Thursday, July 30, 2009

Lenders, Mortgage Servicers Continue To Force Borrowers To Waive Legal Rights As Part Of Loan Modification Process

The Washington Independent reports:
  • Even as the Obama administration presses the lending industry to get more mortgage loans modified, the practice of forcing borrowers to sign away their legal rights in order to get their loans reworked is a tactic that some servicers just won’t give up on. Waivers requiring borrowers to give up any legal claims related to their mortgages, even in cases where borrowers may be victims of predatory lending, are showing up sporadically in loan modification agreements under the Obama administration’s Making Home Affordable plan, consumer attorneys say. They were stunned to find the legal waivers still being used, despite more than a year of efforts – including calls from lawmakers – to get rid of them.

  • It was shocking to see that people are still being asked to waive their legal rights,” said Bruce Dorpalen, national director of housing counseling for ACORN Housing Corp. “I mean, this should be abolished. It’s incredible that it’s still in there.” [...] The Treasury Department’s published guidelines for the $75 billion taxpayer funded program specifically prohibit the waivers. Mortgage giants Fannie Mae and Freddie Mac removed the waivers from their standard loan modification agreements earlier this year. But Diane Thompson, an attorney with the National Consumer Law Center, said she has seen legal waivers resurface in loan modification agreements by Aurora Loan Services, Ocwen Financial Corp., and other firms. She also is getting complaints about waivers in Bank of America agreements. “The waivers continue to be an issue,” Thompson said.(1)

For more, see Loan Servicers Work the Fine Print in Obama Foreclosure Plan (A Year After Calls for Reform, Borrowers Still Forced to Waive Legal Rights for Loan Modifications).

(1) It may be time for the Obama administration to stop throwing money at the lenders and servicers for loan modification programs and redirect the cash towards establishing and supporting foreclosure defense programs for financially strapped homeowners the way Florida Attorney General Bill McCollum recently did. See Attorney General Launches Multi-Million Dollar Grant Program for Foreclosure Defense Assistance (The Florida Bar Foundation will help administer $4 million in grants to legal services applicants).

The thought of having to deal with "producing the notes," and otherwise establishing proper legal standing to initiate foreclosures, as well as addressing allegations of fraud and violations of the applicable consumer protection laws is sure to get the attention of the mortgage industry, in my view. After all, why else are the loan servicers so intent on getting homeowners to waive their legal rights?

Lust For Late Fees Keeping Mortgage Servcing Companies From Making Loan Modifications?

The New York Times reports on what many industry insiders are saying as the real reason mortgage servicers are dragging their feet on modifying delinquent home loans:
  • [I]ndustry insiders and legal experts say the limited capacity of mortgage companies is not the primary factor impeding the government’s $75 billion program to prevent foreclosures. Instead, it is that many mortgage companies are reluctant to give strapped homeowners a break because the companies collect lucrative fees on delinquent loans.

  • Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue — fees for insurance, appraisals, title searches and legal services.

  • It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen,” said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who worked in the law department of a major mortgage company, Ocwen Financial. “I don’t think they’re motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It’s a license to do whatever they want.”

***

  • The rules by which servicers are reimbursed for expenses may provide a perverse incentive to foreclose rather than modify,” concluded a recent paper published by the Federal Reserve Bank of Boston.(1)

For more, see Lucrative Fees May Deter Efforts to Alter Loans.

Foreclosure Rescue Bailout Schemers Are "Opportunistic Thieves" Says NJ FBI Agent As Charges Are Filed Against Equity Stripping, Straw Buyer Operation

From the Office of the Federal Bureau of Investigation: (Newark, New Jersey):
  • FBI Special Agent In Charge Weysan Dun announced [Monday] the arrest of Daniel Verdia, Don Apolito, Jaye Miller, and Chrystal Paling (all on Tuesday, July 21), as well as the surrender of Robert Gorman and Philip Blanch (on Friday, July 24)—all in connection with a mortgage fraud scam(1) operated out of an office in Hasbrouck Heights, New Jersey. All of the arrests occurred without incident. The six defendants are each charged with one count of wire fraud, in a joint investigation between the FBI and IRS titled “Operation Follow The Money.(2)

***

  • The following outline is based on allegations made in the criminal complaint. In the simplest terms, a victim home owner [...] was convinced by one of the defendants named above to either sell or refinance his or her home through Monarch Mortgage Services, LLC as part of a foreclosure bailout scheme. The defendants then recruited a straw buyer who was promised a sum of $5,000 for his or her participation. The defendants explained to the straw buyer that the original owner would repurchase the home after a short period of time when the owner had recovered from financial difficulties. The defendants also told the straw buyers that the mortgage payments for the newly purchased properties would be paid by Monarch. The defendants then falsified the financial information in the paperwork associated with the transaction.

***

  • Once the loans were approved, the mortgage lenders wired funds to Blanch’s attorney trust account. At Blanch’s direction, Palings, would then wire all or most of the proceeds to CIS as a fee or payment. In the end, three of the victim homeowners received no compensation whatsoever for the sale of their homes. Furthermore, one of those three victims suffering financial hardship was lead to believe he was refinancing his home when in reality, he sold it for a 100% loss. The other two victims received a fraction of the money they were legitimately owed. The defendants, however, all received financial compensation for each of the five transactions. None of the resulting mortgages from these five transactions were ever paid and all of them went into default. The total fraud in these five transactions is estimated at $1 million.

For the entire FBI press release, see Six Mortgage Industry Insiders Charged by FBI and IRS.

(1) According to the press release, the alleged scam was perpetrated in two phases. The first phase involved misrepresenting to the buyers and sellers the terms of the mortgage financing the purchase, the disbursements of the mortgage proceeds, and the source of the proceeds to pay off the mortgages, among other details. The second phase of the fraud involved falsifying information on the mortgage loan applications—namely the income and assets of the purchasers on the loans, the source of the down payments on new purchases, and the disbursements of cash related to the mortgage proceeds. The defendants allegedly accomplished their misdeeds through numerous interstate wire transfers.

(2)Those who are engaged in foreclosure bailout schemes are opportunistic thieves,” said FBI Special Agent In Charge Weysan Dun. “The defendants in this matter are charged with preying on the financially weak and desperate, our lending industry, and ultimately the taxpayers. To swindle people out of the roofs over their heads is just deplorable. But we will continue working with our partners in uncovering these schemes, bringing the fraudsters to justice, and educating the public.”

Court Stalls Eviction Of Elderly Chicago Woman Victimized In Sale Leaseback, Foreclosure Rescue Ripoff While She Fights To Recover Home

In Chicago, Illinois, WLS-TV Channel 7 reports:
  • A 75-year-old Chicago woman will be allowed to stay in her South Side home - at least for now. Lessie Town's bungalow is threatened by foreclosure. Towns and others say she is the innocent victim of mortgage rescue fraud. Lessie Towns will be able to stay - for now - in her South Side home of 40 years.

  • Four years ago, Ms Towns, who is 75, was facing foreclosure, and she signed what she thought was a refinancing agreement to keep her home. In reality, the papers she signed authorized the sale of her home.(1) [...] Towns continued to live in what she thought was her home even though it had been sold, not once, but twice. "Ms. Towns home was sold for a fraction of its value and the cost was jacked up and sold to another person and the person in the middle collected all that windfall. This was a classic mortgage rescue scheme," said Brent Adams, Illinois Department of Financial and Professional Regulations.

  • Facing possible eviction, Lessie Towns won a small victory in court on Tuesday. The foreclosure action against her will continue, but she'll be allowed to stay in her home while she attempts to prove she did not know she was selling her home when she signed her name four years ago. [...] Ms. Towns still faces what her attorney concedes is a serious challenge. For Ms. Towns bears the burden of proving to the court that she didn't know she was selling her home.(2)

  • No criminal charges have been filed in this case though the department of finance and professional regulation and the attorney general's office are investigating over a dozen similar cases involving the same lender.

For the story, see Woman allegedly swindled out of home allowed to stay.

For an earlier story on this case, see Chicago owner loses home in mortgage scam.

(1) Of the foreclosure rescue operator that ripped off her client, Sabrina Herrell, Towns' attorney, said "I think they understood that she doesn't understand certain terminology and they used that to their advantage to get what they wanted."

