Saturday, June 01, 2013

NYC Judge, State Appeals Court Slam Lawyers For Milking Dead, Big-Time Real Estate Operator's Estate For $40+ Million In Unconscionable Legal Fees, $5M In 'Secret, Extraordinary Gifts' From Widow

In New York City, the New York Law Journal reports:
  • A state appeals panel has thrown out a $16 million contingency fee for work Graubard Miller performed for Alice Lawrence, the late widow of New York real estate magnate Sylvan Lawrence, finding the firm's fee agreement "unconscionable."

    Manhattan Surrogate Nora Anderson had already slashed the $44 million initially sought by Graubard Miller down to $16 million (NYLJ, Sept. 13, 2011).

    The First Department's May 23 decision in Lawrence v. Graubard Miller, 175/82, found that Anderson's fee award, which was meant as a compromise, had to be vacated and replaced with a purely hourly fee.

    Daniel Kornstein of Kornstein Veisz Wexler & Pollard, who represents Ms. Lawrence's estate, estimated that the hourly fee award, including interest, would be about $3 million.

    The Appellate Division, First Department, panel also affirmed Anderson's ruling that three individual Graubard partners—Daniel Chill, Steven Mallis and Elaine Reich—must return more than $5 million in cash gifts they received from Ms. Lawrence.(1)
  • In his final report, [Referee Howard] Levine said the contingency fee the firm stood to earn, which would be the equivalent of $11,000 an hour, was "astounding" and should be reduced. He rejected the estate's argument that the fee award should be calculated on a purely hourly basis, yielding about $1.7 million, and suggested the final $16 million figure as a compromise.

    He also recommended that the individual Graubard partners should not have to return their gifts. Anderson upheld the fee award, but ordered the gifts returned as well. Both sides appealed.

    Firm's Risk Disputed

    The First Department ruled May 23 in an unsigned decision that the entire contingency agreement was unconscionable and should be replaced by an hourly rate plus interest.

    "The revised retainer agreement is both procedurally and substantively unconscionable," the panel wrote. "The evidence shows that the widow believed that under the contingency arrangement, she would receive the 'lion's share' of any recovery. In fact, as it operated, the law firm obtained over 50 percent of the widow's share of proceeds. Thus, the law firm failed to show that the widow fully knew and understood the terms of the retainer agreement—an agreement she entered into in an effort to reduce her legal fees."

    The panel also said the firm did not seem to have taken any risk to justify the large fee.

    "The law firm had internally assessed the estate's claims to be worth approximately $47 million so that the contingency fee provision in the revised retainer would have meant a fee of about $19 million," the panel wrote. "Contrary to the law firm's assertion, on this record it seems highly unlikely that the firm undertook a significant risk of losing a substantial amount of fees as a result of the revised retainer agreement's contingency provision. Rather, the Referee accurately characterized this attempt by the law firm to justify its action as 'nothing but a self-serving afterthought.'"

    A compromise like the one ordered by the surrogate, the panel said, was not satisfactory.(2)
For more, see Firm Takes Another Hit in Bid to Collect 'Unconscionable' Fees.

For the court ruling, see In re Lawrence, 2013 NY Slip Op 03759 (May 23, 2013).

(1) With regard to requiring the lawyers to return the $5 million in gifts they received from the real estate operator's widow, the court observed:
  • The claims relating to the gifts the widow made to the three individual defendants are not time-barred. Rather, they were tolled under the doctrine of continuous representation (Glamm v Allen, 57 NY2d 87, 93-94 [1982]).

    Contrary to the individual defendants' contention, the doctrine applies where, as here, the claims involve self-dealing at the expense of a client in connection with a particular subject matter (cf. Woyciesjes v Schering-Plough Corp., 151 AD2d 1014, 1014-1015 [4th Dept 1989], appeal dismissed 74 NY2d 894 [1989]).

    As to the merits, the individual defendants failed to meet their burden of showing by clear and convincing evidence that the widow gave the gifts willingly and knowingly (Matter of Clines, 226 AD2d 269, 270 [1st Dept 1996], lv dismissed 88 NY2d 1016 [1996]).

    Indeed, the secrecy surrounding the gifts, and their extraordinary amounts, which the individual defendants accepted without advising the widow to seek independent counsel, preclude a finding in the individual defendants' favor (see Code of Professional Responsibility EC 5-5).
(2) On this point, the court stated:
  • The amount the law firm seeks ($44 million) is also disproportionate to the value of the services rendered (approximately $1.7 million) (see Lawrence v Graubard Miller, 11 NY3d at 596). The record shows that the law firm spent a total of 3,795 hours on the litigation after the revised retainer agreement became effective, resulting in an hourly rate of $11,000, which, as the Referee stated, is "an astounding rate of return for legal services."

    However, the remedy recommended by the Referee and adopted by the Surrogate — namely, a new "reasonable" fee arrangement for the partieswas improper. Where, as here, there is a preexisting, valid retainer agreement, the proper remedy is to revert to the original agreement (Matter of Smith [Raymond], 214 App Div 622 [1st Dept 1925], appeal dismissed 242 NY 534 [1926]; Naiman v New York Univ. Hosps. Ctr., 351 F Supp 2d 257 [SD NY 2005]).

    For the reasons found by the Referee, we reject the firm's suggestion that it receive a reduced contingency fee. Accordingly, the matter is remanded for the determination of the fees due the law firm under the original retainer agreement. Given that the firm is entitled to fees under the original retainer agreement, it is also entitled to prejudgment interest from the date of the breach (see CPLR 5001).

Some East-End Long Island Residents Temporarily Ditch Million Dollar Homes & Join Parade To Local Trailer Parks While Pocketing Ten$ Of Thousand$ On Sizzling Short-Stay Summer Rentals

From way out on the east end of Long Island, the New York Post reports:
  • Hamptons residents are trading in their luxury million-dollar homes for the summer — to live in a trailer park.

    The savvy folks are squeezing into digs the size of a tiny Manhattan studio so they can lease out their sought-after houses and rake in thousands of dollars during the sizzling summer rental season.

    “We call it ‘glamping,’ or glamour-camping,” said real-estate agent Danielle Becker-Wilson, 36, who jumped on the bandwagon and is temporarily ditching her million-dollar pad for a trailer at “Montauk Shores Condominiums” — also known as the Ditch Plains Trailer Park — in Montauk.

    Becker-Wilson is now living with her husband, George, 36, daughter Lila, 7, and son Liam, 4, in a 400-square-foot trailer in the park, where Mercedes and Audis can be seen coming and going daily. It’s a far cry from the family’s quaint digs on a lush property in the village of East Hampton.

    But the deal was just too good to pass up: In just two months, July and August, she and her husband will have collected $50,000 in rent. And they can use their $60,000 trailer year after year.

    “It was an affordable investment for us to make so that we can make our house in the village of East Hampton work for us,” Becker-Wilson said.

    Daniel Shapiro Real-estate agent Danielle Becker-Wilson, husband George Wilson, and their kids, Lila and Liam, go “glamour camping” in their temporary home.

    She said the couple plans to use the cash to add a pool to their primary residence — which also will allow them to jack up the rate on the rental next summer.

    “For us, it was just the cheapest way to have somewhere to go while we rent our house,” Becker-Wilson said of the trailer, where she put in bunk beds for the kids and a pull-out couch for her and her husband. “You have to be really strategic with the space,” she added.

    The family leases the land for their trailer for $1,400 per month, or $16,800 a year.

    Becker-Wilson, who works for Halstead, currently has a double-wide trailer on the market for $700,000.

    The 200-unit trailer park boasts two swimming pools and a playground and has attracted scores of other families who are renting out their homes for the summer.

    “Everyone's doing it. Montauk is hot,” said a retired city fireman who also lives there and asked to remain anonymous. He said he’s renting out his 3,500-square-foot, million-dollar home in Montauk to help put his kids through college.

    His primary home — a brick mansion with five bedrooms, two living rooms, pool and hot tub — rents for nearly $60,000 for July and August.

    Two East Hampton teachers also have been renting out their home — a $1.2 million gem on more than an acre — for more than $30,000 for two months. The pair didn’t want their name used, but their 23-year-old son, who lives with them in the trailer, called the trailer park “beautiful.’’

Ex-Michigan High Court Justice Gets 366 Days For Illegal Short Sale Shuffle Intended To Wipe Out $600K In Mortgage Debt On Underwater Home While Leaving Lien-Free Florida Residence Untouched

In Ann Arbor, Michigan, USA Today reports:
  • Former Michigan Supreme Court Judge Diane Hathaway was sentenced to 12 months and one day behind bars Tuesday for bank fraud.

