the conspirators pocketed the money that should have gone to the original distressed home owner. They also received the mortgage broker commission for arranging the first straw purchaser's loan and other commissions and fees, and got the difference between the short sale amount and the new loan. The straw purchasers were each paid $5,000 for their role in the scheme. In addition, Lebron acquired four other loans through fraud.

    During the course of the conspiracy, Lebron used stolen and false identities; fraudulently verified his own employment claiming jobs he never had; and, for at least one of the properties, bought it as his primary residence when he legally could not move into it. Lebron committed these crimes while on pretrial release and while on probation.

    "This case is particularly disturbing on several fronts," stated John Joyce, Special Agent in Charge, United States Secret Service - Tampa Field Office. "Mr. Lebron and his cohorts knowingly took advantage of homeowners who were in financial distress in order to advance their own financial well being. Mr. Lebron had the audacity to commit these fraudulent acts while on probation and he also defaulted on $1.4 million in loans. He will soon understand that 26 years is a stiff price to be paid for his actions.”

Undoing A Sale Leaseback Foreclosure Rescue Ripoff: Screwed-Over Homeowner Entitled To Evidentiary Hearing Where Material Issues Of Fact Exist: Florida Appeals Court

A Florida court case a few years back involving an alleged sale leaseback foreclosure rescue scam serves as a reminder of the type of difficulty screwed-over homeowners face in any foreclosure-related litigation when attempting to assert their rights, only to have a trial judge dispose of their case by summary judgment and without the benefit of an evidentiary hearing.

Further, and perhaps more importantly, the case highlights the homeowners' need to be represented by counsel who is prepared to take the matter to an appeals court in the event of an unfavorable (and often, incorrect) ruling by the trial judge.

In this case, the homeowners owned a townhouse with a fair market value of $250,000. They could not keep up with their mortgage payments, and their lender foreclosed. The final judgment of foreclosure required the payment of $89,526, although their mortgage permitted them to reinstate for a payment of $32,290.

After a couple of weeks of contacts, the homeowners finally entered into a purported sale leaseback arrangement with a foreclosure rescue operator. The homeowners signed over title to their home for a deed-recited price of $32,300, with the operator contemporaneously cutting a check to the foreclosing lender for $32,290 to obtain a reinstatement of the mortgage.

As described in the opinion, the homeowners (the "Bernsteins") defaulted on their rent payments to the operator ("New Beginnings"), and the litigation between the two sides in this case began. From the Florida appellate court's opinion:
  • New Beginnings filed a motion for partial summary judgment as to its count seeking a declaratory judgment that the effect of the transaction documents was a sale and leaseback and also as to its count seeking to evict the Bernsteins from the property for failure to pay rent. It argued that the transaction documents were clear and unambiguous on their face and that they contained no latent ambiguities.

    Moreover, even if the court were to allow the Bernsteins to introduce parole evidence of their intent in signing the documents, the deposition transcript reflected that the Bernsteins knew they were selling their property with the option to repurchase it within twelve months.

    In opposition to the motion, the Bernsteins argued that the transaction documents created a substantial question as to whether the transaction was a sale or a mortgage.

    They alleged that communications with New Beginnings led them to believe that it would help them save their home through a refinance.

    Additionally, they asserted that, when read together, the documents contained all of the hallmarks of a mortgagor-mortgagee relationship, specifically a wrap-around one year interest only balloon mortgage.

    In support, they pointed to the various obligations imposed on the tenant in the lease agreement, including requirements that the Bernsteins maintain the interior and exterior of the house, and pay taxes, insurance, and homeowner's fees.

    Moreover, there was no settlement statement in connection with the transaction, no title insurance, no tax or insurance prorations, and New Beginnings did not satisfy or assume the first mortgage. All indicia of ownership remained with the Bernsteins. New Beginnings did not even receive a set of keys from the Bernsteins.

    The [trial] court granted partial summary judgment determining that the transaction was a sale and leaseback and that the Bernsteins had knowingly entered into the transaction.
At this point, and perhaps unlike most screwed-over homeowners victimized by a crappy ruling by a trial judge, the Bernsteins sought a review of said order by filing an appeal with a state appeals court.

In a rather short and sweet opinion setting forth its reasoning, the Florida appeals court reversed the trial judge's order, saying that, when taking the record in the light most favorable to the Bernsteins, material issues of fact remained.(1)

Accordingly, the case was not ripe for summary judgment, and the appeals court booted the case back to the trial judge for an evidentiary hearing on the merits.

For the ruling, see Bernstein v. New Beginnings Trustee, LLC, 988 So. 2d 90 (Fla. 4th DCA 2008).

Go here for a non-all-inclusive survey of Florida cases applying the doctrine of equitable mortgage to real estate conveyances that may have ostensibly been sale leaseback or other financing transactions.

Go here for a helpful resource from the National Consumer Law Center on how to approach undoing sale leaseback equity stripping foreclosure rescue scams (I suspect this resource may also come in handy for those underwater homeowners looking to undo a sale leaseback deals made in connection with short sale schemes offered by real estate operators of the type described in another of today's posts - and that have apparently become popular in recent years).

(1) From the court's opinion:
  • The Bernsteins contend that the transaction documents establish a contractual relationship between the parties indistinguishable from a refinance wrap-around interest only one year balloon mortgage. They assert that the trial court incorrectly based its order on a patent/latent ambiguity analysis, instead of considering the facts and circumstances surrounding the transaction to discern the parties' intent.

    New Beginnings counters that the transaction documents were unambiguous, and that the record did not show the Bernsteins misunderstood them or did not know what they were signing.

    Pursuant to section 697.01(1), Florida Statutes, written instruments conveying or selling property for the purpose or with the intention of securing the payment of money are deemed to be mortgages. Deciding whether a conveyance should be declared a mortgage under the statute depends on the facts and circumstances surrounding the transaction and the parties' intent. Blanco v. Novoa, 854 So.2d 672, 674 (Fla. 3d DCA 2003) (citing Valk v. J.E.M. Distribs., 700 So.2d 416, 419 (Fla. 2d DCA 1997)). As the Valk court further explained:

    "In resolving this factual issue, courts will look beyond the terms of the documents themselves in order to determine the real intent of the parties at the time of the transaction." "[E]quity will look at and take into consideration all the facts and circumstances surrounding the transaction and will decree an instrument to be a deed or mortgage according to the real intentions of the parties."

    700 So.2d at 419 (citations omitted). See also Oregrund Ltd. P'ship v. Sheive, 873 So.2d 451 (Fla. 5th DCA 2004); Barr v. Schlarb, 314 So.2d 609, 610-11 (Fla. 1st DCA 1975) (noting that while there is a strong presumption in favor of the correctness of deeds and other official documents, "where the parties so intend, an instrument may be construed to be a mortgage although appearing to be otherwise on its face").