(2) Any attempt to successfully void both her unwitting title transfer to the straw buyer and any subsequent title transfers (and any mortgage liens created incident thereto) to subsequent purchasers and encumbrancers could turn on whether the subsequent purchasers and encumbrancers can be charged with inquiry notice of the alleged fraud and/or any other unrecorded rights (ie. equitable mortgage) the scammed homeowners can establish that they had at the time of the relevant conveyances.

Under Illinois law, the continued open and visible possession of the home by the scammed homeowners after being duped by the foreclosure rescue operator may be sufficient to charge those subsequently acquiring title and security interests in the home with notice of the fraud, and thereby disqualifying them from bona fide purchaser status. An Illinois appeals court ruling in Life Savings & Loan Association v. Bryant, 125 Ill. App. 3d 1012, 81 Ill. Dec. 577, 467 N.E.2d 277 (1st Dist. 1984) addresses this point:

  • Illinois courts have uniformly held that the actual occupation of land is equivalent to the recording of the instrument under which the occupant claims interest in the property. (Bullard v. Turner (1934), 357 Ill. 279, 192 N.E. 223; Beals v. Cryer (1981), 99 Ill. App. 3d 842, 426 N.E.2d 253). The open and visible possession of land by the equitable owner is sufficient to charge a mortgagee with notice of the rights of such owner, and the mortgagee will take subject to the rights of the person in possession. Williams v. Spitzer (1903), 203 Ill. 505, 68 N.E. 49.

Likewise, citing heavily to the Illinois state case law, a Federal bankruptcy court in In re Cutty's-Gurnee, Inc., 133 B.R. 934 (Bankr. N.D. Ill. 1991) made this observation on the effect of continued possession on subsequent purchasers and encumbrancers:

  • It is clear that where a physical inspection of the property would reveal an adverse interest or where there is a party in possession other than the record title owner, the subsequent lien claimant has a duty to inquire of the possessor as to his interest and is charged with knowledge of the facts discoverable from such an inquiry or inspection. Miller [v. Bullington], 381 Ill. [238] at 244, 44 N.E.2d [850] at 853; Burnex Oil Co. v. Floyd, 106 Ill. App. 2d 16, 23, 245 N.E.2d 539, 544 (1st Dist. 1969); In re Ehrlich, 59 Bankr. 646, 650 (Bankr. N.D. Ill. 1986).

Go here for more on the effect of continued possesion on bona fide purchaser/encumbrancer in Illinois.

For cases that support the proposition that possession of real estate by one other than the seller is enough to trigger this imposition of the duty to inquire as to possible unrecorded rights of the possessor, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.

Schumer To Private-Equity Landlord That Abandoned 19 Bronx Buildings: "You Are The Lowest Of The Low!" - Also Slams Fannie For Facillitating Bad Deals

In The Bronx, New York, the New York Daily News reports:
  • The vultures are coming home to roost. Affordable housing advocates sounded the alarm during the real estate boom, as private equity firms bought up dozens of rent-controlled buildings across the Bronx. The advocates warned the investment firms would seek to maximize their returns by pushing existing tenants out and jacking up rents. After the boom went bust, an even worse effect of "predatory equity" came to light: Overleveraged landlords are simply abandoning their buildings altogether.

  • Last week, Sen. Chuck Schumer, joined by Rep. Jose Serrano and Borough President Ruben Diaz Jr., came to 1804 Weeks Ave. to support its tenants, who were abandoned by their landlord, Ocelot Capital Group.

  • "You are the lowest of the low. You are vultures preying on these tenants," Schumer said of Ocelot, which has abandoned 19 Bronx apartment buildings to disrepair and foreclosure. Schumer also slammed Fannie Mae, the government-backed mortgage broker, for facilitating Ocelot's original overleveraged loan and then planning to sell the foreclosed buildings in an online auction, which Schumer called an invitation to more speculators. [...] Schumer pointed out the original Ocelot mortgages did not even meet Fannie Mae's own criteria.

***

  • According to tenant advocates, Ocelot's 19 buildings have a total of 2,000 C violations - the most life-threatening kind - including broken locks, broken windows and ceiling holes.

For the story, see Tenants stuck in dilapidated buildings as landlords flee.

Click here to see a slideshow of conditions at one building.

In related stories, see:

  • City Limits: How To Structure A Good Purchase Of Bad Debt (As a group of decrepit buildings in the Bronx moves closer to getting a new owner, housing officials, developers and activists negotiate the best way to obtain reliable management),
  • Crain's New York Business: Fannie Mae urged to abandon Bronx mortgage auction (Sen. Schumer, housing advocates demand that Fannie Mae halt an online auction of mortgages on 19 foreclosed Bronx buildings). Overleveraged NYC Buildings

West Virginia Woman Accuses Ex-Fiance Of Swiping Her Interest In Real Property Through Forgery, Then Pledging It As Collateral For Mortgage Loan

In Ripley, West Virginia, The West Virginia Record reports:
  • The ex-fiancee of a Charleston businessman says she never really was his fiancee, and before he claims any interest on property they own in Jackson County, he needs to account for an alleged slight-of-hand he pulled on another piece of property they own in Kanawha County.

***

  • In addition to answering [her ex-boyfriend's Donald L. Tate's] complaint, [Annetta S.] Fields filed a counter-claim against Tate. In it, she alleges he fraudulently gained sole possession of a piece of real estate they jointly owned in Charleston. Her counter-claim alleges she and Tate bought property [...] in Charleston [...] on Aug. 14, 2007. Records show they paid $40,000 for it.

***

  • About a year after they bought the property, records show it was sold again on Sept. 22. However, this time Fields alleges it was done without her knowledge or consent. According to her counter-claim, Fields alleges she was "divested of her ownership in the property by a conveyance to [Tate] of all her right, title and interest…for less then One Hundred Dollars ($100) consideration." The new deed, which also is included as an exhibit, showing her transferring sole ownership to Tate, is "a forgery and a fraud," Fields alleges, since she "never authorized any individual to sign her name to the deed." Fields avers that "her name is misspelled" and she "only became aware of the deed recently after it was discovered by a third party." According to Fields, the new deed "was signed after the parties were no longer purportedly engaged."

  • Furthermore, Fields alleges she was informed that Tate used the [...] property as collateral for a loan to acquire [a car] dealership in Ripley. [...] In addition to never consenting to the conveyance, Fields maintains she "never consented to the pledge of this property as security of a loan of such purpose at any time." Tate's "fraudulent conduct," Fields alleges, has "unjustly and unlawfully deprived of her valuable property."

For the story, see Ex-fiancee files counter-claim against Tate. DeedContraTheft

Soon-To-Be Ex-Real Estate Agent Cops Plea To Forging Name Of Unwitting Victim On Loan Documents To Acquire & Finance Home Purchase

In San Bernardino, California, the Contra Costa Times reports:
  • Chino Hills real estate agent who forged more than $900,000 in loan documents to purchase a home pleaded guilty to two felonies Friday in San Bernardino Superior Court. As part of a plea bargain reached with prosecutors, Anita Andres Mendoza, 44, will be sentenced to 90 days in jail and be placed on probation for three years, Deputy District Attorney Vance Welch said. She will be required to pay back $180,000 lost by a mortgage company victimized in her scheme, Welch said.

***

  • The forgery was discovered when a lending institution contacted the woman whose signature Mendoza allegedly forged. Welch said that prosecutors offered Mendoza a relatively lenient plea bargain because she confessed completely when contacted by investigators. [...] Welch said that because of her convictions, Mendoza will likely lose her real estate license.

For the story, see Chino Hills woman pleads guilty to forging home loans.

Wednesday, July 29, 2009

Frank Threatens To "Cramdown" Lenders, Mortgage Servicers For Foot-Dragging On Loan Modifications

The Associated Press reports:
  • A senior House Democrat threatened banks Wednesday that if they don't volunteer to save more homeowners from foreclosure, Congress will make them. In a sternly worded statement, Rep. Barney Frank said Congress will revive legislation that would let bankruptcy judges write down a person's monthly mortgage payment if the number of loan modifications remain low. Frank, chairman of the House Financial Services Committee, also said his committee won't consider legislation to help banks lend unless there is a "significant increase" in mortgage modifications. Frank's statement was aimed at adding momentum to a deal struck Tuesday between Treasury Secretary Timothy Geithner and more than two dozen mortgage companies. The two sides agreed to set the goal of adjusting 500,000 loans by Nov. 1.