    Hathaway, who pleaded guilty in January to misleading her bank during a short sale of her Grosse Pointe, Mich., home, also is to pay $90,000 in restitution and will spend two years on probation. It is unclear where she will serve her sentence.
  • Hathaway, who also held a real estate license, retired Jan. 21 amid the scandal involving the sale of her home.

    Hathaway was charged with and pleaded guilty in January to one count of bank fraud after investigators said she moved ownership of property in Florida to relatives so she could qualify for the short sale. Short sales are when a bank allows a sale for a home for less than is owed by the mortgage holder, typically when property values fall.

    Hathaway's short sale in Michigan erased nearly $600,000 in mortgage debt on the $1.5 million Grosse Pointe Park home on Lakeview Court, which eventually sold for $850,000. The debt-free Windermere, Fla., home then went back into Hathaway's name.

Jury Convicts Once High-Flying, Now Financially Strapped Real Estate Operator Of Bumping Off Wife; Messy Finances, Potential $30M Life Insurance Policy 'Cash-In' Seen As Murder Motive; Hubby's Estranged Kids Applaud Verdict As Justice For Mom

In Redwood City, California, the Contra Costa Times reports:
  • A Peninsula real estate mogul was found guilty Thursday of murdering his wife in their mansion to collect a $30 million insurance policy as creditors closed in on his crumbling empire.

    Pooroushasb "Peter" Parineh, 67, didn't react as the clerk in the San Mateo County Superior courtroom of Judge Lisa Novak read aloud the verdict, which leaves him facing a mandatory sentence of life without the possibility of parole. The hefty penalty stems from the jurors finding that he fired the shot that killed his wife, Parima Parineh, in their Woodside home on April 13, 2010, for money.

    At trial, defense attorney Dek Ketchum argued Parima Parineh, depressed and distraught over the family's eroding fortune, killed herself to unlock the whopping insurance payment for the couple's three adult children. The policy, he noted, would pay out only to the Parineh siblings, who had a poor relationship with their father.

    The Parinehs' three children were frequently seen in the courtroom, and on Thursday, Austiag Hormoz Parineh, 33, of Irvine, cried with relief and hugged jurors after the verdict. "I'm just glad justice is done for my mother," he said, of the 56-year-old painter and homemaker.
  • Parima Parineh suffered three gunshot wounds -- two to her head -- the day of her murder. Deputy district attorney Jeff Finigan argued the position of her body, the numbers of shots, and the way her blood splattered made it clear the scene had been staged. Though the husband made a hysterical 911 call claiming his wife had killed herself, San Mateo County sheriff's detectives immediately suspected murder.

    Their theory found a motive in Peter Parineh's messy finances. Though his holdings had been worth up to $70 million in 2006, some bad investments, the real estate crash and a legal judgment left him facing ruin. Multiple properties were in foreclosure, including the family's Fox Hill Road mansion, and the funding for Parima Parineh's life insurance policy was about to collapse.(1)

    Jurors said Parineh's need for money certainly provided motive but was less decisive than the physical proof. "There really was no other possible explanation for why things looked the way they did," said Sood, the juror, fighting back tears.

    If jurors had rejected the prosecution theory that Parineh killed his wife for money, he would still have faced 50 to life in prison because he used a gun, said District Attorney Steve Wagstaffe. Novak, the judge, could overturn the jurors' decision on the money motive, but Wagstaffe saw it as a near impossibility. Parineh is due back July 12 at 1:30 p.m. for sentencing.

    "Justice was done today in San Mateo County," said Wagstaffe. "(Parineh's) defense wasn't just 'I didn't do it' -- it was 'she did it.' That's as vile as you can get." Parineh was being held at San Mateo County jail without bail.
For the story, see Peninsula real estate mogul guilty of killing wife for $30 million insurance payout.

(1) In Estate of Kramme v. Kramme (1978) 20 Cal.3d 567 [143 Cal. Rptr. 542, 573 P.2d 1369], the California Supreme Court made the following observation (in footnote 11) on allowing one who causes the death of another to benefit from such death, outside the context of inheritances/probate proceedings:
  • [I]t should be noted that the courts of this state have used sections 2224 and 3517 outside the probate context only to prevent a person who intentionally killed from benefiting from that unlawful act.

    For example, persons convicted of murder were denied proceeds of life insurance policies on their victims in Beck v. West Coast Life Ins. Co. (1952) 38 Cal.2d 643 [241 P.2d 544, 26 A.L.R.2d 979] and West Coast L. Ins. Co. v. Crawford (1943) 58 Cal. App.2d 771 [138 P.2d 384], and a man convicted of voluntary manslaughter in the death of his wife was not permitted to succeed by right of survivorship to property the couple held in joint tenancy in Abbey v. Lord (1959) 168 Cal. App.2d 499 [336 P.2d 226].

    On the other hand, in Throop v. Western Indemnity Co. (1920) 49 Cal. App. 322 [193 P. 263], a man who unintentionally caused his wife's death through negligent handling of a firearm was permitted to keep the proceeds of an insurance policy on her life. (But see Prudential Ins. Co. of America v. Harrison (S.D.Cal. 1952) 106 F. Supp. 419.)
Regarding right of one who causes the death of another to benefit from such death, the California Supreme Court pointed out, in footnote 10 that there were cases in at least two other jurisdictions that permitted the 'killer' to benefit from the victim's death if there was no intent to kill the victim.

See Legette v. Smith (1955) 226 S.C. 403 [85 S.E.2d 576], and In re Wolf (1914) 88 Misc. 433 [150 N.Y.S. 738], both involving a jilted hubby who unlawfully, but accidentally, shot and killed his cheating wife when, in fact, he was really trying to blow away his wife's lover:
  • In both cases, the husband, while attempting to shoot his wife's lover, unintentionally shot her as she intervened. Both courts, applying equitable principles, permitted the husband to succeed to his wife's estate. slayer statute

WHO's Chief On Deadly New Virus: MERS "A Threat To The Entire World!"

In London, England, The Associated Press reports:
  • A detailed look at two cases of a deadly new respiratory virus called MERS suggests people who have the disease should be isolated for at least 12 days to avoid spreading it, doctors reported Wednesday. The new germ, a respiratory infection, was first seen in the Middle East and so far has sickened more than 40 people worldwide, killing about half of them.
  • In a speech on Monday in Geneva, the World Health Organization's Director-General, Dr. Margaret Chan, said her greatest health concern is MERS. She called the ongoing outbreaks "alarm bells" and said the virus "is a threat to the entire world."
  • [S]cientists wrote that if the virus evolves further, it could become more dangerous. With further mutations, they said MERS "might become increasingly transmissible" and must be continuously assessed.

Friday, May 31, 2013

Federal Regulators Widen Probe Into Alleged Robosigning Practices Surrounding Delinquent Credit Card Debt Collections

The Washington Post reports:
  • Federal regulators are widening a probe into whether the nation’s biggest banks used flawed documents and incomplete records to collect on delinquent credit card debts, according to four people familiar with the investigation.

    The scope of the inquiry is unclear, but those familiar with it say the Office of the Comptroller of the Currency is expanding an ongoing probe that began in 2011 with allegations that JPMorgan Chase was using error-filled documents in lawsuits against debtors.

    The regulatory agency is examining the process several banks use to verify consumers’ outstanding debt before taking legal action, say people who were not authorized to speak about an ongoing investigation. An OCC spokesman declined to comment.

    The concerns about credit card debt collection echo the wave of shoddy foreclosures that hit after the housing market collapsed. In those cases, as homeowners defaulted on their loans in droves, mortgage servicers were accused of falsifying records and ‘‘robo-signing’’ hundreds of documents without actually reviewing them.
  • Peter Holland, who runs the Consumer Protection Clinic at the University of Maryland Francis King Carey School of Law, said the problems in debt collection extend from the banks to the companies who purchase delinquent accounts for cents on the dollar.
  • Debt buyers often purchase just a spreadsheet with names of delinquent borrowers from banks after accounts become more than 180 days past due, Holland said. Judges, he noted, grew alarmed by the number of cases involving debt buyers that lacked proof of outstanding debt or contained generic testimony.