    It is the substance and not the form that is critical. Blanco, 854 So.2d at 674. Florida courts have liberally interpreted section 697.01(1) and, when in doubt, "have leaned in favor of construing the deed as a mortgage and have taken into consideration the entire transaction and circumstances in addition to the agreement and instrument of conveyance itself." Barr, 314 So.2d at 611.

    Under very similar facts, the Third District held in Minalla v. Equinamics Corp., 954 So.2d 645 (Fla. 3d DCA 2007), that an evidentiary hearing is required to determine whether a transaction constitutes a valid sale and lease or a mortgage. Minalla executed a deed conveying her residence to Equinamics in return for a one-year lease back of the residence with an option to repurchase. Just as the Bernsteins did, she also executed an assignment of escrow, bill of sale, and name affidavit in connection with the transaction. However, there was no settlement statement, title insurance, or tax or insurance proration. The first mortgage on the property remained undisturbed, and Minalla made payments on the mortgage. Additionally, she maintained the interior and exterior of the home, the structure, the electrical, plumbing, and all major appliances.

    Subsequently, when Equinamics attempted to evict Minalla for nonpayment of rent, she brought an action against Equinamics alleging that she was tricked into entering the transaction, which was not a sale but rather a disguised loan secured by her home. The trial court ordered her to pay rent into the court registry, which Minalla appealed.

    The Third District observed that this was not an ordinary real estate transaction or usual landlord-tenant relationship. The court further noted that there was a factual dispute concerning who was the true owner of the property. Because the order requiring payments into the court registry was made without conducting an evidentiary hearing concerning the nature of the transaction and who was the true owner of the residence, the Third District concluded that the trial court erred in imposing the payment requirement.

    Like Minalla, the transaction in this case is not an ordinary real estate transaction or landlord-tenant relationship. Material issues of fact remain.

    Taking the record in the light most favorable to the Bernsteins, New Beginnings approached the Bernsteins and led them to believe that it would help them save their home through a refinance. Ultimately, the Bernsteins signed the transaction documents two days before the foreclosure sale, having exhausted all avenues of financing. The lease agreement provided that New Beginnings was to use the rental payments to pay the existing mortgage on behalf of the Bernsteins. The mortgage remained in the Bernsteins' name, and New Beginnings did not assume the mortgage. It is not clear from this record that the mortgage holder even knew that the property had been transferred.

    Moreover, there was no settlement statement in connection with the transaction, no title insurance, and no tax or insurance prorations. At the same time, the Bernsteins were required to maintain the interior and exterior of the house, and pay taxes, insurance, and homeowner's fees. All indicia of ownership remained with the Bernsteins.

    Based on the facts of this case, it is apparent that the transaction by which New Beginnings received title to the Bernsteins' residence was clearly not an ordinary real estate transaction. Likewise, the circumstances under which the Bernsteins continued to remain on the property after they executed the warranty deed to New Beginnings was not possessed of the trappings of a usual landlord-tenant relationship. Minalla, 954 So.2d at 647.

    New Beginnings claims that all of the documents and the Bernsteins' deposition testimony prove that they knew exactly what the documents stated and agreed that they were not under duress. Aside from the fact that the documents themselves refer to the sale as a "distress" sale, the terms and conditions set forth are not consistent with a sale and leaseback. They may have known that they were executing the documents, but their legal effect depends upon the totality of the facts and circumstances. Despite the labels on the documents, it is the substance of the transaction and the real intent of the parties that controls.

    We therefore reverse both orders and remand for an evidentiary hearing on the merits. We do not address the remaining issues raised by the Bernsteins, as those do not involve non-final issues appealable pursuant to Florida Rule of Appellate Procedure 9.130.

Atlanta Homeless Shelter & Its Clients Temporarily Dodge The Boot; State Appeals Court: Trial Judge Improperly Prevented Group To Present Evidence To Fight Foreclosure

In Atlanta, Georgia, The Atlanta Journal Constitution reports:
  • The Metro Atlanta Task Force for the Homeless has collected a series of recent legal victories it hopes will result in something the group has sought for more than a year: a day in court where it can fight a pending eviction.

    A Fulton County judge had ordered the group to surrender its facility after it defaulted on its mortgage. But the Georgia Court of Appeals on Monday ruled the Fulton judge did not allow the Task Force to present evidence to fight the foreclosure.

    “We are feeling confident that we are on a path toward a complete trial with evidence presented,” said Anita Beaty, executive director of the Task Force. “We believe we will win. It looks like we will have our day in court.”

    Fulton County Superior Court judge Craig Schwall had originally ordered Beaty in February 2012 to turn over the shelter to a team run by the United Way of Metropolitan Atlanta, which would spend six months relocating the men who used the shelter. The facility would then be turned over to Premium Funding Solutions, a finance firm that acquired the deed after the task force defaulted on its mortgage.

    Known more commonly as Peachtree and Pine, the homeless facility is located in the heart of Atlanta where downtown meets Midtown.

    Beaty said that, depending on the weather, the facility usually served between 300-500 homeless people a daily. That does not include up to 150 more who were receive services or training there.

    “What we’re doing keeps me going,” said Beaty, addressing the weight of the center’s service coupled with the legal battle. “This place is really operating with a degree of self-sufficiency. To offer the services which have been offered is stunning and exciting.”

Thursday, April 25, 2013

9th Circuit Kiboshes Plaintiff's Attorney In Class Action 'Fair Credit' Litigation Over Shameless Attempt To Screw Over Absent Class Members While Pocketing $16M+ In Legal Fees

From a recent post in Public Citizen's Consumer Law & Policy Blog:

[From the recent] ruling in Radcliffe v. Experian, No. 11-56376. Here's the court's synopsis of its unanmious opinion:(1)
  • Several named plaintiffs and objectors appeal the district court’s approval of a class-action settlement. The settlement agreement, like others we have approved in the past, granted incentive awards to the class representatives for their service to the class.

    But unlike the incentive awards that we have approved before, these awards were conditioned on the class representatives’ support for the settlement. These conditional incentive awards caused the interests of the class representatives to diverge from the interests of the class because the settlement agreement told class representatives that they would not receive incentive awards unless they supported the settlement. Moreover, the conditional incentive awards significantly exceeded in amount what absent class members could expect to get upon settlement approval.

    Because these circumstances created a patent divergence of interests between the named representatives and the class, we conclude that the class representatives and class counsel did not adequately represent the absent class members, and for this reason the district court should not have approved the class-action settlement.
And Judge Haddon's concurring opinion says this:
  • I join in the decision to reverse approval of the settlement for the reasons clearly stated in Judge Gould’s well-written opinion. However, class counsels’ actions in orchestrating and advocating the disparate incentive award scenario without any concern for, or even recognition of, the obvious conflicts presented underscore, in my opinion, that class counsel were singularly committed to doing whatever was expedient to hold together an offer of settlement that might yield, as it did, an allowance of over $16 million in lawyers’ fees. [footnote omitted](2)

    Such adherence to self-interest, coupled with the obvious fundamental disregard of responsibilities to all class members—members who had little or no real voice or influence in the process—should not find favor or be rewarded at any level.