***

  • "People in the servicing industry and in the broader financial industry must understand that if this last effort to produce significant modifications fails, the argument for reviving the bankruptcy option will be extremely strong, and I think there is a substantial chance that the outcome will be different," Frank said.

For more, see Frank threatens banks to stop foreclosures.

Florida AG To Make $4M Available To In-State Non-Profit Legal Services Firms For New Foreclosure Defense Assistance Program

From the Office of the Florida Attorney General:
  • Attorney General Bill McCollum and The Florida Bar Foundation [Tuesday] announced a new foreclosure defense assistance program, funded by money obtained by the Attorney General through a settlement with Countrywide Financial. A total of $4 million will be available over two years to fund additional lawyer and paralegal positions devoted to providing free assistance to homeowners facing foreclosures who cannot afford legal defense. [...] The funds are being distributed through The Florida Bar Foundation in the form of annual grants awarded to non-profit organizations that have their applications approved. The grants will vary in size depending on the number of foreclosures experienced in a particular area. A total of $2 million is available for distribution this year, and another $2 million will be available next year.

For more, see Attorney General Launches Multi-Million Dollar Grant Program for Foreclosure Defense Assistance (The Florida Bar Foundation will help administer $4 million in grants to legal services applicants).

Admistration, Mortgage Servicers Meet; Agree To Increase Pace Of Loan Modifications

Bloomberg News reports:
  • Mortgage servicers meeting with Obama administration officials pledged to step up the pace of loan modifications, according to the U.S. Treasury. “With over 200,000 trial loan modifications already under way, we are on track to meet our goals,” Treasury Secretary Timothy Geithner said in a statement today. “Still, too many homeowners are at risk of foreclosure right now. Today’s meeting was an opportunity to identify ways to accelerate the program and bring relief faster.” The administration is setting a goal of beginning at least 500,000 trial modifications by Nov. 1, according to the statement.

For more, see Mortgage Servicers Pledge to Step Up Pace of Loan Modifications.

Change In Arizona Foreclosure "Anti-Deficiency" Law Has Homeowner Advocates Howling

In Phoenix, Arizona, The Arizona Republic reports:
  • A new law passed by the Arizona Legislature that makes homeowners liable for tens of thousands of dollars on homes lost to foreclosure is now the focus of an intense repeal battle. An amendment to the state's foreclosure laws, passed in the recent legislative session, was designed to protect small community banks from people buying speculative new homes they can't sell for a profit.

***

  • Real-estate lobbyists and attorneys for homeowners are working to have the law repealed before the Legislature adjourns after completing its work on the budget. Banks are pushing hard to keep the amendment in place. If the new rules stand, they go into effect Sept. 30.

***

  • The amendment was made to the state's anti-deficiency law, passed in the mid-1980s, which kept lenders from recovering anything more than the home on a typical residential foreclosure.(1) About two dozen states have anti-deficiency laws. Some small speculators have been using the anti-deficiency law to protect their other assets. Under the new law, a homeowner must live in a house for six consecutive months to establish residency and to be covered by the anti-deficiency law. Homeowners who lose a home to foreclosure, and who fail to meet the six-month residency requirement, will be liable for the difference between the foreclosure sale price and the original loan. For example, if a lender forecloses on a home with a $400,000 mortgage balance and can only resell the home for $200,000, then the borrower still will owe the lender $200,000.

For the story, see New law triggers fear for housing (It holds some owners liable for debt, even in foreclosure).

In a related story, see Realtors target foreclosure law.

(1) Arizona law, A.R.S. § 33-729(A), generally prohibits a lender from obtaining a deficiency judgment against an Arizona homeowner if the mortgage secured by the home was obtained to purchase the home (as opposed to a mortgage refinancing).

California AG Continues Assault On Loan Mod Rackets; Exposes Outfit Said To Be A "Well-Appointed Boiler Room" Operation Holding Itself Out As Law Firm

In Los Angeles, California, Legal Newsline reports on H.E. Servicing Inc., a loan modification company that was sued last week jointly by the Federal Trade Commission and the Attorneys General for the states of California and Missouri . The outfit is accused of using aggressive telemarketing tactics to swindle homeowners out of thousands of dollars, and is briefly described below in the following excerpt from a report prepared by a court-appointed receiver:

  • A court appointed receiver said the following: "Even if most of the deceptive sales practices could be cured, this is not a lawful advance fee loan modification business. It is not operated and managed by a lawyer or a properly licensed DRE broker. It is a phone sales operation selling unlicensed loan modification services with more than 80 percent of its clients residing outside of California. I see this business as a high-pressure, cash-up-front telephone sales business targeting distressed homeowners. The Sales Department is essentially a well-appointed telephone boiler room with phone cubicles for 44 sales people- 'counselors'- and separate offices or stations for 3 on-site managers."

  • The company had about 60 employees who screened 500 calls per day, in a twelve hour shift. Commission for a fully paid sale was approximately $450 with an extra $25 when consumer paid by debit or wire transfer. Sales people told homeowners that the company successfully helped 10,000 homeowners, when in reality of the 2,960 loan modifications filed only 311 were completed.

***

  • Homeowners are said to have believed they were hiring a law firm but in reality they were hiring a money-making machine, the attorney general's office said. In the first 6 months of 2009 they had a net income of $4.5 million.

For the story, see Brown sues loan modification firm.

For more from the California AG on this company, see:

Contempt Charges, Loss Of Lien Status Among Proposed Penalties For Foreclosing Lenders Leaving Ohio Homes In Legal Limbo

In Cleveland, Ohio, an editorial in The Cleveland Plain Dealer comments on the practice known as the "bank walkaway," wherein a lender, after getting a foreclosure decree in court, decides against actually having a foreclosure sale and avoids taking title to the home, leaving it in legal limbo (and technically, still in the financially strapped homeowner's name):(1)
  • No one knows precisely how many properties "bank walkaway" lenders have left hanging, but worrisome signs suggest that a problem that has festered too long may be growing. Fortunately, the skullduggery has caught the attention of a[n] [Ohio] state legislator and a local judge.

  • Rep. Dennis Murray, a Sandusky Democrat, is working on legislation that would require banks to take foreclosed properties to sheriff's sale quickly or lose their mortgage liens. Closer to home, Cuyahoga County Common Pleas Judge Nancy Margaret Russo is requiring that banks granted foreclosure decrees in her courtroom file the paperwork for sheriff's sale in about 30 days or face a contempt charge.

For the editorial, see Shorten the leash that ties lenders to foreclosed properties.

(1) "Bank walkaways" typically occur when the fixed-up value of a foreclosed (usually vacant and abandoned) property is less than what it would cost to fix up; or, in the case of a home that has to be demolished, the cost of demolition exceeds the current value of the property.

Florida AG Suit Targeting Loan Modification Group Includes Allegations Of Unauthorized Practice Of Law, "Running & Capping"

In a recent lawsuit (among others) brought by the Office of the Florida Attorney General against a South Florida group peddling loan modification services, allegations of unauthorized practice of law and "running and capping," (ie. the practice of non-attorneys hustling up business for an attorney) have been made in the complaint against the operators.

In State of Florida v. FHA All Day.com Inc., et al.,(1) the Florida Attorney General makes the following charges, which are alleged to be in violation of the Florida Deceptive and Unfair Trade Practices Act:

  • Defendants engaged or otherwise involved and/or compensated Florida licensed attorneys, to provide legal services to the homeowner clients of the Defendants,

  • Defendants' business in offering legal services to the public directly, or indirectly through Florida licensed attorneys which Defendants engage or otherwise involve and/or
    compensate, constitutes the unauthorized practice of law in accordance with the principles of the Florida Supreme Court pursuant to The Florida Bar v. Consolidated Business and Legal Forms, Inc., 386 So.2d 797 (1980),

  • Defendants solicited, advertised or otherwise offered legal services to Florida homeowners for mortgage foreclosure defense and/or foreclosure-related rescue services,

  • Defendants' business includes, but is not limited to, procuring agreements and payments from homeowners for attorneys to render legal services to homeowners for mortgage foreclosure defense and/or foreclosure-related rescue services,

See Florida AG Lawsuit, paragraphs 37 through 44.