    Chief Judge Ben C. Clyburn of the District Court of Maryland, for instance, said he dismissed 3,168 debt collection cases in October because the debt buyer, in part, misstated the amounts owed. The state court of appeals adopted new rules in 2011 that required debt buyers to provide more evidence when seeking judgments against consumers based on sworn statements.

    ‘‘Most of the abuses that we’ve seen have been in the affidavits of the debt buyers,’’ said W. Thomas Lawrie, assistant attorney general in the Maryland Department of Labor, Licensing & Regulation. ‘‘There are debt buyers signing affidavits without having the consumer’s account files. There’s evidence that some are signing upwards of 400 affidavits a day.’’
For the story, see US taking harder look at debt collection practices (Banks’ verification process faces scrutiny).

Ex-Homeowner Pinched For Allegedly Forging, Filing Fraudulent Real Estate Documents After Foreclosure Sale In Attempt To Reclaim Home

From the Office of the San Bernardino County, California District Attorney:
  • A Moreno Valley man suspected of committing real estate fraud was arraigned last week on multiple counts of Forgery and Procuring and Offering False or Forged Instrument.

    Stefan Mahaley, 52, is suspected of forging and filing several fraudulent real estate documents at the San Bernardino County Recorder’s Office, which is a felony offense in the State of California.

    “During the course of our investigation, it was discovered that Mr. Mahaley had purchased a home in the City of Fontana, which eventually went into foreclosure and was sold to a new buyer through a public auction,” said Senior Investigator Jaime Samaniego, who is assigned to the case.

    According to Samaniego, after the sale was complete, the defendant allegedly filed fraudulent documents granting the property back to him in an attempt to reclaim the home.

    Following the investigation, the District Attorney’s Office filed eight felony counts against Mahaley and he was arrested without incident May 14 by investigators from the San Bernardino County District Attorney’s Office at his place of employment in Los Angeles.
For the San Bernardino County DA press release, see Moreno Valley Man Arraigned on Real Estate Fraud Charges.

Attorney Ripoff Reimbursement Fund Again The Focus Of Recovery-Seeking Victims Of Scam Involving Closing Lawyer's Role In Failure To Convey Clear Title To Condos Peddled By Non-Lawyer Real Estate Developer

In Edmonton, Alberta, the Edmonton Journal reports:
  • They’ve been left with less than nothing: lawsuits and creditors, and mortgages to nowhere.

    Fifteen months after the Leduc Fire Department issued an emergency evacuation order for Bellavera Green condos, and the troubled development hit the news, former condo owners are wondering why they weren’t protected from walking into impending financial collapse, a disaster that cost them hundreds of thousands of dollars each.

    Most had secured mortgages for at least two condos. Several bought three or four, unaware the project was helmed by a convicted mortgage fraudster.
  • Former condo board president Darryl Short considers himself comparatively lucky. The 33-year-old mechanical engineering technologist still has a house in Edmonton. Unlike those who lost their only home, his loss was an investment. Like other condo owners, Short’s $444,000 disappeared after his lawyer transferred the money to [developer Kevyn] Frederick’s lawyer.

    Expecting to receive encumbrance-free titles to his condos, Short has instead had two years’ of financial headaches over fights with mortgage companies and encounters with a legal system.

    Many claimants have refocused legal efforts on the lawyers who processed the deals. The biggest flurry is against Leslie Meiklejohn, the lawyer Frederick hired to process condo sales.

    With 43 years’ experience in Alberta, Meiklejohn is best known for representing dozens of Edmonton claimants for residential school abuse. With Bellavera, he was entrusted to give buyers clear titles and to pay off Frederick’s creditors. That never happened.

    Meiklejohn is involved in bankruptcy proceedings and declined to comment “for both personal and legal reasons.”

    Ironwood [Financial] and other lenders have been wrangling with the Alberta Law Society(1) over Meiklejohn’s $2-million insurance policy — the mandatory minimum for Alberta lawyers — and the possibility of additional money to cover their debts.

    The ALS won’t comment on ongoing cases, but it does have an assurance fund to cover cases in which lawyers misappropriate trust money.(2) Since 2000, it has paid out nearly $5 million.

    Although the fund may be Short’s last avenue to recoup his money, he isn’t holding his breath.

(1) The Law Society of Alberta is a self-governing body for Alberta, Canada's lawyers with a mandate to regulate the legal profession in the public interest (it is, in effect, the 'state bar' for Alberta). 

(2) The Law Society of Alberta maintains an Assurance Fund to compensate clients for misappropriation or wrongful use of trust money or missing trust funds by their Alberta-licensed lawyer. Go here for the Assurance Fund Claims Guideline.

For similar "attorney ripoff reimbursement funds" that sometimes help cover the financial mess created by the dishonest conduct of lawyers licensed in other Canadian provinces and states throughout the U.S., see:

Maps available courtesy of The National Client Protection Organization, Inc.

County Sheriff To Adverse Possession-Claiming Squatters Using Bogus Recorded Documents As Low-Cost Housing Vouchers: "If You Need A Place To Live, Don't Worry About It ... I'm Going To Give You A Place To Live At The County Jail!"

In Lakeland, Florida, The Lakeland Ledger reports:
  • If a deal sounds too good to be true, it probably is.

    Those words we have all heard can easily be applied to the idea of adverse possession as a way to quickly obtain a very low-cost house. It is too good to be true, and it can land people in jail if they get carried away with the concept.

    Recent cases of people moving into vacant houses and trying to claim them have focused attention on the law, and its misuse.

    There is, in fact, a Florida law that allows for adverse possession. But it's not designed to help people snatch up other people's houses for a song.

    It can allow people to take possession of property in certain cases if certain criteria is met: Primarily, pay the taxes and claim it for seven years. Filing a document in the county Property Appraiser's Office and moving into someone else's house absolutely is not a way to take it over, authorities say.

    Polk Sheriff Grady Judd said he has advice for anyone seeking housing by a novel, but improper, route: "If you need a place to live, don't worry about it because when you move into one of these houses illegally, I'm going to give you a place to live at the county jail."

    Lawmakers have tried for years to change the law to better suit modern needs. This past session, the Legislature approved changes that should reduce some of the problems with sketchy attempts to take homes.

    Starting July 1, people who try to adversely possess a piece of property must wait until after April 1, when unpaid property taxes become delinquent, before they swoop in and pay what's due on someone else's property. Paying taxes on a parcel for seven years is one of the requirements in a legitimate adverse possession case.

    If someone seeks to own an abandoned piece of property or home that no one else claims -- perhaps one that a relative intended to deed over but didn't because of death -- they can file the proper paperwork stating intent, pay the taxes for seven years and possibly become the owner. If all the criteria is met and the property becomes theirs, they can move in or build on land.

    But that's at the end of a long wait and can be a long shot.
  • Asked for an opinion about the law, Lakeland lawyer J. Kemp Brinson said he doesn't think there is a legal problem.

    "I think the public response to these stories misses an important distinction between adverse possession, a civil court remedy for a title-related problem, and criminal statutes that prohibit trespassing and breaking into places where you don't belong," he said in an email response to questions.

    "They are two different things."

    Those charged were arrested for breaking into the house, not for starting the process of adverse possession, he said. And they were caught in part because they filed papers with the property appraiser indicating that they intended to adversely possess it.

    "If they have deluded themselves, or been deluded by others, into thinking that their acts are perfectly legal ways to go about 'adverse possession' of someone else's property, they are just plain wrong," Brinson said.
  • "You just can't move into someone else's legally owned property," [Polk County Sheriff Grady] Judd says [...]. "That's trespassing, burglary and theft. There is no such thing as a free lunch, and we are going to arrest people who try this scam to steal homes in Polk County."
For the story, see Adverse Possession: Taking Over A Home Can Land You in Jail (Recent cases have focused attention on misuse of law).

Thursday, May 30, 2013

Ohio Supremes: No Foreclosure Sale 'Do-Overs' When Negligent Banksters Fail To Attend Public Auction & 3rd Party Winning Bidder Scores Property

In Columbus, Ohio, The Toledo Blade reports:
  • Banks and other mortgage lenders in Ohio were put on notice Tuesday: if you don’t attend foreclosure sales, you can’t rescind the foreclosure and do it over.

    In a unanimous opinion, the Ohio Supreme Court reversed a decision by the 6th District Court of Appeals that upheld a ruling in Wood County Common Pleas Court that permitted Countrywide Home Loans Serving to voluntarily dismiss a foreclosure on a Perrysburg home after the property was sold at sheriff’s sale.

