Monday, February 12, 2007

Michigan Federal Judge Orders Return Of Home By Foreclosure Rescue Operator

This post is a follow up on a prior post dated January 2, 2007 titled Foreclosure Rescue Operator Violates Federal Law, State Usury Law.

In an order and accompanying opinion dated this past Friday (2-9-07), a Michigan Federal judge has officially declared the foreclosure rescue arrangement at issue in the case an equitable mortgage, and has ordered the foreclosure rescue operator to reconvey the title to a house back to the homeowner (the original "rescue" transaction took place in June, 2003). In addition, the judge has ordered that the homeowner is:

  • entitled to statutory damages of $2,000 for the rescue operator's failure to comply with the disclosure requirements of the Federal Truth In Lending Act ("TILA"),

  • entitled to additional statutory damages of $2,000 for the rescue operator's failure to respond to the homeowner's notice of rescission, in violation of the TILA,

  • entitled to a rent credit for $6,700 for rent payments paid to the rescue operator on the leaseback agreement for the period of time immediately after the "rescue" transaction was consummated and the time that the homeowner defaulted on the "leaseback",

  • not liable for over $25,000 in "origination fees and other settlement charges" paid on his behalf when the sale leaseback arrangement was consummated.

Implicit in the court order is that the homeowner has obtained the benefit of an interest free loan on the money advanced by the "rescue" operator from the date the initial "foreclosure rescue, sale leaseback" was consummated ( June 11, 2003) until the date of the court order (February 9, 2007), a little over 3 1/2 years.

In addition, the court awarded the operator approximately $6,500 for amounts advanced for property taxes and insurance on behalf of the homeowner, and 7% interest on the equitable mortgage (commencing 2-9-07). The court has given the homeowner 90 days to satisfy the unpaid balance of the court-declared equitable mortgage (approximately $186,000), at which point the "rescue" operator will be free to foreclose on his equitable mortgage.

The amount of attorney's fees that the operator will have to pay to the homeowner's attorney as a result of its losing this case has yet to be determined by the court and, unless the parties reach a settlement on this issue, will be the subject of a future court order.

There is no indication in the record as yet as to whether the operator will appeal this decision.

For the court order and opinion, see

Moore - Summary Judgment Order

Moore - Summary Judgment Opinion

Click here for other Moore v. Cycon court documents in this case. equitable mortgage zebra

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Equitable Mortgage Doctrine In Illinois (Updated)

For those readers interested in information on the equitable mortgage doctrine as applied in Illinois, see:

Equitable Mortgage Doctrine In Illinois - Part 1, and

Equitable Mortgage Doctrine In Illinois - Part 2. equitable mortgage zebra

Sunday, February 11, 2007

One-Time Hero Sentenced In Mortgage Scam

On Wednesday, a Delaware Federal judge sentenced MacDonald P. Taylor to a year and a day in prison for his involvement in a mortgage fraud scam that allowed him and his family to live in several homes rent free for almost three years, according to an article reported on The News Journal's (Wilmington, Delaware) online presence, delawareonline.com. Mr. MacDonald agreed to plea guilty to five fraud counts (out of a ten count indictment) in lieu of going to trial.

Ten years ago in Philadelphia, Mr. MacDonald played a key role in the apprehension and conviction of a murder suspect who was sought in connection with the murder of a 16 year old Philadelphia police officer's son. This fact, along with medical issues, were cited by the judge in sentencing MacDonald to a term below that called for in Federal sentencing guidelines.

For the whole story, including details of MacDonald's heroics in the Philadelphia incident a decade ago, see

One-time hero to serve year in prison
(Man who helped put killers behind bars sentenced in NCCo homes fraud)

For links to the indictment and plea agreement, see Delaware man sentenced to a year and day in mortgage scheme on the Bankruptcy Fraud Resource Center blog.
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State Of Ohio Starts Foreclosure Rescue Fund

The State of Ohio has started a statewide "foreclosure rescue fund" for homeowners behind on their house payments. To find out more, listen to reporter Karen Kasler's reports at WKSU 89.7 radio, a service of Kent State University and Ohio Public Media.
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Saturday, February 10, 2007

The "Double Dirty Dozen" Predatory Mortgage Lending Practices

"Predatory and abusive practices by mortgage lenders and brokers, which impose excessive and unreasonable charges on homeowners, are pervasive and cause serious harm." So says an article appearing on the website of the National Association of Consumer Advocates (NACA).