(1) Other defendants: Jason Vitulano, Safety Financial Services, Inc., Housing Assistance Law Center, and Housing Assistance Now. UnauthPractOfLawTheta

Tuesday, July 28, 2009

Advocacy Group Files Federal Suit Seeking To Halt Home Foreclosures In Minnesota; Says New Law Lacks Proper Notice & Appeal Provisions

In Minneapolis, Minnesota, The Associated Press reports:
  • A federal lawsuit seeks to block all home foreclosures in Minnesota. The lawsuit was filed in federal court in Minneapolis on Tuesday. It says a new federal program that's meant to help struggling homeowners refinance their mortgages fails to give them proper notice of why they've been rejected, or the right to appeal. [...] Mark Ireland, an attorney with the Foreclosure Law Relief Project, said the government has failed to establish the procedures needed to ensure the fair and uniform administration of the program.

For more, see Lawsuit Seeks to Block Home Foreclosures in Minn.

For more on this case from the Foreclosure Relief Law Project, a program of the Housing Preservation Project in St. Paul Minnesota:

Foreclosing Better Than Loan Modifications For Banks?

The Washington Post reports:
  • Government initiatives to stem the country's mounting foreclosures are hampered because banks and other lenders in many cases have more financial incentive to let borrowers lose their homes than to work out settlements, some economists have concluded. Policymakers often say it's a good deal for lenders to cut borrowers a break on mortgage payments to keep them in their homes. But, according to researchers and industry experts, foreclosing can be more profitable.

For more, see Foreclosures Often Better Deals for Banks (Despite Government Incentives, Lenders Have Financial Reason to Let Borrowers Lose Homes Rather Than Modify).

Questionable Short Sale Services Alleged By California AG In Recent Suit Against Group Accused Of Squeezing Homeowners For Upfront Fees For Loan Mods

A recent lawsuit brought by the Office of the California Attorney General against a loan modification group lays out how the operation (herein referred to as "Defendants") allegedly screws financially distressed homeowners by entering into agreements with them to modify their loans with their lender in exchange for upfront fees, and then turns around and allegedly sells its "short sale services" to the homeowners' lenders to market the homes, thereby straddling both sides of the deal (see Lawsuit, paragraphs 58-59):
  • Consumers retain Defendants to be their negotiator and advisor during the loan modification process. Defendants then use information provided by their customers to market their real estate services to lenders. Defendants advertised to their own customers’ lenders that, on average, it would take eight months before lenders could sell their clients’ homes. This pitch is not meant to advantage the customer; rather, Defendants mean to highlight their "retail auction" services to lenders, whereby Defendants act as the lenders’ agent in a short sale of their customers’ homes. Defendants assure the lenders that Defendants could short sell their customers’ homes in 45 days or less. By exploiting their trusted position with their customers and their inside information about their customers’ financial circumstances, Defendants attempt to use this information for the benefit of themselves and the lenders, and to the extreme detriment of their customers. [...] By offering to be the lenders’ agent to short sale their customers’ homes while purporting to act as their customers’ agent in loan modification, Defendants violated their fiduciary duties to their customers.(1)

For the entire lawsuit, see People v. Home Relief Services LLC, et al.(2)

(1) The California AG's lawsuit does not contain any allegations of the practice, believed to be questionable by some observers, of "short sale flipping," in which a real estate operator (and his/her confederates) conceals the full price of a sale to the ultimate homebuyer/end user from the lender so that he/she can pocket the difference, typically accomplished by using option contracts and back-to-back closings.

(2) Other defendants: The Diener Law Firm, Golden State Funding, Inc., Payment Relief Services, Inc., Christopher L. Diener, Kathleen Marrero-Davis,Terence Green Sr., Stefano Marrero, Maya Burrell Marrero, Ronald C. Specter, Kenneth Buhler. AG Brown seeks $10 million in civil penalties, full restitution for victims, and a permanent injunction).

Georgia Woman With 30-Year "Lease Purchase" Agreement Seeks To Invoke New Federal Law Protecting Homeowners From Foreclosure Eviction

In Dalton, Georgia, the Times Free Press reports:
  • When April Arrieta signed a 30-year lease-purchase agreement for a house in November 2008, she thought her family was finally home. "I told my kids we won't ever have to move again," she said. But at the beginning of June, the mother of five learned that First Georgia Banking Co. had foreclosed on her 4.5-acre property, owned by Paniagua Construction. In just a few days, the bank sent letters telling Mrs. Arrieta and her neighbor, Norma Morales, who had a similar lease-purchase arrangement with Paniagua, that they had to move soon.

  • Cynthia Gibson, managing attorney for Georgia Legal Services' Dalton office, said both families may be protected by a new federal law aimed at protecting renters during foreclosure.(1) She said the women should be able to stay in their homes until their leases expire. Mrs. Arrieta has a 30-year lease and Mrs. Morales' is for one year.

  • The federal law trumps Georgia law, which holds that a foreclosure ends a lease and tenants can be told to leave immediately, Ms. Gibson said. Bill Bell Jr., attorney for First Georgia Banking Co., said he doesn't think the U.S. Constitution gives federal law the power to govern contracts.

***

  • Ms. Gibson said she'd defend the women based on the new law. [...] There are probably more people in the same boat as Mrs. Arrieta and Mrs. Morales, Ms. Gibson said, but most renters don't yet know about the new law. "To tenants out there, if you get this letter, don't just get out," she said. "You have rights. Contact local legal aid or an attorney."

For the story, see Dalton cases test law protecting renters against foreclosure.

(1) The new Federal law, which applies to foreclosure eviction situations throughout the United States, is known as the Protecting Tenants At Foreclosure Act of 2009, which is found at Title VII of the Helping Families Save Their Homes Act of 2009. According to the new law:

  • It is effective on foreclosures after May 20, 2009,
  • It applies to bona fide leases entered into before notice of foreclosure,
  • Tenants can occupy premises until the end of the lease, unless the purchaser will use the property as a primary residence, in which case the lease can be terminated with 90-day notice,
  • Those without leases must be given a 90-day notice,
  • The law expires on Dec. 31, 2012.

Loan Modification Firms, Foreclosure Rescue Operators Show Little Interest In Complying With Licensing Requirements Under New Nevada Law

In Las Vegas, Nevada, the Las Vegas Review Journal reports:
  • Mortgage modification and foreclosure consultants are showing little interest in complying with a new Nevada law that requires them to obtain licenses. The law took effect on July 1, and Gov. Jim Gibbons issued emergency regulations for licensing on July 8. The Mortgage Lending Division gave consultants in the field until Aug. 9 to submit completed applications. The division expects to accept the applications on a temporary basis while it prepares permanent regulations.

  • So far, only four mortgage or foreclosure consulting services have applied, and all four applications were returned because they were incomplete, the division reported Wednesday. The attorney general's office can take civil or criminal action against modification and foreclosure consultants who operate without a license, spokeswoman Edie Cartwright said.

For the story, see New license law, little action (Just four mortgage modification and foreclosure services seek permit).

L.A. Cops Sting Pair Accused Of Running Phony Rental Scam, Renting Foreclosed Homes They Didn't Own To Unwitting Renters

In Los Angeles, California, KABC-TV Channel 7 reports:

  • L.A. police warn residents of a rental scam involving foreclosed properties. Two suspects have been arrested, but more could be at large. Police said the scam artists would pose as property owners, and then collect cash in exchange for a promise to rent homes to victims. Authorities believe the scam artists were targeting people throughout Southern California. Octavio Alvarez, an ex-real estate agent, and Joseph Estrada were caught and arrested by detectives last month during a sting operation.

  • Detectives said Alvarez would get listings of foreclosed properties, and the pair would target low-income members of the Latino community. They would distribute fliers written in Spanish, advertising homes for rent. When potential renters would call, the suspects would go to one of the foreclosed homes and pretend to be the owners. [...] Police believe the suspects may have targeted at least 20 victims. [...] The suspects are free on bail. They face charges of commercial burglary and grand theft.

