Video "Tutorial" Demonstrates Use Of Dubious Affidavits, Assignments, Notary Acknowledgements By Lender, Law Firm In Foreclosure Actions

In Central Florida, St. Petersburg foreclosure defense attorney Matthew Weidner writes in his blog on a five-part video that hit You Tube last week that provides a great tutorial for the average homeowner interested in learning how foreclosing lenders and the foreclosure mill law firms that represent them use fraudulent affidavits, assignments, and document notarizatons in the course of processing a typical foreclosure. He says:

• A reader of my blog emailed me [five] short YouTube Videos that shows in black and white in papers filed in courts across the country how employees of law firms and lenders are creating false affidavits and assignments then submitting these in courts as part of the Bank's campaign to take borrower's homes even though they have not established the legal right to do so. I love his quote, which I have printed above and give him great credit for pulling together video and documents that demonstrate some of the notary\affidavit fraud that is rampant in foreclosure cases around the country.

***

• What these clips demonstrate is how law firms file foreclosure cases on behalf of lenders but then don't bother to have the proper paperwork they need to file the case created until after the case if filed. I have previously posted information about a woman named “Erica A. Johnson-Seck”. According to a deposition transcript taken of Ms. Seck and posted on this blog elsewhere, one of Ms. Seck's primary job functions is to sign the Assignments of Mortgage that banks use to throw a borrower out of a home.(1) What these videos demonstrate is that there are a handful of people like Ms. Seck whose job it is to sit in offices across the country, signing documents allegedly on behalf of lenders and MERS, which documents then form the basis for the lender to throw the borrower out of the home.

For more, see Foreclosure Fraud - Video Examples of False Affidavits Filed in Courts Across The Country ("You Can’t Have An Omelet If The Chicken Hasn`t Laid The Egg Yet!").

For the links to the 5-part You Tube video Bank Foreclosure Fraud (made available online courtesy of DinSFLA's Channel - STOP Foreclosure Fraud, on You Tube), see:

• Part 1: How They Do It ... Erica Johnson-Seck - THANKS!,
• Part 2: The Truth .... Assignment Conflicts,
• Part 3: They hide behind Pretender Lenders,
• Part 4: "Who Owns These Notes" DISCLOSED! DISCOVERY!,
• Part 5: Save the Best For Last ... CONCEALMENT ... CONSPIRACY ... WIRE FRAUD!!

(1) Go here for Erica Johnson Seck's deposition, go here for a Motion For Sanction Of Dismissal With Prejudice in connection with the same litigation, and go here for links to other posts on Erica Johnson-Seck (available online courtesy of 4closureFraud - Fighting Foreclosure Fraud by Sharing the Knowledge).

Go here for other posts on attorney Matthew Weidner's blog referencing Erica Johnson-Seck.

Go here for other documents on fighting foreclosure, available online courtesy of 4closureFraud.

Illinois AG Targets Pair Of Mortgage Brokerages For Alleged Use Of Deceptive Marketing Practices In Peddling Reverse Mortgages To Seniors

From the Office of the Illinois Attorney General:

• Attorney General Lisa Madigan [...] filed lawsuits against two mortgage brokers for using unfair and deceptive marketing practices to solicit seniors for reverse mortgages. “These companies used extremely misleading language in their advertising, sometimes even disguising their loans as government benefits that borrowers don’t have to repay,” Madigan said.

• “Many consumers have reported that they didn’t even know these offers were for reverse mortgages or a loan of any kind. That is unacceptable. Reverse mortgages are complex loans that should be taken out only after a consumer has had an opportunity to carefully consider his or her financial future and consult with a qualified housing counselor.”(1)

For the Illinois AG press release, see Madigan Sues Two Reverse Mortgage Brokers for Using Deceptive Marketing Practices To Target Seniors.

See also, Courthouse News Service: Illinois Company Scams Seniors, State Says.

For one of the lawsuits, see The People of the State of Illinois v. Hartland Mortgage Centers, Inc. (available online courtesy of Courthouse News Service).

(1) Madigan lawsuits targeted Woodridge, Ill.-based Hartland Mortgage Centers, Inc. (filed in Cook County) and Irvine, Calif.-based American Advisors Group, Inc., and its company president, Reza Jahangiri (filed in Sangamon County). Among the allegations made in the lawsuits is the use of solicitations that:

• make a series of claims that falsely imply that seniors could be eligible for lifetime monthly income or lump-sum payments that are part of government benefit programs offered to all seniors. In fact, however, the defendants are offering loans that must eventually be repaid,

• include false claims such as: “President Obama’s Economic Stimulus Plan Helps Seniors. If you are 62 years of age or older, you may be eligible to take advantage of an important U.S. Government Insured Program” and “The United States Congress has authorized a Reverse Lending program you do NOT have to pay back as long as you live in your home!”,

• mislead consumers into believing that the reverse mortgages would only be offered for a short time, with many of the defendants’ mailers including purported “expiration dates.”

Short Sale, Reverse Mortgage Ripoffs Make FBI's 2010 List Of Top Five Real Estate-Based Scams

From the Office of the FBI (Salt Lake City):

• Is someone letting you live in a home for free? Did a builder offer you deep discounts to move into a newly constructed house? Has a company offered to refinance your mortgage for a fee?

• If the answer to any of these questions is “yes,” then you may be a victim of a scam. FBI special agents and the state investigators with the Utah Division of Real Estate have compiled a list of top five mortgage related scams in 2010.

For the FBI's list, see Salt Lake City FBI and Utah Division of Real Estate Name Top Five Mortgage Scams in 2010.

Pennsylvania Lawmakers Consider Making It Easier To Acquire Real Estate Through Adverse Possession; Aim Is To Reduce Blight, Say Supporters

In Pittsburgh, Pennsylvania, the Pittsburgh Post Gazette recently ran a story reporting that the state legislature is considering making it easier for people to acquire real estate through adverse possession. A bill proposes reducing the required time frame for filing an adverse possession lawsuit from 21 to 10 years, and in some rare cases only three years.(1) According to the story:

• While the idea of taking another's property for one's own use without paying could be considered a hostile act, the spirit of the bill, supporters say, is to reduce blight. They argue that reducing the time frame required to file an adverse possession claim could reduce the likelihood that someone maintaining a home would abandon it, in turn helping stabilize vulnerable neighborhoods and improving the real estate tax base.

• The Pennsylvania Bar Association, which represents more than 29,000 lawyers throughout the state, is opposed to making it easier for anyone to acquire someone else's property. "The bar's concern is that [the bill], as written, may have the unintended results of encouraging speculators to act as squatters who seize property from distant property owners, and increasing the potential for disputes between and among neighbors and family members as to the title to real property," said Louis Kodumal, an attorney at Vincent B. Mancini & Associates in Media, in southeastern Pennsylvania, in testimony before the state House Urban Affairs Committee in September.

For more, see Proposed change in law would benefit those who live in dwellings they don't own.

(1) The story profiles Kenneth Bumbrey, a Pittsburgh resident who is attempting to use adverse possession to acquire the home he has been living in for the last 23 years. The home was once co-owned by his grandmother and an aunt. Mr. Bumbrey's grandmother's will left her half interest in the property to six beneficiaries and their heirs. The other half interest belonging to the aunt passed to her only child, who ended up with a majority interest. Mr. Bumbrey's mother was one of six beneficiaries under the will. When she died in 1987, her share passed to her five children. As beneficiaries keep dying, their interests passed to their heirs, giving rise to an increasing number of fractional ownership interests in the home, which is currently co-owned by Mr. Bumbrey (who, by my calculation, owns a 1/60 "sliver" of title in the home - 1/2 x 1/6 x 1/5) with relatives scattered around the country (some of whom, he says, he may not even know). "There is just a zillion fractional interests making up now 40 percent of the property," a local housing advocate familiar with the case said.