    Countrywide representatives had failed to attend the sale, where the property was sold to a third party, so the lender dismissed the complaint before the sale was confirmed. Soon after, Countrywide re-filed the foreclosure action.

    “To grant a lender the right to dismiss an action after a trial court has issued what it had indicated was a final judgment, would lead to the untenable result that an unhappy lender could simply wait until after the sheriff’s sale has occurred, decide that the sale price was too low, and then dismiss the case in order to get a second bite at the apple,” Justice William O’Neill wrote. “This flies in the face of the general policy that judicial sales have a certain degree of finality.”

    John P. Lewandowski, an attorney for homeowners Michael and Joann Nichpor of Perrysburg, said the foreclosure action against his clients is still pending, but the high court’s ruling accomplishes two things.

    “It clarifies the rules a bank must follow, and it allows a third party to bid on a property at a sheriff’s sale with confidence, without fear a bank may be able to do this in the future,” he said.

    Attorney Gary Sommer, who also represents the Nichpors, was encouraged by the ruling.

    “One of the reasons the Supreme Court got interested in this is that there is a plethora of foreclosure actions in our county and throughout the state so it is a live topic and it does occupy a lot of the court’s docket,” he said.

    In cases like this, where the lender missed the sheriff’s sale and so missed the opportunity to bid on the property, he said, “There were different results depending on what part of the state you were in. Some counties would allow banks that failed to go to the sheriff’s sale to take a do-over, and in other counties the court would say, ‘No. You don’t get a do-over.’”

    Andrew C. Clark, an attorney for Countrywide, could not be reached for comment Tuesday.
Source: Foreclosure ‘do-overs’ rejected (Action can’t be dismissed if lenders miss sale, court rules).

For the ruling of the Ohio Supreme Court, see Countrywide Home Loans Servicing v. Nichpor, Slip Opinion No. 2013-Ohio-2083 (May 28, 2013).

For the court's press release, see Supreme Court: Foreclosure Action May Not Be Dismissed Under Civil Rule After Court Enters Judgment Granting Foreclosure, Order of Sale.

Bankster Moves Forward With State Court Judicial Foreclosure In Case Where Constitutional Challenge To Colorado's Non-Judicial/Public Trustee Proceeding Remains Open; Judicial Review-Evading Bankster To Federal Judge: 'You Must Dismiss This Action - The Case Is Moot!'

In Denver, Colorado, The Denver Post reports:
  • Amid confusion over whether a federal judge can still decide if an Aurora woman's constitutional rights are violated by Colorado foreclosure laws, U.S. Bank has filed a lawsuit in state court to take the house.

    A flurry of documents filed in the federal lawsuit Lisa Kay Brumfiel brought against the bank and some of the state's top foreclosure lawyers indicate that a giant question mark remains: whether Colorado foreclosure law violates the 14th Amendment right to due process and whether a federal judge can still take on the issue even if it doesn't affect Brumfiel anymore.

    U.S. Bank, the trustee for the investment trust that bought Brumfiel's note shortly after she signed the loan in 2006, argues that the entire issue is moot since it dropped its public-trustee case against her.

    And even though U.S. Bank filed a lawsuit Thursday in Arapahoe County District Court to take the house, Brumfiel's challenge involved only the public-trustee foreclosure process.

    While U.S. District Judge William J. Martínez last week agreed that at least one matter was resolved — and issued a permanent injunction against the bank from starting a new public-trustee foreclosure against Brumfiel — he indicated the constitutional matter remained unresolved.

    That came May 14 in an order allowing a pair of advocacy groups — the Colorado Center on Law and Policy and the Colorado Progressive Coalition — to file a brief, called an amicus curiae, in support of Brumfiel's constitutional argument.

    "The court has not issued any decision regarding the constitutional questions about which (the groups) seek to intervene," Martínez wrote in allowing the briefs. There remain "constitutional questions at issue in this case," he wrote.

    The groups filed the 19-page brief May 20 outlining how the state's public-trustee process is fraught with constitutional pitfalls.

    U.S. Bank on Thursday filed a response that simply said the issue is dead — it canceled the public-trustee foreclosure.(1) Brumfiel has said in another filing that thousands of Coloradans facing foreclosure are subject to the same problems, although she stopped short of asking Martínez to stop all public-trustee foreclosures until her case is decided.

    "Plaintiff's constitutional challenges to the Rule 120 public trustee foreclosure process are moot," U.S. Bank said in a brief filed with the court.

    Attorney Larry Castle, whose law firm filed the foreclosure against Brumfiel and helped draft the law in question, said in a court filing that Brumfiel "cannot be harmed by the process of which she complains."

    At issue is a state court hearing, known as a Rule 120 for the procedure that governs it, in which a judge signs the final order for a county public trustee to auction a piece of property, usually a house.

    Brumfiel challenges the law that governs the Rule 120 process, saying a bank's right to foreclose is never firmly established, which is a requirement of due process. Instead, a lawyer can sign a statement declaring that his client, usually a bank or other lender, owns the note and deed of trust but need only provide a photocopy.
For the story, see Constitutionality question in Colorado foreclosures remains open.

(1) From the bankster's 5-page response to the 19-page amicus brief filed by the Colorado Center on Law and Policy and the Colorado Progressive Coalition:
  • [T]he constitutional issues addressed by the Amici Brief are not justiciable in this matter.

    There is no longer any case or controversy regarding the constitutionality of the public trustee foreclosure process under C.R.S. § 38-38-101 or C.R.C.P.120 (“Rule 120 Public Trustee Foreclosure”) that affects Plaintiff.

    Each of Plaintiff’s nine causes of action has been rendered moot by: (1) Trust’s withdrawal of its Rule 120 Public Trustee Foreclosure against Plaintiff as affecting the Property, and (2) the Trust’s consent to a permanent injunction prohibiting any future Rule 120 Public Trustee Foreclosure against Plaintiff under the operative Note and Deed of Trust affecting the Property. See Doc. 126 at 9 (capitalized terms defined in Doc. 126).

    Consequently, and with no case or controversy remaining, “the federal court must dismiss the action for want of jurisdiction.” Jordan v. Sosa, 654 F.3d 1012, 1023 (10th Cir. 2011) (internal quotation marks and citations omitted); see also Doc. 126 at 6-9 (fully incorporated herein by this reference).

Editor's Note: Not surprisingly, in its brief, the bankster failed to address the voluntary cessation doctrine (or any of the 10th Circuit Court of Appeals cases - the federal appeals court that would hear any appeal in this litigation - recognizing the existence of the doctrine), much less why it is inapplicable here. I suspect that the amici will respond to the bankster's assertion that the case is moot by raising this issue.

See United States v. WT Grant Co., 345 US 629 (1953), in which the U.S Supreme Court made these comments regarding the 'voluntary cessation doctrine' and its effect in making a case moot, particularly in a case where there is a public interest in having the legality of the challenged practice settled:
  • Both sides agree to the abstract proposition that voluntary cessation of allegedly illegal conduct does not deprive the tribunal of power to hear and determine the case, i. e., does not make the case moot. United States v. Trans-Missouri Freight Assn., 166 U. S. 290 (1897); Walling v. Helmerich & Payne, Inc., 323 U. S. 37 (1944); Hecht Co. v. Bowles, 321 U. S. 321 (1944).

    A controversy may remain to be settled in such circumstances, United States v. Aluminum Co. of America, 148 F. 2d 416, 448 (1945), e. g., a dispute over the legality of the challenged practices. Walling v. Helmerich & Payne, Inc., supra; Carpenters Union v. Labor Board, 341 U. S. 707, 715 (1951).

    The defendant is free to return to his old ways.[4] This, together with a public interest in having the legality of the practices settled, militates against a mootness conclusion. United States v. Trans-Missouri Freight Assn., supra, at 309, 310.
See also, ACLUM v. Conference of Catholic Bishops, 705 F. 3d 44 (1st Cir. January 15, 2013) (discussing the 'voluntary cessation doctrine'  which provides for an exception to mootness):
  • The voluntary cessation exception "traces to the principle that a party should not be able to evade judicial review, or to defeat a judgment, by temporarily altering questionable behavior." City News & Novelty, Inc. v. City of Waukesha, 531 U.S. 278, 284 n. 1, 121 S.Ct. 743, 148 L.Ed.2d 757 (2001).

