Wednesday, August 19, 2009

Show Me The Original Note And I Will Show You The Money!

On the Credit Slips blog, consumer bankruptcy attorney O. Max Gardner III writes:
  • As mortgage delinquencies rise each month, and as the number of foreclosures increase each quarter, the “new mantra” of many pro-se and represented consumers is to demand that the mortgage servicer “prove up the original note.” Is this just some new and creative gimmick that has been sold to the desperate homeowners and to a few lawyers who have attended “progressive” seminars or is there really something to it? I submit that there is really something to it.

For more, see Show Me the Original Note and I Will Show You the Money.

For more from consumer bankruptcy attorney O. Max Gardner III, see:

Go here to view the ABC News' Nightline story in which ABC News reporter Vicki Mabry interviews attorney O. Max Gardner III and nationally renowned mortgage servicing fraud victim's advocate Mike Dillon on how some mortgage servicers go about giving homeowners a real screwing over in the handling of their house payments. For the ABC News' story transcript, see 'Playing the Odds' (Lawyer Max Gardner Says Some Mortgage Servicers May Be Taking Homeowners for a Ride).

Thanks to Mike Dillon at GetDShirtz.com for the heads-up on the Credit Slips post.

Claims Of Deception, Illegal Practice Of Law Unfounded, Says NY-Licensed Attorney In Response To Connecticut AG Probe Into Loan Modification Firm

In East Berlin, Connecticut, the Connecticut Law Tribune reports:
  • Kent Gross said he can’t be done with Connecticut soon enough. For him, it’s become impossible to do business here. The New York-licensed attorney said [First Legal Group, a] company he helped set up in East Berlin to assist homeowners facing foreclosure has been unfairly targeted by state grievance officials and Attorney General Richard Blumenthal.

***

  • To come out and say we misled people and that no work was done on the files is ridiculous,” Gross said from Florida last week. “There’s proof that we did work, and it’s voluminous.” He said an online case management system accessible by clients provides that proof. Gross, the managing attorney for First Legal Group, said there were actually 38 Connecticut clients who paid $69,000 in fees. He said the company would start refunding money and returning case files to clients late last week, and he stressed his cooperation with the Statewide Grievance Committee and the Attorney General’s Office.

  • And the claims of illegally practicing law in the state are unfounded, Gross said. “None of us are Connecticut lawyers and none of us said we are,” Gross said. “I basically don’t practice law. I deal with the executive officers at banks to work on modifications.”(1)

For more, see Modifying Loans Or Scamming Homeowners? (Attorney-run, Florida-based foreclosure service comes under fire in Connecticut).

(1) According to the story, Chief Disciplinary Counsel Mark Dubois revealed the company’s business practices in a lawsuit filed by his ofice stop First Legal Group, a Florida-based outfit, from operating in Connecticut. Dubois also raised the specter of possible larceny charges. Dubois targeted Gross and Florida attorney Nicola Zagarolo as the leaders of the company. Two Connecticut attorneys got involved with the business after Dubois first contacted First Legal Group in July, Dubois said. Hartford attorneys Evan Fitzpatrick and Andrew Cates worked as local counsel to provide “limited legal services,” designed to make the operation seem more legitimate in case clients needed to make court appearances, Dubois said. Both attorneys are recent law school graduates who passed the bar last summer. Their contract provided $100 payments for every Connecticut client the company attracts and to receive an additional $100 for each court appearance. Both attorneys backed out of the arrangement when they began to feel uneasy about the business model.

Missouri AG Accuses Mobile Home Operator Of Pocketing Buyers' Money & Failing To Deliver Homes; Also Allegedly Swiped Proceeds Of Brokered Sales

From the Office of the Missouri Attorney General:
  • Attorney General Chris Koster has charged Edna Kay Jackson of Kirbyville with 12 felony counts for allegedly deceiving people who did business with her to buy or sell mobile or modular homes. The charges, filed in Greene County, accuse Jackson, doing business as Dogwood Homes, of taking money for the purchase of homes and not delivering either the homes or the clear titles to homes to the customers. Jackson is also charged with brokering homes for individuals and not giving them or their bank the money from the sale.

For the Missouri AG press release, see Attorney General Koster files criminal charges against Taney County woman (Attorney General charges her with 12 counts related to defrauding modular and mobile home sellers, buyers).

Maryland Homebuilder Gets 12 Years For Pocketing Customer Deposits & Loan Proceeds, Failing To Build Homes

In Prince George's County, Maryland, The Washington Post reports:
  • A District Heights developer was sentenced Monday to 12 years in prison for collecting more than $1 million from banks and home buyers for houses that were never built. Leon Coleman promised 11 buyers that he would build homes in Kings Grant, a new subdivision in Upper Marlboro, but he never built them. Instead, prosecutors said, Coleman pocketed $206,000 and used some of the rest of the money to buy land and pay closing costs.

***

  • In 2005, the Maryland attorney general's office won a civil lawsuit against Coleman and his wife, Emma, who were ordered to pay about $500,000 in fines and to repay about $1 million of the money they obtained. The Colemans never complied. The Prince George's County state's attorney's office pursued the case as a criminal matter after being contacted by the home buyers.(1)

For more, see Developer Gets Prison for Theft From Buyers.

See also, Maryland Gazette: Upper Marlboro homebuilder sentenced to 12 years (Man ordered to pay restitution after swindling millions from buyers):

  • In his sentencing, [Judge Leo E. Green Jr.] said he considered Coleman's lengthy criminal background, which dates to 1989 and includes embezzlement convictions in Baltimore and Virginia; a 1990 dishonorable discharge from the Army for larceny and forgery; and a 2002 grand larceny conviction, for which Coleman received a year of probation. [...] His case is the first to be prosecuted in Prince George's County under Maryland's Custom Homebuilder Act, which was enacted in 1986, and Green said he wanted to send a message to developers that misspending the money of hard-working, middle-class residents will not be tolerated.

(1) According to the story, would-be buyer Glenn Miller said his savings are depleted, his credit score has plummeted and his dream of sending his daughter to college has nearly evaporated. Ranah Harris Johnson, another buyer, said she believes that the stress caused her to miscarry one of her twins. Another buyer, Jennifer Lewis-Gooden, said "a very fragile marriage fell apart" in part because of the couple's financial turmoil.

Tuesday, August 18, 2009

North Carolina AG Adds Rent Skimming Rackets, "Subject To" Deed Conveyances To Its "Foreclosure Rescue" Radar

In Charlotte, North Carolina, The Charlotte Observer reports:
  • Like others across North Carolina, [77-year-old Ruth Barbour] fell victim to a type of mortgage scheme that's become more common as businesses target homeowners desperate to get out of their houses. [...] The businesses, which say they buy and close on homes quickly, have captured the attention of state regulators and legislators, who are now considering legislation that would make tracking these cases easier.

***

  • Typically, this is how the scheme works: A distressed homeowner, who can't sell his house and may be facing foreclosure, agrees to sell his home to a company in exchange for a small cash settlement and the title to the house. The homeowner doesn't realize he is still named on the mortgage. The company brings in a renter, who pays a significant deposit. The company may or may not continue to pay the mortgage. When it can no longer find a renter, it abandons the property, for which the original homeowner is still liable.