For more, see Scam artists trick renters in L.A. scam. KappaPhonyLandlordScam

Las Vegas Couple Facing Foreclosure Swindled By One Scammer, "Hijacked" By Another

In Las Vegas, Nevada, KLAS-TV Channel 8 reports:
  • When people face foreclosure they can become desperate and look for help in all the wrong places. One Las Vegas family was scammed -- not once -- but twice. Evelina King and her husband ran into financial trouble when she was laid of from her job. The couple owns three investment properties and turned to Jason Wilhite and Associates when a friend handed them a flier. "We paid a fee. $1500 per property to get the mortgages wiped away," said Evelina King. The payment was made at the end of 2008. King soon learned that the Nevada Secretary of State website showed Wilhite's company in default and Wilhite was gone.

  • Two months later, Ron Quilang from American Resource called the Kings saying he wanted to sue Jason Wilhite and Associates. Quilang also told the couple that he could rent their properties and save the homes from foreclosure. King claims she passed up on the offer but only to get a big surprise. "Ron has put tenants in the property -- not to our knowledge -- and he is collecting rent. There's a utility bill still in our name. We got the past due bill," King said. She says, just last weekend, she took a potential renter out to their house in North Las Vegas and discovered the locks were changed and someone had moved in.

  • She says she can't get a satisfying answer from Quilang. "First, he says he knew nothing about the guy. Then he says 'I thought you were walking away from that property anyway.'"

Source: Financially Strapped Family Falls Victim Twice. KappaPhonyLandlordScam

Monday, July 27, 2009

Mortgage Servicers To Explain Themselves To Administration Officials Regarding Failure To Keep People In Their Homes

In Washington, D.C., ABC News reports:
  • Mortgage servicers accused of not doing nearly enough to stem the nation's foreclosure crisis will sit down with the Obama administration tomorrow to tell their side of the story.(1) The meeting, the results of which are not expected to be made public until early next month, comes amid escalating criticism that both mortgage servicers and the government are ill-equipped to carry out Obama administration programs designed to help keep people in their homes. [...] The National Consumer Law Center, which presented testimony to the Senate earlier this month, has identified dozens of ways in which some mortgage servicers have failed to follow guidelines set by the Home Affordable Modification Program (HAMP), a five-month-old Obama administration program that pays servicers at least $1,000 for each loan modification.

Reportedly, Sen. Chris Dodd, D-Conn., has asked the administration to investigate alleged abuses of the program by mortgage servicers, which include:

  • Charging advance fees for loan modifications,
  • Telling homeowners they must be in default before becoming eligible for loan modifications,
  • Starting foreclosure proceedings even while a homeowner is under consideration for a loan modification.

For more, see Mortgage Companies to Meet With White House (Meeting Comes Amid Mounting Criticism of Obama Housing Programs).

(1) The mortgage servicers are responding to this recently extended invitation from Treasury Secretary Timothy F. Geithner and HUD Secretary Shaun Donovan to get together for a "friendly chat."

35 Law Firms Named In Suit Seeking To Void 100,000+ Money Judgments; 20+ Add'l Firms Currently In NY AG's Crosshairs In Ongoing "Sewer Service" Probe

From the Office of the New York State Attorney General:
  • Attorney General Andrew M. Cuomo [Wednesday] announced his office has sued 35 law firms and two debt collectors(1) in New York State in order to throw out an estimated 100,000 default judgments improperly obtained against New York consumers. This is the latest action in Cuomo’s ongoing investigation into unlawful debt collection practices. According to the lawsuit [...], the companies relied on a Long Island company, American Legal Process (ALP), to notify New York consumers that they faced debt-related lawsuits. ALP, however, failed to properly serve consumers across the state with legal papers, causing thousands to unknowingly default and have costly judgments entered against them without the chance to respond or defend themselves.(2) In April of this year, Cuomo’s Office announced criminal and civil cases against ALP and its owner, William Singler, for this fraudulent business scheme.(3)(4)

***

  • Attorney General Cuomo also announced that as part of his ongoing investigation into fraudulent process servers and debt collectors, his Office is determining which other law firms statewide relied on ALP to serve legal process on New Yorkers facing lawsuits. More than 20 such firms have been identified to date and his Office is notifying those firms of its intent to seek to vacate any default judgments those firms have obtained based on ALP affidavits of service.

For the NY AG's press release, see Attorney General Cuomo Sues To Throw Out Over 100,000 Faulty Judgments Entered Against New York Consumers In Next Stage Of Debt Collection Investigation (37 Law Firms and Collectors Named in Lawsuit for Failing to Properly Notify New Yorkers Being Sued for Owing Debt; Cuomo Seeks to Vacate Over 100,000 Faulty Judgments Statewide and Provide Restitution to Victims).

For more from the NY AG on this lawsuit, see:

Go here for other posts on "sewer service."

Thanks to Bill Collins of Crossroads Abstract, Rochester, NY for the heads-up on this story.

(1) The law firms and debt collectors named in the lawsuit are: Forster & Garbus; Sharinn and Lipshie; Kirschenbaum & Phillips, P.C.; Solomon and Solomon, P.C; Goldman & Warshaw, P.C.; Eltman Eltman and Cooper; Eric M. Berman, P.C.; Stephen Einstein & Associates, P.C.; Fabiano and Associates; Jones Jones Larkin O’Connell; Panteris & Panteris, LLP; Zwicker and Associates; Relin, Goldstein & Crane; Woods Oviatt Gilman; Leschack & Grodesnky; Hayt Hayt & Landau; Pressler & Pressler; Jaffe & Asher; Mullen & Iannarone; Arnold A. Arpino & Associates; Houslanger & Associates; Mann Bracken, LLC; Smith Carroad Levy & Finkel; McNamee, Lochner Titus & Williams; Thomas Law Office; Fleck, Fleck & Fleck; Eric Ostrager; Cohen & Slamowitz, LLP; Cullen and Dykman LLP; Winston & Winston, P.C.; Cooper Erving & Savage, LLP; Robert P. Rothman, P.C; Gerald D. DeSantis; Greater Niagara Holdings, LLC; Rodney A. Giove; Advanced Litigation Services, LLC; and Jason L. Cafarella.

(2) According to his press release, the NY AG alleges that, ALP, as a legal process server, was hired by high-volume debt collection law firms in New York to serve legal papers, usually a summons and complaint, notifying individuals that they are being sued and must answer the complaint. ALP, however, allegedly engaged in “sewer service,” where process servers take advantage of individuals facing lawsuits by failing to properly alert them and denying them the chance to respond. As a result, tens of thousands of judgments were obtained against unsuspecting New Yorkers, many of whom first learned they were being sued when they found their bank accounts frozen or their wages garnished. ALP covered up the fraud by falsifying sworn affidavits of service in courts across New York. The law firms and debt collectors sued then used these false affidavits to obtain default judgments against NY consumers. The Attorney General’s Office estimates that the average default judgment totaled approximately $5, 474 (based on this average amount, these default judgments apparently were not obtained in connection with foreclosure actions; one can only wonder how rampant sewer service is in foreclosures).

(3) See NY AG Files Criminal Charges & Parallel Civil Suit Against Process Serving Firm & Its CEO Alleging Massive "Nail & Mail Sewer Service" Operation.

(4) Carolyn Coffey, an attorney with MFY Legal Services, a nonprofit provider of free legal services in New York, said: “Over and over again we see hundreds of the most vulnerable New Yorkers -- the elderly, disabled, and working poor -- blindsided by default judgments in lawsuits that they never even knew about until after the cases were over. Our justice system is built on the basic premise that everyone has a right to be heard in court before a judgment can be entered against them, and the debt collection law firms that engage in sewer service deny New Yorkers this fundamental right. MFY commends Attorney General Cuomo for taking these steps to remedy the devastating effects of sewer service, and for sending the message to debt collection law firms that they must comply with the most basic requirements of due process.”

MFY’s 2008 report, Justice Disserved, documented many victims of improper service who had judgments unknowingly entered against them, often to devastating effect. SewerServiceAlpha

Unauthorized Practice Of Law, "Running & Capping" & "Lawyer Renting" Among The Issues Raised In Recent Loan Mod Lawsuit By California AG

In a recent lawsuit brought by the Office of the California Attorney General against a group peddling loan modification services, allegations of unauthorized practice of law, "running and capping," (ie. the practice of non-attorneys hustling up business for an attorney) and "lawyer renting" (ie. a loan modification firm's use of an attorney or law firm as a "front" for its activities where the attorney does little or no work, and has little or no contact with the financially distressed client desiring a loan modification, typically used to avoid prohibitions against clipping homeowners for upfront fees) have found their way into the complaint filed in this matter.