    This is to avoid a manipulative litigant immunizing itself from suit indefinitely, altering its behavior long enough to secure a dismissal and then reinstating it immediately after. See Already, LLC v. Nike, Inc., ___ U.S. ___, ___, 133 S.Ct. 721, ___ L.Ed.2d ___, 2013 WL 85300, No. 11-982, slip op. at 4 (U.S. Jan. 9, 2013); Brown, 613 F.3d at 49; see also United States v. W.T. Grant Co., 345 U.S. 629, 632, 73 S.Ct. 894, 97 L.Ed. 1303 (1953) (noting that if a court declares the case moot, "[t]he defendant is free to return to his old ways").

    As the Supreme Court stated last term, "[s]uch ... maneuvers designed to insulate a decision from review ... must be viewed with a critical eye" and, as a result, "[t]he voluntary cessation of challenged conduct does not ordinarily render a case moot." Knox v. Serv. Emps. Int'l Union, Local 1000, ___ U.S. ___, 132 S.Ct. 2277, 2287, 183 L.Ed.2d 281 (2012) (citation omitted).

    However, even in circumstances where the voluntary cessation exception applies, a case may still be found moot if the defendant meets "the formidable burden[[9]] of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur." Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 190, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000) (citing United States v. Concentrated Phosphate Exp. Ass'n, Inc., 393 U.S. 199, 203, 89 S.Ct. 361, 21 L.Ed.2d 344 (1968)); Parents Involved in Cmty. Sch. v. Seattle Sch. Dist. No. 1, 551 U.S. 701, 720, 127 S.Ct. 2738, 168 L.Ed.2d 508 (2007).

Federal Appeals Court OKs Fannie, Freddie Transfer Tax Dodge On Conveyances Of Foreclosed Homes; 6th Circuit Shreds Local Taxing Authorities' Position With Straightforward, Common-Sense Application Of Plain Language In Relevant Statute

From a Opinion Summary:
  • The Michigan State Real Estate Transfer Tax, MICH.COMP.LAWS 207.521, and the County Real Estate Transfer Tax, section 207.501, impose a tax when a deed or other instrument of conveyance is recorded during the transfer of real property.

    The tax is imposed upon “the person who is the seller or grantor.”

    State and county plaintiffs sought to recover transfer taxes for real property transfers recorded by Fannie Mae, a corporation chartered by Congress to “establish secondary market facilities for residential mortgages,” in order to “provide stability in the secondary market for residential mortgages,” and “promote access to mortgage credit throughout the Nation,” 12 U.S.C. 1716; Freddie Mac, also a corporation chartered by Congress for substantially the same purposes; and the Federal Housing Finance Agency, an independent federal agency, created under the Housing and Economic Recovery Act of 2008, 12 U.S.C. 4617, which placed Fannie and Freddie into conservatorships, 12 U.S.C. 4617(a)(2).

    When Congress created defendants, it expressly exempted them from “all” state and local taxes except for taxes on real property. The district court entered summary judgment in favor of the plaintiffs, reasoning that “transfer taxes are excise taxes, not taxes on real property.

    The Sixth Circuit reversed.(1)
Source: Opinion Summary: Genesee Cty, v. Fed. Hous. Fin. Agency.

For the ruling, see County of Oakland v. Federal Housing Finance Agency, Nos. 12-2135/2136 (6th Cir. May 20, 2013.

(1) In approving the transfer tax dodge by Fannie, Freddie, and the Federal Housing Finance Agency, the 6th Circuit shredded the arguments by the local taxing authorities with a basic, common-sense approach to reading and applying the relevant statutes:
  • The statutes at issue here plainly state that defendants are exempt from "all taxation" imposed by the state or local taxing authority. See 12 U.S.C. § 1723a(c)(2) (Fannie Mae's charter); § 1452(e) (Freddie Mac's charter); § 4617(j)(2) (Agency exemption).

    The statutes do not define "all" or "taxation." Where terms are undefined, "[t]he everyday understanding should count for a lot," and we look to "regular usage to see what Congress probably meant." Lopez v. Gonzales, 549 U.S. 47, 53 (2006).

    "Taxation" is the "imposition or levying of taxes;" "the action of taxing or the fact of being taxed." Oxford English Dictionary 679, vol. XVII (2d ed. 1989). As employed in the exemption statutes, "all" is an adjective describing "[t]he entire or unabated amount or quantity of; the whole extent, substance, or compass of; the whole." Oxford English Dictionary 324, vol. I (2d ed. 1989).

    Accordingly, the common sense, non-technical interpretation of "all taxation" has to include the State and County real estate transfer taxes here, which impose a tax on the "seller or grantor" when a deed or other instrument of conveyance is recorded during the transfer of real property. MICH. COMP. LAWS § 207.502; § 207.523.

    In other words, a straightforward reading of the statute leads to the unremarkable conclusion that when Congress said "all taxation," it meant all taxation. Lopez, 549 U.S. at 53; see also, Sander v. Alexander Richardson Inv., 334 F.3d 712, 716 (8th Cir. 2003) ("In short, `all' means all.").

    The statutes' text is revealing in another way. In granting each of the defendants' an exemption, Congress explicitly created a carve-out from the "all taxation" language by permitting taxes on real property.

    But Congress did not provide a similar carve out for the type of transfer taxes at issue here. "When Congress provides exceptions in a statute, it does not follow that courts have authority to create others. The proper inference . . . is that Congress considered the issue of exceptions and, in the end, limited the statute to the ones set forth." United States v. Johnson, 529 U.S. 53, 58 (2000).

    Accordingly, because the statutes are clear, we are not in a position to second-guess Congress and create a new exception in the statute for state and county real estate transfer taxes.
  • Contrary to this commonsense reading and to the cases supporting it, plaintiffs employ a more arcane line of reasoning in an effort to persuade us that the plain language of the statute should not control here. They argue that when Congress said "all taxation" in the exemption statutes, it did not really mean all taxation. Instead, they claim that Congress used the phrase "all taxation" as a term of art—a term with a definition that does not include real estate transfer taxes. [...]
Editor's Note: In hindsight, and based on the federal appeals court analysis of the applicable statute, this litigation appears to have been one gigantic waste of time for the local taxing authorities bringing the case.

2nd Mortgage Holder Screws Itself When Making Loan Without First Inquiring As To Existence Of Prior Undisclosed Loans Secured By Existing 1st Mortgage Containing Cross-Collateralization Clause Appearing Conspicuously On Face Of Instrument

From a Opinion Summary:
  • Peoples Bank loaned Debtors $214,044, secured by a mortgage recorded in 2004 ["Peoples Loan 1].

    In 2008, Debtors obtained a $296,000 construction loan from Banterra, secured with a second mortgage on the same property.

    Banterra was aware of the first mortgage, but did not know was that in 2007, Debtors obtained a second loan from Peoples, for $400,000, secured by another mortgage on a different piece of property. ["Peoples Loan 2"]

    The 2004 Peoples mortgage contained a cross-collateralization provision, stating that “In addition to the Note, this Mortgage secures all obligations … of Grantor to Lender … now existing or hereafter arising,” and a provision that “At no time shall the principal amount of the Indebtedness secured by the Mortgage … exceed $214,044.26 … “Indebtedness” … includes all amounts that may be indirectly secured by the Cross-Collateralization provision.”

    In 2010 Debtors filed a Chapter 11 bankruptcy petition. The balance due on Peoples 2004 loan [Peoples Loan 1] was then $115,044.26.

    Debtors received permission and sold the property for $388,500.00. Out of these proceeds, Peoples claimed the balance due on the 2004 loan plus partial payment of the 2007, up to the cap. The Bankruptcy Court found in favor of Peoples.

    The district court reversed.

    The Seventh Circuit reversed, upholding the “plain language” of the cross-collateralization agreement.(1)
Source: Opinion Summary: Peoples Nat'l Bank v. Banterra Bank.

For the court ruling, see Peoples Nat'l Bank v. Banterra Bank, No. 12-3079 (7th Cir. May 20, 2013).

(1) Some of the 7th Circuit's analysis and reasoning in applying the law of Illinois (the state in which the deal took place) as to why Banterra, the 2nd mortgage holder, had an obligation to discover the existence of the undisclosed People's Loan 2 when making its secured loan to Debtors follows:
  • It is undisputed that Banterra did not have actual notice or knowledge of Peoples Loan 2. It is similarly undisputed that Banterra did have actual notice and knowledge of Peoples Loan 1, the mortgage securing it, and the cross-collateralization clause that it conspicuously[1] contained. The dispute is over the legal significance of these two facts.
  • Like record notice, inquiry notice is essentially a form of constructive notice. See Pelfresne v. Village of William Bay, 965 F.2d 538, 542 (7th Cir. 1992); National Family Ins. Co. v. Exchange Nat. Bank of Chicago, 474 F.2d 237, 241-42 n.1 (7th Cir. 1973); 112 Am. Jur. Proof of Facts 3d 419 § 12 (2013) (collecting cases); 1 PATTON AND PALOMAR ON LAND TITLES § 12 (3d ed. 2012) (collecting cases).