    Although within the discretion of the district court in the first instance, I conclude that class counsel should be disqualified from participation in any fee award ultimately approved by the district court upon resolution of the case on the merits.
Source: 9th Circuit throws out Fair Credit Reporting Act settlement on ground that incentive-award provision created conflict of interest, rendering class representatives and class lawyers inadequate class representatives.

For the appeals court ruling, see Radcliffe v. Experian, No. 11-56376 (April 22, 2013).

(1) The opinion, read in its entirety, clearly elaborates how so-called "incentive awards" to class representatives can sometimes be used by plaintiffs' attorneys in class action lawsuits to screw over absent class members.

(2) The total fees approved were $16,747,147.68.

Sale Of City-Owned Home For $3200 To Cost Kalamazoo Taxpayers $115K Over City Officials' Screw-Up In Failing To Provide Buyer With Legally-Required Lead-Based Paint Disclosure

In Kalamazoo, Michigan, WWJ-TV Channel 62 reports:
  • A woman who bought a 110-year-old home from Kalamazoo for $3,200 has agreed to a $115,000 settlement with the city after she said officials failed to disclose the possibility it contained lead-based paint and blamed the home for her child’s elevated lead levels.

    Brandi Crawford last year bought the two-story, 1,800-square-foot home, which had gone through tax foreclosure, reported. In March, she filed a claim that city officials didn’t provide her with an Environmental Protection Agency-approved form warning her of the potential of lead-based paint in the home.(1)

    Crawford said the city knew the home contained lead-based paint. Under federal law, the city should have provided a disclosure since the home was built before 1978.

    City officials acknowledged that they failed to provide documents but denied knowing that lead-based paint was inside. Kalamazoo City Attorney Clyde Robinson said the city wasn’t required to test the property for lead, but it had an obligation to disclose the possibility of lead.

    “We did no testing,” Robinson said.

    The city had acquired the home from the state in 2007 after it went into tax foreclosure. The home was considered eligible for the city’s rehabilitation and resale program, but city officials decided to sell it “as is” due to high estimated renovation costs, reported.

    Crawford told that about $80,000 of the $115,000 settlement will pay for lead remediation, and another $15,000 will pay for her attorneys’ fees. She said $5,000 will go toward her son’s future, with the remainder going toward fixing up the house and paying for the hotel room her family has called home for a month.

    The Kalamazoo City Commission unanimously voted for the settlement Monday.

Bankster Accused In State Court Of Squeezing WV Homeowner For Illegal Fees Uses Notice Of Removal In Forum-Shopping Maneuver In Effort To Have Case Heard By Potentially Friendlier Federal Judge

In Charleston, West Virginia, The West Virginia Record reports:
  • A Notice of Removal(1) has been filed in a lawsuit against U.S. Bank National Association after the defendant claims the case meets the $75,000 threshold to remove it to federal court.(2)

    John and Esther Stitt claim U.S. Bank National Association violated their mortgage contract, according to the complaint, which was filed March 14 in Kanawha Circuit Court.

    The Notice of Removal was filed April 4 in the U.S. District Court for the Southern District of West Virginia at Charleston.

    U.S. Bank National Association repeatedly misrepresented amounts due on John and Esther Stitt’s account and assessed a variety of illegal fees to the account, according to the suit.

    The Stitts claim the defendant also refused to credit payments on the account by either returning payments or placing the payments in suspense and, rather than provide the Stitts with any assistance, the defendant ultimately chose to pursue foreclosure, in violation of their mortgage contract.

    The Court has diversity jurisdiction over the case and U.S. District Courts have “original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000…and is between…citizens of different states,” the Notice of Removal states.

    The Stitts are seeking actual damages and civil penalties. They are being represented by Daniel T. Lattanzi, Jennifer Wagner and Bren J. Pomponio of Mountain State Justice Inc.(3)
Source: Notice of Removal filed in U.S. Bank National Association lawsuit.

(1) Once a defendant has filed a notice to remove a case [filed in a state court], jurisdiction is transferred automatically and immediately by operation of law from the state court to the federal court. Any objection to removal must be presented to the federal court. If a federal court finds that the notice of removal was in fact defective or that the federal court does not have jurisdiction, the case is remanded to the state court.. Source: Wikipedia.

(2) An ABA Journal article (see Judge Says Firm Must Explain ‘Fraudulent’ Removals or Pony Up $25K) offers this observation on the legal maneuver used in this story by U.S. Bank to find a friendlier forum to defend against this lawsuit, one commonly used in civil cases by big-time corporate defendants and their white-shoe law firms in lawsuits brought by (possibly under-financed) individuals and other plaintiffs on behalf of individuals, of moving a case from a state to a federal court:
  • [I]t is widely believed that plaintiffs, particularly individuals rather than corporations, fare better in state courts where they have greater likelihood of getting to a jury and often benefit from more favorable interpretations of law. Defendants in turn tend to prefer the federal courts. Thus removals can become a cat-and-mouse game in which a plaintiff names a party having nothing to do with the matter as one of the defendants to prevent the other side from removing the matter to federal court. That court can find fraudulent joinder and keep the case or remand it.

    But studies have shown a greater increase in recent years of defendants removing cases to federal court, only for them to be dispatched back to state court for erroneous removal. One researcher, a third-year student at New York University School of Law, found that most often in such situations, the plaintiffs are individuals. And the rate of their cases being remanded back to state court is higher, too, wrote Christopher Terranova in last summer’s edition of the Willamette Law Review (PDF).

    He adds that “the delays and costs of that extra procedural step to federal court are more costly and burdensome for most individual plaintiffs than they are for bigger defendants with more assets."
For the above-referenced Willamette Law Review article, see Erroneous Removal As A Tool For Silent Tort Reform: An Empirical Analysis Of Fee Awards And Fraudulent Joinder (article also available at

For an example of one Federal judge excoriating a lawyer and law firm for, according to the judge, their history of fraudulent removal requests of cases from state court to Federal court, see Hollier v. Willstaff Worldwide, Case 6:08-cv-01382-TLM-CMH (W.D. La. 2009):
  • Sadly, the Court is not surprised by G.W. Premier’s counsels’ tactics in this proceeding as Ungarino & Eckert, L.L.C.’s reputation proceeds it. This case is but one in a long line of fraudulent and improper removals that Ungarino & Eckert, and more specifically Matthew Ungarino, have filed in this and other districts. [...] [For more, see Hollier v. Willstaff Worldwide (pp. 4-9).].
(3) Mountain State Justice, Inc. is a non-profit public interest law office dedicated to pursuing litigation focusing primarily on combating predatory lending and abusive debt collection techniques on behalf of low-income West Virginians, and which provides free legal services in its areas of practice to qualifying individuals.