Brookyn DA To General Public When Seeking Legal Assistance In Real Estate Deals: "Get An Honest Lawyer!"

In a New York Daliy News story on the recent announcement of indictments obtained by Brooklyn District Attorney Charles J. Hynes against a dozen suspects, including three current or former attorneys, allegedly involved in various unrelated, real estate-based swindles, DA Hynes offered some words of wisdom to the general public when seeking legal assistance in real estate transactions, as reflected in this excerpt:

• "Ordinarily, in real estate deals, you would say, 'Get a lawyer,'" said Hynes. "Now you say, 'Get an honest lawyer.' You have to pay attention to the lawyers you hire, you have to get referrals."

Source: 3 lawyers and correction officer among 12 charged with real estate fraud.

Report: $200M Central Florida Mortgage Fraud Probe In The Pipeline; Ringleader, Title Agent Come Clean; Cooperate With Feds In Effort To Sack Others

In Central Florida, the Sarasota Herald Tribune reports:

• Craig Adams, orchestrator of one of the largest real estate fraud rings in Florida history, has secretly spent more than a year and a half as an FBI informant, helping build cases against the people he once recruited into his schemes, the Herald-Tribune has learned. Federal court records show Adams has agreed to plead guilty to conspiracy charges at a later date and has pledged his help in an attempt to earn leniency. In at least one instance, Adams wore a wire to record a conversation with a key business associate.

• So far he has laid bare at least $200 million in fraudulent property deals, incriminated more than 30 of his former business partners and given the FBI enough evidence to arrest his longtime title agent, Lisa Rotolo, the court records show. Adams' role as informant is described in a federal criminal complaint related to Rotolo's April arrest. [... Husband] Jay Rotolo told the Herald-Tribune his wife is also cooperating with what U.S. Attorney Brian Albritton's office calls an ongoing investigation.

• "My wife has been working with the FBI for a year now," Jay Rotolo said. "Do you know what kind of a position this story puts her in? Yes, she got her finger in a mess, but we have never profited from any of this." The Rotolo complaint and supporting affidavit provide a glimpse into what could become the FBI's largest mortgage fraud case in Florida.

For more, see FBI builds its case in flipping schemes.

Go here for Federal complaint against Lisa Rotolo.

For earlier Sarasota Herald Tribune stories on this probe, see:

• The king of the Sarasota flip,
• Title agent closed 100 Adams deals.

Trio Of "Legal Eagles" Among "Dirty Dozen" Bagged By Brooklyn DA In Unrelated Alleged Real Estate Swiping Scams

In Brooklyn, New York, the Brooklyn Daily Eagle reports:

• Real estate fraudsters and rogue attorneys exploiting “a new breed of crime” were targeted Thursday by Kings County District Attorney Charles J. Hynes at a press conference announcing several recent mortgage fraud cases in Brooklyn. Hynes’ office has indicted 12 people for real estate crimes allegedly committed over the past several years, and as Hynes pointed out, several of the white-collar fraudsters were attorneys or otherwise close to the court system.

***

• In one case, attorney Alan Rocoff is accused of blatantly stealing profits from the auction of a foreclosed church(1) that he was handling as court-appointed referee. Before dying in 2008, Pastor Robert Booker Sr. spent years in court trying to get back $218,000 in profits from the sale of the foreclosed church, which Rocoff auctioned off for $300,000 in 2005.

***

• [In a second alleged scam,] One senior citizen and Marine Park homeowner, Jean Kemp, received a phone call in October 2009 demanding that she pay off the mortgage on her property. She thought it was unusual, since Kemp and her husband paid off their mortgage in 1987. “My house has always been my house!” said Kemp, a former banker. After reporting the strange call to state Sen. Carl Kruger (D-Brooklyn), who was at the press conference, Kruger’s attorneys discovered that a new $225,000 mortgage had been filed on the house by suspects Jarret Haber, an attorney, and Victor Koltun, both now charged with grand larceny.

• Another [alleged] scam, involving a property in Borough Park, was allegedly committed by former attorney Alexander Landy, who was only a member of the bar from 2003 to 2006 before resigning over charges that he stole client funds. Landy allegedly got a $500,000 mortgage from Washington Mutual to buy the property in question. However, he ran the title agency responsible for filing the deed and mortgage, but did neither, and later sold the building without paying Washington Mutual.

• D.A. Hynes informed to [sic] attendees that the New York State Lawyers’ Fund for Client Protection, which is supported and funded by attorneys across the state, can pay up to $300,000 to people who have been robbed by their attorneys.(2)

For more, see Rogue Attorneys Indicted in Mortgage Scandal.

See also, Kings County District Attorney press release: Kings County District Attorney Charles J. Hynes, New York State Senator Carl Kruger And United States Senator Charles E. Schumer Announce Charges Against 12 People, For Real Estate And Mortgage Fraud.

(1) Some refer to this maneuver as "stealing the surplus." The "surplus" refers to that portion of the proceeds from a foreclosure sale over and above the funds needed to pay off what is owed to the mortgage lender initaiting the legal action. The surplus legally belongs to the foreclosed property owner, subject to any claims of subordinate lienholders, and assuming that neither of the following has already occurred:

• an unwitting foreclosed property owner hasn't already been conned into signing away some or all of his/her rights to the surplus via an assignment to a scammer (See, for example, NJ AG, Consumer Affairs File Suit Against "Foreclosure Surplus" Chaser); or
• a scammer hasn't already stolen the surplus by creating a forged assignment of said funds, filing it in court, and then petitioning the court for a disbursement of the funds (See, for example, NYC Man Accused Of Using Forged Documents In Attempt To Swipe $128K From Foreclosed Homeowner In Alleged "Surplus Scam").

(2) At the risk of nauseating regular readers of this blog with this continual reminder, for those who have been screwed out of their money and property by reason of the dishonest conduct (as opposed to careless or incompetent conduct, which doesn't qualify) of their attorneys licensed throughout the U.S. and Canada, and seek to recover some or all of the stolen loot, see:

• Directory Of Lawyers' Funds For Client Protection (American Bar Association);
• Check the USA Client Protection Funds Map;
• Check the Canada Client Protection Funds Map.

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

Bay Area Man Accused Of Swiping Three Condos Thru Forged Deeds, Then Pocketing $2.2M From Subsequent Refinance

In San Francisco, California, the San Francisco Chronicle reports:

• A 45-year-old San Francisco tennis instructor has been charged with fraudulently obtaining ownership of three high-rise condominiums and borrowing $2.2 million against them. Winston Lum appeared Friday in San Francisco Superior Court but did not enter a plea to 16 felony counts including charges of grand theft, identity theft and forgery, related to a scheme that prosecutors called "an act of hubris difficult to fathom." Lum, who runs a tennis business called Slam and Bang Tennis, was being held on $7.5 million bail.(1) He does not yet have an attorney.

• Prosecutors say that starting in January 2009, Lum forged the true owner's signatures on grant deeds for three condominiums at One Rincon Hill, put them in his name and recorded them with the city. He then borrowed $2.2 million against the units, which are worth a total of $7.5 million, prosecutors said.

• The owner of the properties, identified in a civil lawsuit as Shirley Hwang, had never even met Lum, let alone authorized the transactions, prosecutors said.(2) She sued Lum and his lender, De Witte Mortgage Investors Fund, last year. A trial is set for May. "The whole thing is terrible," said Thomas Mayhew, Hwang's attorney. "Their own forgery expert confirmed that the signature on the deed was not hers ... but they still won't release the mortgage" out of Lum's name.