In People v. Home Relief Services LLC, et al,(1) the California Attorney General makes the following general allegations:
  • As many other foreclosure rescue companies have done, in an attempt to avoid statutory prohibitions on collecting fees before any services have been rendered, Defendants have included one or more attorneys in their scheme. Noting the alarming trend in the number of complaints issued against attorneys involved with foreclosure rescue companies, the State Bar has issued an ETHICS ALERT cautioning attorneys from lending their names to loan modification companies when non-lawyers purportedly negotiate with the lenders on the customers’ behalf but actually provide little to no services; meanwhile, the non-lawyers also collect fees from the consumers and provide distressed homeowners with reckless and harmful advice on how to deal with their lenders (see Cal. AG lawsuit, paragraph 2),

***

  • Defendants also falsely tell consumers that attorneys affiliated with Defendants review customers’ financial paperwork and also negotiate with the lenders on their behalf. Indeed, as a result of Defendants’ solicitation, some of Defendants’ customers are pressed by Defendants’ representatives to sign or otherwise unwittingly sign contracts with Defendants Diener and Diener Law Firm, believe the contracts are with Defendant HRS or another entity. These contracts obligate consumers to pay Defendants Diener and Diener Law Firm a fee and authorize Defendants Diener and Diener Law Firm to hire the other Defendants, even though the consumer has never spoken with nor ever heard of Defendants Diener and Diener Law Firm. Customers are not given any opportunity to speak with or have any contact with any attorneys affiliated with Defendants about their loans, and neither Defendants Diener and Diener Law Firm nor any other attorneys affiliated with Defendants review customers’ financial documents or negotiate with lenders on their behalf. Moreover, Defendants’ customers are informed by their lenders that the lenders have not been contacted by Defendants Diener and Diener Law Firm, or any of their lawyers, on the customers’ behalf (see Cal. AG lawsuit, paragraph 41).

In connection with the foregoing general allegations, the following violations of law against the non-attorney defendants have been alleged (see Cal. AG lawsuit, paragraph 65(j) and (k)):

  • Violating Business and Professions Code sections 6151 and 6152, by engaging in "running and capping," the practice of non-attorneys obtaining business for an attorney,
  • Violating Business and Professions Code section 6155, by some Defendants in directly or indirectly referring potential clients to Defendants attorney Christopher Diener and Diener Law Firm without seeking registration as a lawyer referral service by the State Bar, and by Defendants Diener and Diener Law Firm in accepting referrals of such potential clients,

In connection with the foregoing general allegations, the attorney defendants have been alleged to have violated Business and Professions Code section 17200 (relating to prohibitions against unlawful, unfair or fraudulent business acts or practices) by: (a) Violating the fiduciary duty and duties of good faith and fair dealing owed to their clients/customers by failing to review financial documents or negotiate with lenders on their behalf; and (b) Violating California Rules of Professional Conduct (or, in the alternative, try here):

  • rule 1-320(A) by directly or indirectly sharing legal fees with a non-lawyer;
  • rule 1-320(B) by compensating persons or entities for the purpose of securing employment or as a reward for having made a recommendation resulting in the employment of Defendants Diener and Diener Law Firm by a client;
  • rule 1-300(A) by aiding persons or entities in the unauthorized practice of law;
  • rule 3-110(A) by intentionally, recklessly, or repeatedly failing to perform legal services with competence; and
  • rule 4-200(A) by entering into an agreement for, charge, or collect an illegal or unconscionable fee.

See Cal. AG lawsuit, paragraph 73(a) through(f).

(1) Other defendants: The Diener Law Firm, Golden State Funding, Inc., Payment Relief Services, Inc., Christopher L. Diener, Kathleen Marrero-Davis,Terence Green Sr., Stefano Marrero, Maya Burrell Marrero, Ronald C. Specter, Kenneth Buhler, and Does 1-100). UnauthPractOfLawTheta

Washington AG Uses Courtesy Letter To Inform 138 Loan Mod Firms They're On The Radar Screen; Urges Compliance With State Law To Stay Out Of Hot Water

Washington Attorney General Rob McKenna recently announced that his office has joined the Federal Trade Commission and other states in a nationwide crackdown on foreclosure rescuers and loan modification rackets that charge hefty upfront fees and often provide no help. He further announced that his office has filed five new cases against these firms,(1) bringing the number of foreclosure-assistance actions filed by the Attorney General’s Office to nine since 2007, and has sent civil investigative demands, which are similar to subpoenas, to four additional businesses that provide mortgage-related services.

So as not to leave any other firms in the industry with the false impression that they have dodged the AG's "mortgage-related scam radar screen," AG McKenna has also announced that his office is sending a "gentle reminder" to 138 businesses that market foreclosure assistance, loan modification services or other mortgage-related services, listing various state laws they are expected to comply with, as well as listing many of the unfair, deceptive and otherwise illegal trade practices they better refrain from if they're planning on staying out of hot water.

Go here for the Washington AG's courtesy letter.

See State, federal sweep slams loan-mod scams (Firms operating in Washington state in government crosshairs for taking advantage of homeowners facing foreclosure) for the Wasington AG's press release announcing its participation in the "Operation Loan Lies" nationwide crackdown on foreclosure rescuers and loan modification businesses who screw financially desperate homeowners out of their money for bogus services.

(1) The five operations targeted by AG McKenna are:

Battle For Bankuptcy Cramdown Legislation - Round 2 Begins In U.S. Senate

The Washington Independent reports:
  • Roughly three months after Senate lawmakers killed legislation empowering homeowners to escape foreclosure through bankruptcy, some upper-chamber Democrats are looking to revive the corpse. They hope to pressure the White House into spending valuable political capital on a cause fallen by the wayside. Up to now, policymakers have relied on programs that subsidize lenders and mortgage servicers who volunteer to alter loans to keep homeowners afloat. Yet those voluntary modifications lag far behind the rising tide of foreclosures. Indeed, only 160,000 homes have been propped up this year under the largest such program — a figure dwarfed by the more than 1.5 million foreclosure filings since January.

For more, see Band of Senate Dems Pressures Obama on Cramdown (Durbin Hearing Makes Case for Addressing Foreclosure Crisis in Bankruptcy Court).

See also:

  • Rethinking Cramdowns as Foreclosures Roll On,
  • Mortgage Cramdown Redux (Among other things, this story reminds us that judges already hold this "cramdown" power for pretty much any type of secured debt, like auto loans or vacation homes, but not for most borrowers’ primary residences),
  • One Is the Loneliest Number (A Senate Judiciary subcommittee hearing on a proposal to allow bankruptcy judges to modify the mortgages of troubled borrowers kicked off Thursday with just one senator in attendance - the subcommittee chairman, Sen. Sheldon Whitehouse, D-R.I., who was leading the hearing).

Sunday, July 26, 2009

Judge Orders Shutdown Of Loan Mod Firm Accused In $8M Ripoff; Garbage Bag Full Of Shredded Docs Given As Proof Outfit Is Destroying Evidence In Probe

In West Palm Beach, Florida, WPEC-TV Channel 12 reports:
  • Late Friday a judge in West Palm Beach granted the state Attorney General's request for a temporary injunction, shutting down FHA All Day and three other mortgage modification companies.(1) Jason Vitulano and his four companies are accused of ripping off customers to the tune of $8 million dollars. Friday lawyers with the state Attorney General's office came to court with a garbage bag full of shredded documents. The state says it's proof the companies tried to destroy evidence.

For more, see Judge shuts down mortgage modification companies temporarily.

For a story of one of FHA All Day's alleged victims, see Mortgage Fraud Victim Speaks Out, A Warning to All Homeowners.

(1) The three affiliated companies are: Safety Financial Services, Inc., Housing Assistance Law Center, and Housing Assistance Now. For the Florida AG's lawsuit, see State of Florida v. FHA All Day.com Inc., et al. Go here to file a complaint against FHA ALL Day.com and its affiliates.