The article identifies the typical victims of these practices and sets forth a list of over thirty predatory and abusive practices and insider tricks used to dupe homeowners.

To read more of this article written by NACA members, attorneys William Brennan and Patricia Sturdevant, see:

The Double Dirty Dozen Predatory Mortgage Lending Practices (HTML version).
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Ex-Haitian Death Squad Leader Pleads Guilty In NY Mortgage Scam

Emmanuel Constant, 49, pleaded guilty for his role in a "straw buyer" mortgage fraud scam in a Brooklyn, New York state court, according to a Press Release from New York State Attorney General's Office. The investigation was conducted by the office's Organized Crime Task Force.

In the 1990s, Constant was reportedly the head of a notorious Haitian death squad that was supported by Haiti's military dictatorship. For more, see Former Haitian Strongman Pleads Guilty In Massive Mortgage Fraud Scheme.

For an earlier story, see Haitian Death Squad Leader Arrested in US - For Mortgage Fraud.
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Friday, February 09, 2007

Ohio Land Flipper Pleads Guilty In Federal Court

Randall Aaron Davidson, the head of an illegal property flipping operation in Montgomery County, Ohio that involved 350 fraudulently obtained loans, pleaded guilty in Federal Court today to three charges in connection with the scam. The properties were located primarily in the city of Dayton and was called the largest mortgage fraud operation to be prosecuted in Montgomery County. For more, see Mortgage fraud 'ringleader' pleads guilty reported by the Dayton Daily News.

For prior stories on this case, see Dayton Federal Trial Of Property Flippers Postponed, Plea Deals Expected
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Equitable Mortgage Doctrine In Illinois

For those readers interested in information on the equitable mortgage doctrine as applied in Illinois, see Equitable Mortgage Doctrine In Illinois - Part 1. equitable mortgage zebra

Detroit Area Law Enforcement Targeting Deed Theft With Dedicated Units

The Wayne County Deed Fraud Unit has made arrests in two new cases involving a deed scam where homes are sold right out from under the real owners without them knowing about it. The announcement, made yesterday by Wayne County Prosecutor Kym Worthy, is reported by Click On Detroit at ClickOnDetroit.com.

Reportedly, over 100 homeowners in Wayne County have been targeted in this scam where forged documents purporting to transfer title from the true owner to a scammer are recorded with the county's office for recording land records since 2005. These forged records are then used to defraud mortgage lenders out of the loan proceeds from subsequent phony realty transactions. Typically, the true owners only become aware of the scam when they begin receiving collection and legal notices from the mortgage lenders who were duped into making the loans.

Wayne County Sheriffs Office currently has three full time deputies assigned to combat deed fraud, according to Sheriff Warren C. Evans. Victims (and those who know victims) of deed fraud are encouraged to report the incidents to the Wayne County Prosecutor's Office Deed Fraud Hotline at 313-224-5869. To read the article, see New Arrests Made In Deed Scam.

To read of deed theft by forgery problems in the Philadelphia, Pennsylvania area, see:

To read of a Boston area woman who almost had her home sold from underneath her, see: Boston Cops, Feds Sting Alleged Home Thieves.

Go here for other deed theft posts. deed theft zorro

Thursday, February 08, 2007

The "Happy Greek" Restaurant - Home Of The $5.50 Gyro Sandwich (and "Cash Back" Mortgage Fraud Operation?)

A mortgage fraud investigation by the Columbus, Ohio Police Department's Economic Crimes Unit has led to a seizure last week of "computers, mortgage files, counterfeit cash, phony immigration documents and fake driver's licenses, according to affidavits and evidence logs filed in Franklin County Municipal Court." So says an article in The Columbus Dispatch, reported at columbusdispatch.com, which reports that simultaneous searches by investigators were made of the Happy Greek restaurant, a home the restaurant owners share and the apartment of a property appraiser that yielded all of the above listed evidence.