  • It's the latest in a number of schemes that regulators are battling as distressed homeowners look for a way out of an overwhelming mortgage or impending foreclosure. The N.C. Department of Justice has been cracking down on foreclosure “rescue” outfits that require an upfront payment and promise to work with a lender to modify a delinquent loan. Now it's also taking aim at businesses that promise to take over mortgage payments if the homeowner signs over the deed or title (ie. deed conveyances that are "subject to" one or more existing mortgages on the home being deeded over).(1) About four dozen of these businesses, which sometimes use the slogan “We Buy Homes,” operate in Charlotte and around the state, according to the Better Business Bureau of Southern Piedmont.

For more, see Home scam stings owners (Businesses advertise as buyers. They take over a home's title but not the mortgage, and some can leave distressed owners in foreclosure).

(1) Typically, these transactions are consummated without regard to any "due on sale" restriction that may be contained in the existing mortgage(s) that the property is subject to, and sometimes involve transfers to a newly formed trust in an attempt to conceal the deal from the existing lenders as long as possible.

Mortgage Servicer Encouragement To Default On House Payments To Qualify For Workout A Common Complaint From Homeowners Seeking Loan Modifications

In Washington, D.C., McClatchy Newspapers reports:
  • Nearly three years into the deepest U.S. housing slump in generations, lenders are modifying only a small number of problem mortgages, and rising foreclosures are restraining the economy's recovery. The Obama administration has stepped up pressure on lenders and their mortgage servicers, who act as bill collectors on behalf of investors who own mortgage bonds. The administration on Aug. 4 unveiled the first of what will be monthly "name and shame" exercises, publishing data on the loan-modification efforts of about three dozen companies.

***

  • McClatchy's Washington Bureau received calls and e-mails from borrowers across the nation in response to a recent story about the "name and shame" effort. In subsequent interviews with them, a common theme emerged: Virtually all say they were encouraged, directly or indirectly, by their lenders to fall behind on their mortgage payments in order to qualify for loan modifications. Then the modifications never came, however. These borrowers burned through retirement savings, destroyed their credit ratings and suffered mental and financial hardship.

For some of their stories, see Homeowners tell how banks failed to modify mortgages.

"We Will Be Bringing More Lawsuits As Needed" Says Ohio AG To Mortgage Servicers Who Fail To Provide Reasonable Loan Mods To Eligible Borrowers

Statement from Ohio Attorney General Richard Cordray:
  • “[A recent] report from the U.S. Treasury further demonstrates that most mortgage loan servicers are not doing enough to live up to their commitments to help keep people in their homes. What is it going to take to get these companies to change their behavior and take responsibility? [Recently], Ohio broke new ground by filing a lawsuit against Carrington Mortgage Services for violating Ohio consumer law and for failing to abide by its agreement with the state to provide reasonable loan modifications to eligible borrowers.(1) The numbers released [...] further justify that approach. As noted [in the Treasury Department report], other loan servicers also are falling well short of expectations. In Ohio we will not just stand by. We will be bringing more lawsuits as needed in the future.”

Source: Cordray Reacts to U.S. Treasury Report on Mortgage Servicers.

(1) For the Ohio AG lawsuit, see State of Ohio v. Carrington Mortgage Services LLC. For the Ohio AG press release announcing the lawsuit, see Cordray & Ohio Department of Commerce First in Nation to Sue Mortgage Servicer for Unfair Practices.

310-Unit Condo Conversion Complex Struggles To Stay Afloat; Considers Using "Blanket Receivership" To Grab Rents Away From Deadbeat Owner/Landlords

In Miami, Florida, The Miami Herald reports:
  • Dealing with an ongoing crisis, the company that manages cash-strapped Mirassou Condominium wants to start a blanket receivership system to collect association fees from deadbeat owners.(1)(2) [...] As budgets continue to worsen in South Florida condo associations, Mirassou's situation underscores the consequences communities are facing when unit owners enter foreclosure and discontinue paying association fees. Those fees normally cover flood and hazard insurance, maintenance, utilities and garbage collection.

  • By law, South Florida condominiums are required to have master hazard and flood insurance, which covers common areas and the exterior of the buildings. But Mirassou doesn't have any. The hazard insurance expired six months ago and the flood insurance expired in July, residents are saying. [...] When a community association has no insurance, owners cannot sell or rent their property.

For more, see Mirassou Condo seeks new system to collect owners' fees (A troubled Northwest Miami-Dade condo development seeks a new strategy to collect payments from delinquent owners).

In a related story, see The Miami Herald: South Florida condo conversions collapse.

Go here for other posts on the problems plaguing the Mirasou condo conversion complex.

(1) According to the story, if the court approves and appoints blanket receivership at Mirassou, a third party or "receiver'' could ask tenants for their rent, and leave the deadbeat landlord out of the equation, [attorney Angelica] Young said. The receiver would file a report with the court every quarter. Florida's Third District Court of Appeal reportedly ruled in favor of this strategy last month to help community associations collect rents and fees from delinquent owners. At least 18 condo associations in Miami-Dade and Broward counties use blanket receivership, the story states.

(2) Reportedly, out of the 310 units in Mirassou, 172 are in foreclosure.

Overleveraged Apartment Buildings Falling Into Foreclosure Threaten Tenants, Jeopardize Neighborhoods Throughout NYC

In The Bronx, New York, Crain's New York Business reports:
  • Linda Kemp remembers when the hallway floors at Robert Fulton Terrace were waxed regularly, when tulips, not weeds, bloomed in the garden, and when mold wasn't growing in the bathrooms of apartments in the 18-story complex that once was the envy of the Morrisania section of the Bronx. [...] That was before April 2007, when New York real estate investor Mark Karasick spent $44 million to acquire the building and its sister property two miles north, Fordham Towers.

  • Tenant leaders suspected that Mr. Karasick, whose deals are often seeded by San Francisco-based private equity vehicle SFF Realty Fund, had grossly overpaid for his prize and that income from the two buildings' 490 rent-regulated units would not come close to covering expenses. Canada-based bank CIBC lent Mr. Karasick $36.5 million for the deal in 2007 [...].(1) In a letter to Bronx Rep. Jose Serrano last October, the bank's general counsel called tenant concerns “unwarranted.” But cuts in service—maintenance staff was slashed from nine to three—had immediately followed the sale. Then, this past May, the tenants' prediction came true: Robert Fulton and Fordham Towers fell into foreclosure.

***

  • Now, hundreds of other rent-regulated buildings in New York City purchased at the height of the real estate boom may end up in similar distress. Optimistic underwriting enabled investors, often backed by private equity, to snap up rental buildings at bloated prices in highly leveraged deals. In many cases, the new landlords had unrealistic expectations for raising rents, and now some 70,000 units are in jeopardy. That's left government officials seeking ways to stem what some are calling the greatest threat to the city's neighborhoods since the widespread landlord abandonments of the "70s. “It's a looming disaster, and if it explodes to even half the level of the prediction, it's going to be a huge problem,” says Emily Yousouf, an ex-investment banker and former president of the city's Housing Development Corp. who is consulting for the Partnership for New York City and the Rockefeller Foundation on the issue. “It's not only the tenants who suffer and the buildings that go downhill, but suddenly the neighborhoods deteriorate as well.”

For more, see Bronx is burning over failed deals (Overleveraged buyers of rent-regulated apartments create one big mess across city).