Source: Tennis teacher accused of condo scam.

(1) Reportedly, Lum was free on $45,000 bail at the time of his arrest while awaiting trial for separate burglary and theft cases, court records show. Those cases are still pending.

(2) Authorities say Hwang became suspicious when she started getting mail for Lum at her home, according to the story. She went to police in March after the management told her she no longer owned the unit in which she lived, the story states.

Sloppy "Sewer Service" Leads To Another Void Foreclosure Judgment

A recent court ruling by the Indiana Court of Appeals voiding a default judgment in a foreclosure action serves as a reminder to all attorneys and process servers (as well as homeowners who are fighting off foreclosure) that, when initial attempts to personally serve the defendants with the lawsuit fails, a diligent search for them must be made and properly documented before an alternative manner of serving the lawsuit can be used. Further, when the alternative manner is used, failure to comply with all the statutory technicalities associated therewith will provide additional grounds to render the judgment void.

In this case, representatives for a foreclosing first mortgage holder used minimal efforts (an online "People" search on Yahoo) in a failed attempt to locate the whereabouts of a second mortgage holder (an individual) to effect personal service before utilizing the alternative manner.- publishing the summons in the local newspaper. The court also found that compliance with the required statutory technicalities when opting for this manner of service was lacking. Consequently, the appeals court ruled that the lower court did not acquire personal jurisdiction over the second mortgage holder, thereby rendering the default judgment void.

For the specific facts in the case and the court ruling applying Indiana law, see Yoder v. Colonial National Mortgage, No. 32A01-0908-CV-393 (Ind. Ct. of App., February 3, 2010). sewer service

Ft. Myers Lawyer Hoses Couple Seeking Loan Mod Help; Accused Of Going AWOL w/ Clients' Trust Acct Cash; State Bar Obtains Emergency License Suspension

In Fort Myers, Florida, The News Press reports:

• Last summer, it became clear to Brett and Nancy Pezzella they could no longer make the $1,900 mortgage payments on their Lehigh Acres home. Nancy had lost her job. They just couldn't afford it. After getting a referral from another law firm, Brett contacted Fort Myers attorney Joseph Troiano.

• Troiano said that for a $3,000 fee, which Pezzella paid over three months, he could get the bank to modify the Pezzellas' mortgage. He started working on their case last June but didn't make much progress. "It seemed like (Troiano was) always losing our paperwork," Brett Pezzella said. Then the situation got worse. Troiano wouldn't respond to calls or e-mails. When the Pezzellas decided to pay Troiano an unannounced visit last week, they found the office closed and an eviction notice tacked to the door.

***

• On Jan. 19, the Supreme Court of Florida suspended Joseph Anthony Troiano from the practice of law until further notice. A week earlier, the Florida Bar filed a petition for emergency suspension stating the facts "establish clearly and convincingly that (Troiano) appears to be causing great public harm by the misappropriation of client trust funds."

• The Florida Bar presented two affidavits in support of its petition. One was from a client in Texas who said a $10,000 check Troiano wrote him Dec. 31, 2009, bounced. The account was supposed to have about $450,000 in it left over from the $1.1 million the client had entrusted to Troiano for various real estate investments. The second affidavit was from Troiano's office manager, Judith Carson. According to Carson's affidavit, the bank had returned checks totaling $197,432 for a trust account with insufficient funds. And five checks totaling $6,222 from the firm's operating account also had bounced.(1)(2)

For more, see Fort Myers lawyer goes missing, and so does money in his care.

(1) In addition to the legal trouble with the Florida Bar, Citimortgage filed foreclosure lawsuits last summer against Troiano and other co-owners of three units a high-rise luxury condominium in downtown Fort Myers, the story states.

(2) The Florida Bar's Clients' Security Fund compensates people who have been victims of of misappropriation or embezzlement of cash or property by a Florida-licensed attorney. For those ripped off by dishonest attorneys in other states and Canada, see:

• United States: Directory Of Lawyers' Funds For Client Protection (courtesy of the American Bar Association);
• United States: Check the USA Client Protection Funds Map;
• Canada: Check the Canada Client Protection Funds Map.

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

Feds Continue Probe Into Now-Defunct Closing Agent Accused Of Illegally Pocketing Real Estate Escrow Cash Intended To Pay Off Existing Mortgages

In Luzerne County, Pennsylvania, The Times Leader reports:

• The U.S. Secret Service is still actively investigating Priority Search Inc., a defunct Kingston title search company, for allegedly keeping money owed to property sellers, according to Secret Service spokesman Bob Slama. Slama could not comment on the ongoing investigation, but an insider said charges are expected to be filed soon.

• Dozens of victims have contacted the Secret Service to report claims against Priority Search, a Secret Service representative said in March. The U.S. Attorney’s Office also is involved in the investigation. The investigation became public in November 2008 after property sellers publicly complained that the company kept money from buyers that was supposed to be used to pay off mortgages and other outstanding property bills.

For more, see Area firm still under fed probe (Now-defunct title search company in Kingston allegedly kept cash owed to property sellers, Secret Service says).

(1) As a result of the closing agent's failure to pay an existing mortgage, the home seller in one case reportedly found itself in the position of having to sue his innocent homebuyer in order to get the buyer's title insurance underwriter to cough up the cash pursuant to the terms of the buyer's title policy.

Nebraska Supreme Court Ruling A Reminder That Signed Contracts In Sale Leaseback, Foreclosure Rescue Deals May Not Be Binding

A 2005 court ruling by the Nebraska Supreme Court ordered an Omaha-based foreclosure operator to return home titles to a dozen victims who were duped into signing contract documents based upon assertions that the papers were merely refinancing documents, when in fact they constituted title transfers of their homes coupled with contemporaneous leasebacks of the premises in which the victims were granted rights to repurchase.

In issuing its ruling in favor of the homeowners, the court provided the following analysis that serves as a reminder that signed contracts are not always binding(1) [bold text is my emphasis, not in original]:

• Defendants contend that these written contracts were binding, based upon the rule that “[o]ne who signs an instrument without reading it, when he can read and has the opportunity to do so, cannot avoid the effect of his signature merely because he was not informed of the contents of the instrument.” See Bock v. Bank of Bellevue, 230 Neb. 908, 916, 434 N.W.2d 310, 316 (1989). They further contend that because plaintiffs had the contract documents available for review, plaintiffs could not have reasonably relied on any verbal misrepresentation. See Schuelke v. Wilson, 250 Neb. 334, 549 N.W.2d 176 (1996).

• The general rule that one who fails to read a contract cannot avoid the effect of signing it applies only in the absence of fraud. See, Mayer v. Howard, 220 Neb. 328, 370 N.W.2d 93 (1985); Day v. Kolar, 216 Neb. 47, 341 N.W.2d 598 (1983). Restated, the rule that one who signs a contract is bound by its terms does not apply where the controversy is between the parties and the execution of the instrument was induced by fraud. The doctrine that the carelessness or negligence of a party in signing a writing estops him from afterwards disputing the contents of such writing is not applicable in a suit thereon between the original parties thereto when the defense is that such writing, by reason of fraud, does not embrace the contract actually made. West v. Wegner, 172 Neb. 692, 694, 111 N.W.2d 449, 451 (1961).(2)

• Because the district court specifically found that each of the plaintiffs was fraudulently induced to sign what were misrepresented as loan documents, the general rule binding a party to a signed contract does not apply.(3)

For the court ruling, Eicher v. Mid America Financial Investment Corp., 270 Neb. 370, 702 N.W.2d 792 (2005) (made available online by Findlaw.com).