    Record notice rules treat a subsequent creditor with no actual knowledge of a prior interest as having actual notice if the prior interest was properly recorded. A subsequent creditor receives no quarter for having failed to search the relevant real estate records, so long as the interest was properly recorded. Inquiry notice operates under a similar principle.

    Inquiry notice describes the situation where the transferee has been made aware of facts or circumstances from which the existence or possibility of a prior claim might reasonably be inferred.

    If so, the purchaser then has a duty to verify or dispel the inference through further inquiry.

    If he fails to make inquiry, he is nonetheless chargeable with knowledge of facts that a diligent inquiry would have disclosed, the same as if he had acquired actual knowledge of those facts. In re Shara Manning Properties, Inc., 475 B.R. 898, 906 (Bankr. C.D.Ill. 2010); see Smith v. Grubb, 402 Ill. 451, 464-65 (1949); 112 Am. Jur. Proof of Facts 3d 419 § 12 (collecting cases).

    Here, we find that the Bankruptcy Court correctly identified the dispositive question presented by these facts when it asked "whether actual notice of a cross-collateralization clause in a mortgage imparts inquiry notice as to the existence of other obligations that may be covered by the security instrument." In re Jones, 2011 WL 6140686, *8 (Meyers, Bankr. J.). On these facts, we hold that it does.

    Banterra concedes its actual notice of Peoples Loan 1 and the mortgage securing it. The cross-collateralization clause is conspicuously placed on the first page of the mortgage, discoverable with just a cursory review of the document. Id.

    The clause states expressly that, in addition to Peoples Loan 1, the collateral secured all debts of the grantor to the lender "now existing or hereafter arising."

    Of this Banterra was aware and "from [this] the existence or possibility of a prior claim might reasonably be inferred." Moreover, it is clear that a reasonable investigation would have disclosed this prior claim.[3]
  • The cross-collateralization clause expressly contemplates debts arising in the future, when Debtors may well have paid down some of the initial loan, creating room under the cap. Nothing in the case explains why this entirely plausible scenario (indeed, it is precisely what happened) should be outside the set of possible outcomes considered by anyone reading the document. Because it is self-evident that the parties intended that the amount of indebtedness under the initial loan would be paid down by Debtors over time, we cannot agree that setting the maximum amount of indebtedness equal to the amount of the initial loan "evidence[s] an intent that the mortgage not secure any other debt." Peoples Nationals Bank, 482 B.R. at 264.
  • Finally, as a matter of policy Banterra laments that the position we adopt today will chill lending and commerce, making it more difficult for third-party lenders like Banterra to confidently approve loans secured by property that has been cross-collateralized.

    As a general matter, we should think that prudent lenders would do well to exercise caution before accepting a second mortgage on real property that has been cross-collateralized. But the more salient response to Banterra's concern is that adopting its position will not in any event dispel the chilling effect—it will merely transfer it between the parties.

    A cross-collateralization clause makes a given security interest more valuable to the grantee. The position Banterra urges would reduce that value, shifting it away from the initial grantee and to prospective subsequent grantees.[5] In either case, one lender's incentive to lend is increased, while the other's is reduced. Between the two, however, only one outcome has the virtue of being consistent with the plain contractual language that the parties agreed upon, and we think it more sensible to allow sophisticated parties to contract as they wish. If cross-collateralization clauses are in the end too costly to borrowers, they need not agree to them.
In footnote 3 of the ruling, the appeals court reminds us that the duty to inquire in a case like this is limited to the making of 'reasonable inquiry':
  • It is undisputed that a name search of the Jefferson County land records would have revealed the existence of Peoples Loan 2. Banterra wonders skeptically whether, under Peoples' theory, the investigation required of one put on inquiry notice might entail searching records, not just in Illinois counties, but in every county in neighboring states as well.

    But the law requires reasonable investigation, not endless investigation, and a party allegedly on inquiry notice can rebut the argument by showing that a reasonable investigation did not yield discovery of the relevant information. Jesko v. American-First Title & Trust Co., 603 F.2d 815, 818-19 (10th Cir. 1979); 112 Am. Jur. Proof of Facts 3d 419 § 12 (2013) (collecting cases); 1 PATTON AND PALOMAR ON LAND TITLES § 12 (3d ed. 2012) (collecting cases).

    Ultimately, where to draw that line will be a question for the trier of fact. Here, however, the Bankruptcy Court found, and the parties do not dispute, that the investigation required to have discovered Peoples Loan 2 was within the bounds of reasonableness. See In re Jones, 2011 WL 6140686, *9.

Wednesday, May 29, 2013

Financial Powerhouses Flood Online Tax Lien Auctions With Bids From Tens & Hundreds Of Thousands Of Shell Companies, Driving Away Bona Fide Bidders; Anti-Competitive Practice? Will Somebody Please Call The Antitrust Feds???

In Fort Lauderdale, Florida, the South Florida Sun Sentinel reports:
  • Tax lien auctions are a little-known but juicy Florida financial market worth up to $1 billion a year. And, the Sun Sentinel has found, banks, hedge funds and other financial powerhouses have hit upon a way to game the system, squeeze out the little guy and gobble up most of the good deals.

    "I don't think it's fair; it's rigged," said Linda Kliston, of Plantation, a small-scale investor who, like many others in South Florida, finds she can no longer realistically compete.(1)

    Big banks are widely blamed for sending America's real estate market and economy into a tailspin beginning in 2007, and then receiving billions of dollars in government bailout loans. Now, some of these same financial heavyweights have found another way to turn the system, and Floridians who can't pay their taxes in time, into a profit center.
  • A bank CD might pay 0.26% interest a year these days. Florida tax liens guarantee a return nearly 20 times higher, and can generate annual returns of as much as 18%.

    For decades, these liens were part of some families' or individuals' investment portfolios, with the proceeds used to help fund retirements, vacations, kids' college tuition and other personal expenses.

    Then events coincided to rewrite the script. Uncertainly bred by the Great Recession made the financial returns on liens look extremely attractive to institutional investors, including banks that provide millions of dollars in credit to hedge funds seeking to buy liens. About the same time, tax collectors in Florida started selling the liens online.

    Those online auctions have come to be dominated by large financial institutions, which have dramatically increased their odds of winning by forming thousands, even hundreds of thousands, of proxy or shell companies to flood the auction, giving them a huge edge in tie bids where the winner is chosen by lottery.

    The gambit is legal under Florida law, but some question whether it's fair. The silly or preposterous names often given the dummy companies — "Yay for Tax Liens," "Pork Chop Sandwiches" and "Spiderman Corp." among them — strongly suggest their creators know there's something absurd about the whole process.

    "The majority of the smaller bidders are getting squeezed out or dropping out because they cannot effectively compete," complained Miami real estate agent Murry Diamond, 60, a longtime participant in South Florida tax auctions.

    "I'm one of the people they're driving out," Diamond said.
  • First, under Florida law, all liens are guaranteed to yield at least a 5 percent return to the buyer over the lifetime of the loan. That's even if the bidder won the lien by agreeing to accept only a quarter of 1 percent, the minimum bid allowed under state rules.

    Second, in online auctions, tie bids are broken by a random number generator, a computerized equivalent of how winning numbers are picked in the Florida Lottery.

    The result: big investors now all agree to accept the theoretical minimum return, and swamp the system with simultaneous bids to increase their chances at being picked.

    At first, firms created thousands of shell companies by applying for and receiving taxpayer ID numbers from the Internal Revenue Service. Then tens of thousands.

    Then came what Miami-Dade Tax Collector Fernando Casamayor calls the "nuclear arms race of bidder numbers."

    In Broward County the total of bidders went from 20,351 in 2010 to more than 1.1 million the following year.

    In Palm Beach County, the count zoomed from 64,877 to 2 million.

    In last year's property lien auction, Broward topped 2 million bidders. Five investment funds alone accounted for more than 1.4 million of them.