See also:

Go here for other stories on overleveraged NYC apartment buildings.

(1) Reportedly, a CIBC spokesman would not comment on the financing, since the bank sold the loan to J.P. Morgan Chase, which in turn packaged it as part of a commercial mortgage-backed security that includes more than $3 billion in loans for apartment buildings, office complexes and retail strips. Overleveraged NYC Buildings

Monday, August 17, 2009

Man Ripped Off Absentee Owners Of Title To Mortgage-Free Properties, Pocketing Proceeds Of Fraudulently Obtained Mortgages In The Process, Say Feds

From the Office of the U.S. Attorney (Orlando, Florida):
  • United States Attorney A. Brian Albritton announces the arrest yesterday of Edwin M. Lugo-Abreu (age 34, of Orlando) on an indictment(1) charging him with mortgage fraud. If convicted on all counts, Lugo-Abreu faces a maximum penalty of 20 years in federal prison. According to the indictment, Lugo-Abreu devised a scheme to defraud E-Loan, The Lending Group Inc., and WMC Mortgage Corporation by falsifying and fraudulently applying for mortgage financing and fraudulently transferring title ownership of properties used to secure the mortgage financing.(2)

For the U.S. Attorney press release, see Orlando Man Arrested For Mortgage Fraud Conspiracy.

(1) Three other individuals, Alexis Izazaga, Carlos Valentin and Yariel Valentin, have entered guilty pleas and been sentenced in connection with this scheme.

(2) The indictment alleges that Lugo-Abreu identified properties that were unencumbered by mortgage liens that were owned by absentee owners and used bogus quit claim deeds to fraudulently transfer the titles thereto out of their names (Indictment, paragraphs 7-11). DeedContraTheft

"There Is Zero Time To Waste" Says Indiana AG In Continuing Effort To Eliminate Loan Modification Scams Targeting Hoosiers

In Indianapolis, Indiana, The Indianapolis Star reports:
  • The Attorney General's Homeowner Protection Unit has filed a lawsuit in Hamilton County against a Jacksonville, Fla.-based foreclosure consulting company. The lawsuit against National Foreclosure Counseling Services Corp., also known as American Financial Corp.,(1) includes 11 consumers from Allen, Hamilton, Johnson and Marion counties and reported losses of more than $10,000.(1) The lawsuit says the company asked for up-front fees and failed to modify mortgages.

***

  • The lawsuit claims the company did not obtain a required $25,000 surety bond to demand payment upfront from customers, and failed to register as a business in Indiana. The release says attorney generals in Florida, Illinois and Minnesota have also filed similar lawsuits against the company. "Considering the economic climate we are in, there is zero time to waste on this issue. We are taking an aggressive stand and we won't wait for more people to be victimized or lose their homes through these illegal practices," Zoeller said in the press release.

For more, see Zoeller sues another 'foreclosure consultant'.

For the Indiana AG press release, see Attorney General Greg Zoeller urges Hoosiers to avoid illegal foreclosure consultants.

For the lawsuit, see State of Indiana v. National Foreclosure Counseling Services Corp.

(1) Other defndants: Robert Dallavia and Raymond Paulk, both of Jacksonville, Florida. The suit alleges violations of the Indiana:

(2) The lawsuit is the eighth filed by Attorney General Greg Zoeller against what a press release issued by his office calls "illegal foreclosure consultants." Three of the first seven cases have reached resolutions in which the sued companies agreed or were ordered to pay restitution:

  • A settlement was reached in June with You Walk Away, Inc., located in California. In exchange for the case being dismissed, You Walk Away agreed to pay $4,000 in restitution to four Indiana consumers and $2,000 to the State for costs and fees.
  • On June 29, a Delaware County court ordered California-based American Mitigation Group, Inc. to pay $4,064.45 in consumer restitution payments to five Indiana consumers and $33,000 to the State for civil penalties.
  • On July 27, a Marion County Superior Court ordered Foreclosure Relief Agency, LLC. to pay $53,002.34 in consumer restitution to 52 Indiana consumers and $2 million in civil penalties to the State of Indiana.

"Zero Tolerance" For Loan Modification Scams, Says Missouri AG As Civil Charges Brought On Outfit Allegedly Charging Upfront Fees & Failing To Deliver

In Kansas City, Missouri, Missourinet.com reports:
  • Missouri has filed suit against a Kansas City firm, claiming that it is preying on people who are desperate to save their homes. Attorney General Chris Koster has filed suit against Premier Credit Services of Kansas City and principals Michael and Angela Eads. Koster accuses the couple of promising homeowners facing foreclosure that they could drop their interest rate, lower their house payment and repair their credit.

  • Koster says his office has mounted a "zero tolerance" campaign against mortgage fraud. "There's no doubt that the mortgage fraud scams that we're seeing are spiking as a result of the economy," Koster says. "In the first six months of this year, we have seen twice as many complaints come into the Attorney General's office as we saw in all of 2007 and 2008 combined."

  • Koster accuses Premier of engaging in two practices that should be red flags for fraud: charging up-front payments and portraying themselves as being part of the federal government.

Source: AG files suit against KC firm, claiming mortgage fraud.

For the Missouri AG press release, see Attorney General Koster files lawsuit against Kansas City company (Continues Zero Tolerance Campaign against mortgage fraud).

Using "Qualified Written Requests" In Consumer Bankruptcy Cases

On the Credit Slips blog, consumer bankruptcy attorney O. Max Gardner III writes:
  • I have trained over 350 attorneys at my Bankruptcy Boot Camps and to my surprise less than 10 percent know what I mean when I refer to a "QWR." This is shocking in that a reasonable QWR can provide the attorney for the Chapter 13 debtor with some of the very best discovery outside of a contested case or Adversary Proceeding. The QWR can be used to find out how the servicer for the securitized trust is applying the debtor's money and the disbursements on the arrearage claim from the Chapter 13 Trustee. It can also be used to identify all of the "ancillary fees" and "collateral charges" that mortgage servicers are so fond of unilaterally adding to the debtor’s mortgage account, without any notice or the right to a hearing. [...] In my bankruptcy practice, I have only 10 questions in my standard QWR.(1)

For more, see What Does RESPA Have to do with Consumer Bankruptcy Cases?

Thanks to Mike Dillon at GetDShirtz.com for the heads-up on the Credit Slips post.

Sunday, August 16, 2009

Illicit Loan Proceeds From Alleged Long Island Sexual Fantasy Club-Based Mortgage Fraud Ring Now Up To $82M, Says Suffolk County DA

In Suffolk County, New York, Newsday reports:
  • A dominatrix, her male personal assistant, two employees at her Manhattan sexual fantasy club and her 65-year-old mother are among the latest defendants charged as part of an $82-million mortgage fraud scheme in which a former Suffolk legislator is accused of having a central role. Former Suffolk Legis. George Guldi, 56, of Westhampton Beach, pleaded not guilty Tuesday in a Riverhead courtroom to 23 counts of a 130-count indictment against him and 16 others.

  • When his arrest was announced in March, prosecutors described the scale of the scheme to be $50 million. Suffolk District Attorney Thomas Spota said the investigation has "become more expansive," now involving more than $80 million, and it could be bigger. "We're not finished," he said, adding it is the largest mortgage-fraud ring uncovered in Suffolk County.