(1) This case also serves as a reminder that attorneys taking these cases need not accept them on a purely pro bono basis, but rather, a contingecy fee basis. Part of this ruling affirmed an attorney fee awarded to the defrauded homeowners' lawyers (and payable by the foreclosure rescue operator) of over $375,000.

(2) The U.S. Supreme Court, in FTC v. Standard Education Society, 302 U.S. 112, 116 (1937), also provides this admonition:

• There is no duty resting upon a citizen to suspect the honesty of those with whom he transacts business. Laws are made to protect the trusting as well as the suspicious. The best element of business has long since decided that honesty should govern competitive enterprises, and that the rule of caveat emptor should not be relied upon to reward fraud and deception.

(3) Similarly, in Moore v. Cycon Enterprises, Inc., (Case No. 1:04-CV-800), 2006 U.S. Dist. LEXIS 57452 (W.D. Mi. 2006), a Federal judge in Michigan made these observations when a foreclosure rescue operator asserted that the homeowner/couple should be bound by the terms of the contract they signed [bold text is my emphasis, not in original]:

• The heart of this case is the determination of whether the transaction between the Moores and Cycon was a true sale and leaseback or whether it was in reality a loan. Cycon has offered a number of arguments supporting its position that the transaction was clearly an absolute sale and a leaseback, including: (1) the unambiguous terms of the closing documents establish that the Moores intended to sell their property to Cycon and lease it back from Cycon; (2) the Moores failed to read the closing documents and are therefore bound by the terms of those documents; (3) the parol evidence rule precludes the consideration of evidence of prior discussions between the Moores and Peltz as well as evidence of the Moores’ intentions regarding the transaction; and (4) the integration clause in the lease precludes the Moores from introducing evidence of their intentions regarding the lease.

• While Cycon’s arguments would no doubt be fine, and certainly persuasive, grounds for summary judgment in a typical contract case, the Moores have invoked Michigan’s “equitable mortgage” doctrine in this case, as to which such arguments are not necessarily applicable. “The power of a court of equity to decree an equitable mortgage under proper circumstances and to construe an instrument in the form of an absolute conveyance as security for the payment of a debt, or the performance of some other obligation, is well established.” Judd v. Carnegie, 324 Mich. 583, 587, 37 N.W.2d 558, 589 (1949). See also Grant v. Van Reken, 71 Mich. App. 121, 125, 246 N.W.2d 348, 350 (1976) (“It is well settled that a court of equity can declare a deed absolute on its face to be a mortgage.”).

• In Wilcox v. Moore, 354 Mich. 499, 93 N.W.2d 288 (1958), the Michigan Supreme Court, in discussing the doctrine, observed: Suffice to say that its purpose is to protect the necessitous borrower from extortion. In the accomplishment of this purpose a court must look squarely at the real nature of the transaction, thus avoiding, so far as lies within its power, the betrayal of justice by the cloak of words, the contrivances of form, or the paper tigers of the crafty. We are interested not in form or color but in nature and substance. Id. at 504, 93 N.W.2d at 291.

• Because a court is concerned with the true intention of the parties based upon the surrounding circumstances in considering whether a transaction is an equitable mortgage, traditional legal principles, such as the parol evidence rule, do not apply. See Ferd L. Alpert Indus., Inc. v. Oakland Metal Stamping Co., 379 Mich. 272, 276, 150 N.W.2d 765, 767 (1967) (“One of the many exceptions to the parol evidence rule is that parol evidence may be admitted to prove that a written conveyance absolute in its terms was intended by the parties to operate only as a mortgage.”).

Bankruptcy Judge Disregards Terms In Sale Leaseback Docs In Home Sale; Recharacterized Equity Stripping F'closure Rescue Scam As An Equitable Mortgage

In a recent court ruling in favor of a homeowner/couple who were awarded a total of at least $690,000 for multiple violations of Federal and state law after being screwed over by a foreclosure rescue operator in a sale leaseback, equity stripping scam, a New Jersey bankruptcy court found that the transaction among the laws violated were the Federal Truth In Lending Act ("TILA") as amended by the Home Ownership and Equity Protection Act ("HOEPA") as well as the New Jersey Home Ownership Security Act of 2002 ("HOSA"), all of which regulate the origination of home loans.

In order for TILA, HOEPA or HOSA to apply, the homeowners first had to establish that the sale leaseback transaction constituted consumer credit. They attempted to do so by setting out to recharacterize the transaction as an equitable mortgage.

For the court's considerations in applying the law in recharacterizing the transaction as an equitable mortgage (which ultimately resulted in a monetary award to the homeowners for violations of TILA, HOEPA and HOSA that totaled at least $293,836.17), see New Jersey Sale Leaseback Of Home In Foreclosure Recharacterized As An Equitable Mortgage.

New York AG To Sue Landlord For Alleged Predatory Practices Intended To Drive Long-Term, Rent-Regulated Tenants From Their Homes

From the Office of the New York Attorney General:

• Attorney General Andrew M. Cuomo [] announced his intent to sue Vantage Properties (“Vantage”), a major New York City landlord, to stop it from harassing tenants in rent-regulated apartments and to obtain monetary damages for tenants who have been victimized. The Attorney General has sent Vantage a five day notice letter, as required by statute, notifying the company of his intent to commence litigation against them.

• Since March 2006, Vantage has purchased more than 125 buildings containing over 9,500 apartments – almost all of which are rent-regulated – throughout Queens, Harlem, and Upper Manhattan. The Attorney General’s legal action alleges that Vantage is taking action to force long-term, rent-regulated tenants to move out of their homes, and imposing significant rent increases on new tenants in order to increase profits. Vantage aggressively pressures long-term tenants by serving baseless legal notices and commencing frivolous Housing Court eviction proceedings.(1)(2)

For the New York AG press release, see Attorney General Cuomo Commences Legal Action Against Major New York City Landlord 'Vantage Properties' To Stop Tenant Harrassment (Cuomo Seeks Damages for Victims and Protection for Tenants in Over 9,500 Apartments).

Go here for the Five Day Letter notifying Vantage of the AG's intent to sue.

(1) According to the state AG press release, after purchasing a building, Vantage tries to evict some tenants by falsely claiming that they do not primarily live in their apartments or that they have failed to pay rent. Vantage’s actions are often based on information that is incorrect or information that Vantage should know is false. In some cases, Vantage refuses to cash rent payments from tenants, and then begins Housing Court eviction proceedings based on nonpayment of rent. Vantage’s actual business plans refer to their strategy of removing tenants from rent-regulated apartments as the company’s “Golub program.”

(2) Benjamin Dulchin, Executive Director of the Association of Neighborhood Housing Development, said, “Tenants and affordable housing across New York City are threatened as private-equity backed developers are purchasing a significant percentage of affordable, rent-regulated apartments. The Wall Street type level of competition and profit seeking of private equity financing is causing an epidemic of tenant harassment. ..."

3Ls To Staff University Of Wisconsin-Madison Law School Foreclosure Mediation Clinic

The University of Wisconsin-Madison School of Law announces:

• University of Wisconsin Law School students will help Dane County homeowners facing foreclosure take their cases through a mediation process with their lenders. Beginning in February, Dane County Circuit Court will require lenders to tell homeowners they have an option to mediate their foreclosure cases and notify them of available resources, including a clinic staffed by UW Law School students. [...] The mediation clinic will be staffed by three third-year UW Madison law students who will help homeowners understand their options in the foreclosure process while gaining experience working with clients in a real-world legal setting.

For more, see Law students to help with foreclosure mediation.