Wednesday, April 24, 2013

NC Bankruptcy Court: Wrong Date On Loan Paperwork Not Necessarily Enough To Invalidate Mortgage; Sloppy Bankster Dodges Debt-Fatal Bullet Over Screw-Up, Breathes Sigh Of Relief

From the blog
  • A deed of trust defined the secured indebtedness as a note and related documents, together with future advances. “Note” was defined as “the promissory note dated September 7, 2005, in the original principal amount of $675,000 from Grantor to Lender.” The note was actually dated September 8 (vs. 7).

    After filing a chapter 11 bankruptcy proceeding, the debtor brought an adversary proceeding against the lender claiming that the deed of trust was invalid and unenforceable because it referenced a note dated September 7, 2005, when no note of that date existed. Mortgages have been avoided for less.
  • In pursuing a fact specific approach to this case, the court considered (1) whether the mortgage was sufficient to put subsequent purchasers on notice, (2) whether the obligations were intended to be secured by the parties, and (3) whether there was any concern about a “fraudulent substitution” of “fictitious debts.”

    Since the description included a number of facts regarding the note (the borrower, the lender, the loan number, the commitment letter associated with the loan, the collateral, future advances of up to $675,000, etc.), the court concluded that no one would have been misled as to the identity of the secured obligations. While acknowledging that an incorrect date could be fatal, the court found that this was not such a case.(1)

    As discussed in prior blog posts (see, for example, Mortgage Legal Descriptions: When Is a “Boo-Boo” Fatal (Round 1)? and Bankruptcy “Strong Arm” Powers: Bye Bye Mortgage), even minor errors in a mortgage can result in avoiding the mortgage in a bankruptcy.

    In this case the lender prevailed. However, the minor error of identifying a September 8 note as a September 7 note was enough to result in litigation that took eight months to resolve. I expect all will agree that it is better not to make mistakes in the first place.
For more, see The Continuing Saga of Mortgage Errors- Not All “Boo-Boos” Are Fatal.

For the bankruptcy court ruling, see The Willows II, LLC v. Branch Banking & Trust Co. (In re The Willows II, LLC), 485 B.R. 528 (Bankr. E.D.N.C. January 10, 2013).

(1) On this point, the court stated:
  • [A] discrepancy of even one day in date, such as the case in Head Grading, may render the deed of trust invalid if it does not contain enough information specifically identifying the underlying note.

    However, the amount and specificity of information contained within this Deed of Trust that accurately references the Note provides the court with a sufficient basis to conclude that the Note is the obligation intended to be secured by the parties, even though it incorrectly references a note executed one day prior to the date of the Note.

Now-Disbarred Attorney Cops Plea To Client Ripoffs, Bankruptcy Fraud; Admits Ripping Off Widow Of Longtime Friend

From the Office of the U.S. Attorney (Kansas City, Missouri):
  • Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that a former Jackson County, Mo., attorney pleaded guilty in federal court [] to bank fraud, which involved stealing funds from the Sam and Lindsey Porter foundation, as well as bankruptcy fraud.

    Harley Kent Desselle, 62, of Raytown, Mo., pleaded guilty before U.S. District Judge Dean Whipple to one count of bank fraud and one count of making a false oath in a bankruptcy proceeding. He also admitted that he defrauded the widow of a longtime friend in an investment fraud scheme.

    “A disbarred attorney took advantage of his clients, including a grieving mother and a friend’s widow, to line his own pockets,” Dickinson said. “He abused his clients and he abused the legal system for a client who declared bankruptcy. With today’s guilty plea, he will be held accountable for his flagrant misconduct.”

    “Concealing assets in a bankruptcy proceeding is a crime that threatens the integrity of the bankruptcy process and public confidence in that process, especially when the concealment is done by the attorney responsible for assuring full disclosure,” stated Nancy J. Gargula, United States Trustee for Missouri, Arkansas and Nebraska (Region 13). “We are grateful to all of our law enforcement partners in this case, and in particular to U.S. Attorney Tammy Dickinson for her commitment to pursuing those who commit bankruptcy fraud and cause harm to consumers.”

    At the time of the fraud schemes, Desselle was an attorney in private practice and operated an investment company called New Century Investments. Desselle was suspended from the practice of law in December 2008 and disbarred by the Missouri Supreme Court in April 2009.
For more, along with details of each of the ripoffs, see Former Attorney Pleads Guilty To Fraud Schemes.

Maryland Lawmaker With Shady Past As Both A Disbarred Attorney & Real Estate Broker With Suspended License That Peddled Sale Leaseback Ripoffs To Financially Strapped Homeowners Now Faces Two Foreclosure Actions Himself

In Severna Park, Maryland, the Capital Gazette reports:
  • A Severna Park delegate who has bought and sold foreclosed homes for a living now faces two foreclosure suits himself.

    Del. Tony McConkey, R-Severna Park, and his wife face foreclosure on two properties they own together in legislative District 33, according to court filings.

    In a foreclosure suit filed in Anne Arundel County Circuit Court on April 10, First Home Mortgage Corp. alleges the three-term Republican and his wife defaulted on a $600,000 loan for a house they’ve owned since at least 2007 on the 200 block of Cypress Creek Road in Severna Park. A notice claims the McConkeys defaulted in November 2011 and didn’t make a mortgage payment from October 2011 to August 2012. At that time, the notice says, they owed more than $41,000.

    In a separate suit filed last year, Fremont Investment & Loan claims the couple defaulted on a $360,000 loan for a home they purchased in 2006 on the 100 block of Cedar Road in Severna Park. A notice claims the McConkeys defaulted on that loan in October 2011 and didn’t make a mortgage payment through July 2012. At that time, the notice says, they owed more than $28,000.

    McConkey did not return calls or emails for comment and it is unclear if he has rectified the situation recently.

    The two suits add to a list of legal, business and other problems McConkey has faced during his time in office.
  • Earlier this year, McConkey was reprimanded and forced to apologize before the House of Delegates after the Joint Committee on Legislative Ethics determined that in 2012 he tried to rally support for a bill that would have made it easier for him to pay back $75,000 he owes the state’s Real Estate Guaranty Fund.(1)

    In 2011, an administrative judge ordered McConkey to pay that money, the maximum amount allowed under law, for three incidents in which he allegedly defrauded customers.

    The state found that McConkey, in one of the three instances, promised to help a woman keep her home, then didn’t return her calls, bought her property in foreclosure and sought to evict her.

    McConkey’s real estate license has been suspended until he reimburses the guaranty fund in full, including all interest and administrative charges.