Orange County DA Raids Homes Of Foreclosure Rescue Operators Currently Facing Civil Suits By State AG Alleging Bogus Loan Modifications, Short Sales

In Southern California, the Orange County Register reports:
  • Investigators with the Orange County district attorney early Thursday morning searched three Ladera Ranch homes believed tied to a foreclosure rescue scam. Agents served search warrants on two homes on Roshelle Lane and one on Merrill Hill. The homes are connected to Terence Green Sr. and Stefano Marrero of Home Relief Services and Christopher Diener of the Diener Law Firm.(1)

***

  • The District Attorney’s Office declined to comment. [...] Alan Gordon, assistant chief trial counsel of the California State Bar, confirmed that the Orange County district attorney and some other agencies served search warrants today. He said the bar has been “working closely with several agencies” investigating potential loan mod scams.

For the story, see D.A. raids Ladera homes in loan-aid scam probe.

(1) California Attorney General Jerry Brown last week filed a civil lawsuit against these same men (go here for California AG press release),alleging that they charged homeowners $4,000 in upfront fees and then failed to get them cheaper payments on their home loans. Brown also charged that the companies sometimes promised to arrange a short sale — when a lender agrees to accept less than the debt owed on a property — but instead attempted to use customers’ personal information for the companies’ own benefit.

Sleazy, Shifty Appraisers Booted From Industry Now Shifting Into Real Estate Sales?

The Tampa Tribune reports:
  • Some appraisers who lost their licenses after unethical behavior during the housing boom are staying in the real estate business. They're becoming real estate agents, according to a report by the national Center for Public Integrity. Instead of appraising homes for sale, some just obtained a license to sell homes for a living. The center's report found that in Florida and California, among the states hardest-hit by the foreclosure crisis, hundreds of individuals whose appraisal licenses were revoked have received other licenses that allow them to continue to represent the public in real estate sales.

For more, see Unethical appraisers now becoming real estate agents.

For the report from The Center For Public Integrity, see Rebuked Appraisers Reborn as Real Estate Agents (Appraisers with Revoked Licenses Still Profit in Real Estate Industry).

California Regulator To Consumers Saddled With Unaffordable Mortgages: Stay Away From Loan Modification Outfits Engaged In "Lawyer Renting"

A recent New York Times' story featuring the loan modification operation Federal Loan Modification Law Center(1) contains this excerpt describing an arrangement that some might refer to as "lawyer renting," in which a company, attempting to circumvent laws prohibiting the collection of upfront fees for its services, enters into a deal with an attorney that allows the outfit to conduct its activities as a law firm (attorneys are generally not prohibited from pocketing upfront fees for their services):
  • The three original [Federal Loan Modification Law Center] partners brought in Mr. [Nabile "Bill"] Anz to gain a crucial asset: his law license. Having a lawyer in charge enabled them to market their venture as a law firm and thus collect upfront payments under California rules. “Jeff [partner Jeffrey Broughton] asked me how I could, for lack of a better word, legitimize it,” Mr. Anz said.

  • The California Department of Real Estate warns consumers that many dubious loan modification companies have organized themselves as law firms solely to allow them to collect upfront fees, even though the lawyers have little, if anything, to do with the services provided. The department cautions consumers against hiring such companies.(2)

For the story, see Subprime Brokers Back as Dubious Loan Fixers.

(1) Federal Loan Modification Law Center (aka FedMod) has been tagged by the Federal Trade Commission with a lawsuit alleging violations of Federal law in offering loan modification services to the general public. Go here for links to the FTC press release and some of the relevant court documents filed against FedMod.

(2) For those attorneys who have yet to "receive the memo", see ETHICS ALERT: Legal Services to Distressed Homeowners and Foreclosure Consultants on Loan Modifications, an advisory of the Committee on Professional Responsibility and Conduct of the State Bar of California setting forth prohibited activities by attorneys when associating with loan modification firms.

Memphis-Area Sheriff, Legal Services Firm Join To Spread Word Of New Federal Rights For Renters Facing Foreclosure Eviction

In Shelby County, Tennessee, the Memphis Buisiness Journal reports:
  • As a result of the rise in foreclosures and evictions in the city, the Shelby County Sheriff’s Office and Memphis Area Legal Services are working to educate citizens on the subject. As part of the partnership, sheriff’s deputies and civil process servers are delivering pamphlets about the process to property owners and renters summoned to court. [...] The partnership was created as part of the [Federal] Helping Families Save Their Homes Act signed into law [by President Obama] in May. The law requires 90 days before tenants can be forced out.(1)

  • Webb Brewer, director of advocacy for Memphis Area Legal Services, said the most important part of the process is that renters or homeowners open and read all letters about the properties they inhabit. Legal services will offer assistance to anyone who asks. The goal of the partnership, said Shelby County Sheriff Mark Lutrell, is to tell renters about their rights. “Some renters have not been told by landlords about a pending eviction,” Lutrell said in a statement. “Our goal is to ensure property owners, especially tenants, understand their legal options before they’re evicted.”

Source: Shelby County Sheriff, Memphis Area Legal Services partner to educate renters on foreclosure, eviction.

See also Memphis Commercial Appeal: Sheriff's initiative aims to protect renters from foreclosure eviction.

For Shelby County tenants facing foreclosure evictions, see Brochure: What You Need To Know About Foreclosures and Evictions.

(1) In addition, except where the purchaser will occupy the property as a primary residence, the terms of any bona fide lease also remains in effect. See Helping Families Save Their Homes Act of 2009, Title VII - Sections 701 through 704 (Title VII of the new law is known as the Protecting Tenants At Foreclosure Act of 2009).

See also: HUD Notice PIH 2009-17, Protecting Tenants At Foreclosure: Notice Of Responsibilities Placed On Immediate Successors In Interest Pursuant To Foreclosure Of Residential Property, in which HUD emphasizes that the responsibility for meeting the new tenant protection requirements applies to all successors in interest of residential property, regardless of whether a federally related mortgage is present. The immediate successors in interest of a residential property, which is being foreclosed, bear direct responsibility for meeting the requirements of the law.

Saturday, July 25, 2009

Unwitting Prospective Buyer Gets Caught Up In Controversial Short Sale Flipping Attempt Involving Vacant Home In Foreclosure

In DeWitt, Michigan, columnist John Schneider of the Lansing State Journal recounts the story of a local woman who got screwed over in an attempt to buy a vacant home in foreclosure from a local real estate operator, himself attempting to acquire the property through a short sale, to be followed by an immediate "flip" of the home at a higher price to the woman (all without the apparent knowledge of the lender that was being asked to approve the short sale).
  • Reeling from a traumatic divorce-in-progress, Christina Thelen moved, with her three children, into her aunt's basement. That was in February. In March, things started looking up for Thelen when she made an offer on a three-bedroom ranch in foreclosure on Rambler Road in DeWitt. The vacant house had been on the market since August. The price had dropped, in increments, from $159,000 to $128,900 - with no takers. Thelen offered $118,000, or so she thought.

  • Responding to my inquiry Wednesday, Bank of America's Jumana Bauwens said bank records indicate the offer was only $74,000 - and was rejected. When I told Thelen that Wednesday, she was shocked. "I can understand why they would reject that," she said.

***

  • Working through a company that specializes in short sales - EZ Home Ownership Realty of Grand Ledge - the agent representing the seller, Steve Osmar of the RE/MAX office in Delta Township, was informed that Countrywide, the mortgage holder at the time (later acquired by Bank of America) had verbally accepted the deal. Jerry Ballard of EZ Home Ownership told me Wednesday that Countrywide had, indeed, OK'd his offer verbally. However, Bauwens said a verbal acceptance would run contrary to standard practice.

  • As for the difference between the $118,000 Thelen was willing to pay and the $74,000 EZ Home Ownership offered, when I asked Ballard about it, he didn't have immediate access to his records, so he couldn't confirm the $74,000 figure. He did say, however, that the difference between what a buyer is willing to pay [him] and the offer his company gets a bank to accept represents various fees and expenses, plus his profit. Listing the various agents involved, Ballard said, "None of us is a charity."