Ex-Mortgage Company Associate Cops Plea To Pilfering Customer Info From Loan Applications To Obtain Credit Cards & Go On Spending Spree

In Minneapolis, Minnesota, the Star Tribune reports:

• Jason Alan Tauer worked for Ameriquest Mortgage Company as a mortgage associate for only six weeks. Turned out to be a pretty fruitful month and a half for Tauer -- and a pretty costly one to nearly 100 people and several financial institutions. Using personal information he lifted from the mortgage applications of nearly 100 people -- as well as mail and even items taken from gym lockers of a couple of hundred more -- Tauer eventually stole more than $150,000 from at least eight banks. [Last week], the 32-year-old Robbinsdale man pleaded guilty in federal court to bank fraud, access device fraud and aggravated identify theft.

For more, see Stolen mortgage info led to spree (Ex-Ameriquest worker took more than $150,000).

Banker Dodges Hard Time For Stealing $320K From Employer, Using Customer Info To Score Add'l $900K; Cops Plea After Failed Bridge-Jumping Suicide Try

In Lancaster County, Pennsylvania, Lancaster New Era reports:

• Not many people would describe George L. Clayton Jr.'s experience as "a miracle and a blessing." After stealing more than $300,000 from the bank where he worked, Clayton realized the error of his ways. He forged loans to repay the money, making matters worse. Consumed with guilt, Clayton jumped from the Columbia-Wrightsville Bridge into the Susquehanna River. But he survived the jump, was rescued and then was arrested as he confessed his crimes.(1)

***

• The incidents happened between January 2006 and June 2008 while Clayton was employed at Union National Bank in Manheim Township. After stealing about $320,000, Clayton filled out loan applications using stolen customer information to obtain about $900,000. He then opened secret checking accounts, depositing and withdrawing the stolen funds, according to court documents, to try to cover up the theft.

For more, see Banker gets house arrest for stealing (Took $300,000 from employer, then attempted suicide).

(1) Reportedly, Clayton asked the judge for mercy, telling him he intends to go forward from the experience and work hard to "make this life purposeful." Lancaster County Judge Jeffery Wright sentenced Clayton to five years in the Intermediate Punishment Program, which includes one year house arrest, followed by probation and 400 hours of community service. Rather than have him sit in prison at taxpayers' expense, Wright said he wanted Clayton "to work, and work long and hard," continuing to pay taxes as he repays his debt. "I hope tales of your redemption, may outlive your tale of transgressions," Wright told Clayton.

Ex-Loan Officer Cops Plea To Using Fraudulent Mortgage Application To Obtain $495K While Unloading Home On Unwitting Co-Worker

In Newark, New Jersey, The Record reports:

• A former loan officer at a Hackensack real estate firm is facing prison time after admitting she devised a scheme to fraudulently obtain $495,000 in mortgage loans in the name of an unsuspecting co-worker, authorities said. [...] Between August 2006 and May 2008, [Monica] Cardona arranged to obtain loans from IndyMac Bank by submitting false mortgage loan applications and supporting documents in the name of an office cleaning woman. The woman had provided her birth date and social security number after being convinced that buying property was in her interest, but was not aware of the scheme, authorities said.

• The bogus documents included inflated income and asset statements and false employment verifications to induce the lender to approve primary and secondary loans of $396,000 and $99,000, respectively, for the purchase a home in Westwood that Cardona owned.

For the story, see Former loan officer at Hackensack real estate firm pleads guilty in mortgage fraud scheme.

Indoor Pot Farm Industry Thrives In Las Vegas As International Groups Move In, Taking Advantage Of Foreclosure Glut, Cheap Rents

In Las Vegas, Nevada, KLAS-TV Channel 8 reports:

• The explosion in Las Vegas marijuana grow houses prompted Clark County Sheriff Doug Gillespie to create a special unit known as Team Six. Their job is to target the indoor pot farms. What they've found is a greater and greater concentration in the hands of international groups who have moved in to take advantage of foreclosed homes and cheaper rents.

***

• In 2009, Las Vegas narcotics detectives busted 108 grow houses, some of them operating on a massive scale. A former auto repair shop was converted into the largest weed warehouse ever seen locally, with 2,000 plants worth an estimated $7 million.

For more, see I-Team: Who is Behind the Explosion in Las Vegas Pot Houses.

Port St. Lucie Pair Face Grand Theft Charges In Alleged Home Hijacking, Rental Scam; Police Probe Continues Into Similar Incident With Another Home

In Port St. Lucie, Florida, the South Florida Sun Sentinel reports:

• Two men each face a grand theft charge after police linked them to a scheme in which a home was rented to a family without the homeowners' knowledge, according to recently obtained records and a detective. Robbie Jay Hughes, 36, and Issiac Rivers, 46, were arrested Monday after police accused them of renting a home in foreclosure to a family in September 2009.

***

• Hughes eventually refunded nearly all of the rental money and didn't want the renters to speak with police about the matter. [... Detective Kim] Bailey said Hughes is suspected of renting out another home under similar circumstances but the homeowners in that case declined to press charges. [...] Bailey said she's investigating the men in connection with a similar incident at another home in the city.

For the story, see Two men arrested in rental of foreclosed Port St. Lucie home to family.

Couple Cops Plea In Rent Skimming Scam; Agreed To Take Over Payments On Seller's Existing Loan, Then Stiffed Bank; Allowed Home To Go Into Foreclosure

In Jackson County, Michigan, The Jackson Citizen Patriot reports:

• Jackson-area minister and State Farm Insurance agent Tony R. Jackson and his wife, Alisa Jackson, have to pay $4,113 back to a couple whom police said they defrauded. [...] The Jacksons were accused of taking money from a couple who wanted to sell their home in Blackman Township.

• The couple believed Tony Jackson, 41, and Alisa Jackson, 42, would rent out the house; pay the mortgage, taxes and insurance; and ultimately transfer its ownership to the tenants, a Blackman Township Public Safety detective said in September. Some mortgage payments were made, but the payments stopped and the home [...] went into foreclosure, Detective Chris Boulter said.(1)

For the story, see Minister, wife must pay back money from housing scheme.

(1) Reportedly, the two also have to each pay $750 in fines and do 50 hours of community service for their roles in a housing scheme, said Jackson County District Judge Michael Klaeren, who sentenced them [...]. Both earlier pleaded no contest to larceny of more than $200 but less than $1,000, a misdemeanor. The two originally were charged with felony counts of larceny by conversion, but the greater charges were dismissed in exchange for their pleas, Klaeren reportedly said.

Wisconsin Woman Faces Forgery Charges For Swiping & Uttering Checks Tied To Co-Worker's HELOC Account

In Sheboygan County, Wisconsin, the Sheboygan Press reports:

• Sheboygan County authorities have issued a warrant for a Milwaukee woman accused of stealing $4,000 in home equity from a Washington County resident. A criminal complaint issued with the warrant [...] charges Brenity A. Gayton, 24, with uttering a forgery, a felony punishable by up to three years in prison. She allegedly cashed the forged check in Sheboygan.

• According to the complaint: The theft was reported in August when a former co-worker of Gayton’s discovered his home equity line of credit had been used up. He told Washington County authorities that five checks tied to that line had been stolen from his house around the time Gayton visited him to sign employment-related paperwork. A surveillance photo from Wells Fargo Bank, [...] shows Gayton cashing one of the five checks, made out to herself for $4,000.

Source: Woman charged with stealing home equity.

Now-Defunct Rogue Bank Used Cosmetic Fix-Up, Easy Rent-To-Own Terms To Unload Multi-Flipped, Multi-Foreclosed "Hellhole" On Unwitting Family

In Atlanta, Georgia, The Atlanta Journal Constitution reports:

• Alexis Preston and her mother were thrilled last year when they found a home in Atlanta’s West End neighborhood large enough for their extended family of 13. They agreed to a lease-to-own deal to rent the neatly painted 12-bedroom house for $2,100 a month from the property’s owner through foreclosure, Omni National Bank. The renovation contractor even showed the house off to the bank’s executives and other visitors, she said.