    According to the ethics committee’s February report, McConkey’s debt was “the largest of any real estate licensee for the past five years and makes him one of only seven individuals from fiscal 2006 through 2011 who have been ordered to pay the statutory maximum.”

    McConkey has maintained his innocence in the cases but entered the civil settlement freely, according to Maryland Real Estate Commission records.

    The Severna Park delegate has found himself in hot water several other times over the years, both during his tenure as a delegate, which began in 2002, and before taking office.

    Before becoming a delegate, The Capital revealed problems McConkey had failed to mention on the campaign trail.

    He was given probation before judgment on a 1992 battery charge, but explained that the case was a dispute between a landlord and a tenant that got out of hand.

    McConkey was voluntarily disbarred as an attorney in 1995 for misappropriation of funds, but said he never had any clients other than himself and gave up his career because he was broke and depressed over a bad business deal.

    In 2005, McConkey was sued by a Crofton man who alleged McConkey scammed him and his wife out of their house. The case was settled in 2006 when McConkey agreed to sell the house, pay off the mortgage and pay the man and his wife $12,516 each.

    But the case was reopened in 2007 when the man alleged the Severna Park Republican failed to pay more than $12,500 from the sale of a home.

    That case was settled out of court in 2008, and details of the settlement were sealed as part of a confidential agreement, The Capital reported. McConkey declined to comment on the settlement.

Tuesday, April 23, 2013

Ex-Loan Modification Operator With Revoked R/E License Feels Heat For Continuing To Pocket Upfront Fees; Says He's Now Peddling Do-It-Yourself Loan Modification "Packets"

In Sonoma County, California, The Santa Rosa Press Democrat reports:
  • Deanna Reade was in a financial pickle. She and her husband were underwater on their Windsor house when the payments jumped on their interest-only loan by $1,000 a month.

    On the advice of a friend, Reade turned to Petaluma-based Mortgage Modifiers Inc., in the hope of getting a chunk of her debt forgiven and restructuring the loans on her house and an investment condo to make them more affordable.

    But months after paying the company two upfront fees totaling nearly $4,000, nothing had happened, she said. And the banks said they were unaware of any effort to refinance.

    So Reade confronted the company's owner, Miguel Angel Lopez-Soleta, who agreed to a refund. He sent her two checks but they both bounced, she said. That's when Reade concluded she had been ripped off. “He's a scammer,” said Reade, an office accountant. “He got our hopes up and now they are down the toilet.”

    Reade isn't alone.

    The state Department of Justice estimates more than 50 people across the Bay Area may have been defrauded by Lopez-Soleta, 41, and his company, Mortgage Modifiers.

    Nine lawsuits have been filed against Mortgage Modifiers in small claims court, according to court records.

    An investigation is underway into allegations that Lopez-Soleta failed to deliver on promises to negotiate directly with banks on behalf of people in financial distress, Department of Justice spokeswoman Michelle Gregory said.

    Agents raided his home and offices last week, seizing files and computer hard-drives. Lopez-Soleta has not been charged, she said.

    Also, the state is looking into claims that he broke the law by requiring advance fees of $1,995 to perform loan modifications, and was operating with a revoked real estate license, Gregory said. Collection of advance fees was outlawed in 2009 with the passage of SB94.
  • Lopez-Soleta didn't return repeated calls this week to his Ormsby Lane home. He has claimed that he made no promises to clients, but instead provided them with educational information they could use to do their own loan modifications. In court documents, he said he stopped dealing directly with lenders after the law changed.

    But people who claim to be his victims say that's not true.
  • Court documents show Lopez-Soleta's real estate license was revoked in August for professional misconduct, including collection of advance fees.

    He first became licensed in 1993 and opened Mortgage Modifiers in offices on Baywood Drive in 2008. In a six-month period in 2010, the company closed from three to five $1,995 deals per week, the documents said.
For the story, see Petaluma mortgage firm accused of defrauding more than 50 clients.

See also, Feds investigate local mortgage assistance company:
  • “Apparently, Lopez was collecting a fee up front for mortgage restructuring services, which is illegal,” said Department of Justice spokesperson Michelle Gregory. “But he claims he was putting together mortgage packets for people. Some of the complaints are that he didn't put together any packet, others are that he never provided refunds for services he did not perform.”

Homeowner: Alleged Racket Peddling "Quiet Title" Suits To Purportedly Cancel Home Mortgages Continues To Snatch Cash By Automatically Drafting My Bank Account, Despite Court Injunction

In Palm Beach County, Florida, The Palm Beach Post reports:
  • Despite a September injunction freezing the operations of several South Florida land trust firms, a Jupiter homeowner says Boca Raton-based Fidelity Land Trust Co. continued to take money from her bank account through affiliate companies.

    Sherma DelTergo, a Palm Beach County firefighter, filed a lawsuit this month in Broward County hoping to piggy-back on an attorney general complaint alleging the land trusts and their operators defrauded homeowners in a foreclosure rescue scheme that included hundreds of properties statewide.

    An Okaloosa County homeowner, Scott MacNeill, also has filed a lawsuit similar to DelTergo’s. Both are represented by attorney Stefan McHardy.

    There are now three homeowner lawsuits seeking to intervene in the attorney general’s case, which alleges the trusts charged upfront fees, which could cost several thousand dollars, and wrongfully represented that homeowners could void their mortgage through a quiet title action.

    They were drafting their accounts automatically each month and they had no idea they were still drafting them,” McHardy said about DelTergo and MacNeill. “In some cases, it was third parties drafting people’s accounts.”
  • The attorney general’s complaint says the land trusts wrongfully guaranteed they could cancel a homeowner’s mortgage through a quiet title action. Quiet title suits are brought to establish someone’s right to property and remove any other claims.

    Boca Raton attorney Howard Feinmel, who had been filing the quiet title claims for Fidelity, avoided judicial sanctions earlier this month by agreeing to dismiss all pending litigation and deed all properties back to the original owners, said attorney Albert Gibson, who represented the bank in the case where sanctions were ordered.

    Gibson’s firm, Blank Rome, is defending the banks against about 100 land trust cases statewide filed by Feinmel and other attorneys.

    “I think, beyond a doubt, that these actions were false, and they were frivolous, and you’re trying to take advantage of unsuspecting homeowners in Florida,” said Palm Beach County Judge Meenu Sasser in a January hearing where she ordered sanctions against Feinmel.

Alleged Out-Of-State Scammer Pinched In Texas For Pocketing Upfront Deposits, Monthly Payments On Bogus F'closed Florida Home Sales; Three Victims Duped By Craigslist Ads Wired Cash To Suspect, Say They Never Actually Met Him

In Marion County, Florida, the Ocala Star Banner reports:
  • A man who authorities said fraudulently sold two foreclosed homes and collected thousands of dollars in down payments, closing costs, monthly payments and insurance policies has been arrested in Texas and will be extradited to Marion County.