  • The scheme involved the fraudulent purchase of 60 homes from Cold Spring Harbor to Bridgehampton by straw buyers using fake employer information and phantom bank balances, Spota said. Donald MacPherson, 65, of Manhattan, publisher of the SoHo Journal magazine, was central to the scheme, prosecutors said. They claim he recruited straw buyers and provided fake employment information using his corporations, including the magazine and the sexual fantasy club he owns with his wife.

For more, see DA: Guldi mortgage fraud scheme 'more expansive'.

For earlier post on this story, see Lawyer, NYC Dominatrix Bagged In Alleged $50M Mortgage Scam; Scores Of High End Homes End Up Foreclosed; Fetish Customers "Posed" As Straw Buyers: DA.

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

Feds Convict Two In Beverly Hills Mortgage Fraud Scam Resulting In $40M+ In Lender Losses

From the Office of the FBI (Los Angeles, California):
  • A federal jury [...] convicted a prominent Beverly Hills real estate agent and a licensed real estate appraiser on federal charges for their roles in a massive mortgage fraud scheme that caused more than $40 million in losses to federally insured banks. After a five-week trial, the jury convicted Kyle Grasso, 38, formerly of Santa Monica, and Lila Rizk, 42, of Trabuco Canyon, of conspiracy, bank fraud and numerous loan fraud charges for their roles in the mortgage fraud scheme. Additionally, Grasso was convicted of three counts of money laundering. The evidence presented at trial showed that Grasso and Rizk were part of a scheme that obtained inflated mortgage loans on homes in some of California's most expensive neighborhoods.

***

  • The wide-ranging and sophisticated scheme defrauded mortgage lenders by obtaining inflated mortgage loans on expensive homes in some of California's most exclusive neighborhoods, including Beverly Hills, Bel Air, Holmby Hills, Malibu, Carmel, Mill Valley, Pebble Beach and La Jolla. Members of the conspiracy sent false documentation, including bogus purchase contracts and appraisals, to the victim banks to deceive them into unwittingly funding mortgage loans that were hundreds of thousands of dollars higher than the homes actually cost. Lehman Brothers Bank alone was deceived into funding more than 80 such inflated loans from 2000 into 2003, resulting in tens of millions of dollars in losses.

***

  • A third defendant who went to trial, Joseph Babajian, 56, another Westside real estate agent, was acquitted on 13 criminal counts, and the jury was unable to reach a verdict on eight additional counts.

For the FBI press release, see Two Real Estate Professionals Convicted in Massive Mortgage Fraud Scheme That Led to $40 Million in Losses.

Ex-Real Estate Agent Gets 15 Years In I.D. Theft, Mortgage Fraud Scam; One Unwitting Victim Left Broke

In Minneapolis, Minnesota, the Star Tribune reports:
  • Former Twin Cities real estate agent Larry Maxwell received a 15-year prison sentence Thursday from a Hennepin County judge who said Maxwell's extensive mortgage and identity fraud scheme merited the term. Judge Regina Chu could have sentenced Maxwell to about 10 years in prison, but she said the gravity of his conduct and his "total lack of remorse" made the longer sentence appropriate. Maxwell has been in custody since a jury convicted him in April after a six-week trial.(1)

  • Chu also ordered Maxwell to pay restitution in an amount to be determined to John Foster, who spoke for 45 minutes about how Maxwell's theft of his identity left him broke and depressed. [...] For Foster, of Plymouth, the ordeal began in 2006 when he received a mortgage statement by mail for a north Minneapolis house about which he knew nothing. A Bloomington property also was purchased in his name, and he and his wife say they lost their good credit as well as retirement and college funds as a result of the scheme.

For the story, see Fraud earns ex-real estate agent a 15-year sentence (Judge says lack of remorse merited a longer prison term. He also was fined $500,000).

(1) Reportedly, the jury convicted Maxwell of nine counts of theft by swindle, six of aggravated forgery, two of identity theft and one of racketeering. Two other participants in the scheme pleaded guilty earlier.

Cleveland Grand Jury Brings 96-Count Indictment Against 12 In Alleged $14M+ Straw Buyer, Mortgage Fraud Racket; Left Home Sellers Clipped Out Of $3M

In Cleveland, Ohio, The Plain Dealer reports:
  • A Cuyahoga County grand jury indicted 12 people and three companies Friday in what prosecutors say was a brazen $14.7 million mortgage fraud scheme involving seven upscale houses - some with waterfront views. Prosecutors say a California woman orchestrated the scheme, enlisting the help of real estate agents, title agents, mortgage brokers, an appraiser and buyers who were all also indicted. Prosecutors said the enterprise involved fraudulent mortgage applications, exorbitant seven-figure loans - and a scam that resulted in the theft of more than $3 million from sellers who were misled into believing they were paying a relocation fee for the buyers.

  • In addition to alleged ringleader Susan Alt, 56, of Santa Monica, those indicted included two other California women - one described as the primary straw buyer - mortgage brokers from Florida and Texas, and six people working in Northeast Ohio at the time of the deals.(1)

***

  • The 96-count indictment follows an investigation by the Cuyahoga County Mortgage Fraud Task Force, which is composed of 16 federal, state and local enforcement agencies.

For more, see Cuyahoga County grand jury indicts 12 people, 3 companies in mortgage fraud scheme.

(1) According to the story, the companies that were indicted are: Equator Group, described by prosecutors as the shell company Alt used to launder money, and two companies that share a suite of Beachwood offices: Century 21 Homestar Realty and Homestar Title. Other individuals who were indicted include: Anthony Geraci, 39, of Mayfield, who prosecutors say owned and operated Century 21 Homestar; Deborah Brazalovics, 56, and her son Paul Brazalovics, 33, both of Wickliffe and both listed as having worked for Homestar Title; real estate agent Charlotte Gill, 38, who worked at Century 21 Homestar and who prosecutors now show with a Maine address, real estate agent Richard Kilfoyle, 51, of Chester Township, and appraiser William Werner, 39, of Cleveland.

Saturday, August 15, 2009

Lender Reposseses 500+ Units In Failed Condo Conversion Complex, Leaving Remaining Struggling Unit Owners With Uncertain Future

In Tampa, Florida, The Tampa Tribune reports:
  • The future is uncertain for another big Tampa Bay area condominium project that was foreclosed on Wednesday. Corus Bank, the lender for the $74.8 million Lansbrook Village Condominiums in Palm Harbor, took back the property after its Atlanta-based developer defaulted on payments, online Pinellas County court records show.

  • Condo owner Desmond Fowles said he thinks it's a good sign that the bank reclaimed the 509 units because the developer had failed to give the condominium owners association's board recent financial reports. "We feel it's a little positive," he said. "The bank is subject to more scrutiny than the developer." Developer Vista Properties also didn't replenish the board's reserves of $4 million. "The condos are 10 years old," said Fowles, who was at the Pinellas courthouse today to monitor the sale. "They're going to need new roofs in a couple of years. We don't have any resources." Fowles said he and other condo owners don't know whether the bank is going to raise unit dues for the reserve fund. Other owners are struggling, too, and in danger of foreclosure, Fowles said. "We don't know what is going to happen next," he said.

  • Lansbrook Village was converted from apartments to luxury condos when the real estate market was booming. Lansbrook's spiral has put it in the company of several other big condo or development projects to fold since the market crashed.