• But her family soon discovered the spruced up 84-year-old home wasn’t what it appeared to be. Three days after they moved in last February, the house flooded during a rainstorm, beginning a nearly yearlong battle with repeated flooding, mold, water damage, roof leaks, buckling floors and months-long power outages.

• “It went from a dream home to a hellhole,” Preston, 27, said of the house, now owned by the Federal Deposit Insurance Corp. after Omni failed in March. Mold contamination sickened many members of the family. They lived for months by candlelight, with kerosene heaters and no air conditioning, after Omni failed in March, leaving behind more than $4,000 in unpaid power bills. “I was just sick all the time. Throwing up. Cold,” said Preston, who is pregnant. They finally gave up and moved out in December.

• What the family hadn’t seen hidden beneath the house’s neatly painted walls was a history of neglect and shoddy repairs — much of it financed with ever-escalating mortgages from Omni, which repossessed the home three times in two years. The house was a boarded-up haven for squatters and drug users for most of the past decade, said Barry Bennett, who lives across Lawton Street from the house. Contractors began working on it less than two years ago, but they clearly didn’t do a good job, he said. “It ain’t in good condition now,” said Bennett, who last year waded waist-deep through the house’s flooded basement to help rescue Preston’s children.

• On paper, however, the house underwent a more dramatic transformation. Between 2006 and 2008, it nearly doubled in value, according to Fulton County tax records. During that period, Omni repossessed the house three times, at values that rose from $160,000 to $308,875. By the time the string of sales of the Lawton Street house ended in 2008, its value on Omni’s books had risen to as much as three times the value of similar houses in the neighborhood, said Brent Brewer, a civil engineer who lives two blocks away.

• Most of that dramatic rise occurred while the house sat vacant and windowless, with huge sections of its exterior walls torn away. “No construction was happening,” said Brewer, a member of 30310 Mortgage Task Force, a neighborhood group battling property-flippers in the hard-hit area. “It just sat.”(1)

Source: 'From dream home to hellhole'.

Go here for video of "hellhole" house.

(1) Another recent Atlanta Journal Constitution story reports that there is a federal fraud probe ongoing into Omni National Bank's operations. See Bank leaves trail of flipping, fraud:

• [T]he number of Omni-related arrests has reached four, including the bank’s co-founder, Jeffrey L. Levine, who pleaded guilty to bank fraud two weeks ago. [...] More people may be charged in the wide-ranging probe of Omni, and the charges already filed suggest fraud pervaded the bank’s operation.

• Federal prosecutors said in court filings that bank records, for instance, were routinely doctored to hide losses, and a loan officer took kickbacks in return for doling out loans. The bank allowed people to “flip” houses three, four and even five times, artificially inflating their value, prosecutors said.

Loan Servicer Causes Home To Be Sold In Foreclosure Sale Despite Fully Paid Off Loan & Recorded Satisfaction Of Mortgage

The Indiana Court of Appeals recently reversed a lower court ruling, and remanded the matter back to it for trial in a case where loan servicer Ocwen Bank allegedly foreclosed on a home despite the fact that:

• the loan holder's (JPMorgan Chase) records show the loan was paid in full,
• the homeowner/couple had proof that the mortgage was paid off - namely a recorded satisfaction of mortgage - received from JPMorgan Chase, and
• there was evidence that they never received notification of the initiation of the foreclosure action against them and may have been improperly served with the lawsuit (ie. "sewer service").

The Indiana appeals court begins its ruling with the following brief summary of this fiasco:

• The Kafkaesque character of this litigation is difficult to deny. Having failed to receive a summons that may have been improperly served upon them, Marilyn and Michael Elliott learned that a default judgment had been entered against them, foreclosing on their home because of a mortgage that was allegedly in default. The home was sold in a sheriff's sale to the lending bank.

• Feeling confused and suspicious, they turned to the Indiana Attorney General, who directed them to file a complaint with the Comptroller of the Currency. The Comptroller's investigation revealed that Chase Bank, the ostensible plaintiff herein, is entirely unaware of the foreclosure proceeding. Moreover, Chase's records show that the mortgage was paid in full in 2001. Chase, therefore, executed and recorded a satisfaction of mortgage.

• Notwithstanding the satisfaction of mortgage, Chase's loan servicer—Ocwen Bank—continued to prosecute this action in Chase's name, attempting to force the Elliotts out of their home even though there has never been a trial and the lending bank has declared that the mortgage was paid in full. Finding this situation untenable, we reverse and remand for trial.

For the facts of the case and the rest of the ruling, see Elliott v. JPMorgan Chase Bank, No. 30A01-0907-CV-356, (Ind. Ct of App., February 3, 2010) (case also available here).

A Case Study In Sleazy "Tag Team" Tactics Used By Real Estate Agent & Attorney To Illegally Intimidate Family From Foreclosed Home

In New Haven, Connecticut, a recent New Haven Independent story reports on the recent action by the Connecticut Attorney General in targeting at least 30 law firms, real estate agencies and lenders with cease and desist orders in connection with sleazy practices designed to intimidate tenants out of recently foreclosed homes.

Reportedly, some foreclosure attorneys and real estate agents statewide are allegedly working in tandem to illegally force these tenants to vacate, in violation of the federal Protecting Tenants At Foreclosure Act. Their alleged conduct centers on intimidating letters being sent to the renters that create the impression that they are facing imminent eviction, coupled with "cash-for-keys" offers in amouts for less than the minimum required by Connecticut law.

The story profiles the experience of one local resident who, along with his wife and three children, have been allegedly subjected to this harassment. The contents of one threatening letter from the lender's real estate agent to the family shortly after the foreclosure reportedly contained the following text at the top of the correspondence:

• VERY IMPORTANT !!!!!!!! THE BANK NOW OWNS THIS PROPERTY—YOU WILL BE REQUIRED TO VACATE THE PREMISES SHORTLY—THERE MIGHT BE MONEY TO HELP YOU MOVE OUT, BUT YOU WILL NEED TO CONTACT ME WITHIN 48 HOURS AT THE NUMBER LISTED BELOW.

The problem with this all-caps message is that it creates a false sense of urgency that suggests that the tenants have to leave immediately when, in fact, the Protecting Tenants At Foreclosure Act expressly provides that tenants have 90 days from the receipt of proper notice from the foreclosing lender or until the completion of their lease to move out, whichever is later.

Shortly thereafter, another letter was reportedly received by the family, this time from the foreclosing lender's attorney containing, in part, the following language:

• You must vacate and surrender possession of the Premises to U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR THE STRUCTURED ASSET INVESTMENT LOAN TRUST, 2006-BNC3 unless you provide acceptable evidence to the undersigned law firm that you are a bona fide tenant pursuant to Section 702(a)(2)(A) of the Federal “Protecting Tenants at Foreclosure Act of 2009."

An additional false sense of urgency is created when an intimidating letter sent by a real estate agent is followed by another one from an attorney (this is an old debt collector trick that has been ruled by courts to be illegal - designed to create the impression that the process against the consumer is moving forward ("the walls are closing in on the consumer") and legal action is imminent unless the consumer succumbs to whatever demands on them have been made).

The following excerpt describes the position of local legal services attorneys, as well as the tenant's feelings about what is going on here:

• [The letter from the attorney is] not written as if “they care about the person understanding it,” [attorney Amy] Marx said. It’s written, she argued, like a credit card disclosure statement. Not only is the form of the letter problematic, the content of it is wrong also, Marx said. The letter asks Torres to prove he is a tenant of the building. It’s obvious [the lender's attorney] knows he and his family are tenants, she said. The letter was sent to them at the apartment by certified mail.