    Since the winning bid is now usually chosen at random, the process is akin to tossing the bouquet at a wedding with one bridesmaid having hundreds of thousands of proxies on hand to help her grab it.
  • In implementing their strategy for dominating Florida's tax lien market, institutional investors had an unwitting accomplice: the Internal Revenue Service.

    In the online bidding process, Florida counties require that each participant furnish a taxpayer identification number, which is considered adequate proof by local tax collectors that a business exists.

    The IRS issues those numbers at no cost. It's a closely guarded secret as to how certain firms were able to apply for and obtain tens and hundreds of thousands of ID numbers.

    Some in the industry devised an automated method to deluge the IRS with requests.

    "They identified a process that streamlined a common industry practice," said New York tax lien broker Tom McOsker, president of BloxTrade.

    Asked how his company created more than 200,000 sub bidders, each with its own IRS number, LienBase partner Joshua Schrager said: "We just work hard and work long hours."

    Shocked by the sheer volume of companies registering, Summerford said the Florida Tax Collectors Association questioned IRS officials about the firms' legitimacy, but got no response.

    "They were more concerned about simply running out of the numbers," he said.(2)

    The IRS's South Florida office declined to answer questions submitted by the Sun Sentinel about the process. On its web site, however, the government agency warns that taxpayer ID numbers "are issued for the purpose of tax administration and are not intended for participation in any other activities (e.g., tax lien auction or sales, lotteries, etc.)."
  • Last year, Miami-Dade County began requiring $5,000 refundable deposits from all individual bidders before the public sale began. At prior auctions, a deposit was demanded only from the parent company.

    Now, a firm with 450,000 dummy subsidiaries would have to plunk down $2.2 billion.

    Not surprisingly, Miami-Dade experienced a dramatic reduction in the number of bidders participating: from 1.7 million to about 64,400.

    "Is it fair? I don't know. If you have more money, you have more opportunities to register more bidders," said Casamayor, the county tax collector. "But it's as fair as we could have done it."

    Because of the change in IRS policy, even tax ID numbers have become a commodity to be bought and sold. According to Palm Beach County Tax Collector Anne Gannon, companies with a lot of the numbers are known to rent them to other would-be bidders.
For the story, see Sun Sentinel Investigation: Tax lien sharks use shell companies to squeeze out locals.

For a story follow-up, see Broward leaders order review of tax lien auction rules (Action follows Sun Sentinel's finding that system is stacked in favor of banks, hedge funds).

(1) According to the story, Kliston's husband and fellow investor, attorney Todd Kliston, feels that the local tax lien auctions have become unfair playing fields where a single bidder now can raise 200,000 paddles at once. In 2011, the Florida Tax Collectors Association has reportedly urged its members to take action to restore "integrity and fairness" to the system.

The Klistons are reportedly unsure if they will be participating. Over two decades, they reportedly invested in tax liens to save extra funds, helping to put their daughter through college. But now the odds have become very long, perhaps impossibly so, the story states.

"As far as we're concerned, it's illegitimate. It's not an auction anymore," Linda Kliston reportedly said.

(2) It may be that the Florida Tax Collectors Association (or any other interested party, for that matter) should contact the Antitrust Division of the U.S. Department of Justice and file a complaint. The practices described in the story sure sound like a pattern of collusive schemes among a few, big-money tax lien investors that appears to be eliminating bona fide competition at tax lien auctions.

Florida Supremes Kibosh Local Ordinance That Would Have Given Municipal Liens 'Superpriority' Status Over Mortgages, Even If Latter Were Earlier-Recorded

In Tallahassee, Florida, The Florida Current reports:
  • A local Palm Bay ordinance giving municipal liens on property superiority over mortgages was struck down Thursday by the Florida Supreme Court. However, a bill headed to Gov. Rick Scott’s desk could give local governments more power to address municipal liens.

    The court upheld a 5th District Court of Appeal decision nullifying the ordinance, which states that Palm Bay’s liens on a property rank higher than a mortgage lien, even if the mortgage was entered into before the municipal lien. In a 5-2 decision, the court stated state laws preempt such local ordinances.

    “Giving effect to the ordinance superpriority provision would allow a municipality to displace the policy judgment reflected in the Legislature’s enactment of the statutory provisions,” the ruling penned by Justice Charles Canady states. “A more direct conflict with a statute is hard to imagine.”

Flood Insurance Rate Increase To $28K/Year Threatens To Literally Blow Louisiana Family, Neighbors Out Of The Water!

In Bayou Gauche, Louisiana, WWL-TV Channel 4 reports:
  • Being next to the water is one of the pleasures of life in Louisiana. But alarm is spreading over the potential for massive flood insurance hikes.

    "It's my house," said tearful Bayou Gauche homeowner Lisa Taylor. Robert and Lisa Taylor choked back emotion at the potential huge flood insurance rate increase they face, even though they live in a neighborhood that has never flooded.

    "$28,554 and it can only mean one thing – foreclosure and bankruptcy,” Robert Taylor said. "I don't know what we can do," added Lisa, still crying. "We can't afford $28,000 a year."

    Robert Taylor gave 1,100 keys for homes and businesses that could be affected to Sen. David Vitter (R-La.) to take to Washington as area leaders fight the increases.

    "This is going to affect the real estate market, it is going to affect the banking industry," Jefferson Parish President John Young said. "This is un-American and this is something that we cannot stand for," exclaimed St. John Parish President Natalie Robottom. "People will have to abandon their homes, abandon their jobs," Lafourche Parish President Charlotte Randolph warned. "That is criminal," St. Charles Parish President V.J. St. Pierre said. "Losing is not an option with us. We have to be successful in this goal," noted Terrebonne Parish President Michele Claudet. "If nothing is done, it will be devastating, but I think something is going to be done," New Orleans City Council Member James Gray said.
  • Now Louisiana leaders are reaching out to other states to form a national coalition to fight the flood insurance hikes.

Pennsylvania AG, Mobile Home Park Operator Settle Suit Accusing Latter Of Stiffing Booted Residents On Buyout/Relocation Payments Due Under State Manufactured Home Community Rights Act, Violating State UDAP Statute

From the Office of the Pennsylvania Attorney General:
  • Attorney General Kathleen G. Kane announced [] the settlement of a case against Hilltop Mobile Home Park in State College, PA.

    Under the terms of the deal, the owners of the park will pay $26,700 to the Commonwealth. $21,700 will be distributed to residents of the park, and $5,000 will go to the state to pay court costs and attorney's fees. An additional $10,000 will initially be set aside in case other residents file valid claims in the next 30 days, and this additional fund will be supplemented if valid claims exceed the initial set aside.

    In September 2012, the owners of Hilltop announced they would close the mobile home park. However, they did not close it until February 28, 2013. Some of the residents complained to the Office of Attorney General that they were not given payments now required under Pennsylvania law when a park closes.

    Pennsylvania law requires that the owners of manufactured home communities which are closing must pay certain relocation expenses of the manufactured home owners in the community, or make certain payments to them if they are unable or unwilling to relocate their manufactured homes.
For the Pennsylvania AG press release, see Attorney General Kane settles with mobile home park owners.

Go here for:
Thanks to Donald Marritz of the non-profit law firm Regional Housing Legal Services for the heads-up on this litigation.

Tuesday, May 28, 2013

Pastor Who Agreed To Hold Mortgage On $18M Sale Of Church, School, Day Care To Developer Fails To Have Documents Recorded; Winds Up Facing The Boot After Having Entire Property Fraudulently Financed Out From Under Him

In Edmonton, Alberta, CBC News reports:
  • A bad business deal between an evangelical pastor and an accused con man has cost the church’s congregation its church, school and daycare.

    On Friday, a judge ordered the final sale of the Victory Christian Center at 11520 Ellerslie Road. The congregation will have to be out by the end of July.
  • Both the church and a second mortgage holder, Edmonton dentist Ram Singh, will receive nothing from the sale. The first mortgage holder, Romspen Investments, will receive the proceeds of the sale but will still lose about $8 million.

    “This is a difficult case for everyone involved,” Court of Queen’s Bench Justice Juliana Topolniski told the court. “It is difficult for the congregation, the children at the school, for the daycare, and for Dr. Singh.”
  • Court documents show Victory Church pastor Cal Switzer sold the Victory property to developer Kevyn Frederick in August 2008 for $18 million. Frederick transferred the land to a numbered company he controlled but did not register the mortgage, which would have guaranteed the property reverted back to the church if he did not make his payments.(1)

    The documents show Frederick made a down payment of $2.8 million but paid nothing more.