For the story, see Bank reclaims condo complex.

Aging Buildings, Developer Disputes, High Rate Of Absentee Landlords, Underwater Owners, Scarce Buyers Leave Condo Conversions In Deep Trouble

In South Florida, The Miami Herald reports:
  • Since 2003, when housing prices took off, more than 74,000 rental apartments were converted into condominiums in Miami-Dade and Broward counties, twice as many as the previous 50 years combined, according to state records of condo conversion applications. As the fallout from the housing collapse continues, the conversion market - largely a collection of aging garden-style complexes and dowdy mid-rise buildings - is shaping up as one of the biggest losers of the downturn. Most real estate analysts predict it will be the last submarket to recover since it is competing for scarce buyers with the swanky supply of new condos being marketed at cut-rate prices.

***

  • While almost all condos have faced plunging values, abysmal sales, high foreclosure rates and cash-strapped condo associations since the market took a dive two years ago, condo conversions have all those problems in the extreme, analysts said. Adding to their woes are aging buildings, developer disputes, high rates of absentee landlords and foreclosures of entire projects.

***

  • Grant Stern, a mortgage consultant in Bay Harbor Islands, who joined partners in converting an apartment building during the boom, estimates that between 10,000 and 20,000 units are severely underwater and at risk of being reverted to rentals. [One unit owner], for example, paid about $174,000 for a condo at the Mirassou conversion in Northwest Miami-Dade when the market was at its peak. Now similar units are being listed for about $50,000, he said.

For more, see Condo conversion values plummet farthest in housing bust.

High Cost Of Maintenance Has Struggling HOAs Looking Into Unloading Private Streets Onto Cities

In Riverside County, California, The Press Enterprise reports:
  • A Corona homeowners association has made a simple plea to the city: Take our street. Parkview Estates' struggle to come up with more than $10,000 a year to maintain the private 2 ½-block Ruth Circle that runs through its modest 17-home tract is symbolic of trouble faced by homeowners associations everywhere: They are losing hundreds of thousands of dollars because residents crippled by the economy are not paying monthly dues. Foreclosures are sitting vacant and some banks required to pay the monthly maintenance fees are not.

***

  • Lately, as the delinquency rate on dues doubles or even triples, [president of the California Association of Homeowners Associations Richard] Monson has been fielding similar calls from associations across the state asking if they can give their streets to local governments. His answer: They can ask, but it's up to the local governments to decide. He said he has not heard whether any city has accepted any association's street.

For more, see Corona homeowners association, suffering like others, wants to give away street.

Townhome Buyer Sues Developer For Refund As Crime, Foreclosures, Questionable Sales, Unwanted Renters Plague Failed Complex

In Riviera Beach, Florida, the South Florida Daily Business Review reports:
  • When Pamela Hart paid $275,000 for a townhouse in one of Cornerstone Group’s new developments in Riviera Beach, she thought she was making a great purchase. The 59-year-old county employee said she received a $10,000 discount when she bought what she believed was the last unit for sale in Sonoma Bay. But in 2007 soon after moving in, she said she learned that most of the units were vacant and that she had moved into a development plagued by crime, foreclosures, questionable sales and some unwanted renters.

  • After trying to get out of what she describes as a “living hell” that makes her fear for her safety and unable to sell her unit, she recently filed a lawsuit in Palm Beach Circuit Court against Cornerstone’s Sonoma Bay Inc. seeking to return the unit and unspecified punitive damages. Hart claims the developer marketed the property as an owner-occupied community but turned it into a rental community that is poorly maintained and is dangerous to live in.

***

  • According to the lawsuit, Sonoma Bay has rented some of the 60 developer-owned units in the 302-unit community to low-income renters under the federal Section 8 program. The city of Riviera Beach has an ordinance that prohibits developers from renting to recipients of Section 8 vouchers, the lawsuit said.

For more, see Buyer wants money back for townhome ‘hell’.

For the lawsuit, see Hart v. Sonoma Bay, Inc.

Couple Lets Home Go To Foreclosure After Dispute With Condo Association Over Source Of Mold Problem

In Golden Valley, Minnesota, the Minneapolis Star Tribune reports:
  • On July 15, at the roll call of heartbreaks known as the Hennepin County sheriff's mortgage foreclosure sale, a deputy called out the names of Denise Martineau and Mark Bufkin. It was the couple's last chance to pay up before the lender took their condo in Golden Valley. Martineau and Bufkin weren't there to answer. Martineau said they gave up on saving their home in the Villa on Bassett Creek after fleeing an outbreak of mold that rendered their unit "uninhabitable." From May through September 2008, the couple wrangled with their homeowner's association over the origin of the mold and who should pay to clean it up.

For the rest of the story, see An unwelcome tenant (When mold moved in, a couple decided it was time to move out.).

Countrywide Fights City To Stop Demolition Of Moldy Foreclosed Home

In Oshkosh, Wisconsin, The Northwestern reports:
  • A court will decide if an 11-year-old house in the city of Oshkosh that is filled with mold must be razed. [...] The city has issued raze or repair orders for the single-story home, but Countrywide Home Loans Inc., the Fort Worth, Texas mortgage company that owns the house, is seeking a court ordered injunction to stop the city from razing it. Countrywide, which obtained the house through foreclosure last year, claims it would be irreparably harmed should the city go through with the raze order, according to documents filed in Winnebago County Circuit Court.

***

  • Power to the house was shut off [during] the [foreclosure] process, resulting in a flooded basement and damage throughout the house. "There was eight inches of water in the basement, and it had been even higher judging from the mark on a door," said Allyn Dannhoff, the city's chief building inspector. Photographs of the home's interior at the inspector's office show extensive mold throughout. Michelle Staskiewicz lives next to the derelict house. [...] She'd like to see the mold-infested house next to hers razed if it could be done safely. She worries that a bulldozer would rile up mold spores and jeopardize her health and that of her neighbors.

For the story, see Owner of foreclosed home seeks injunction to stop demolition.

Suspect In Looting Of Unoccupied Home In Foreclosure Accidentally Busted By Victim; Found Peddling Ripped Off Items At Neighborhood Yard Sale

In Severn, Maryland, The Baltimore Sun reports:
  • A woman whose home was burglarized as she stayed with her daughter was shocked to spot her belongings offered at a neighbor's yard sale, Anne Arundel County police say. [...] Police said they found $25,000 worth of her clothes, furnishings and other possessions - even a fur coat - on the property.

  • The victim, who has been living with her daughter for several months while her home is in foreclosure, discovered Thursday that her house had been burglarized. On Saturday, she and her daughter were on the way to the house [...] in Severn to inventory the missing items before calling police. When they spotted the yard sale nearby, they "were shocked to realize that every item" came from the victim's house, according to charging documents. Stunned, the women stopped and told the seller he was peddling the woman's stolen goods. He admitted that the merchandise was hers, not his, and she called police, court papers say.

***

  • The seller told police that he bought the woman's belongings for $100 from a man who came by a few times, most recently about three weeks ago, in an aqua-colored pickup truck, according to charging documents. The officer, however, suspected that the seller had looted what he thought was an abandoned home. [...] The woman's belongings were returned to her. Police charged David Anthony Perticone, 46, [...] with burglary and theft. He was out of jail in lieu of $80,000 bail, according to court records.