• The letter [also] uses the phrase “within ninety (90) days,” suggesting the Torres family may have less than the full 90 days they are allowed by law, Marx said. The letter further threatens that if the Torres family does not leave, the bank may seek “damages caused by your unlawful detention of the Premises.”

• “Get out of here immediately or you’re going to be stuck with a big legal bill,” Marx translated. She said such a threat is illegal. But Torres didn’t know that. Until Monday, when his lawyer explained his rights, he thought he could be evicted at any minute. Fearing that he was about to be evicted, and in need of money for a deposit on a new apartment, Torres signed a cash-for-keys agreement with American Home Mortgage Servicing, Inc. on Jan. 15. He agreed to move out on Jan. 31 in exchange for $1,500.

• That was another illegal action, according to his lawyers. The law states that tenants must receive at least $2,000 under a cash-for-keys agreement, said attorney Amy Eppler-Epstein. Just days after he signed the agreement, Torres received yet another letter. This one was from legal aid, informing him of the federal law and advising him of his rights. That’s how he ended up in the offices of legal aid, with attorneys working on his case.

***

• Torres’ experience is a case-study of the problem the attorney general is trying to combat, she said. “This is exactly what [Connecticut Attorney General] Richard Blumenthal is issuing cease and desist orders on today,” she said. Eppler-Epstein characterized the communications from the realtor and [the] attorney [] as “intimidating and untruthful action.” What they’re doing is scaring people, she said. “It’s just wrong.”

• Torres, speaking in Spanish, said the letters from the realtor and the lawyer frightened him. He said he signed the cash-for-keys agreement for fear that he and his family would be evicted and left with nothing. Torres has been unemployed for several months. He said he was working for a construction company in Branford but got laid off. He’s hoping he’ll get rehired when the warmer weather comes. In the meantime he’s been looking for work and collecting unemployment, he said.

For the story, see Blumenthal Puts Bankers, Lawyers On Notice.

Violators Of New Law Prohibiting Bullying Of New Jersey Renters Out Of Foreclosed Homes Subject To Triple Damages, Payment Of Tenant's Legal Fees

In Trenton, New Jersey, NewJerseyNewsRoom.com reports:

• Lost in the change of state government leadership last month was the signing by Gov. Jon Corzine of a new law designed to strengthens notification requirements for tenants living in a foreclosed property.

• Under the new law, buyers of a foreclosed residential property are required to notify tenants of the ownership change and that they are not required to vacate.

• Similarly, creditors engaged in an ongoing foreclosure proceeding are required to include a notice to residents that a foreclosure action has been initiated and that the ownership of the property may change, but that tenants are not required to vacate the premises in the event of a foreclosure.

• Buyers of a foreclosed property also are prohibited from engaging in any communication designed to persuade a tenant to vacate the property unless they make a bona fide monetary offer. Any acceptance of such an offer will be contingent upon the tenant having at least five business days to review its terms in writing, and by providing a signed acceptance. Violators will subject to either triple damages or a penalty of $2,000 plus attorney fees.

For more, see New law protects New Jersey tenants from foreclosure (Renters cannot be forced out when property changes hands).

Florida AG Targets California Loan Modification Operation With Civil Suit; Allegedly Used Local Notaries To Act As "Company Representatives"

From the Office of the Florida Attorney General:

• Attorney General Bill McCollum [] announced that his office has filed a lawsuit against a California company providing loan modification services to homeowners facing foreclosure. According to the lawsuit filed [] in Orange County, 21st Century Legal Services, Inc. allegedly charges consumers up-front fees in violation of Florida’s Foreclosure Rescue Fraud Prevention Act. [...] An investigation conducted by the Attorney General’s Economic Crimes Division revealed that 21st Century Legal Services charges an up-front fee as high as $2,500 to homeowners seeking loan modification services. Additionally, consumers have complained that the company has not performed the promised services and that consumers are unable to get refunds.

• The complaint alleges that, after initial contact is made with a homeowner, the company arranges for a "company representative" to visit the consumer at home. These representatives are, in fact, local notaries hired by the company to travel to the consumer’s home and execute the necessary sales agreements. The lawsuit states that the company instructed the notaries not to provide consumers with a copy of the written agreements, in direct violation of Florida law.

• Other states have sued 21st Century Legal Services, and the FBI raided several of the company’s California offices in mid-September.

For the Florida AG press release, see California Company Sued for Foreclosure Rescue Fraud.

For the lawsuit, see State of Florida v. 21st Century Legal Services, Inc. et al.

FTC Proposes Rule Banning Upfront Fees For Loan Mods; Applies Nationwide, Limited Exemption For Attorneys In Consumer Bankruptcy, Other Proceedings

The Federal Trade Commission announced:

• The Federal Trade Commission moved to protect distressed homeowners from the promoters of bogus foreclosure rescue and mortgage modification services by proposing a new rule that would forbid companies to charge up-front for these services. Instead, companies could only collect payment after providing services.

***

• The proposed rules would apply to for-profit companies that, in exchange for a fee, offer to work with lenders and servicers on behalf of consumers to modify the terms of mortgage loans or to take other steps to avoid foreclosure on those loans. The proposed rules generally exempt entities that own or service mortgage loans. Attorneys would have a limited exemption from the proposed advance fee ban if they represent consumers in a bankruptcy or other legal proceeding.

For the entire press release, see FTC Proposes Rule That Would Bar Mortgage Relief Companies From Charging Up-Front Fees.

For the text of the Federal Register Notice, see Notice of Proposed Rulemaking: Mortgage Assistance Relief Services.

Ohio AG Says Two Calif. Loan Modification Outfits Bilked Homeowners, Failed To Deliver Services In Separate Suits; Scores $81K+ Judgment Against 3rd

From the Office of the Ohio Attorney General:

• Ohio Attorney General Richard Cordray this week named United Law Group, Inc. (ULG), a California law firm founded by California attorney Sean Alan Rutledge, in a lawsuit for bilking Ohioans who faced foreclosure out of thousands of dollars.(1) The lawsuit alleges that the law firm promised foreclosure rescue and legal services to save homes and collected upfront fees but failed to deliver. In at least one instance a consumer was forced into foreclosure. ULG’s attorneys are not licensed to practice law in Ohio and never filed any court documents or provided legal representation on behalf of their clients.

***

• In a separate action [], Cordray filed a lawsuit against Guardian Services Group, also based in California, for promising foreclosure rescue services to Ohioans, accepting upfront fees and never delivering. The suit, filed in Montgomery County Common Pleas Court, accuses the company of charging consumers thousands of dollars and refusing to provide refunds even though the services were never provided.

***

• In early January, Cordray secured a judgment of $81,894 against Michael Brotherton, who operated Financial Emergency, Inc., a rescue business in Greene County. The judgment, filed in the Common Pleas Court of Greene County, stemmed from a lawsuit filed in June charging Brotherton with promising to negotiate debt settlements and loan modifications, collecting upfront fees for up to $1,269 and then failing to deliver. The court ordered full reimbursement to the five victims named in the case.

For the Ohio AG press release, see Cordray Sues two California Rescue Operations for Scamming Ohioans Facing Foreclosure.

For the lawsuits, see:

• State of Ohio v. United Law Group, Inc.,
• State of Ohio v. G Services Group LLC.,
• $81,894 Judgment - State of Ohio v. Brotherton.

(1) According to the press release, in November 2009, the State Bar Court of California ruled that ULG founder Sean Alan Rutledge was to be involuntarily enrolled as an inactive member of the State Bar of California for his conduct, which was found by the court to pose “a substantial threat of harm to his clients or the public.”