Authorities believe that the Happy Greek owners ran a multimillion dollar "cash back" mortgage fraud ring, involving foreigners buying houses in elite central Ohio neighborhoods, from the restaurant's basement office.

Arrests have yet to be made.

Highlights of the article include reports, claims, or allegations that:
  • People were buying upscale homes for upwards of $250,000 more than the asking price,
  • Home sellers were immediately refunding the extra money (giving the "cash back"),
  • The "cash back" was earmarked on loan documents for home improvements that were never done,
  • Weeks and months later, the newly purchased homes remain vacant,
  • At least four remodeling companies, which existed only on paper to defraud lenders, were controlled by the co-owners of the Happy Greek,
  • Eight deals handled by one title closing agent resulted in $1.4 million being funneled to the phony remodeling companies,
  • The people under suspicion have been described as foreign nationals from the Middle East,
  • A husband and wife, linked to the suspicious deals, reportedly have already fled the country,
  • The Happy Greek owners have reportedly been "relieved of their passports" by authorities.
For the whole story, see Owners ran mortgage scam from Happy Greek, officials say
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Bank Violates Truth In Lending Law; Case To Go Forward As Class Action

A Milwaukee Federal Court judge ruled last month that Chevy Chase Bank violated the Federal Truth in Lending Act, which requires lenders to clearly explain loan terms to borrowers, according to an article in The Washington Post, reported at washingtonpost.com.

The case involved a husband and wife who were misled into refinancing their 5.75% fixed rate loan by signing for a high rate, deferred interest (negative amortization), adjustable rate mortgage that was represented to them as being a 1.95% fixed rate mortgage for the first five years. The 1.95% was merely a "teaser rate" subject to adjustment after one month. It wasn't until after the couple received their first payment coupon for the new loan in the mail that they initially became aware of what they had signed for. A $5,700 prepayment penalty in the mortgage kept them from refinancing into a different loan.

The judge will allow the case to be treated as a class action lawsuit. The bank has filed an appeal.

For the whole story, see: A Fight Over the Fine Print (Chevy Chase Bank Faces Suit Over Adjustable-Rate Mortgages).

See also, Milwaukee Journal Sentinel: Mortgage lawsuit may have big effect (Couple's low interest rate lasted a month).

Dayton Federal Trial Of Property Flippers Postponed, Plea Deals Expected

The federal court "property flipping" trial of four defendants scheduled to begin this past Tuesday in Dayton, Ohio has been postponed. Court officials have announced that the defendants are now expected to forego a trial and instead, agree to plead guilty to some of the charges. To read the article, reported by the Dayton Daily News, at daytondailynews.com, see:

Guilty pleas expected in mortgage fraud trial
(Four defendants are accused in a 14-count indictment involving 350 loans)

For background on this story, see my February 4th post, Dayton Area Task Force Fighting Flipping, and the two links to additional Dayton Daily News articles on this story.
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Wednesday, February 07, 2007

Missouri Feds Get Indictments Of Four In Property Flipping Operation

A Missouri U.S. Attorney announced yesterday the indictments of four St. Louis area individuals in an alleged property flipping scheme, according to a report in the St. Louis Business Journal, reported at bizjournals.com.

The mortgage fraud allegations against the four include wire fraud, mail fraud, and conspiracy to commit fraud. In addition, the indictment also hit the ringleader with four allegations of money laundering. To read more, see Four defendants indicted in 23-count fraud case.
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Chicago Prosecutor Sues "Rescue" Scammer; Fines, Restitution Ordered

In this April, 2006 story, a Cook County judge fined ($250,000) and ordered restitution from ($115,000 to 74 victims) an Illinois man and his company for their activities involving the solicitation of upfront fees from homeowners facing foreclosure in exchange for false promises of saving their homes from forced sale. The court order also permanently banned them from providng services related to residential mortgage loans in Illinois.