For more, see Yard sale a shock for woman (Neighbor was selling her stolen goods, police say).

See also, United Press International: Woman finds her stolen goods for sale.

Friday, August 14, 2009

MERS Scores Big Win As Minnesota High Court Says Sale Of Note Not An “Assignment Of The Mortgage” Which Must Be Recorded Before Initiating Foreclosure

In St. Paul, Minnesota, the Star Tribune reports:
  • Minnesota's Supreme Court on Thursday handed a small victory to the battered mortgage industry. In a 6-1 decision, the court ruled that state law does allow the name of a widely used electronic registry of home mortgages, Mortgage Electronic Registration Systems Inc. (MERS),(1) to be listed as the mortgagee of record in thousands of foreclosures. [...] It decided that Minnesota law does not require the actual name of the note's owner -- the lender -- to be listed in records every time a loan changes hands, and that a "nominee's" name is enough.

***

  • Justice Alan Page(2) issued a dissenting opinion saying state law clearly requires that "all assignments" of the mortgage must be recorded. "It is apparent with the benefit of hindsight that the ability of lenders to freely and anonymously transfer notes among themselves facilitated, if not created, the financial and banking crisis in which our country currently finds itself," Page wrote. "As a result of our court's holding, namely, that the mortgage transfers between MERS members need not be recorded before a mortgage can be foreclosed by advertisement, neither borrowers nor lenders will ever be able to hold anyone in the chain of transfers accountable. That is not sound public policy."

For more, see Court ruling: Mortgage holders needn't be named (A Minnesota Supreme Court ruling means loan documents will remain hard to trace for those facing foreclosure).

See also, Minnesota Public Radio: High court upholds mortgage lenders' registry.

For the court ruling, see Jackson v. Mortgage Electronic Registration Systems, Inc., Case #A08-397 (August 13, 2009).

(1) The story describes MERS as a tracking system and doesn't own the loans. The registry attracted national attention as foreclosures began sweeping the country and it began representing lenders. MERS tracks some 60 million home loans across the country as they change hands, and during the boom, they were rapidly bundled and sold to bond investors on the secondary mortgage market. It's run by Merscorp Inc., a company based in Reston, Va., owned by an industry group including Countrywide Home Loans, Wells Fargo Bank and Fannie Mae.

(2) In a prior life, Justice Page played defensive end for the Minnesota Vikings of the National Football League and was inducted into the Pro Football Hall of Fame in 1988. EpsilonMissingDocsMtg

California Bar Obtains Attorney Resignations From Two, Files Charges Against Another In Connection With Alleged Loan Modification Scams

From The State Bar of California:
  • Continuing its aggressive pursuit of lawyers who commit professional misconduct by taking advantage of vulnerable homeowners, The State Bar of California announced [Thursday] that it has obtained the resignations of two lawyers and filed charges against a third for their loan modification activities. The State Bar's special team on loan modification complaints coninues to investigate more than four hundred active complaints from consumers about lawyers' roles in loan modification scams.

***

Among the State Bar's recent results:

  • On August 3, State Bar prosecutors obtained attorney Christian Dillon's (Bar No. 89376) resignation with charges pending. At that time, Dillon was under investigation for consumer complaints received by the bar regarding his affiliation with USMAC Law Group.

  • On August 4, State Bar prosecutors obtained attorney Nabile Anz's (Bar No. 183324) resignation with charges pending. Anz ran the Federal Loan Modification Law Center in Irvine.(1)

  • On August 5, State Bar prosecutors filed an application against attorney Christopher Diener (Bar No. 187890) who was affiliated with Home Relief Services, to have Diener enrolled involuntarily inactive. Bar prosecutors allege that Diener misrepresented the scope of his services to clients, collected advanced fees from clients under false pretenses, and failed to perform any services to obtain a loan modification on behalf of his clients. A hearing on that application is scheduled for August 28 in State Bar Court.(2)

The State Bar's Interim Chief Trial Counsel Russell Weiner issued this statement:

  • "The State Bar of California is firmly committed to its mission of protecting the public. As long as the need exists, this office will continue to devote substantial resources to the investigation and prosecution of attorneys who lose sight of their ethical responsibilities and take undue advantage of desperate homeowners under the pretense of helping them with mortgage loan modifications."(3)

For The State Bar of California press release, see State Bar Continues Pursuit Of Attorney Loan Modification Fraud.

(1) The Federal Trade Commission recently filed suit against this outfit. See FTC v. Federal Loan Modification Law Center LLP, et al. Go here for links to the FTC press release and some of the relevant court documents filed against this operation.

(2) California Attorney General Jerry Brown recently filed suit against this outfit. See People v. Home Relief Services, et al. (go here for California AG press release). Go here for Orange County Register story on the local D.A. raid of homes tied to this outfit's operators.

(3) Attorneys involved in the for-profit, loan modification racket may want to read over ETHICS ALERT: Legal Services to Distressed Homeowners and Foreclosure Consultants on Loan Modifications, a California State Bar advisory addressing the relationship between attorneys and non-attorney loan modification operators. UnauthPractOfLawTheta

Cops Seek Ohio Foreclosure Rescue Operator For Allegedly Screwing Homeowners In Foreclosure; Charges Of Theft, Securing Writings By Deception Pending

In Columbus, Ohio, WBNS-TV Channel 10 reports:
  • The alleged ringleader of an organization devoted to defrauding homeowners threatened by foreclosure was named to Crime Stoppers' most wanted list on Wednesday. Paul Hairston Jr. is being charged with theft, tampering and securing writings by deceptions, according to Crime Stoppers.

Source: Man Accused Of Defrauding Homeowners Threatened By Foreclosure.

Arrest Warrant Issued For Colorado Foreclosure Rescue Operator Accused Of Selling Houses Out From Under Financially Distressed Homeowners

In Denver, Colorado, the Denver Daily News reports:
  • A 31-year-old mortgage broker has been charged with multiple felonies after he was accused of scamming thousands of dollars from borrowers, investors and financial institutions. Kedrick McDuffie is accused of promising homeowners he could save their homes from foreclosure by having their original loans refinanced or taken over by another person. McDuffie allegedly sold the borrowers’ homes without their knowledge to private investors he worked with, collected brokerage fees from the sales, and stopped making payments on the loans, thereby allowing the properties to go into foreclosure. An arrest warrant has been issued for McDuffie, who is currently at large. His bond is set at $100,000.

Source: Man Charged In Brokerage Scam (2nd blurb from the top). DeedContraTheft

NY AG Sues Loan Modification Firm; Outfit Runs Illegal Upfront Fee Racket Engaging In Deceptive Practices That Fails To Deliver On Promises, Says Suit

From the Office of the New York Attorney General:
  • Attorney General Andrew M. Cuomo [Thursday] announced that his office has filed a lawsuit against New York-based American Modification Agency, Inc. (“Amerimod”), one of the largest foreclosure rescue companies in the country, and its owner Salvatore Pane, Jr. for engaging in a wide variety of deceptive business practices and false advertising to induce beleaguered homeowners on the brink of foreclosure to sign up for their services.(1) [Thursday's] lawsuit is part of Cuomo’s ongoing investigation into foreclosure rescue scams that target New York homeowners.