    Ricardo Wright was picked up Thursday by Detective Jose Garcia of the McAllen, Texas, Police Department on a warrant for larceny.

    Wright, 35, who officials said was operating under the name David Smith, will be brought to Marion County to face two counts of organized fraud, three counts of grand theft and one count of exploitation of an elderly person.

    The cases, which were being investigated by Detective Todd Tucker of the Marion County Sheriff's Office, began in July 2012 when a representative from Rialto Capital Management notified the agency that a woman had moved into one of their foreclosure properties in the Rainbow Park subdivision, in the 2500 block of Southwest 143rd Avenue.

    The woman told Tucker she responded to an online advertisement by David Smith, who said he worked for WDIL Holdings in New York. She said she was faxed a contract to purchase the home for $42,500. She sent WDIL Holdings a $10,000 down payment via wire transfer and monthly payments.

    The woman said she first agreed to purchase another home in the 4000 block of Southwest 157th Court for $60,000, but she was told by Smith that the home had already been purchased by someone else. She said he told her about the home on Southwest 143rd Avenue, which she agreed to purchase. She said she also purchased homeowners insurance through Smith.

    Tucker spoke to a man who identified himself as Smith, who said his company bought the foreclosed property through a Goldman Sachs auction. Tucker asked the man to send any documents proving his claim, but never received any paperwork.

    The detective then called Goldman Sachs and a representative said they do not do online auctions of foreclosed property.

    Tucker also received information that a man had responded to an online ad about the residence on Southwest 157th Court. He told the detective he agreed to buy the property from Smith for $58,000 and was sent a contract. He said he wired $15,000 to Smith's holding company, plus an additional $1,000 for closing costs and $1,195 for the title.

    He said he had sent monthly payments totaling more than $22,000 since buying the property last summer, and had made $10,000 in improvements on the property.

    Tucker also learned that a woman responded to an ad about the home on Southwest 157th Court in April 2012 and entered into an agreement to buy it from WDIL Holdings for $61,500. She sent the company a $500 money order and $15,000 through a wire transfer.

    According to reports, the victims never saw Smith. They all said that when they went to look at the homes, he said he couldn't meet them but they could enter through an unlocked back door or use a code to access a lock box on the front door.

    Tucker was able to identify Smith as Wright through legal documents, photographs and a passport, and obtained the warrant for his arrest.

Monday, April 22, 2013

Absent "Clear Showing Of Fraud," Or Irregularity In F'closure Procedure Itself, 6th Circuit Boots Post-Redemption Period Attempt To Set Aside Michigan Foreclosure Sale Over Forged, Robosigning Claims Where Screw-Up Would Render Process Merely Voidable, Not Void Ab Initio

From a From a client information release from the law firm Goodwin Proctor LLP:
  • The United States Court of Appeals for the Sixth Circuit affirmed a lower court's decision dismissing plaintiff's action to set aside a foreclosure sale based on alleged violations of the non-judicial foreclosure process in Michigan.

    After plaintiff defaulted on his mortgage loan,his property was foreclosed upon and sold at a sheriff's sale through Michigan's non-judicial foreclosure process, which provides for a six-month redemption period. Plaintiff subsequently initiated an action seeking to set aside the non-judicial foreclosure asserting that the mortgagee could not foreclose on him because the mortgagee was not the note-holder, mortgage holder, or servicer as required by Michigan law.

    Plaintiff's claim was based on the assertions that the mortgage assignment was either forged or "robo-signed" and MERS had no authority to assign the mortgage to the foreclosing mortgagee.

    Since the six-month redemption period had expired, under Michigan law, plaintiff was required to meet a heightened standard by making a "'clear showing of fraud, or irregularly' . . . 'related to the foreclosure procedure itself.'"(1)

    Relying on Kim v. JP Morgan Chase Bank, NA, 825 N.W.2d 329 (Mich. 2012) and Davenport v. HSBC Bank USA, 739 N.W.2d 383 (Mich. Ct. App. 2007), the Court determined that any violation of the foreclosure law is only actionable when there is a showing of prejudice.(2)

    Since plaintiff would not be subject to additional liability, would not have been in a better position if defendant was the owner of the indebtedness or the owner an interest in the indebtedness, and did not show he was prejudiced in any other way, the Court determined plaintiff's claim was not actionable and affirmed the lower court's dismissal.
Source: Sixth Circuit Upholds Dismissal Of Suit To Set Aside Foreclosure Sale.

For the court ruling, see Conlin v. Mortgage Electronic Registration Systems, Inc., No. 12-2021 (6th Cir. April 10, 2013).

(1) On this point, the federal appeals court observed:
  • Michigan's foreclosure-by-advertisement scheme was meant to, at once, impose order on the foreclosure process while still giving security and finality to purchasers of foreclosed properties. See Mills v. Jirasek, 255 N.W. 402, 404 (Mich. 1934) (citing Reading v. Waterman, 8 N.W. 691, 692 (Mich. 1881)); see also Gordon Grossman Bldg. Co. v. Elliott, 171 N.W.2d 441, 445 (Mich. 1969).

    To effectuate this interest in finality, the ability for a court to set aside a sheriff's sale has been drastically circumscribed. See Schulthies v. Barron, 167 N.W.2d 784, 785 (Mich. Ct. App. 1969); see also Senters, 503 N.W.2d at 643.

    Michigan courts have held that once the statutory redemption period lapses, they can only entertain the setting aside of a foreclosure sale where the mortgagor has made "a clear showing of fraud, or irregularity." Schulthies, 167 N.W.2d at 785; see also Sweet Air Inv., Inc. v. Kenney, 739 N.W.2d 656, 659 (Mich. Ct. App. 2007) ("The Michigan Supreme Court has held that it would require a strong case of fraud or irregularity, or some peculiar exigency, to warrant setting a foreclosure sale aside." (internal quotation marks omitted)).

    Whether the failure to make this showing is best classified as standing issue[3] or as a merits determination,[4] one thing is clear: a plaintiff-mortgagor must meet this "high standard" in order to have a foreclosure set aside after the lapse of the statutory redemption period. See El-Seblani v. Indymac Mortg. Servs., No. 12-1046, 2013 WL 69226, at *4 (6th Cir. Jan. 7, 2013).

    It is further clear that not just any type of fraud will suffice. Rather, "[t]he misconduct must relate to the foreclosure procedure itself." Id. (citing Freeman v. Wosniack, 617 N.W.2d 46, 49 (Mich. Ct. App. 2000)); see also Williams, 2012 WL 6200270, at *3 (citing Heimerdinger v. Heimerdinger, 299 N.W. 844, 846 (Mich. 1941), and Sagmani v. Lending Assocs. LLC, No. 302865, 2012 WL 3193940, at *1 (Mich. Ct. App. Aug. 7, 2012)).
(2) On this point, the federal appeals court observed:
  • Recently, in Kim v. JPMorgan Chase Bank, N.A., 825 N.W.2d 329 (Mich. 2012), the Michigan Supreme Court made clear that failure to comply with the conditions set forth in Michigan's foreclosure-by-advertisement statute does not render flawed foreclosures void (i.e., void ab initio) but merely voidable.[6] Id. at 337.