Brooklyn Developer Accused Of Selling Condos & Failing To Provide Deeds To Buyers Says Rabbi Deceased For 15 Years "Blessed" Deal

In Brooklyn, New York, the Daily News reports:

• The rebbe made him do it. A Brooklyn developer accused of fleecing dozens of Hasidic families in a massive subprime mortgage fraud scheme took cover behind a divine defense on Tuesday. Eliyahu Ezagui's lawyer told jurors his client received "a blessing" from the late Rabbi Menachem Schneerson to build affordable housing for the Lubavitcher community in Crown Heights.

• "It was a mitzvah to him, a Hebrew word that means a good deed and an obligation," defense lawyer Susan Necheles said in her opening statement in Brooklyn Federal Court. Schneerson is considered by some followers to be their Messiah, and thousands of Hasidim from all over still make a pilgrimage to his grave site 15 years after his death.

• Assistant U.S. Attorney William Schaeffer said Ezagui was nothing but a crook who scammed $2.6 million from condominium buyers and more than $10 million from banks. "Family after family who trusted the defendant are fighting against foreclosure of the homes they bought from him," Schaeffer told the jury.

• Prosecutors built a criminal case against Ezagui after the Daily News revealed in 2008 how he allegedly conned buyers into purchasing condos, then refused to hand over the deeds when the construction was completed. Instead, Ezagui allegedly gave the deeds to family members - including his wife, father and mother - who applied for mortgages on condos the victims thought they owned.(1)

For the story, see Apartment scam developer Eliyahu Ezagui says rebbe backed him.

(1) See Builder flees & 40 Hasidic families face eviction in Brooklyn swindle.

Connecticut AG Fires Warning Shot At Lawyers, Lenders, Real Estate Agents Using Sleazy Tactics To Illegally Drive Tenants From Foreclosed Homes

In Hartford, Connecticut, the Hartford Courant reports:

• New state and federal laws passed last year are supposed to protect renters in foreclosed properties from getting tossed out with little or no notice. But the state attorney general and legal aid lawyers said Monday there is strong evidence that those laws are being violated — and hundreds, perhaps thousands, of tenants have been pressured to leave sooner than legally required. Attorney General Richard Blumenthal said he has sent warnings to 30 law firms, real estate agencies, banks and loan servicers — urging them to follow the law or face further legal action.(1)

***

• The federal law [the Protecting Tenants At Foreclosure Act] gives tenants 90 days to move out of a foreclosed property or until the end of their lease, whichever is later. The tenants must be current on their rent. A state law, also passed last year, gives those doing the foreclosing the option of offering $2,000 or double the security deposit to the tenant to move out sooner, the so-called "cash for keys" program.

For more, see Blumenthal: Laws Protecting Tenants Are Violated.

See also:

• Connecticut AG press release, see Attorney General Warns Law Firms, Banks and Real Estate Companies To Stop Illegal Evictions,
• New Haven Independent: Blumenthal Puts Bankers, Lawyers On Notice.

(1) In coordination with legal assistance attorneys, Blumenthal has sent cease-and-desist letters to at least 30 companies that may have engaged in eviction practices that violate the Protecting Tenants At Foreclosure Act, his press release states. Blumenthal is notifying the companies of their legal obligations and requesting that they follow this federal law. Blumenthal was joined at a press conference this week by legal aid lawyers from New Haven Legal Assistance Association, Greater Hartford Legal Aid, Legal Assistance Resource Center of Connecticut, Connecticut Legal Services and Statewide Legal Services, as well as tenants who have faced unlawful evictions.

For a copy of the statute, see Protecting Tenants at Foreclosure Act of 2009.

Oregon Regulator Issues C&D Order, $250K Fine Against Foreclosure Rescue Operator For Alleged Securities Violations Tied To Sale Leasebacks

From the Oregon Department of Consumer and Business Services:

• The Oregon Department of Consumer and Business Services (DCBS) issued a cease-and-desist order and assessed $250,000 in fines against Anthony "Tony" Schwartz and two businesses he controlled for selling interests in foreclosed homes he seized in a complex foreclosure rescue scheme.

• Schwartz, who owned REI Exchange, LLC and TMG Ventures, Inc. in the Portland area, raised nearly $850,000 by convincing buyers to purchase fractional interests in real estate ―land trusts from the sale of homes seized from owners unable to repay their loans. Schwartz, who was not licensed to sell securities, falsely represented that the unusual, unsecured investments were safe. In addition to the fines, Schwartz is prohibited from raising capital, formally or informally, from other individuals for use or investment on their behalf.

***

• Under a series of complex legal documents, Schwartz lent money to struggling homeowners – some facing imminent foreclosure. In exchange for the home’s title, Schwartz made payments on behalf of the homeowner but would take the home when the homeowner failed to repay the loan. Schwartz claimed the right to seize and sell a house and then pocket – in some cases – significant equity.(1)

For the DCBS press release, see State sanctions promoter of "foreclosure rescue" scheme (Tony Schwartz promised to help distressed homeowners, then illegally sold interests in homes).

(1) According to the story, the Oregon Mortgage Rescue Fraud Protection Act of 2008 protects homeowners from such foreclosure rescue schemes by requiring those who purchase a homeowner’s equity in order to avoid foreclosure to ensure the homeowner has the ability to buy back the home and entitling the homeowner to a share of the proceeds if the home is resold quickly. Schwartz’s activities reportedly occurred before the law took effect.

Mortgage Voided As Lender Fails To Make Inquiries Of Persons In Possession; Unrecorded Rights Of Occupants Take Priority Over Lender's Recorded Lien

In the United Kingdom, Lexology.com reports on a British court case involving the application of the bona fide purchaser doctrine in which a mortgage lender found itself left holding the bag due to its failure to inquire into the rights and equities of persons in possession of a home who were not the record owners/borrowers before making a secured loan to the latter:

• A lender that does not make enquiries of persons known to be in occupation of a property runs the risk that such persons' interests in the property, if any, may override that of the lender.

• This was the position in HSBC Bank Plc v Dyche & Anor. The Dyches bought Mrs Dyche's parents' property for £25,000 (which was less than its market value) with the benefit of a loan from Lloyds Bank for £17,000. The reason for the transaction was to avoid the property being sold by Mrs Dyche's father's trustee in bankruptcy. The parents continued to reside in the property as their home and paid the loan sum, plus interest to the Dyches so that the Lloyds' mortgage was redeemed.

• Contrary to the agreement between the parties, the property was not transferred back to the parents following payment but, following her divorce, was transferred into Mrs Dyche's sole name. She took out a loan with HSBC providing HSBC with a forged assured shorthold tenancy agreement showing her father as tenant. Mrs Dyche became bankrupt and HSBC sought possession of the property.

• The court dismissed HSBC's claim holding that the Dyches had held the property on constructive trust for the parents and that Mrs Dyche's father (the surviving parent) was solely beneficially entitled to the property. His interest overrode HSBC's interest as he was in actual occupation throughout. He was entitled to a transfer of the property to him free of the mortgage.

• Things to Consider: Lender's solicitors [ie. attorneys] should make enquiry of any one known to be in occupation of a property. As per the CML Handbook, a signed deed or form of consent to the lender's interest taking priority should be obtained from any occupier aged 17 or over who is not a party to the mortgage. Failure to make such enquiry here meant HSBC assumed the risk of the tenancy agreement turning out to be forged, so losing their security.

Source: Make enquiries of occupiers (requires subscription; if no subscription, go here - then click link for the story).

For some of the U.S. case law on this issue, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.

For some of the basics on the bona fide purchaser doctrine, see The Bona Fide Purchaser for Value of a Legal Estate Without Notice.