For the entire press release, see Cuomo Announces Lawsuit Against “Amerimod” Loan Modification Company To Protect Distressed Homeowners Facing Foreclosure (Long Island-Based Company Charged Illegal Up Front Fees and Failed To Obtain Promised Help for Homeowners; Suit Seeks Refunds for Thousands of Customers and Court Order Shutting Down Company).

(1) The lawsuit asserts that Amerimod:

  • Fails to obtain loan modifications for the vast majority of its customers, many of whom end up in foreclosure or negotiate loan modifications on their own;

  • Illegally charges thousands of dollars in up-front fees, and fails to refund these fees as promised when loan modifications are not obtained;

  • Engages in deceptive and misleading practices by grossly exaggerating its success rate, making false promises about its ability to save customers’ homes, underestimating the amount of time it takes to achieve a loan modification, and misrepresenting that the company is a law office and that lawyers will work on customers’ files;

  • Makes false guarantees of 100% customer service when, in fact, once Amerimod has collected its up-front fees, its representatives often fail to return calls of customers facing imminent foreclosure who are desperately seeking a status update on their files;

  • Makes false and misleading statements on its website, in newspaper advertisements, and in radio advertisements;

  • Fails to include legally required disclosures and notices in its customer contracts, including notice of a customer’s right to cancel a contract within five business days;

  • Provides detrimental advice to customers, such as recommending that they stop making monthly mortgage payments, ignore communications from their lenders and avoid consulting with non-profit housing counseling agencies;

  • Targets Spanish-speaking consumers who are signed up by Spanish-speaking representatives, and then fails to provide the consumers Spanish-language contracts as required by law.

Florida Man Charged With Conning "Fiance" Into Selling Her Home, Then Bilking Her Of $300K In Sale Proceeds

In Broward County, Florida, The Miami Herald reports:
  • Rose Marie Anglade thought she was building a life with the man of her dreams. After meeting him during a visit to Florida, she sold her home in Queens, moved her family to Miramar and began planning a wedding. She had no idea he was making the same plans with another woman -- at the same time. Now, the 49-year-old mother of two has an empty bank account, letters from collection agencies, no husband and lives in a home she knows could be taken from her tomorrow. "Any day now I could be chased from my house,'' Anglade said Wednesday.

  • Anglade's hopes for redemption now lie with the Broward Circuit Court. Her former fiancée, alleged "Gentleman Bandit'' Paul Francois, was arrested Wednesday and charged with two counts of grand theft and running an organized scheme to defraud. Francois, according to his arrest warrant, swindled Anglade and at least one other New York woman, Sheila Brissault, out of nearly $400,000 during the last two years. He promised to marry each woman if she sold her home and moved in with him in South Florida. Investigators say Francois charmed both women into either giving him checks or creating joint bank accounts with him. Then he took off with all the money. When they told him to return it, he threatened their lives and their families, according to his arrest affidavit.

  • For Brissault, the relationship resulted in a loss of more than $100,000. She never sold her home and did move to South Florida, but she did give Francois the money to use to buy a home for them, according to the affidavit. For Anglade, Francois' alleged scam stole not just the nearly $300,000 she made when she sold her Astoria[, Queens] home, but her pride, freedom and possibly her shelter. Now she buys her groceries with borrowed money or cash made from pawned jewelry and television sets.

For more, see `Gentleman Bandit' from Davie may have stolen more than hearts (A `Gentleman Bandit' is accused of convincing two women to sell their New York homes and move in with him -- only to leave them empty-handed).

See also, Fiancée Fraudster Bilked Would-Be Brides (Scoundrel duped two South Florida women out of hundreds of thousands).

Thursday, August 13, 2009

California AG Orders 386 Loan Modification Outfits To Immediately Register & Post $100K Bond Or Face Prosecution

From the Office of the California Attorney General:
  • Threatening possible criminal and civil prosecution, Attorney General Edmund G. Brown Jr. [Wednesday] ordered 386 mortgage foreclosure consultants to post $100,000 bonds and register with his office. He also ordered more than two dozen companies to justify suspicious loan modification claims made in "slick advertising," online and through the mail. "Hoping to lower their mortgage payments, thousands of homeowners were instead duped by slick advertising and money-back guarantees," Brown said. "The time for accountability is at hand, and this rogue industry must clean itself up or face legal action," Brown added. Brown also unveiled a new website ( http://ag.ca.gov/loanmod) that provides homeowners tips to avoid loan modification fraud, allows them to determine if a company is registered with his office and makes it easier to file complaints.

  • Brown [Wednesday] joined with the California Department of Real Estate and the State Bar of California in a new partnership to combat loan modification and foreclosure fraud. Brown has sent letters directing 386 mortgage foreclosure consultants to register with his office within 10 days and post $100,000 bond, or demonstrate why they are not required to. If the consultants are required to register and have failed to do so, they are subject to criminal penalties of up to a year in jail and fines ranging from $1,000 to $25,000 per violation. [...] Additionally, Brown sent letters [Wednesday] demanding that 27 loan consultants substantiate suspect claims made on the internet and in direct mail advertising.

For the entire press release, see Brown Orders Mortgage Foreclosure Consultants to Post $100,000 Bond or Face Prosecution.

For copies of the seemingly idiotic claims that 27 of these loan modification rackets are making in their advertising to the general public in marketing their services, along with the California AG's formal written demand under Section 17508 of the California Business and Professions Code (relating to prohibitions against false advertising) to each of these outfits to substantiate their claims within 20 days, see California AG's August 12, 2009 "Prove It" Letters.

For more from the California Attorney General on this matter:

Maryland Co-Conspirator Gets 54 Months For Role In Bogus Sale Leaseback, Foreclosure Rescue Scam; To Forfeit $2.25M In Proceeds From Criminal Acts

From the Office of the U.S. Attorney (Maryland):
  • U.S. District Judge Deborah K. Chasanow sentenced Earnest Lewis, age 52, of Takoma Park, Maryland, [Wednesday] to 54 months in prison, followed by three years of supervised release, for conspiracy to commit wire fraud arising from a scheme in which the conspirators offered to help financially vulnerable individuals save their homes from foreclosure, and instead defrauded homeowners and mortgage lenders, announced United States Attorney for the District of Maryland Rod J. Rosenstein.(1) Lewis previously agreed to forfeit $2,228,878, generated as proceeds of the criminal activity [...].

***

  • According to Earnest Lewis’ plea agreement, from at least 2004 until May 2008, Michael Lewis aired television advertisements that targeted financially vulnerable individuals, representing that he could improve their credit, save their homes from foreclosure and assist them with bankruptcy. [...] Together with Michael Lewis, Earnest Lewis and Winston Thomas specifically targeted individuals who owned and had equity in their homes, but were facing foreclosure on their homes because of their inability to make monthly mortgage payments. The co-conspirators fraudulently represented to the homeowners that their “lease/buy-back program” would help the homeowners to keep their homes.

For the entire press release, see Conspirator Sentenced to over 4 Years in Jail in Mortgage Fraud Scheme.

See also, WBAL-TV Channel 11: Man Gets 4 Years In Jail For Mortgage Fraud (Earnest Lewis, Brother Convicted Of Conning Homeowners).

Go here for earlier posts on this prosecution.