    The precise issue in Kim was whether the mortgagee's failure to record its interest before the initiation of foreclosure proceedings, as required by Mich. Comp. Laws § 600.3204(3), rendered the subsequent sheriff's sale void ab initio.[7] Id. at 331, 336.

    However, in the course of holding that a subsection (3) defect rendered a foreclosure merely voidable, the Michigan Supreme Court rejected the analysis of a case that dealt with a subsection (1)(d) defect, Davenport v. HSBC Bank USA, 739 N.W.2d 383 (Mich. Ct. App. 2007)—the same defect that Plaintiff is claiming in this case. Kim, 825 N.W.2d at 336-37.

    In Davenport, the Michigan Court of Appeals held that the fact that the foreclosing defendant "had initiated the foreclosure proceeding several days before acquiring its interest in the mortgage . . . rendered the foreclosure proceedings void ab initio." Id. at 336 (citing Davenport, 739 N.W.2d at 347-48).

    Interpreting Davenport in Kim, the Michigan Supreme Court bluntly stated that "such a holding was contrary to the established precedent of this Court. We have long held that defective mortgage foreclosures are voidable." Id. at 336.

    Therefore, the Michigan Supreme Court broadly held that "defects or irregularities in a foreclosure proceeding result in a foreclosure that is voidable, not void ab initio." Id. at 337. It then explained that to prove foreclosure-defect claims, "plaintiffs must show that they were prejudiced by defendant's failure to comply with [Mich. Comp. Laws. §] 600.3204.

    To demonstrate such prejudice, they must show that they would have been in a better position to preserve their interest in the property absent defendant's noncompliance with the statute." Id. (citing Sweet Air, 739 N.W.2d at 662, and Jackson Inv. Corp. v. Pittsfield Prods., Inc., 413 N.W.2d 99, 101-02 (Mich. Ct. App. 1987)).

    Kim's holding makes § 600.3204 defects actionable to the same extent that notice defects under Mich. Comp. Laws § 600.3208 are—only on a showing of prejudice. We explained the actionability of notice defects under § 600.3208 in Lessl v. CitiMortgage, Inc., No. 11-2285, 2013 WL 610904 (6th Cir. Feb. 19, 2013): "When `the mortgagor would have been in no better position had notice been fully proper and the mortgagor lost no potential opportunity to preserve some or any portion of his interest in the property,' courts uphold a completed foreclosure sale." Id. at *1 (quoting Jackson, 413 N.W.2d at 101) (citing Sweet Air, 739 N.W.2d at 662).

    Lessl involved a mortgagor's claim to set aside a sheriff's sale based on an alleged failure to post notice on his property. Id. We affirmed the district court's dismissal of the claim because the mortgagor had received actual notice of the foreclosure in the form of a letter from the foreclosing party. Id. at *2.

    Consequently, we found the mortgagor, who had allowed the statutory redemption period to lapse, incapable of "demonstrat[ing] prejudice from the non-posting." Id. Post-Kim, Michigan mortgagors seeking to set aside a sheriff's sale under § 600.3204 will have to demonstrate prejudice (e.g., double liability), cf. Livonia Properties, 399 F. App'x at 102, in the same way that those seeking a set-aside based on § 600.3208 (e.g., lack of actual notice) already must do.

Midwest Real Estate Operator Cops Bank Fraud Plea In Scheme That Duped Investors Into Straw Buyer Scam To Peddle, Finance 'Contract For Deed' Racket Targeting Wanna-Be Homeowners With Crappy Credit

In Springfield, Missouri, KY3-TV reports:
  • A co-owner and president of a closed real estate company that defrauded dozens of residents of new homes pleaded guilty in federal court for bank fraud on Thursday. Under terms of a plea agreement with the U.S. attorney’s office, Scott Dasal of Springfield likely will get a three-year federal prison sentence.

    On Tuesday (postponed from Friday morning), Dasal is scheduled to appear in Greene County Circuit Court to plead guilty to state charges resulting from a grand jury indictment in February 2011.

    Dasal was a co-owner of Greenleaf Companies and its subsidiaries, including The Real Estate Company. From 2006 through May 2008, the companies advertised heavily in southwest Missouri that they could get people with bad credit records into new homes.

    They also sponsored seminars for potential investors in which company officers outlined a scheme for people to invest in mortgages on homes that would be occupied by other people.

    Investigators say the scheme was fraudulent and deceived a bank that held the mortgages by disguising the source of the money paid to the bank. It turned out that people moved into Greenleaf’s homes and thought that they were mortgage holders. The residents later found out differently when they started getting foreclosure and eviction letters from the bank.

    Investigators said Greenleaf took the residents’ payments but didn’t always pay the bank. The mortgages were actually held by investors that Greenleaf drew into its scheme.
  • People who moved into Greenleaf's homes and thought they were making mortgage payments likely will get no restitution from Dasal and his companies, at least from the federal court plea agreement, which only relates to defrauding the bank, not the homes' residents. They might get some restitution from the state cases against Greenleaf and its officers.

    The Greene County grand jury indicted Dasal on 19 charges: 10 charges of fraud and nine charges of unlawful merchandising practices. In the 26 months since then, the case was proceeding towards a two-week trial that was postponed a couple times but was then set to begin this week, according to online court records. Last week, that trial was canceled and a plea hearing was scheduled for Friday morning at 8:30 before Greene County Circuit Judge Dan Conklin. On Friday, that hearing was postponed for three days.

    When Dasal was indicted, the grand jury also indicted four other people with similar charges. They are Eric Gagnepain of Springfield, a former part-owner of Greenleaf; Misty Perkins of Highlandville, former director of Investor Relations for Greenleaf; William Strong of Springfield, former vice president of finance and daily operations for Greenleaf, and Robert Batchman, former real estate broker for The Real Estate Company.

    Gagnepain pleaded guilty to the state charges in March 2012 but has not been sentenced because he subsequently filed a motion to withdraw his guilty plea.

    A Greene County judge convicted Strong last August and sentenced him to five years of probation, and ordered him to pay $25,000 in restitution; less than $1,000 of that restitution has been paid.

    Perkins is scheduled for trial in August.
For the story, see Co-owner of Greenleaf real estate firm pleads guilty to bank fraud (Scott Dasal also apparently plans to plead guilty to some state charges).

Go here for earlier posts on the Greenleaf Companies straw buyer / 'contract for deed' racket.