  • Based on the belief there was a verbal acceptance - plus the fact that Thelen was, as Osmar put it, in a "housing crisis" (her and her three kids living in a basement) - Osmar drew up a lease agreement that allowed Thelen and her kids to move into the Rambler Road home the final week of May. "This home meant so much to us," she said. Thelen expected to close on the house in June, and began fixing it up. She painted, repaired the air conditioning, rehung kitchen cabinet doors, spread mulch ... About $1,200 worth, she figured.

  • On Father's Day, Thelen got the bad news: The deal had fallen through. She and her children would have to vacate the house.

For the story, see Short sale stumble gives would-be homeowner 'short end'.

For other posts involving similar types of short sale flipping deals as the one described above, see:

NYC Woman Busted For Clipping $50K In Upfront Rent Deposits From Low Income Residents Seeking Help In Obtaining Affordable Section 8 Rentals, Say Cops

In New York City, the New York Post reports:
  • A slick-talking woman posing as a real-estate agent conned about $50,000 from low-income residents looking for affordable housing in Manhattan and The Bronx, cops said [Wednesday]. Josie Almonte, 32, a blond-haired beauty with a sophisticated look, would approach her victims promising to help them expedite their applications for Section 8 housing, sources said. She would ask them for a rent deposit up front to put down on an apartment, then never file their application and keep the money, the sources said. She was busted Monday.

Source: 50G SCAM IS UN-REALTOR.

Lender Reverses Position After Media Applies Heat; Now Agrees To Waive $9K Prepayment Penalty For SW Florida Couple Nearing Foreclosure

In Charlotte County, Florida, WINK News reports:
  • Punished for paying a mortgage early? That's what one Charlotte County couple says happened with their lender, but now WINK News Call for Action helps that couple avoid foreclosure. [...] Janice and Rick Brooks could no longer afford their Charlotte County home, so they put it up for sale. [Now] it will officially sell, and they'll settle their debt with their lender. But that almost didn't happen. "We would literally have been out that door with no where to live or we would have been stuck in here, forced into foreclosure," Janice Brooks says.

  • That's because they owed the bank an additional $9,000 -- a penalty for paying their mortgage before it's due. The Brooks say they were punished for always paying on time. "(The lender) said if I had been 90 days in [arrears], they would be more apt to waive the penalty because it would show that we're in a hardship case," Janice Brooks says. The Brooks begged to have that penalty waived in lieu of the alternative -- foreclosure. "They denied us four times. Four times," Janice Brooks says.

  • That's when WINK News got involved -- calling and sending emails to their mortgage company, wanting to know why it would rather a homeowner go into foreclosure than accept a payment that covered all of the debt -- minus that pre-payment penalty, that under contract, the lender could -- and in this case -- did choose to waive. [...] The couple says no one from their mortgage company would return their calls until WINK News started asking questions.

For the story, see WINK News saves family from foreclosure.

For the earlier report on this story, see Penalized for paying mortgage on time?

Feds, State AGs Go On Attack Against Debt Settlement & Collection Firms Engaged In Allegedly Fraudulent Activities

From the Office of the Florida Attorney General:
  • Attorney General Bill McCollum [last week] announced that a settlement has been reached in a case brought by Chase Card Services against affiliated Hess Kennedy companies which engaged in fraudulent debt settlement activities. Under the settlement approved earlier this week, Chase will release the credit card debt of approximately 13,000 consumers nationwide, including over 900 Florida residents, who contracted with the Hess Kennedy companies for the fraudulent services. Laura Hess and the Hess Kennedy Companies are currently in Receivership as a result of a lawsuit filed by the Attorney General’s Office in February 2008.

For the entire Florida AG press release, see Third Agreement Reached in Hess Kennedy Debt Settlement Case.

------------------------

From the Office of the Texas Attorney General:

  • Texas Attorney General Greg Abbott [earlier this month] charged a Houston-based credit repair firm with violating the Texas Deceptive Trade Practices Act. The state’s enforcement action names Jubilee Financial Solutions LP, also known as The Credit Card Solution (TCCS) - a self-proclaimed “debt invalidation” business - its parent company, Jubilee Financial Management LLC, and the companies’ owner, Robert Mitchell Lindsey. [...] Marketing materials obtained by state investigators shows the defendants claimed their “debt invalidation” program can eliminate customers’ debt in as little as 12 to 18 months by relying upon federal consumer protection laws. In videos on the defendants’ Web site, Lindsey claims that TCCS has “gotten rid of $150 million of credit card debt.”

For the entire Texas AG press release, see Texas Attorney General Abbott Charges Houston “Debt Invalidation” Firm with Unlawful Conduct.

For the Texas AG's lawsuit, see State of Texas v. Jubilee Financial Solutions LP, dba The Credit Card Solution, et al.

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From the Office of the Ohio Attorney General:

  • Ohio Attorney General Richard Cordray [last week] filed a lawsuit against Solon-based National Enterprise Systems, Inc. (NES) for harassing Ohioans. The collection agency is accused of using egregious methods in attempts to collect alleged debt from Ohio consumers. "Everyone has the right to be treated fairly under Ohio law, regardless of possible debt owed," Attorney General Cordray said. "More than 200 consumers filed complaints with my office saying NES used threats, harassment and deception to collect debts. These practices are unacceptable and will not be tolerated." [...] The [Ohio AG's] investigation revealed a pattern of illegal practices, such as calling and harassing consumers' coworkers and family members, calling before 8 a.m. and after 9 p.m., using a busive language, attempting to collect debts consumers did not owe, failing to verify debts and making unauthorized withdrawals from consumers' bank accounts.

For the entire Ohio AG press release, see Cordray Takes on Ohio Debt Collector for Harassment.

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From the Office of the West Virginia Attorney General:

  • A Braxton County woman authorized an Ohio collection agency to charge $5,000.00 to her credit card because the company was threatening to have her daughter arrested at work. The same collection agency told the father of a Kanawha County woman that his daughter would be "arrested for fraud of the federal government" unless she made an immediate payment of $5,000.00 toward a student loan. Such strong-arm collection tactics are effective, but much like holding a gun to someone’s head, they are illegal. It is precisely this type of conduct that Attorney General McGraw seeks to stop by filing a lawsuit today against the company that allegedly made these threats to several West Virginians, National Enterprise Systems, Inc. ("NES") of Solon, Ohio. McGraw’s complaint alleged a wide range of other unlawful conduct, including adding unlawful collection fees to tuition owed by students to West Virginia colleges and universities.

For the West Virginia AG press release, see Attorney General McGraw Sues Ohio Collection Agency, National Enterprise Systems; Asks Court to Stop Firm from Making Unlawful Threats.

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From the Office of the Washington State Attorney General:

  • Attorney General Rob McKenna [...] praised the Federal Trade Commission for tackling a Tacoma company that preyed on financially strapped consumers. He urged consumers to take advantage of low-cost credit counseling services. “When you’re drowning in debt, you’re desperate,” McKenna said. “But if you’re not careful, your chosen rescuer may toss you an anvil instead of a life preserver.” [...] Mutual Consolidated Savings in Tacoma was sued by the FTC for allegedly using robo-calls to aggressively target consumers then charging fees of $690 to $899 while providing little help. The FTC froze the assets of the company’s owners. “Mutual Consolidated Savings has been the source of numerous consumer complaints,” McKenna said. “The Federal Trade Commission’s move to shut down its Tacoma call center means that fewer consumers will be misled by the company’s promises to bail them out of debt.”

For the entire Washington State AG press release, see McKenna warns consumers about debt-relief scams (Attorney General praises FTC for shutting down Tacoma company).

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(1) According to the Florida AG, the lawsuit against Laura Hess was filed by the Attorney General’s Economic Crimes Division and named Hess’s Broward County law firm and several other Florida-based companies she controlled. The lawsuit accused Hess of signing thousands of credit card debtors up for debt management services and claiming the law firm would provide legal services to cancel debts for pennies on the dollar. Representatives of Hess allegedly told consumers that the companies had audited the consumers’ accounts and found numerous violations under the Fair Credit Billing Act, then sent notices to creditors disputing all charges. Consumers were falsely told that once these notices were issued, the consumers did not have to pay creditors and creditors could not sue or otherwise take action against them. This deception led to lawsuits and other actions against several debtors.