(1) Cheryl Brooke, age 52, of Upper Marlboro, Maryland, and Winston Thomas, age 43, of New Carrollton, Maryland pleaded guilty to their participation in the scheme; sentencing is scheduled for Brooke and Thomas on September 11, 2009 and September 21, 2009, respectively. Michael K. Lewis, age 57, of Takoma Park, Maryland pleaded guilty to conspiracy and bankruptcy fraud in connection with the scheme and is scheduled to be sentenced on September 3, 2009. financial diet

D.C. Resident Victimized By Bogus Sale Leaseback Foreclosure Rescue; Family Home For Over A Century Lost In Scam

In Washington, D.C., Washington City Paper reports:
  • There’s long been an O’Brien on Acker Place, and Anita O’Brien wants to keep it that way. Her great-grandfather, Lewis, purchased the redbrick rowhouse at 660 Acker—a one-block street with narrow brick sidewalks and thin trees—in 1902. The Capitol Hill property drifted among relatives until her grandfather bought it during the Great Depression. Her father grew up there, traveling up its well-worn wooden staircase to the three small bedrooms above. And nearly 25 years ago, Anita O’Brien moved in herself with her three children. Unfortunately, right now, she’s not sure who owns it—but she knows it’s not her. O’Brien is the target of a foreclosure “rescue.”

  • In 2004, she defaulted on a refinancing loan. After the bank began foreclosure proceedings on her house, the 59-year-old was approached by a woman who said she would take the title of the house, pay O’Brien’s mortgage, then sell the home back to her later. In the meantime, she could keep living there and pay a more reasonable rent. O’Brien agreed. But four years later the home went into foreclosure again—and this time, she had no legal rights to it.(1)

***

  • These kinds of cases have been around a long time,” says Wendy Weinberg, a lawyer with the Legal Aid Society of the District of Columbia. “They’ve just gotten a lot worse.” "The profile is mixed,” says Weinberg. The schemes range from highly organized operations involving hundreds of properties, many individuals, and millions in equity, to one-time, opportunistic deals. “On the smaller scale, you sometimes see family members doing it to each other,” says Weinberg. “Particularly you sometimes have grandchildren or children stealing title of the home from an olderperson, either from getting power of attorney or misrepresenting what the documents are.”(2)(3)

For more, see Title Wave: Where Not to Turn for Foreclosure Assistance.

(1) According to the story, when the transfer occurred on October 18, 2004, O'Brien had an outstanding loan of $149,001, according to foreclosure filings. For the next few years, O’Brien paid rent to India Rogers and Taofik Gbadomosi, up to $1,500 a month. They, in turn, were supposed to be paying her mortgage. But in September of last year, yet another foreclosure notice on the property was filed, saying that $416,075 was owed. O’Brien was stunned—there was nearly $267,000 more tacked onto her outstanding loan. It appeared Gbadomosi and Rogers had borrowed against the value of her house.

(2) In similar Washington, D.C. home equity ripoffs, see:

In addition, a 1988 ruling of the District of Columbia Court of Appeals supports the proposition that a home equity ripoff involving a sale of real estate with a contemporaneous leaseback of the premises to the seller, coupled with a right to buy back the property is nothing more than an usurious equitable mortgage. In Browner v. Dist. of Columbia, 549 A.2d 1107 (D.C. 1988), the D.C. high court made the following observation on the foreclosure rescue, equity stripping sale leaseback arrangements it considered:

  • Moreover, if the transactions were in fact sales, as [the foreclosure rescue operators] contend, they were surely most extraordinary ones. When a homeowner sells his home, which is usually his most valuable possession, one would expect at least some measure of bargaining over the sales price. Here, there was none. In each instance, what the [foreclosure rescue operators] characterize as the "sales" price bore no relation whatever to the value of the equity. It is absurd to suggest that Mrs. Carroll would knowingly sell her home, in which she had an equity of more than $36,500.00, for $8,100.00. None of the "sellers" had placed his or her home on the market or expressed the slightest interest in selling it. Each "seller" remained in possession after the purported sale, and [the foreclosure rescue operators] were indeed depicting their service as one that would enable their clients to "save" their homes from foreclosure. Although the transaction also lacked one of the common characteristics of a loan -- an evaluation of the borrower's credit -- no such investigation was needed because the home itself, which in each case was worth far more than the amount expended by the [foreclosure rescue operators], served as their security. It was therefore altogether reasonable for the trial judge to find that the depiction of each of these transactions as a sale and lease back was a transparent sham which masked an unlawful loan.

See also, Sale Leaseback Recharacterization As Loan Results In Criminal Conviction.

(3) Inasmuch as Ms. O'Brien never relinquished and continues to maintain possession of her home, it may be that a successful attempt on her part to establish either that:

  • she was defrauded out of her home, or
  • the sale leaseback was nothing more than an equitable mortgage

could result in defeating the rights of any subsequent purchaser and mortgage lender on the basis that neither qualify for status as bona fide purchasers. Generally, when property is either sold or mortgaged subject to the occupancy and possession by another, the purchaser/lender is charged with a duty to inquire of the occupants as to the nature of their possession. Where such an inquiry would have uncovered the fraud by a foreclosure rescue operator, the purchaser's (or lender's) failure to make such an inquiry legally places it on notice of the fraud, thereby disqualifying it from the protection of the recording statutes as a bona fide purchaser. The bottom line in such an event would be that, after an adjudication in court that the transaction constituted a fraud or equitable mortgage, the ownership in Ms. O'Brien's home could likely be reinstated in her name, and the subsequent conveyances, and any subsequent mortgages, would be voided.

See, for example, Martinez v. Affordable Hous. Network, Inc., Case No. 04SC421, 123 P.3d 1201; 2005 Colo. LEXIS 1075 (Colo. 2005) (may require free regestration to FindLaw.com).

For case law addressing the effect of possession of real estate by an occupant other than the vendor and a real estate purchaser's duty to investigate when seeking the protection of the recording statutes as a bona fide purchaser, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.

See also, Ownership Interest Under Equitable Mortgage Defeats Interest Of Subsequent Buyer; Lack Of Knowledge Not Enough To Sustain Bona Fide Purchaser Status.

Housing Discrimination Rampant on Internet?

From a press release from the National Fair Housing Alliance:
  • In a report released [Tuesday], the National Fair Housing Alliance (NFHA) documents how thousands of illegal housing advertisements appear with impunity on the Internet every day. "FOR RENT: NO KIDS! How Internet Advertisements Perpetuate Discrimination" calls upon Congress to stop the flood of discriminatory housing advertisements on the Internet by amending the Communications Decency Act of 1996.

***

  • Although newspapers have been held liable under the Fair Housing Act for publishing discriminatory housing advertisements with statements such as "no kids," or "couples only," the publishers of similar ads on the Internet have not. A loophole in the Communications Decency Act of 1996 has allowed Internet advertising providers to escape liability under the Fair Housing Act by holding them to a different standard than print media.

***

  • [Tuesday's] report follows a lawsuit NFHA filed last month [press release, lawsuit] against American Classifieds, LLC, the nation's largest classified advertisement publisher, for publishing housing ads in 17 states saying that children are not allowed.

For the entire press release, see Housing Discrimination Rampant on Internet (National Fair Housing Alliance Report Urges Congress to Stop Online Discrimination).

For the report, see FOR RENT: NO KIDS! (How Internet Housing Advertisements Perpetuate Discrimination).