    The property fell into foreclosure and eventually a judicial sale was ordered.

    As part of the original deal, Frederick was supposed to provide the church with land in Leduc for a new church. But documents show he also reneged on that deal.

    Court documents show Switzer inexplicably cut the deal with Frederick on behalf of the church without any independent legal advice.
For more, see Southside church duped by accused con man, sold in forced sale (Church congregation, school and daycare must leave by end of July).

(1) See Edmonton Journal: Web of mortgages left Leduc condo owners, Edmonton church in limbo:
  • The August 2008 deal was supposed to be guaranteed by a mortgage defaulting the land back to the church if something went wrong.

    However, within a few days, Frederick mortgaged half of $12.3 million to Ram Singh, his future partner at Bellavera, and the remainder to his other holdings.

Cincinnati-Area Trio Get Federal Time For Peddling Bogus Sale Leaseback Ripoffs That Left Financially-Strapped Victims Booted From Homes, Unwitting Straw Buyer/Investors Drowning In Debt With Ruined Credit On Artificially Inflated, Underwater Mortgages

In Cincinnati, Ohio, The Enquirer reports:
  • Men from Mason, Monroe and Covington were sent to federal prison for a foreclosure-rescue scheme that left victims facing foreclosure, bankruptcy and ruined credit, authorities say.

    On Thursday, a U.S. District judge in Cincinnati sentenced Adam P. Moellers, 35, of Mason, to three years in prison and sentenced Gary P. Dailey, also known as Gary Klump, 33, of Covington, to a 21-month prison term. A third defendant, Perry Bensick, 37, of Monroe, was previously sentenced to a year in prison.

    Moellers and Besnick each had pleaded guilty to a count of conspiracy; Dailey pleaded guilty to a count of wire fraud, a news release said.

    The men were involved with a company called American Equity Group.

    Here’s how their scheme worked, authorities said: The company approached homeowners facing foreclosure and pledged to find buyers who would allow them to remain in their homes as renters and later repurchase their homes.(1)

    The company promised investors that they could buy a property with no money down, collect rent for a year or two then sell it back to the renter at a profit.

    But “AEG inflated the sale price, put together fraudulent loan applications, and took out extra cash at closing,” the release said. “The renters never purchased the properties back and the investors couldn’t afford to keep them.”

    “As a result, the properties went into foreclosure with even larger loan balances and with investors/borrowers who did not appreciate the risk that they had undertaken,” Assistant U.S. Attorney Timothy Mangan wrote in a court filing.

    The FBI calculated that in 2006 and 2007, the scheme caused losses of $6,849,460 to lenders; the court will decide how much restitution the defendants must pay.

    “The lenders were not the only victims,” Mangan told the court. “For the investors, they typically ended in bankruptcy or with ruined credit in exchange for a rescue plan by AEG that was doomed to fail.”
Source: $6.8M scam leaves trail of foreclosures, bankruptcies.

See also, Four Charged With Running $13 Million Loan Fraud Scheme.

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

San Diego Feds Send Loan Modification Peddler Packing For 57 Months For Ripping Off 120+ Homeowners Out Of $670K+; Probe Into Legitimacy Of Offered Services Triggered When Postal Inspectors Scored 750+ Undeliverable Solicitation Letters In One Month Bearing Non-Existent, Incorrect Return Addresses

From the Office of the U.S. Attorney (San Diego, California):
  • United States Attorney Laura E. Duffy announced that Christian Hidalgo of Chula Vista was sentenced [] to 57 months of custody by District Court Judge William Q. Hayes for a mortgage loan-modification scheme that cheated over 120 people out of over $670,000, and resulted in the loss of many homes to foreclosure. Hidalgo was also ordered to pay full restitution to all of his victims.
  • In order to carry out his fraud, Hidalgo sent hundreds of solicitation letters in which he falsely represented that these businesses were affiliated with the U.S. Department of Housing and Urban Development ("HUD"), and its Home Affordable Modification Program ("HAMP").

    The letters would direct the recipients to contact one of Hidalgo's business entities by telephone, or obtain information from one of the websites he had created to advertise his services. Hidalgo targeted low-income persons in Southern California with Hispanic surnames by obtaining marketing leads with this specific criteria.
  • For his part, Hidalgo spent the victim funds in a variety of ways, including purchasing a BMW, diamond rings, a large-screen television, and firearms. All of these items, were seized by the United States and forfeited as part of Hidalgo's sentence. The items will be sold at auction, with proceeds going to the victims.

    Hidalgo's scheme was discovered after Special Agents from the United States Postal Inspection Service of the Downtown San Diego Station received over 750 undeliverable solicitation letters in April 2011 sent by Hidalgo and associates. The solicitation letters appeared to offer loan modification services and a free consultation regarding HAMP, or another HUD home-loan restructure program.

    Because the letters bore non-existent or incorrect return addresses, Postal Inspection agents began investigating the legitimacy of the offered services. In conjunction with the HUD Office of the Inspector General, agents interviewed hundreds of victims, conducted various searches, and seized property purchased with proceeds obtained pursuant to Hidalgo's fraudulent scheme.

Lawyers' Committee, Pro Bono Counsel Continue Private Enforcement Efforts Against Another Alleged Attorney-Operated Loan Modification Racket

From a recent press release from the Lawyers' Committee for Civil Rights Under Law:
  • The Lawyers' Committee for Civil Rights Under Law (Lawyers' Committee) has filed a lawsuit in Los Angeles County, California against a network of for-profit loan modification companies on behalf of eight California homeowners. The suit alleges that defendants defrauded vulnerable homeowners out of tens of thousands of dollars by falsely promising to obtain—for substantial upfront fees—much-needed mortgage modifications on the homeowners’ behalf, but consistently failing to deliver results. Attorneys in the Los Angeles office of Arnold & Porter LLP are providing pro bono counsel on the case.
  • “The Lawyers’ Committee and our pro bono co-counsel continue our private enforcement efforts to put a stop to scamming operations preying upon distressed homeowners.

    This is our seventh lawsuit nationwide, third in California, alleging attorney involvement in such unlawful schemes,” said Linda Mullenbach, senior counsel for the Fair Housing and Fair Lending Project of the Lawyers’ Committee. “These scamming activities have a devastating effect on vulnerable homeowners who are seeking solutions and, instead, find themselves at a greater risk or foreclosure and in greater financial peril as a result of the deceptive and unlawful conduct.”

    ”Arnold and Porter is pleased to work with the Lawyers’ Committee on this case,” said Ronald Johnston, a senior litigation partner at Arnold & Porter. “Our firm has an extensive history handling pro bono matters in a wide range of areas.”

    The complaint alleges that the loan modification scam in this case is operated by multiple corporate and individual defendants, led by California attorney Jerry A. Stevenson and former mortgage broker David Gomez. The key corporate defendants named are California-based entities Platinum Law Group, Inc., Platinum Law Center, Priority Realty Group, Priority Mortgage Group, Inc., Priority Financial Group, and LaBrea Group LLC.

    The case, Baker, et al. v. Platinum Law Group, et al., was filed in California Superior Court in Los Angeles County and seeks monetary damages, including those related to the illegal upfront fees paid by plaintiffs, and injunctive relief to put a halt to the deceptive practices of the named defendants.

    Baker v. Platinum Law Group is the Lawyers’ Committee’s fourteenth loan modification scam lawsuit filed nationwide and its fifth filed in California.

    As part of the Lawyers’ Committee’s work with the Loan Modification Scam Prevention Network (LMSPN), this litigation effort has sought to put an end to the fraudulent and deceptive behavior of so-called loan modification “specialists” in California, Florida, Georgia and New York. LMSPN is a broad coalition that also includes representatives from key governmental agencies, such as the Federal Trade Commission, the U.S. Department of Housing and Urban Development (HUD), the U.S. Department of Justice, the U.S. Department of the Treasury, the Federal Bureau of Investigation, and the offices of numerous state Attorneys General.

    Since the launch of the national LMSPN database in March 2010 through April 30, 2013, more than 32,000 homeowners nationwide have reported loan modification scams or potential scams that have resulted in total losses of over $78 million. Approximately 6,300 of these reports have been submitted by California homeowners, who have reported losses of over $22 million in fees paid to alleged loan modification scammers.

    Homeowners who believe they have been victims of a scam are encouraged to call 888-995-HOPE (4673) or visit and click the “Report a Scam!” link.