Federal Judge Revives Previously Dismissed Claim In Lawsuit That BofA Execs Engaged In Fraudulent Conduct When Concealing Risk That Bankster Would Have To Buy Back & Eat Huge Plate Of Crappy Home Mortgages

In New York City, Reuters reports:
  • A federal judge has revived a securities fraud lawsuit accusing Bank of America Corp Chief Executive Brian Moynihan, his predecessor Kenneth Lewis, and others of misleading shareholders about the risk the bank might have to buy back large amounts of soured mortgages.

    U.S. District Judge William Pauley in Manhattan in July had dismissed various claims against the executives by shareholders led by the Pennsylvania Public School Employees' Retirement System, while letting their case against the second-largest U.S. bank proceed.

    But Pauley said the new allegations in an amended lawsuit "plausibly establish fraudulent conduct and a culpable state of mind as to all executive defendants" for allegedly concealing the buyback potential when certifying the bank's financials.

    He also said Moynihan could be liable for statements that were inconsistent with a May 13, 2010, letter sent on his behalf to the Financial Crisis Inquiry Commission regarding the bank's securitization practices.

    The other individual defendants include former chief financial officers Joe Price and Charles Noski, and Chief Accounting Officer Neil Cotty.

    Jay Kasner, a lawyer for the individual defendants, was not immediately available for comment. Bank of America spokesman Lawrence Grayson declined to comment. Mark Rosen, a lawyer for the plaintiffs, was not immediately available for comment.

    The shareholders alleged they had been misled into buying shares of Charlotte, North Carolina-based Bank of America in 2009 and 2010.

    They claimed that Bank of America knew at the time it faced capital shortfalls and large mortgage buybacks, and that recordkeeping in Merscorp Inc's private Mortgage Electronic Registration Systems registry was so poor that it would not be able to legally foreclose on thousands of delinquent mortgages.

    Mortgage finance giants Fannie Mae and Freddie Mac and several large banks had established MERS in 1995 to circumvent the often unwieldy process of transferring ownership of mortgages and recording changes with county clerks.

    Earlier on Wednesday, Bank of America Corp announced a $500 million settlement with investors who claimed they were misled by its Countrywide unit into buying risky mortgage debt. That settlement was the largest to resolve federal class-action litigation over mortgage-backed securities.

    The case is Pennsylvania Public School Employees' Retirement System et al v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 11-00733.

Sunday, April 21, 2013

7th Circuit OKs Student Loan Discharge For Bankrupt Debtor; Failure To Score Employment Related To Her Financed Paralegal Education Despite Filing 200 Job Applications Established "Undue Hardship" Needed To Ditch Debt

From a client information release from the law firm Goodwin Proctor LLP:
  • The United States Court of Appeals for the Seventh Circuit ruled that a borrower can discharge her student loans under the bankruptcy code. Generally, the bankruptcy code prevents discharge of student loan debt unless the debtor shows that requiring her to repay the loan constitutes "undue hardship."

    The bankruptcy court ruled that the debtor who incurred student loans to finance her paralegal education showed "undue hardship"—she applied for over 200 jobs over a 10-year period without success, after which she moved to a rural area with few jobs available to live with her retired mother. The student loan servicer appealed arguing that the debtor had failed to diligently search for work and that she did not apply to any non-paralegal jobs. The district court agreed and reversed.

    In deciding to reverse the district court's ruling and reinstate the bankruptcy court's ruling, the Court started by recognizing that the bankruptcy code did not strictly forbid discharge of student loan debt—as the code does for crime- or fraud-related debts—but instead allowed discharge upon a showing of hardship.

    The Court agreed with the bankruptcy court in concluding that the debtor's situation was "hopeless"—a burden, according to the Court, "more restrictive than the statutory [showing of,] undue hardship."

    Finding there was no basis to reverse the bankruptcy court's discretionary determination that the debtor showed no ability to pay, and no realistic chance of ever repaying the debt despite her good-faith efforts, the Court reinstated the bankruptcy court's ruling and held that the debtor's educational debt was dischargeable.

Federal Consumer Watchdog Takes Action Against Four Nat'l Mortgage Insurers Over Alleged Kickback Racket

From the Consumer Financial Protection Bureau:
  • The Consumer Financial Protection Bureau (CFPB) [] announced four enforcement actions to end what the Bureau believes to be improper kickbacks paid by mortgage insurers to mortgage lenders in exchange for business. The CFPB filed complaints and proposed consent orders against four national mortgage insurance companies in order to stop these practices, which have been prevalent for more than 10 years. The proposed orders require the four mortgage insurers to pay more than $15 million in penalties to the CFPB.

    “Illegal kickbacks distort markets and can inflate the financial burden of homeownership for consumers,” said CFPB Director Richard Cordray. “We believe these mortgage insurance companies funneled millions of dollars to mortgage lenders for well over a decade. The orders announced today put an end to these types of arrangements and require these insurers to pay more than $15 million in penalties for violating the law.”

    The CFPB alleges that four mortgage insurance companies violated federal consumer financial law by engaging in widespread kickback arrangements with lenders across the country. The CFPB believes the mortgage insurers named in today’s enforcement actions provided kickbacks to mortgage lenders by purchasing captive reinsurance that was essentially worthless but was designed to make a profit for the lenders.

    The four companies named in today’s actions are Genworth Mortgage Insurance Corporation, United Guaranty Corporation, Radian Guaranty Inc., and Mortgage Guaranty Insurance Corporation. In exchange for kickbacks, these mortgage insurers received lucrative business referrals from lenders. These types of kickbacks were a common practice in the years leading up to the financial crisis. These four companies were key players during that time.
For more, see The CFPB takes action against mortgage insurers to end kickbacks to lenders (Four Companies to Pay $15.4 Million in Penalties).

FTC Issues Warning To Website Operators Providing Landlords With Tenant Rental Histories That They May Be Subject To FCRA

From the Federal Trade Commission:
  • The Federal Trade Commission has warned the operators of six websites that share information about consumers’ rental histories with landlords that they may be subject to the requirements of the Fair Credit Reporting Act (FCRA).

    The letters inform the recipients that if they meet certain criteria, namely collecting information on tenants and their rental history and providing that information to landlords so they can make judgments about renting to those tenants, they are considered credit reporting agencies and are subject to certain legal requirements.

    Among the requirements cited in the letter are the companies’ obligation to protect the privacy of tenants whose information they collect, including ensuring that those requesting information about tenants have a legitimate reason to acquire it.

    The letter reminds the companies of their obligation to ensure that the information they provide is accurate, to give consumers a copy of the information about them on request, and to allow consumers to dispute information they believe is inaccurate. The letters also note that the companies must notify landlords of their requirements if they use the data to deny housing to a tenant, and to notify the sources of their information of the requirement that they provide accurate information.