This court action resulted from a civil lawsuit brought by the Cook County State's Attorney's Office Consumer Fraud Division charging violations of the Illinois Consumer Fraud and Deceptive Business Practices Act.

(It appears that, for those local county prosecutors' offices that have a consumer fraud section, bringing a civil lawsuit against certain scam artists may be an effective alternative to bringing criminal charges against them. There is no possibility of criminal convictions and jail time in a civil lawsuit; however, fines, restitution, and shutting down the scam operation are still possible. Additionally, the prosecutor's burden of proving wrongdoing is significantly lessened in a civil case than what it would be in a criminal prosecution; a civil lawsuit may be a good route to go if there isn't enough evidence to prove "guilt beyond a reasonable doubt", but enough to prove "liability by a preponderance of the evidence.")

For the whole story, see this Cook County Prosecutor's Press Release, $250,000 Fine Levied Against Fraudulent Foreclosure "Rescue" Business.
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Equitable Mortgage Defense In A Homeowner - Tenant Eviction

The use of an "equitable mortgage" defense in an eviction where a party was being evicted from a property to which the party claimed ownership of pursuant to the equitable mortgage doctrine (the transaction was that of a purported "sale" of the property followed by a subsequent purported "leaseback" arrangement) was involved in two recent cases. To read more, see

Tuesday, February 06, 2007

Unwitting Homeowner Facing Foreclosure Signs Over Home

A recent news report on WRC-TV Channel 4 in Washington, D.C. warns of foreclosure rescue operators, and interviews one woman who fell prey to a local scammer. Click here to watch the news report, by NBC4 consumer reporter Liz Crenshaw.
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Appraiser 'Lands' 42 Month Sentence In Property Flipping Scam

An appraiser, part of a group of ten people initially hauled in by cops for their roles in a multimillion-dollar property flipping scam located primarily in Madison County, was sentenced in a Mississippi Federal Court to 42 months in prison yesterday. Five others were sentenced in December. For the whole report, found in The Clarion-Ledger, at clarionledger.com, see Man receives 42 months in prison in mortgage fraud scheme.

For another Mississippi "flipping crew" recently sentenced in Federal Court, see Five "Flippers" Sentenced For Fraud By Federal Judge.
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Alleged Funds Mismanagement Results In Sale Of Elderly Man's Homes

A son who, along with his wife, were trusted to care for his Alzheimers-stricken father, have been accused in a civil lawsuit of depleting the elder man's assets on spending for their own personal benefit. They have also been accused of attempting to place claims of lien on the elderly man's residence and vacation home after his funds were depleted. The total amount depleted is estimated at close to $200,000. A court-appointed guardian ultimately sold the residence and second home to cover the ill man's expenses. Reportedly, there is $12,000 left from the sale proceeds which, once depleted, will leave the elderly man dependent on the State of Washington for support. For the whole story, reported by The Daily News Online (Longview, Washington), see:

Did couple take advantage of father?
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"Cash Back" Mortgage Fraudsters Target Home Sellers In Weak Markets

Home sellers having a rough time in finding a buyer for their home are targets of unscrupulous loan originators for "cash back" scams, according to an article in New York House, reported at UpstateHouse.com.

The article speculates that mortgage lenders who originate these loans are co-perpetrators in the fraud, and because they don't hold the loans (the loans are sold to wholesale lenders, and then to the ultimate holders, who are likely to be investors in mortgage-backed securities), they don't take the risk of default and foreclosure.

While loan originators who sell loans in the secondary market can be required to repurchase loans that go into default within a certain time period after the loan closes, the article posits "[t]he ringleader protects the [originating] lender against buybacks by selecting borrowers who can carry the payment with the help of [a] supplement [a cash set-aside derived from the fraudulently obtained funds]. So long as the supplement lasts, which will be one to two years, the likelihood of default is low."

The expectation apparently is that by the time the cash set-aside is depleted, the loan originator's "buy back" period for the fraudulently procured loan will have expired.

To read more, see:

$750K mortgage fraud too sweet to pass up
(Sellers without any purchase offers are most likely to participate)

written by Jack Guttentag.
(revised 9:12 am)
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